SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 28, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Blue Lake Drive, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 912-8000
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
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Common Stock, $.01 par value New York Stock Exchange, Pacific Stock Exchange
8.25% Convertible Subordinated Debentures due 2012 New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference into Part III of this Form 10-K. [__]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $86,732,697 based upon the closing sale price of the
Company's Common Stock on the New York Stock Exchange on June 18, 1999 ($5.56
per share). For this purpose, "affiliates" include members of the Board of
Directors of the Company, members of executive management and all persons known
to be the beneficial owners of more than 5% of the Company's outstanding Common
Stock. The market value of voting stock held by non-affiliates excludes any
shares issuable upon conversion of any 8.25% Convertible Subordinated Debentures
which are convertible at a current conversion price of $8.24 per share.
Indicate the number of shares outstanding and approximate number of holders
of each of the registrant's classes of Common Stock, as of the latest
practicable date: 23,278,677 shares of Common Stock, $.01 par value outstanding
and approximately 7,900 record holders as of June 18, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's 1999 Annual Report to
Shareholders (the "1999 Annual Report") are incorporated by reference into Part
II and IV hereof and specifically identified portions of the Company's
definitive proxy statement to be filed for its Annual Meeting of Shareholders to
be held on July 28, 1999 (the "Proxy Statement") are incorporated by reference
into Part III hereof.
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BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I
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PAGE
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Item 1. BUSINESS.......................................................................... 1
Item 2. PROPERTIES........................................................................ 17
Item 3. LEGAL PROCEEDINGS................................................................. 18
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................... 18
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS......................................................................... 20
Item 6. SELECTED FINANCIAL DATA........................................................... 20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION......................................................... 20
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................ 21
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................... 21
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................................ 21
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................ 21
Item 11. EXECUTIVE COMPENSATION............................................................ 21
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................... 21
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................... 21
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................... 21
Signatures.................................................................................. 23
Exhibit Index............................................................................... 24
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PART I
Item 1. BUSINESS.
Summary
Bluegreen Corporation, (the "Company") is a leading marketer of vacation
and residential lifestyle choices through its resorts and residential land and
golf businesses. The Company's resorts business (the "Resorts Division")
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"), as well as access
to over 1,800 resorts worldwide through the Company's participation in timeshare
exchange networks. The Company currently develops, markets and sells Timeshare
Interests in ten resorts located in the United States and the Caribbean. The
Company also markets and sells Timeshare Interests at three off-site sales
locations. Prior to investing in new timeshare projects, the Company performs
market research and testing and, prior to completion of development, seeks to
pre-sell a significant portion of its Timeshare Interests inventory. The
Company's residential land and golf business (the "Residential Land and Golf
Division") 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. The Residential Land and Golf Division's strategy is to
locate its projects near major metropolitan centers outside the perimeter of
intense subdivision development or in popular retirement areas. The Company has
focused the Residential Land and Golf Division's activities in certain core
markets in which the Company has developed substantial marketing expertise and
has a strong track record of success. Prior to acquiring Residential Land and
Golf Division properties, the Company typically utilizes market research,
conducts due diligence and, in the case of new project locations, engages in
pre-marketing techniques to evaluate market response and price acceptance. Once
a parcel of property is acquired, the Company pre-sells a significant portion of
its planned residential lots on such property prior to extensive capital
investment as a result of the Company's ability to bond its projects to
completion. The Company also generates significant interest income through its
financing of individual purchasers of Timeshare Interests and, to a lesser
extent, land sold by the Residential Land and Golf Division.
For the purposes of this discussion, "estimated remaining life-of-project
sales" assumes sales of the existing, currently under construction or
development, and planned Timeshare Interests or residential lots, as the case
may be, at current retail prices.
The Resorts Division. The Company's Resorts Division was founded in 1994 to
capitalize on the growth of the timeshare industry. According to the American
Resort Development Association, ("ARDA"), a non-profit industry organization,
and other industry sources, timeshare industry sales and the number of Timeshare
Interest owners grew at compound annual rates of approximately 16% and 22%,
respectively, from 1980 to 1997. No assurances can be given that these industry
growth rates will continue. The Company currently markets and sells Timeshare
Interests in ten resorts located in the Smoky Mountains of Tennessee; Myrtle
Beach and Charleston, South Carolina; Orlando, Florida; Branson, Missouri;
Gordonsville, Virginia; Wisconsin Dells, Wisconsin and Aruba. As of March 28,
1999, the Company had 45,002 completed Timeshare Interests at its resorts,
16,845 Timeshare Interests under construction or development and plans to
develop approximately 59,000 additional Timeshare Interests at existing resorts.
Life-to-date, the Company has sold approximately 23,841 Timeshare Interests at
its resorts. Based on the foregoing, the Resorts Division's estimated remaining
life-of-project sales were approximately $888 million, based on retail prices at
March 28, 1999. The Company also manages 34 timeshare resorts (including nine of
its own resorts) with an aggregate of approximately 94,000 members, which the
Company believes makes it the second largest manager of timeshare resorts in
North America (based on the number of resorts managed).
The Resorts Division uses a variety of techniques to attract prospective
purchasers of Timeshare Interests, including targeted mailings, direct mail
mini-vacations, kiosks in retail locations, telemarketing, marketing to current
owners of Timeshare Interests and referrals. The majority of the Company's
Timeshare Interests are sold through on-site sales presentations. To support its
marketing and sales efforts, the Company has developed and continues to enhance
its database to track its timeshare marketing and sales programs. Management
believes that, as the Company's timeshare operations grow, this database will
become an increasingly significant asset, enabling it to take advantage of,
among other things, less costly marketing and referral opportunities.
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According to ARDA, the primary reason cited by consumers for purchasing a
Timeshare Interest is the ability to exchange a Timeshare Interest for
accommodations at other resorts through worldwide exchange networks. Each of the
Company's timeshare resorts is affiliated with either Interval International
("II") or Resort Condominium International, Inc. ("RCI"), the two largest
worldwide timeshare exchange companies. Participation in an exchange network
entitles owners to exchange their annual Timeshare Interests for occupancy at
over 1,800 participating II resorts or over 3,300 participating RCI resorts
worldwide. To further enhance the ability of its Timeshare Interest owners to
customize their vacation experience, the Company has also implemented a
points-based vacation club system which permits its Timeshare Interest owners to
purchase an annual allotment of points which can be redeemed for occupancy
rights at most Company-owned and certain participating managed resorts. At March
28, 1999, the Company's approximately 14,000 vacation club members could choose
to use their points at 25 resorts in the Bluegreen system. During fiscal 1999,
the Company also introduced the Vacation Club Sampler program, which allows
Sampler package purchasers to enjoy substantially the same amenities, activities
and service offered to the Company's regular vacation club members for a
one-year trial period. The Company benefits from the Sampler program by
recapturing some of the costs incurred in initially marketing to prospective
customers through the price of the Sampler package and also benefits from having
the opportunity to remarket the Company's products to the Sampler customers when
they use their trial memberships at the Company's resorts.
Prior to acquiring property for resorts, the Resorts Division undertakes a
full property review, including an environmental assessment, which is presented
for approval to the Company's Investment Committee, which was established in
1990 and consists of certain key members of senior management. During the review
process, acquisition specialists analyze market, tourism and demographic data as
well as the quality and diversity of the location's existing amenities and
attractions to determine the potential strength of the timeshare market in such
area and the availability of a variety of recreational opportunities for
prospective Timeshare Interest purchasers.
The Company has historically provided financing to approximately 95% of its
timeshare customers, who are required to make a downpayment of at least 10% of
the Timeshare Interest sales price and who typically finance the balance of the
sales price over a period of seven to ten years. As of March 28, 1999, the
Company had a timeshare receivables portfolio totaling approximately $54.4
million in principal amount, with a weighted-average contractual yield of
approximately 15.7% per annum. The Company has obtained a timeshare warehouse
financing and separate timeshare receivables purchase facility to accelerate
cash flows from the Company's timeshare receivables (see "Management's
Discussion and Analysis of Results of Operations and Financial Condition").
The Residential Land and Golf Division. The Residential Land and Golf
Division is focused primarily on land projects located in states in which the
Company has developed marketing expertise and has a track record of success,
such as Texas, North Carolina, New Mexico, Virginia, Tennessee, Colorado and
Arizona. The aggregate carrying amount of Residential Land and Golf Division
inventory at March 28, 1999 was $49.7 million. The Residential Land and Golf
Division's estimated remaining life-of-project sales were approximately $210.0
million at March 28, 1999. The Company believes no other company in the United
States of comparable size or financial resources markets and sells residential
land directly to retail customers.
The Residential Land and Golf Division targets families seeking a quality
lifestyle improvement which is generally unavailable in traditional suburban
developments. Based on the Company's experience in marketing and selling
residential lots to its target customers, the Company has been able to develop a
marketing and sales program that generates a significant number of on-site sales
presentations to potential prospects through low-cost, high-yield newspaper
advertising. In addition, SIMS and the other Residential Land and Golf Division
databases enable the Company to compile, process and maintain information
concerning future sales prospects within each of its operating regions. Through
the Company's targeted sales and marketing program, the Company believes that it
has been able to achieve a very attractive conversion ratio of sales to
prospects receiving on-site sales presentations.
The Residential Land and Golf Division acquires and develops land in two
markets: (i) near major metropolitan centers outside the perimeter of intense
subdivision development; and (ii) popular retirement areas. Prior to acquiring
undeveloped land, the Company researches market depth and forecasts market
absorption. In new market areas, the Company typically supplements its research
with a structured classified ad test marketing system that evaluates market
response and price acceptance. The Company's sales and marketing efforts begin
as soon as practicable after the Company enters into an agreement to acquire a
parcel of land. The Company's ability to bond projects to completion allows it
to sell a significant portion of its residential land inventory on a
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pre-development basis, thereby reducing the Company's need for external capital
to complete improvements. As is the case with the Resorts Division, all
acquisitions of Residential Land and Golf Division properties are subject to
Investment Committee approval.
In fiscal 1997, the Company began construction of its first daily-fee golf
course as part of its long-term plan to participate in the growing daily-fee
golf market. The Company believes that daily-fee golf courses are an attractive
amenity that will increase the marketability of the Company's adjacent
residential lots in certain projects. The Company's first golf course, the
Carolina National Golf Club, is located near Southport, North Carolina, just 30
miles north of Myrtle Beach, South Carolina, one of the nation's most popular
golf destinations, and was designed by Masters Champion Fred Couples. The
Company opened the first 18 holes of the 27 holes planned at Carolina National
Golf Club in July 1998, with the remaining 9 holes scheduled for play in
November 1999. Also, as part of acquisition of the stock of RDI Group, Inc.
("RDI") in fiscal 1998 (the "RDI Acquisition"), the Company acquired the
Christmas Mountain Village daily-fee golf course located in Wisconsin Dells,
Wisconsin. The Company is also actively marketing residential land lots in two
projects in Tennessee and Virginia which are adjacent to daily-fee golf courses
owned by third parties.
The Company's business includes certain risks and uncertainties (see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition").
The Company's executive offices are located at 4960 Blue Lake Drive, Boca
Raton, Florida 33431. The Company's telephone number at such address is (561)
912-8000.
Industry Overviews
Resorts Division
The Market. The resort component of the leisure industry is serviced
primarily by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare resorts. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly, weekly
or monthly basis for the duration of the visit or rentals of privately-owned
condominium units or homes. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive, and the space provided to such vacationers by these establishments
relative to the cost is often not economical. In addition, room rates at
commercial lodging establishments are subject to change periodically and
availability is often uncertain. The Company believes that Timeshare Interest
ownership presents an attractive vacation alternative to commercial lodging.
First introduced in Europe in the mid-1960's, Timeshare Interest ownership
has been one of the fastest growing segments of the hospitality industry over
the past two decades. According to ARDA (including unpublished ARDA estimates
with respect to 1995, 1996 and 1997), timeshare industry sales and the number of
Timeshare Interest owners have grown at compound annual rates of approximately
16% and 22%, respectively, from 1980 to 1997. No assurances can be given that
such industry growth rates will continue.
The Company believes that, based on ARDA reports and other industry data,
the following factors have contributed to the increased acceptance of the
timeshare concept among the general public and the substantial growth of the
timeshare industry:
o Consumer awareness of the value and benefits of Timeshare Interest
ownership, including the cost savings relative to other lodging
alternatives;
o Flexibility of Timeshare Interest ownership due to the growth of
international exchange organizations such as II and RCI and
points-based vacation club systems;
o The quality of the timeshare resorts and their management;
o Consumer confidence resulting from consumer protection regulation of
the timeshare industry and an influx of brand name national lodging
companies to the timeshare industry; and
o Availability of consumer financing for purchasers of Timeshare
Interests.
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The timeshare industry traditionally has been highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality. The
Company believes that one of the most significant factors contributing to the
current success of the timeshare industry is the entry into the market of some
of the world's major lodging, hospitality and entertainment companies, such as
Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-Continental. Although
timeshare operations currently comprise only a small portion of these companies'
overall operations, their involvement in the timeshare industry, together with
other publicly-traded timeshare companies, has enhanced the industry's image
with the general public.
The Consumer. According to information compiled by ARDA, customers in the
40-55 year age range represented approximately 45.1% of all Timeshare Interest
owners in 1997. Historically, the median age of a Timeshare Interest buyer at
the time of purchase was 48. The median annual household income of current
Timeshare Interest owners in the United States is approximately $71,000, with
approximately 24% of all Timeshare Interest owners having annual household
incomes greater than $100,000 and approximately 12% of such owners having annual
household incomes greater than $125,000. The Company believes that, despite the
industry's growth, Timeshare Interest ownership has achieved only an approximate
5% market penetration among United States households with incomes above $50,000
per year.
Timeshare Interest Ownership. The purchase of a Timeshare Interest
typically entitles the buyer to use a fully-furnished vacation residence,
generally for a one-week period each year in perpetuity. Typically, the buyer
acquires an ownership interest in the vacation residence, which is often held as
tenant-in-common with other buyers of interests in the property. Under a
points-based vacation club system, members purchase an annual allotment of
points which can be redeemed for occupancy rights at participating resorts.
Compared to other vacation ownership arrangements, the points-based system
offers members significant flexibility in planning their vacations. The number
of points that are required for a stay at any one resort varies, depending on a
variety of factors, including the resort location, the size of a unit, the
vacation season and the days of the week used. Under this system, members can
select vacations according to their schedules, space needs and available points.
Subject to certain restrictions, members are typically allowed to carry over for
one year any unused points and to "borrow" points from the forthcoming year. In
addition, members are required to pay annual fees for certain maintenance and
management costs associated with the operation of the resorts based on the
number of points to which they are entitled. As of March 28, 1999, all of the
Company's sales offices, with the exception of its La Cabana Beach and Racquet
Club sales office in Aruba, were selling Timeshare Interests within the
Company's vacation club system.
The owners of Timeshare Interests manage the property through a nonprofit
homeowners' association, which is governed by a board of directors or trustees
consisting of representatives of the developer and owners of Timeshare Interests
at the resort. The board hires a management company to which it delegates many
of the rights and responsibilities of the homeowners' association, including
grounds landscaping, security, housekeeping and operating supplies, garbage
collection, utilities, insurance, laundry and repairs and maintenance. As of
March 28, 1999, the Company's resort property management division managed 34
resorts (including 9 of the Company's resorts and served an owner base of
approximately 94,000.
Each Timeshare Interest owner is required to pay the homeowners'
association a share of all costs of maintaining the property. These charges can
consist of an annual maintenance fee plus applicable real estate taxes and
special assessments, assessed on an as-needed basis. If the Timeshare Interest
owner does not pay such charges, such owner's use rights may be suspended and
the homeowners' association may foreclose on the owner's Timeshare Interest.
Participation in Timeshare Interest Exchange Networks. The Company believes
that its Timeshare Interests are made more attractive by the Company's
affiliation with Timeshare Interest exchange networks operated by II and RCI,
the two largest timeshare exchange companies worldwide. Seven of the Company's
timeshare resorts are affiliated with II and have been awarded II's highest
designation (five stars), while the two resorts acquired in the RDI Acquisition
and the Timeshare Interests acquired individually from AmClub, Inc. (an
affiliate of the former shareholders of RDI) at the Shenandoah Crossing Farm &
Club resort are affiliated with RCI. A Timeshare Interest owner's participation
in the II or RCI exchange network (the fee for which is paid by the Company in
the first year of such owner's participation) allows such owner to exchange his
annual Timeshare Interest for occupancy at over 1,800 participating resorts in
the case of II and over 3,300 participating resorts in the case of RCI, based
upon availability and the payment of a variable exchange fee. A member may
exchange his
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Timeshare Interest for an occupancy right in another participating resort by
listing his Timeshare Interest as available with the exchange organization and
by requesting occupancy at another participating resort, indicating the
particular resort or geographic area to which the member desires to travel, the
size of the unit desired and the period during which occupancy is desired. The
exchange network assigns ratings to each listed Timeshare Interest, based upon a
number of factors, including the location and size of the unit, the quality of
the resort and the period during which the Timeshare Interest is available, and
attempts to satisfy the exchange request by providing an occupancy right in
another Timeshare Interest with a similar rating. If the exchange network is
unable to meet the member's initial request, it suggests alternative resorts
based on availability. The failure of the Company to participate in qualified
exchange networks or the failure of such networks to operate effectively could
have a material adverse effect on the Company.
Residential Land and Golf Division
The Residential Land and Golf Division operates within a specialized niche
of the real estate industry which focuses on the sale of residential land to
retail customers who intend to build a home on such land at some point in the
future. The participants in this market niche are generally individual
landowners who are selling specific parcels of property and small developers who
focus primarily on projects in their region. Although no specific data is
available regarding this market niche, the Company believes that no other
company in the United States of comparable size or financial resources currently
markets and sells residential land directly to retail customers.
Unlike commercial homebuilders who focus on vertical development, the
Residential Land and Golf Division focuses primarily on horizontal development
activities, such as grading, roads and utilities. As a result, the projects
undertaken by the Company and other participants in this market niche are
significantly less capital intensive than those undertaken by the commercial
homebuilders, which reduces the Company's risk of holding a large inventory of
property. In addition, the Company believes that, through its financial and
marketing resources, it is able to acquire properties in attractive locations
throughout the United States on a cost-effective basis thereby enabling the
Company's projects to achieve desired cash flows and targeted gross margins. The
Company's market niche is also the beneficiary of a number of trends, including
the large number of people entering into the 40-55 year age bracket and the
economic and population growth in certain of its primary markets.
The Residential Land and Golf Division is also focused on the development
of golf courses and related amenities as the center-pieces of certain of the
Company's residential land properties. As of March 28, 1999, the Company was
marketing residential land lots in four projects that include golf courses
developed either by the Company or a third party. The Company intends to acquire
and develop additional golf communities, as management believes that the
demographics and marketability of such properties are consistent with the
Company's overall residential land strategy. Golf communities typically are
larger, multi-phase properties which require a greater capital commitment than
the Company's single-phase residential land projects. There can be no assurances
that the Company will be able to successfully implement its golf community
strategy.
Company Products
Timeshare Resorts
Set forth below is a description of each of the Company's timeshare resorts
and the Shenandoah Crossing Farm & Club resort ("Shenandoah Crossing"), at which
the Company does not own but at which the Company is developing Timeshare
Interests (see further discussion below). All units at most of the properties
have certain standard amenities, including a full kitchen, at least two
televisions, a VCR player and a CD player. Some units have additional amenities,
such as larger televisions and game systems. Most properties offer guests a
clubhouse (with an indoor and/or outdoor pool, a game room, exercise facilities
and a lounge) and a hotel-type staff. The Company manages all of its resorts
with the exception of the La Cabana Beach Resort & Racquet Club (the "Aruba
Resort").
MountainLoft Resort--Gatlinburg, Tennessee. The MountainLoft Resort in
Gatlinburg, Tennessee is located near the Great Smoky Mountains National Park
and is minutes from the family attractions of Pigeon Forge, Tennessee. Units are
located in individual chalets or mid-rise villa buildings. Each unit is fully
furnished with a whirlpool bath and private balconies, and certain units include
gas fireplaces.
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Laurel Crest--Pigeon Forge, Tennessee. Laurel Crest is located in proximity
to the Great Smoky Mountains National Park and the Dollywood theme park. In
addition, visitors to Pigeon Forge can enjoy over 200 factory outlet stores and
music shows featuring renowned country music stars as well as partake in a
variety of outdoor activities, such as horseback riding, trout fishing, boating,
golfing and white water rafting.
Shore Crest Vacation Villas--Myrtle Beach, South Carolina. Shore Crest
Vacation Villas is located on the beach in the Windy Hill section of North
Myrtle Beach a mile from the famous Barefoot Landing, with its restaurants,
theaters, shops and outlet stores.
Harbour Lights--Myrtle Beach, South Carolina. Harbour Lights is located in
the Fantasy Harbour Complex in the center of Myrtle Beach. Nearby are Theater
Row, shopping, golf and restaurants. The resort's Activities Center overlooks
the Intracoastal Waterway.
The Falls Village--Branson, Missouri. The Falls Village is located in the
Ozark Mountains. Fishing, boating and swimming are available at nearby Table
Rock Lake and Lake Taneycomo, and area theaters feature shows by country music
stars. Most resort customers come from areas within an eight to ten hour drive
of Branson.
Christmas Mountain Village--Wisconsin Dells, Wisconsin. The Company
acquired the Christmas Mountain Village resort as part of the RDI Acquisition.
Christmas Mountain Village offers an 18-hole golf course and seven ski trails
served by two chair lifts. Other on-site amenities include horseback riding,
tennis courts, a five-acre lake with paddleboats and rowboats and four outdoor
swimming pools. Christmas Mountain Village attracts customers primarily from the
greater Chicago area and other locations within an eight to ten hour drive of
Wisconsin Dells.
Orlando's Sunshine--Orlando, Florida. Orlando's Sunshine Resort was also
acquired as part of the RDI Acquisition. The resort is located on International
Drive, near Wet'n'Wild water park and Universal Studios. During fiscal 1999, the
Company commenced construction on Phase II of the Orlando's Sunshine Resort,
which will include 60 units, an outdoor swimming pool, hot tub and tennis
courts.
La Cabana Beach Resort & Racquet Club--Aruba. Bluegreen Properties N.V., a
50%-owned subsidiary of the Company, acquired the unsold Timeshare Interest
inventory of the Aruba Resort (approximately 8,000 Timeshare Interests) in
December 1997. Established in 1989, the Aruba Resort is a 449-suite ocean front
property which offers one-, two- and three-bedroom suites, garden suites and
penthouse accommodations. On-site amenities include tennis, racquetball, squash,
a casino, two pools and private beach cabanas, none of which are owned or
managed by the Company.
Shenandoah Crossing--Gordonsville, Virginia. Shenandoah Crossing features
an 18-hole golf course, indoor and outdoor pools, tennis courts, horseback
riding trails and a lake for swimming, fishing and boating. In 1987, AmClub,
Inc. ("AmClub"), an affiliate of the former shareholders of RDI, commenced
development of Shenandoah Crossing. In connection with the acquisition of RDI,
the Company was granted an option (the "AmClub Option") to acquire the capital
stock or assets of AmClub, which owns Shenandoah Crossing. Pursuant to the
AmClub Option, the exercise price for the purchase of AmClub's capital stock is
$10,000, while the exercise price for any assets of AmClub is equal to the fair
market value of such assets at the time of exercise. During fiscal 1999, the
Company began acquiring (from AmClub), developing and selling individual
Timeshare Interests at Shenandoah Crossing. On October 7, 1998, Leisure Capital
Corporation ("LCC"), a wholly-owned subsidiary of the Company, acquired from a
bank delinquent notes receivable issued by AmClub. During fiscal 1999, the
Company had also advanced $1.3 million to AmClub, primarily for timeshare resort
improvements at Shenandoah Crossing. As of December 14, 1998, the notes
receivable from AmClub discussed above were in default and due immediately. As
more fully described in Note 4 of Notes to Consolidated Financial Statements,
the Company intends to foreclose on the underlying collateral of the notes,
which includes Timeshare Interests, real estate and fixed assets at Shenandoah
Crossing. There can be no assurances that the foreclosure will be completed as
intended.
The Lodge Alley Inn--Charleston, South Carolina. In September 1998, the
Company acquired the Lodge Alley Inn, an 89-room hotel in Charleston's historic
district, for approximately $16.6 million. Accommodations include one- and
two-bedroom suites, many furnished with an equipped kitchen, living room with
fireplace, dining room, jacuzzi, pine wood floors, and 18th century-style
furniture reproductions. The resort, which features the on-
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site French Quarter restaurant, is within walking distance of many of
Charleston's historical sites, open air markets and art galleries.
The following table sets forth additional data with respect to each of the
Company's resorts:
<TABLE>
<CAPTION>
Shenandoah
Laurel Shore Harbour The Christmas La Cabana Crossing The
Crest Crest Lights Falls Mountain Orlando's Beach & Farm Lodge
MountainLoft Pigeon Myrtle Myrtle Village Village Sunshine Racquet & Club (2) Alley Inn
Gatlinburg, Forge, Beach, Beach, Branson, Wisconsin, Orlando, Club(1) Gordonsville, Charleston,
Location TN TN SC SC MO Dells, WI FL Aruba VA SC
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Date sales commenced 7/94 8/95 4/96 6/97 7/97 9/97 12/98 1/98 4/98 2/99
Number of Timeshare
Interests completed
as of March 28, 1999
(3) 8,736 9,464 5,928 3,744 2,471 1,341 -- 8,118 520 4,680
Number of Timeshare
Interests under
construction as of
March 28, 1999 (3) 2,704 2,600 6,552 -- 1,040 829 3,120 -- -- --
Number of
additional
Timeshare Interests
planned (3)(4) 7,176 8,840 -- 9,984 9,724 13,402 -- -- 9,880 --
Average Timeshare
Interests selling
price-year
year ended
March 28, 1999 $9,508 $9,257 $9,255 $8,063 $9,444 $8,940 $9,543 $7,786 $7,521 $15,067
Number of Timeshare
Interests sold
through
March 28, 1999 (5) 5,668 4,487 4,473 2,275 1,581 2,405 43 2,247 656 6
</TABLE>
(1) Bluegreen Properties N.V., in which the Company owns a 50% interest,
acquired unsold Timeshare Interests inventory at this resort in December
1997.
(2) Includes Timeshare Interests acquired individually from an affiliate of the
former shareholders of RDI Group, Inc. and sold during fiscal 1999 and
Timeshare Interests anticipated to be developed on land expected to be
obtained in a pending foreclosure (See Note 4 of Notes to Consolidated
Financial Statements). There can be no assurances that the foreclosure will
be completed as intended.
(3) The number of Timeshare Interests completed, under construction or planned
are intended to be sold in 52 weekly intervals per vacation home for the
Company's Shore Crest, Harbour Lights, Orlando's Sunshine, La Cabana, and
Lodge Alley Inn Resorts The amounts for the remaining resorts include some
vacation homes which can be subdivided and sold as two smaller vacation
homes ("lock-out units"), each of which consists of 104 weekly intervals
per vacation home.
(4) There can be no assurances that the Company will have the resources to
complete all such planned Timeshare Interests or that such Timeshare
Interests will be sold at favorable prices.
(5) Includes sales of Timeshare Interests that were sold on a biennial basis
(i.e., sale of one-week periods every other year in perpetuity) as one
Timeshare Interest sold.
Certain Residential Land and Golf Division Projects
Set forth below is a description of the five largest projects currently
marketed by the Residential Land and Golf Division, which are representative of
the types of projects that the Company has been focusing on since 1993. These
properties represented 56.7% of the Residential Land and Golf Division's
estimated remaining life-of-project sales at March 28, 1999.
Winding River Plantation--Southport, North Carolina. The Company acquired
approximately 1,300 acres located near Southport, North Carolina (and between
Myrtle Beach, South Carolina and Wilmington, North Carolina) for $3.4 million in
fiscal 1997. The property has frontage along the Lockwood Folly River, a
navigable waterway that leads to the Intracoastal Waterway and the Atlantic
Ocean. The project will include river amenities, a beach club and tennis courts.
In addition, the project is the site of the Company's first daily-fee golf
course, the Carolina National Golf Club, the first 18-holes of which opened for
play in July 1998. The course was developed by Masters Champion Fred Couples and
will include an additional 9 holes scheduled for play starting in November 1999.
The Company anticipates that the project will consist of a total of
approximately 1,000 lots, which average
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approximately one acre. The Company began selling lots in February 1997, and
aggregate sales through March 28, 1999 were $29.9 million. Aggregate development
costs (net of costs capitalized separately in the golf course) through March 28,
1999 were $13.1 million and the Company anticipates that the aggregate capital
expenditures to complete development at the project will be $6.6 million. The
Company anticipates that the remaining lots will be sold-out over the next three
years. Estimated remaining life-of-project sales for this project are
approximately $44.7 million, based on retail selling prices as of March 28,
1999.
Lake Ridge at Joe Pool Lake--Cedar Hill, Texas. The Company acquired 1,400
acres located approximately 19 miles outside of Dallas, Texas and 30 miles
outside of Fort Worth, Texas in April 1994 for $6.1 million. The property is
located at Joe Pool Lake and is atop the highest elevation within 100 miles. The
lake has in excess of 7,500 acres of water for boating, fishing, windsurfing and
other water activities. Adjacent amenities (not owned or managed by the Company)
include a 154 acre park with baseball, football and soccer fields, a fishing
pool with a pier, camping areas and an 18-hole golf course. The project includes
252 lots, with most ranging in size from 1/4 to five acres, with 399 acres
available for future development. The Company began selling lots in April 1994
and aggregate sales through March 28, 1999 were $52.5 million. Aggregate
development costs through March 28, 1999 were $18.2 million and the Company
anticipates that the remaining capital expenditures will be $6.8 million. The
Company anticipates that unsold lots will be sold-out over the next two years.
Estimated remaining life-of-project sales for this project are approximately
$21.8 million, based on retail selling prices as of March 28, 1999.
Mountain Lakes Ranch -- Bluffdale, Texas. The Company acquired 4,100 acres
located approximately 45 miles from Fort Worth, Texas in October 1998 for $3.1
million. The property features rolling terrain with hilltop views, tree coverage
and ample area to create private lakes. The Company anticipates that the
property will yield approximately 1,390 lots ranging in size from one to five
acres, including both lakefront and waterview parcels. Sales are expected to
commence in September 1999. Aggregate development costs through March 28, 1999
were $300,000 and the Company anticipates that future capital expenditures will
be $11.8 million. Estimated life-of-project sales for Mountain Lakes Ranch are
$34.9 million, based on retail prices at March 28, 1999, with a projected
sell-out period of seven years.
Crossroads Ranch--Prescott, Arizona. The Company acquired 6,500 acres
located 20 miles north of Prescott, Arizona in July 1995 for $6.0 million. The
property has elevations ranging from 4,600 to 5,600 feet and a four-season
climate. The terrain includes pasture lands with seasonal creeks and rolling
hills. The property is 95 miles north of Phoenix and Scottsdale, approximately 2
1/2 hours south of the Grand Canyon and approximately one hour away from Sedona.
The project includes 153 lots, averaging 36 acres each, and 26 lots, averaging 5
acres each. The Company provided gravel roads and trails for hiking and
horseback riding. Electric service was installed underground so that utility
poles would not spoil the views. The Company also created deed restrictions
designed to ensure that future development on the property is compatible with
the land's ranch character. The Company began selling lots in January 1996 and
aggregate sales through March 28, 1999 were $24.2 million. Aggregate development
costs through March 28, 1999 were $8.8 million and the Company anticipates that
the remaining capital expenditures will be approximately $300,000. The Company
anticipates that the unsold lots will be sold-out over the next year. Estimated
remaining life-of-project sales for this project are approximately $3.5 million,
based on retail selling prices as of March 28, 1999.
Mogollon Ranch--Coconino County, Arizona. The Company acquired
approximately 1,200 acres located on central Arizona's high plateau, the
Mogollon Rim, in October 1998, for approximately $2.9 million. At an elevation
of 6,800 feet, the property is completely surrounded by the Coconino National
Forest. The Company anticipates that the project will consist of a total of 233
five-acre homesites. The property began selling in November 1998 and aggregate
sales through March 28, 1999 were $3.9 million. Total development costs through
March 28, 1999 were $1.1 million and the Company expects that future capital
expenditures will approximate $3.6 million. Estimated remaining life-of-project
sales for this property are approximately $14.3 million, based on retail prices
at March 28, 1999. The remaining lots are expected to be sold out over a
three-year period.
Acquisition of Timeshare and Residential Land and Golf Inventory
In order to provide centralized and uniform controls on the type, location
and amount of timeshare and residential land and golf inventory that the Company
acquires, all such inventory acquisitions have required the approval of the
Investment Committee since 1990. The Investment Committee consists of George F.
Donovan,
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<PAGE>
President and Chief Executive Officer; John F. Chiste, Senior Vice President,
Treasurer and Chief Financial Officer; Patrick E. Rondeau, Senior Vice
President, Director of Legal Affairs; L. Nicolas Gray, Senior Vice
President--Resorts Division; and Daniel C. Koscher, Senior Vice
President--Residential Land and Golf Division. The Investment Committee reviews
each proposed inventory acquisition to determine whether the property meets
certain criteria, including estimated cash flows and gross profit margins.
Resorts Division
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, lodging companies and financial institutions with which the Company
has established business relationships. Prior to acquiring property for future
resorts, the Resorts Division undertakes a full property review, including an
environmental assessment, which is presented to the Investment Committee for
approval. During the review process, acquisition specialists analyze market,
tourism and demographic data as well as the quality and diversity of the
location's existing amenities and attractions to determine the potential
strength of the timeshare market in such area and the availability of a variety
of recreational opportunities for prospective Timeshare Interest purchasers.
Specifically, the Company evaluates the following factors, among others, to
determine the viability of a potential new timeshare resort: (i) supply/demand
ratio for Timeshare Interests in the relevant market, (ii) the market's growth
as a vacation destination, (iii) competitive accommodation alternatives in the
market, (iv) uniqueness of location and (v) barriers to entry that would limit
competition. The Company anticipates that its timeshare resorts will generally
have a sell-out term of approximately seven years.
During fiscal 1999, the Company acquired the Lodge Alley Inn Resort in
Charleston, South Carolina, and commenced new development at Shenandoah Crossing
in Gordonsville, Virginia (see "Company Products--Timeshare Resorts"). As a
result of these transactions, the Company's planned Timeshare Interest
inventory, net of life-to-date sales, increased from 77,466 Timeshare Interests
as of March 29, 1998, to 97,012 Timeshare Interests as of March 28, 1999, a net
increase of 25%.
The Company intends to continue to pursue growth by expanding or
supplementing the Company's existing resorts operations through acquisitions in
destinations that will complement such existing operations. Because the
timeshare industry is highly fragmented, the Company believes that significant
opportunities exist to make selected acquisitions at attractive valuations.
Acquisitions the Company may consider include acquiring additional Timeshare
Interest inventory, operating companies, management contracts, Timeshare
Interest mortgage portfolios and properties or other timeshare-related assets
which may be integrated into the Company's operations. In addition, the Company
intends to continue to pursue timeshare resort locations in areas outside the
United States, particularly in the Caribbean, as well as Central and South
America. No assurances can be given that the Company will be successful in its
acquisition strategy.
Residential Land and Golf Division
The Residential Land and Golf Division, through the Company's regional
offices, and subject to Investment Committee review and approval, typically
acquires inventory that (i) is located near a major population center outside
the perimeter of intense subdivision development or in popular retirement areas,
(ii) is suitable for subdivision, (iii) has attractive topographical features,
(iv) in some cases could accommodate a golf course and related amenities and (v)
the Company believes will result in an acceptable profit margin and cash flow to
the Company based upon anticipated retail value. Properties are generally
subdivided for resale into parcels typically ranging in size from two to five
acres. During fiscal 1998, the Company acquired 5,133 acres in ten separate
transactions for a total purchase price of approximately $12.2 million, or
$2,386 per acre, and during fiscal 1999, the Company acquired 8,293 acres in 8
separate transactions for a total purchase price of $12.0 million, or $1,444 per
acre.
In connection with its review of potential residential land and golf
inventory, the Investment Committee considers such established criteria as the
economic conditions in the area in which the parcel is located, environmental
sensitivity, availability of financing, whether the property is consistent with
the Company's general policies and the anticipated ability of that property to
produce acceptable profit margins and cash flow. As part of its long-term
strategy for the Residential Land and Golf Division, the Company in recent years
has focused on fewer, more capital-intensive projects. The Company intends to
continue to focus the Residential Land and Golf
9
<PAGE>
Division on those regions where the Company believes the market for its products
is strongest, such as the Southeast, Southwest, Rocky Mountain and Western
regions of the United States and to replenish its residential land inventory in
such regions as existing projects are sold-out.
The Residential Land and Golf Division has several specialists who assist
regional management in locating inventory for acquisition. The Company has
established contacts with numerous land owners and real estate brokers in many
of its market areas, and because of such contacts and its long history of
acquiring properties, the Company believes that it is generally in a favorable
position to learn of available properties, often before the availability of such
properties is publicly known. In order to ensure such access, the Company
attempts to develop and maintain strong relationships with major property owners
and brokers. Regional offices regularly contact property owners, such as timber
companies, financial institutions and real estate brokers, by a combination of
telephone, mail and personal visits. In addition, prior to acquiring property in
new areas, the Company will conduct test marketing for a prospective project
prior to entering into an acquisition agreement to determine whether sufficient
customer demand exists for the project. To date, the Company's regional offices
generally have been able to locate and acquire adequate quantities of inventory
which meet the criteria established by the Investment Committee to support their
operational activities. In certain cases, however, the Company has experienced
short-term shortages of ready-for-sale inventory due to either difficulties in
acquiring property or delays in the approval and/or development process.
Shortfalls in ready-for-sale inventory may materially adversely affect the
Company's business, operating results and financial condition (see "Management's
Discussion and Analysis of Results of Operations and Financial Condition").
Once a desirable property is identified, the Company completes its initial
due diligence procedures and enters into a purchase agreement with the seller to
acquire the property. It is generally the Company's policy to advance only a
small downpayment of 1%-3% of the purchase price upon signing the purchase
agreement and to limit the liquidated damages associated with such purchase
agreement to the amount of its downpayment and any preliminary development
costs. In most cases, the Company is not required to advance the full purchase
price or enter into a note payable obligation until regulatory approvals for the
subdivision and sale of at least the initial phase of the project have been
obtained. While local approvals are being sought, the Company typically engages
in pre-marketing techniques and, with the consent of the seller and the
knowledge of prospective purchasers, occasionally attempt to pre-sell parcels,
subject to closing its purchase of the property. When the necessary regulatory
approvals have been received, the closing on the property occurs and the Company
obtains title to the property. The time between execution of a purchase
agreement and closing on a property has generally been six to 12 months.
Although the Company generally retains the right to cancel purchase agreements
without any loss beyond forfeiture of the downpayment and preliminary
development costs, few purchase agreements have been canceled historically.
By requiring, in most cases, that regulatory approvals be obtained prior to
closing and by making small downpayments upon signing purchase agreements, the
Company is typically able to place a number of properties under contract without
expending significant amounts of cash. This strategy enables the Residential
Land and Golf Division to reduce (i) the time during which it actually owns
specific properties, (ii) the market risk associated with holding such
properties and (iii) the risk of acquiring properties that may not be suitable
for sale. It also provides the Residential Land and Golf Division an additional
source of available properties to meet customer demand. In certain
circumstances, however, the Company has acquired properties and then
strategically held such properties until their prime marketing seasons.
Prior to closing on a purchase of residential land, the Company's policy is
to complete its own environmental assessment of the property. The purpose of the
Company's assessment is to evaluate the impact the proposed subdivision will
have on such items as flora and fauna, wetlands, endangered species, open space,
scenic vistas, recreation, transportation and community growth and character. To
obtain this information, the Company's acquisition specialists typically consult
with various groups and agencies including the appropriate county and state
planning agencies, environmental groups, state heritage programs, soil
conservation agencies and forestry groups. If the Company's environmental
assessment indicates that the proposed subdivision meets environmental criteria
and complies with zoning, building, health and other laws, the Company develops
a formal land use plan, which forms a basis for determining an appropriate
acquisition price. The Company attempts, where possible, to accommodate the
existing topographical features of the land, such as streams, hills, wooded
areas, stone walls, farm buildings and roads. Prior to closing on an
acquisition, the Company will typically have the property surveyed
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<PAGE>
by a professional surveyor and have soil analyses conducted to determine the
suitability of the site for septic systems. At closing, the Company also obtains
title insurance on the property.
Marketing and Sale of Inventory
Resorts Division
The Resorts Division utilizes a variety of techniques to attract
prospective purchasers of Timeshare Interests, including targeted mailings,
direct mail mini-vacation invitations, kiosks in retail locations,
telemarketing, marketing to current owners and referrals. The Resorts Division
provides hotel accommodations to prospective purchasers at reduced prices in
exchange for their touring the timeshare resort. To support its marketing and
sales efforts, the Company has developed and continues to enhance its database
to track its timeshare marketing and sales programs. Management believes that,
as the Resort Division's timeshare operations grow, this database will become an
increasingly significant asset, enabling the Company to focus its marketing and
sales efforts to take advantage of, among other things, less costly marketing
and referral opportunities. Timeshare resorts are staffed with sales
representatives, sales managers and an on-site manager who oversees the
day-to-day operations, all of whom are employees of the Company. Sales personnel
are generally experienced in resort sales and undergo ongoing Company-sponsored
training. During fiscal 1998, total advertising expense for the Resorts Division
was $14.6 million or 24.1% of the division's $60.8 million in sales. During
fiscal 1999, total advertising expense for the Resorts Division was $28.1
million or approximately 27% of such division's $103.1 million in sales (see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition").
The Company requires its sales staff to provide each timeshare customer
with a written disclosure statement regarding the Timeshare Interest to be sold
prior to the time the customer signs a purchase agreement. This disclosure
statement sets forth relevant information regarding timeshare ownership at the
resort and must be signed by every purchaser. The Company believes that this
information statement contains all material and relevant information a customer
requires to make an informed decision as to whether or not to purchase a
Timeshare Interest at one of its resorts.
After deciding to purchase a Timeshare Interest, a purchaser enters into a
purchase agreement and is required to pay the Company a deposit of at least 10%
of the purchase price. Purchasers are entitled to cancel purchase agreements
within specified rescission periods after execution in accordance with statutory
requirements. Substantially all timeshare purchasers visit one of the Company's
resorts or one of the Company's off-site sales offices prior to purchasing.
The attractiveness of Timeshare Interest ownership has been enhanced
significantly by the availability of exchange networks that allow Timeshare
Interest owners to exchange the occupancy right in their Timeshare Interests in
a particular year, for an occupancy right at another participating network
resort at either the same or a different time. The two resorts acquired in the
RDI Acquisition and Shenandoah Crossings are affiliated with the timeshare
exchange network operated by RCI, while the Company's seven other resorts are
affiliated with II's timeshare exchange network. In connection with the RDI
Acquisition, the Company advised each of II and RCI of the existence of its
agreement with the other timeshare interest exchange network and of the
potential conflict. Although the Company believes this conflict will be resolved
satisfactorily, no assurances can be given. If the Company's resorts cease to
qualify for the exchange networks or such networks cease to operate effectively,
the Company's sales of Timeshare Interests and the performance of its timeshare
receivables could be materially adversely affected.
For further information on sales and other financial information
attributable to the Resorts Division, see "Management's Discussion and Analysis
of Results of Operations and Financial Condition."
Residential Land and Golf Division
In general, as soon as practicable after agreeing to acquire a property and
during the time period that appropriate improvements are being completed, the
Company establishes selling prices for the individual parcels taking into
account such matters as regional economic conditions, quality as a building
site, scenic views, road frontage, golf course views (if applicable) and natural
features such as lakes, mountains, streams, ponds and wooded areas. The Company
also considers recent sales of comparable parcels in the area. Initial decisions
on
11
<PAGE>
pricing of parcels in a given area are made by the Company's regional managers
and, in all cases, are subject to approval by the Investment Committee. Once
such selling prices are established the Company commences its marketing efforts.
The most widely used marketing technique by the Residential Land Division
is advertising in major newspapers in metropolitan areas located within a one to
three hour drive from the property and local newspapers. In addition, the
Company uses its proprietary database and inventory management system, which
enables the Company to quickly compile information on the previously identified
prospects most likely to be interested in a particular project. The Residential
Land and Golf Division also conducts direct mail campaigns to market property
through the use of brochures describing available parcels, as well as television
and radio advertising. Through this sales and marketing program, the Company
believes that it has been able to achieve a high conversion ratio of sales to
prospects receiving on-site sales presentations. The conversion ratio of sales
to prospects receiving on-site sales presentations has historically been
approximately 20%. A sales representative who is knowledgeable about the
property answers each inquiry generated by the Company's marketing efforts,
discusses the property with the prospective purchaser, attempts to ascertain the
purchaser's needs and determines whether the parcel would be suitable for that
person, and arranges an appointment for the purchaser to visit the property.
Substantially all prospective purchasers inspect a property before purchasing.
During fiscal 1998, the Residential Land and Golf Division incurred $7.6 million
in advertising expenses, or 7.2% of such division's $106.1 million in sales.
During fiscal 1999, the Residential Land and Golf Division incurred $8.9 million
in advertising expense, or approximately 7% of such division's $118.9 million in
sales.
The success of the Company's marketing efforts depends heavily on the
knowledge and experience of its sales personnel. The Company requires that,
prior to initiating the marketing effort for a property, all sales
representatives walk the property and become knowledgeable about each parcel and
applicable zoning, subdivision and building code requirements. Continued
training programs are conducted, including training with regional office sales
managers, weekly sales meetings and frequent site visits by an executive officer
of the Company. The Company enhances its sales and marketing organization
through the Bluegreen Institute, a mandatory training program, which is designed
to instill the Company's marketing and customer service philosophy in middle and
lower-level management. Additionally, the sales staff is evaluated against
performance standards established by the executive officers of the Company.
Substantially all of a sales representative's compensation is commission-based.
The Company requires its sales staff to provide each prospective purchaser
with a written disclosure statement regarding the property to be sold prior to
the time such purchaser signs a purchase agreement. This information statement,
which is either in the form of a U.S. Department of Housing and Urban
Development ("HUD") lot information statement, where required, or a Company
generated "Vital Information Statement," sets forth relevant information with
respect to, and risks associated with, the property and must be signed by each
purchaser. The Company believes that these information statements contain all
material and relevant information necessary for a prospective purchaser to make
an informed decision as to whether or not to purchase such property, including
the availability and estimated cost of utilities, restrictions regarding
property usage, status of access roads and information regarding rescission
rights.
After deciding to purchase a parcel, a purchaser enters into a purchase
agreement and is required to pay the Company a deposit of at least 10% of the
purchase price. Purchasers are entitled to cancel purchase agreements within
specified periods after execution in accordance with statutory requirements. The
closing of a residential land sale usually occurs two to eight weeks after
payment of the deposit. Upon closing of a residential land sale, the Company
typically delivers a warranty deed and a recent survey of the property to the
purchaser. Title insurance is available at the purchaser's expense.
For further information on sales and other financial information
attributable to the Residential Land and Golf Division, see "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
Customer Financing
General
During fiscal 1997, 1998 and 1999, the Company financed 30%, 33% and 40%,
respectively, of the aggregate purchase price of its sales of Timeshare
Interests and residential land to customers that closed during
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<PAGE>
these periods and received cash for the remaining balance of the purchase price.
The increase in the percentage of sales financed by the Company since 1997 is
primarily attributable to an increase in the sales of Timeshare Interests over
the same period. Sales of Timeshare Interests accounted for 25%, 35% and 46% of
consolidated sales during fiscal 1997, 1998 and 1999, respectively.
Approximately 95% of all purchasers of Timeshare Interests finance with the
Company (compared to approximately 2% of residential land purchasers in fiscal
1999). In recent years, the percentage of residential land customers who
utilized the Company's financing has declined materially due, among other
things, to an increased willingness on the part of local banks to extend direct
lot financing to purchasers.
The Company believes that its financing is attractive to purchasers who
find it convenient to handle all facets of the purchase of residential land and
Timeshare Interests through a single source and because the downpayments
required by the Company are similar to those required by banks and mortgage
companies which offer this type of credit.
The Company offers financing of up to 90% of the purchase price of its
Timeshare Interests. The typical financing extended by the Company on a
Timeshare Interest during fiscal 1997, 1998 and 1999, provides for a term of
seven years and a fixed interest rate. Historically, at the closing, the Company
and the purchaser have executed a contract for deed agreement. After the
obligation is paid in full, the Company delivers a deed to the purchaser. In
connection with the Company's Timeshare Interest sales within its vacation club
system, the Company delivers the deed to purchasers at the closing of a sale and
secures repayment of the purchaser's obligation by obtaining a mortgage on the
purchaser's Timeshare Interest. The Company does not believe that the transfer
to a note and mortgage system will have a material adverse effect on its
servicing operations or financial results.
The Company also offers financing of up to 90% of the purchase price of all
parcels sold under the Residential Land and Golf Division to all purchasers who
qualify for such financing. The term of repayment on such financing has
historically ranged from five to 15 years although the Company, by offering
reduced interest rates, has been successful in encouraging customers during
recent years to finance their purchases over shorter terms with increased
downpayments. Management believes such strategy has improved the quality of the
notes receivable generated by its Residential Land and Golf Division in recent
years. An average note receivable underwritten by the Company during fiscal
1997, 1998 and 1999 has a term of ten years. Most notes receivable bear interest
at a fixed interest rate and are secured by a first lien on the land.
The weighted-average interest rate on the Company's notes receivable was
13.3%, 14.9% and 15.0% at March 30, 1997, March 29, 1998 and March 28, 1999,
respectively.
Loan Underwriting
Resorts Division. Consistent with industry practice, Timeshare Interest
financing is not subject to extensive loan underwriting criteria. Customer
financing on sales of Timeshare Interests requires (i) receipt of a minimum
downpayment of 10% of the purchase price and (ii) a contract for deed or note
and mortgage, as applicable and other closing documents between the Company and
the purchaser. The Company encourages purchasers to make increased downpayments
by offering a lower interest rate. In addition, purchasers who do not elect to
participate in the Company's pre-authorized payment plan are charged interest at
a rate which is one percent greater than the otherwise prevailing rate.
Historically, timeshare receivables have had a higher default rate than
residential land receivables.
Residential Land and Golf Division. The Company has established loan
underwriting criteria and procedures designed to reduce credit losses on its
residential land loan portfolio. The loan underwriting process undertaken by the
Company's credit department includes reviewing the applicant's credit history,
verifying employment and income as well as calculating certain debt-to-income
ratios. The primary focus of the Company's underwriting review is to determine
the applicant's ability to repay the loan in accordance with its terms. This
assessment is based on a number of factors, including the relationship of the
applicant's required monthly payment to disposable income. The Company also
examines the applicant's credit history through various credit reporting
agencies. In order to verify an applicant's employment status, the Company
generally contacts the applicant's employer. The Company also obtains current
pay stubs, recent tax returns and other tax forms from the applicant.
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In order to obtain financing from the Residential Land and Golf Division, a
prospective purchaser must submit a completed and signed credit application,
purchase and sale agreement and pre-authorized checking agreement accompanied by
a voided check, if applicable, to the Company's credit department. All credit
decisions are made at the Company's corporate headquarters. Loan amounts under
$50,000 are approved by designated personnel located in the Company's corporate
headquarters, while loan amounts of $50,000 or more require approval from a
senior executive officer. In addition, rejected applications and any material
exceptions to the underwriting policy are also reviewed by senior management.
Customers are notified of the reasons for credit denial by mail.
The Company encourages customers to increase their downpayment and reduce
the loan term through the structure of its loan programs. Customers receive a
lower rate of interest as their downpayment increases and the loan term
shortens. Additionally, the Company encourages its customers to make timely
payments through a pre-authorized payment arrangement. Customers who do not
choose a pre-authorized payment plan are charged interest at a rate which is one
percent greater than the prevailing rate.
After the credit decision has been made, the credit department categorizes
the file as either approved, pending or declined. Upon receipt of a credit
approval, the regional office schedules the closing with the customer. Closings
are typically conducted at the office of the Company's local attorney or
settlement agent, although in some cases the closing may take place at the sales
site or by mail.
When the original closing documents are received from the closing agent,
the Company verifies that the loan closed under terms approved by the Company's
credit department. A quality control audit is performed to verify that required
documents have been received and that they have been prepared and executed
correctly. If any revisions are required, notification is sent to the regional
office.
A loan file typically includes a copy of the signed security instrument,
the mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and
sale agreement, credit application, local counsel opinion, Vital Information
Statement or purchaser's acknowledgment of receipt of HUD lot information
statement, HUD settlement statement and a copy of the assignment of mortgage and
an original note endorsement from the Company's subsidiary originating the sale
and the loan to the Company (if applicable). After the initial closing documents
are received, the recorded mortgage and assignment and original title insurance
policy are obtained in order to complete the loan file.
Collection Policies
Resorts Division. The Company's timeshare receivables have been
historically documented by contracts for deed, which allows the Company to
retain title to the Timeshare Interest until the obligation is paid in full,
thereby eliminating the need to foreclose in the event of a default. Collection
efforts and delinquency information concerning the Resorts Division are managed
at the Company's corporate headquarters. Servicing of the division's receivables
is handled by a staff of experienced collectors, assisted by an on-line mortgage
collection computer system. Unless circumstances otherwise dictate, collection
efforts are generally made by mail and telephone. If a contract for deed becomes
delinquent for ten days, a reminder letter is mailed to the customer. If the
customer fails to bring the account current, a late notice is mailed when the
account is 15 days delinquent (and telephone contact commences). After an
account is 45 days delinquent, the Company typically sends a third letter
advising the customer that such customer has 15 days within which to bring the
account current. Under the terms of the contract for deed, the borrower is in
default when the account becomes 60 days delinquent. At this time a default
letter is sent advising the customer that he or she has 30 days to bring the
account current or lose his or her contractual interest in the timeshare unit.
When the account becomes 90 days delinquent, the Company forwards a final letter
informing the customer that the contract for deed has been terminated. At such
time, the Timeshare Interest can be resold to a new purchaser. In connection
with the implementation of its points-based vacation club system, the Company
has converted to a note and mortgage system. The Company believes that the
period of time for realizing a defaulted timeshare receivable under the note and
mortgage system will not be materially longer than for defaults of contracts for
deed because title to the applicable property is held by the vacation club
trust.
Residential Land and Golf Division. Collection efforts and delinquency
information concerning the Residential Land and Golf Division are also managed
at the Company's corporate headquarters. Servicing of the division's receivables
is handled by a staff of experienced collectors, assisted by an on-line mortgage
collection
14
<PAGE>
computer system. Unless circumstances otherwise dictate, collection efforts are
generally made by mail and telephone. Collection efforts begin when an account
is ten days past due, at which time the Company mails a reminder letter.
Attempts are then made to contact the customer via telephone to determine the
reason for the delinquency and to bring the account current. The determination
of how to handle a delinquent loan is based upon many factors, including the
customer's payment history and the reason for the current inability to make
timely payments. If no agreement is made or the customer does not abide by the
agreement, collection efforts continue until the account is either brought
current or legal action is commenced. If not accelerated sooner, the Company
declares the loan in default when the loan becomes 60 days delinquent. When the
loan is 90 days past due, the accrual of interest is stopped (unless the loan is
considered an in-substance foreclosure loan, in which case all accrued interest
is reversed since the Company's means of recovery is determined through the
resale of the underlying collateral and not through collection on the note) and
the Credit/Collection Manager determines the action to be taken.
Loan Loss Reserves. The reserve for loan losses as a percentage of period
end notes receivable was 3.4%, 2.5% and 3.5% at March 30, 1997, March 29, 1998
and March 28, 1999, respectively. The adequacy of the Company's reserve for loan
losses is determined by management and reviewed on a regular basis considering,
among other factors, historical frequency of default, loss experience, present
and expected economic conditions as well as the quality of the receivables.
Sales of Receivables/Pledging of Receivables
Since 1986, the Company has sold or pledged a significant amount of its
receivables, generally retaining the right and obligation to service such
receivables. In the case of residential land and golf receivables, the Company
typically transfers the receivables to a special purpose finance subsidiary,
which in turn enters into a receivables securitization. The receivables are
typically sold by such subsidiary with limited or no recourse. In the case of
receivables pledged to a financial institution, the Company generally must
maintain a debt to eligible collateral rate (based on outstanding principal
balance of the pledged loans) of 90%. The Company is obligated to pledge
additional eligible receivables or make additional principal payments in order
to maintain this collateralization rate. Repurchases and additional principal
payments have not been material to date.
Private placement REMIC financings have provided substantial capital
resources to the Company, although the Company has not completed a REMIC
financing since December 1996, due to the decrease in land sales financed by the
Company. Under the terms of these transactions, the receivables are sold to a
REMIC trust and the Company has no obligation to repurchase the receivables due
to default by the borrowers. The Company does, however, have the obligation to
repurchase the receivables in the event that there is any material defect in the
loan documentation and related representations and warranties as of the time of
sale.
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. Under the 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. 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 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 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 and recognized a $3.7 million gain. As a result of
the sales, the Company recorded a $5.2 million available-for-sale investment in
the residual cash flow of the receivable pools (i.e. the deferred payment). See
further discussion of the terms of the Purchase Facility under "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Credit Facilities for Timeshare Receivables and Inventories".
15
<PAGE>
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and
remitting such funds to the owners, lenders or investors in such receivables,
accounting for receivables principal and interest, making advances when
required, contacting delinquent borrowers, foreclosing in the event that
defaults are not remedied and performing other administrative duties. The
Company's obligation to provide receivables servicing and its rights to collect
fees are set forth in a servicing agreement. The Company has the obligation and
right to service all of the receivables it originates and retains the obligation
and right with respect to substantially all of the receivables it sells through
REMICs and all of the receivables sold under the Purchase Facility. The Company
typically receives an annual servicing fee of approximately .5% of the scheduled
principal balance, which is deducted from payments received.
Regulation
The timeshare and real estate industries are subject to extensive and
complex regulation. The Company is subject to compliance with various federal,
state and local environmental, zoning and other statutes and regulations
regarding the acquisition, subdivision and sale of real estate and Timeshare
Interests and various aspects of its financing operations. On a federal level,
the Federal Trade Commission has taken an active regulatory role through the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or
competition in interstate commerce. In addition to the laws applicable to the
Company's customer financing and other operations discussed below, the Company
is or may be subject to the Fair Housing Act and various other federal statutes
and regulations. The Company is also subject to various foreign laws with
respect to the Aruba Resort. In addition, there can be no assurance that in the
future, Timeshare Interests will not be deemed to be securities subject to
regulation as such, which could have a material adverse effect on the Company.
The Company believes that it is in compliance in all material respects with
applicable regulations. However, no assurance can be given that the cost of
complying with applicable laws and regulations will not be significant or that
the Company is in fact in compliance with applicable law. Any failure to comply
with applicable laws or regulations could have a material adverse effect on the
Company.
The Company's sales and marketing of residential land are subject to
various consumer protection laws and to the Interstate Land Sales Full
Disclosure Act which establishes strict guidelines with respect to the marketing
and sale of land in interstate commerce. HUD has enforcement powers with respect
to this statute. In some instances, the Company has been exempt from HUD
registration requirements because of the size or number of the subdivided
parcels and the limited nature of its offerings. The Company, at its discretion,
may formally request an exemption advisory opinion from HUD to confirm the
exempt status of any particular offering. Several such exemption requests have
been submitted to, and approved by, HUD. In those cases where the Company and
its legal counsel determine parcels must be registered to be sold, the Company
files registration materials disclosing financial information concerning the
property, evidence of title and a description of the intended manner of offering
and advertising such property. The Company bears the cost of such registration,
which includes legal and filing fees. Many states also have statutes and
regulations governing the sale of real estate. Consequently, the Company
regularly consults with counsel for assistance in complying with federal, state
and local law. The Company must obtain the approval of numerous governmental
authorities for its acquisition and marketing activities and changes in local
circumstances or applicable laws may necessitate the application for, or the
modification of, existing approvals.
The Company's timeshare resorts are subject to various regulatory
requirements including state and local approvals. The laws of most states
require the Company to file with a designated state authority for its approval a
detailed offering statement describing the Company and all material aspects of
the project and sale of Timeshare Interests. Laws in each state where the
Company sells Timeshare Interests generally grant the purchaser of a Timeshare
Interest the right to cancel a contract of purchase at any time within a
specified period following the earlier of the date the contract was signed or
the date the purchaser has received the last of the documents required to be
provided by the Company. Most states have other laws which regulate the
Company's activities, such as real estate licensure; seller's of travel
licensure; anti-fraud laws; telemarketing laws; prize, gift and sweepstakes
laws; and labor laws. In addition, certain state and local laws may impose
liability on property developers with respect to construction defects discovered
or repairs made by future owners of such property. Pursuant to such laws, future
owners may recover from the Company amounts in connection with the repairs made
to the developed property. As required by state laws, the Company provides its
timeshare purchasers with a public disclosure statement which contains, among
other items, detailed information about the surrounding vicinity, the resort and
the purchaser's rights and obligations as a Timeshare Interests owner.
16
<PAGE>
Under various federal, state and local laws, ordinances and regulations,
the owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
lease a property or to borrow using such real property as collateral. Other
federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at a property.
The Company's customer financing activities are also subject to extensive
regulation, which may include, the Truth-in-Lending Act and Regulation Z, the
Fair Housing Act, the Fair Debt Collection Practices Act, the Equal Credit
Opportunity Act and Regulation B, the Electronic Funds Transfer Act and
Regulation E, the Home Mortgage Disclosure Act and Regulation C, Unfair or
Deceptive Acts or Practices and Regulation AA and the Right to Financial Privacy
Act.
Management is not aware of any pending regulatory contingencies that are
expected to have a material adverse impact on the Company.
Competition
The real estate industry is highly competitive. In each of its markets, the
Company competes against numerous developers and others in the real estate
business. The Resorts Division competes with various high profile and
well-established operators. Many of the world's most recognized lodging,
hospitality and entertainment companies have begun to develop and sell Timeshare
Interests in resort properties. Major companies that now operate or are
developing or planning to develop timeshare resorts include Marriott, Disney,
Hilton, Hyatt, Four Seasons and Inter-Continental. The Company also competes
with other publicly traded timeshare companies, including Sunterra, Vistana,
Fairfield, Silverleaf and numerous other owners and operators of timeshare
resorts. The Residential Land and Golf Division competes with builders,
developers and others for the acquisition of property and with local, regional
and national developers, housebuilders and others with respect to the sale of
residential lots. Competition may be generally smaller with respect to the
Company's residential lot sales in the more rural markets in which it operates.
The Company believes that it can compete on the basis of its reputation and the
price, location and quality of the products it offers for sale, as well as on
the basis of its experience in land acquisition, development and sale. Although,
as noted above, the Resorts Division competes with various high profile and
well-established operators, the Company believes that it can compete on the
basis of its general reputation and the price, location and quality of its
timeshare resorts. The development and operation of additional timeshare resorts
in the Company's markets could have a material adverse impact on the demand for
the Company's Timeshare Interests and its results of operations. In its customer
financing activities, the Company competes with banks, mortgage companies, other
financial institutions and government agencies offering financing of real
estate. In recent years, the Company has experienced increased competition with
respect to the financing of Residential Land and Golf Division sales as
evidenced by the low percentage of residential land sales internally financed
since 1995. The Company believes that, based on its interest rates and repayment
schedules, the financing packages it offers are convenient for customers and
competitive with those of other institutions which offer such financing.
Personnel
As of March 28, 1999, the Company had 1,988 employees. Of the 1,988
employees, 265 were located at the Company's headquarters in Boca Raton,
Florida, and 1,723 in regional offices throughout the United States and Canada
(the field personnel include 264 field employees supporting the Company's
Residential Land and Golf Division and 1,459 field employees supporting the
Company's Resorts Division). None of the Company's employees are represented by
a collective bargaining unit, and the Company believes that relations with its
employees generally are excellent.
Item 2. PROPERTIES.
The Company's principal executive office is located in Boca Raton, Florida
in approximately 55,000 square feet of leased space. On March 28, 1999, the
Company also maintained regional sales offices in the Northeastern,
Mid-Atlantic, Southeastern, Midwestern, Southwestern, Rocky Mountain and Western
regions of the
17
<PAGE>
United States as well as the Province of Ontario, Canada and the island of
Aruba. See further description of the Company's resort and land properties under
"Item 1--Company Products".
Item 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase, subdivision,
sale and/or financing of real estate. Additionally, from time to time, the
Company becomes involved in disputes with existing and former employees. The
Company believes that substantially all of the above are incidental to its
business.
In addition to its other ordinary course litigation, the Company became a
defendant in two proceedings during fiscal 1999. First, an action was filed in
Colorado state court against the Company on September 15, 1998 (the Company has
removed the action to the Federal District Court in Denver). 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 (the "Action") was filed on July 10, 1998 in the District
Court for the State of Texas in the County of Montgomery 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.
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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company as of June 22, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George F. Donovan 60 President and Chief Executive Officer
Daniel C. Koscher 41 Senior Vice President - Land Division
L. Nicolas Gray 52 Senior Vice President - Resorts Division
Patrick E. Rondeau 52 Senior Vice President, Director of Corporate Legal Affairs and Clerk
John F. Chiste 43 Senior Vice President, Chief Financial Officer and Treasurer
Allan J. Herz 39 Vice President and Director of Mortgage Operations
Joan A. McCormick 56 Vice President and Chief Information Officer
Susan J. Milanese 40 Vice President and Director of Human Resources
Anthony M. Puleo 31 Vice President and Chief Accounting Officer
</TABLE>
18
<PAGE>
George F. Donovan joined the Company as a Director in 1991 and was appointed
President and Chief Operating Officer in October 1993. He became Chief Executive
Officer in December 1993. Mr. Donovan has served as an officer of a number of
other recreational real estate corporations, including Leisure Management
International, of which he was President from 1991 to 1993, and Fairfield
Communities, Inc., of which he was President from April 1979 to December 1985.
Mr. Donovan holds a B.S. in Electrical Engineering and is a Registered Resort
Professional.
John F. Chiste joined the Company in July 1997 as Treasurer and Chief Financial
Officer. In 1998, Mr. Chiste was also named Senior Vice President. From January
1997 to June 1997, Mr. Chiste was the Chief Financial Officer of Compscript,
Inc., an entity which provides institutional pharmacy services to long-term
health care facilities. From December 1992 to January 1997, he served as the
Chief Financial Officer, Secretary and Treasurer of Computer Integration
Corporation, a publicly-held distribution company which provides information
products and services to corporations nationwide. From 1983 through 1992, Mr.
Chiste held various positions with Ernst & Young LLP, most recently serving as a
Senior Manager. Mr. Chiste holds a B.B.A. in Accounting and is a Certified
Public Accountant.
L. Nicolas Gray joined the Company in 1995 to oversee the Company's timeshare
resorts operation and was named Senior Vice President in 1997. Mr. Gray has over
25 years of experience in the hospitality, timeshare and related resort
industries. Mr. Gray served as Director of Development for Resort Condominium
International, a timeshare exchange organization, from 1993 to 1995. Prior to
that time, Mr. Gray was Executive Vice President and General Manager for the
resort developments of Thousand Trails from 1989 to 1991 and Fairfield
Communities from 1979 to 1989. Mr. Gray is a Registered Resort Professional.
Daniel C. Koscher joined the Company in 1986. During his tenure, he has served
in various financial management positions including Chief Accounting Officer,
Vice President and Director of Planning/Budgeting. In 1997, he became Senior
Vice President, Residential Land and Golf Division. Prior to his employment with
the Company, Mr. Koscher was employed by the William Carter Company, a
manufacturing company located in Needham, Massachusetts. He has also been
employed by Cipher Data Products, Inc., a computer peripheral manufacturer
located in San Diego, California, as well as the State of Nevada as an audit
agent. Mr. Koscher holds an M.B.A. along with a B.B.A. in Accounting and is a
Registered Resort Professional.
Patrick E. Rondeau joined the Company in 1990 and was elected Vice President and
Director of Corporate Legal Affairs. He became Clerk in 1993 and Senior Vice
President in 1997. For more than five years prior to his employment with the
Company, Mr. Rondeau was a senior partner of Freedman, DeRosa & Rondeau, located
in North Adams, Massachusetts, which firm serves as legal counsel to the Company
on various matters. Mr. Rondeau holds a B.A. in Political Science along with a
J.D.
Allan J. Herz joined the Company in 1992 and was named Director of Mortgage
Operations in September 1992. Mr. Herz was also elected Vice President in 1993.
From 1982 to 1992, Mr. Herz worked for AmeriFirst Federal Savings Bank based in
Miami, Florida. During his 10 year tenure with the bank, he held various lending
positions, the most recent being Division Vice President in Consumer Lending.
Mr. Herz holds a B.B.A. and a M.B.A.
Joan A. McCormick joined the Company in 1993 as its Director of Management
Information Systems and was also elected Vice President in February 1995. In
1998, Ms. McCormick was named Chief Information Officer. Ms. McCormick has over
20 years of experience in information systems management in the real estate,
hotel, banking and manufacturing fields. Prior to joining the Company, Ms.
McCormick was Assistant Vice President of MIS for Atlantic Gulf Communities
Corporation. She has also held management positions with Arvida/JMB Partners
Ltd., Southeast Banking Corporation and General Motors Corporation. She holds a
B.A. in Business Administration.
Susan J. Milanese joined the Company in 1988. During her tenure, she has held
various management positions in the Company including Assistant to the Chief
Financial Officer, Divisional Controller and Director of Accounting. In 1995,
she was elected Vice President and Director of Human Resources. From 1983 to
1988, Ms. Milanese was employed by General Electric Company in various financial
management positions including the corporate audit staff. Ms. Milanese holds her
B.B.A in Accounting.
19
<PAGE>
Anthony M. Puleo joined the Company in October 1997 as Chief Accounting Officer.
In 1998, Mr. Puleo was also elected Vice President. From December 1990 through
October 1997, Mr. Puleo held various positions with Ernst & Young LLP, most
recently serving as a Senior Manager in the Assurance and Advisory Business
Services group. Mr. Puleo holds a B.B.A. in Accounting and is a Certified Public
Accountant.
The Company's By-Laws provide that, except as otherwise provided by law or
the charter and by-laws of the Company, the President, Treasurer and the Clerk
hold office until the first meeting of the Board of Directors following the next
annual meeting of shareholders and until their respective successors are chosen
and qualified and that all other officers hold office for the same period unless
a shorter time is specified in the vote appointing such officer or officers.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information provided on page 30 of the 1999 Annual Report is
incorporated herein by reference.
The Company did not pay any cash or stock dividends during fiscal 1998 or
fiscal 1999. The Company does not anticipate paying any dividends in the
foreseeable future, as it currently anticipates that it will retain any future
earnings for use in its business. Restrictions contained in the Indenture
related to the Company's $110 million 10 1/2% Senior Secured Notes due 2008
issued in April 1998, and certain of the Company's credit facilities may, in
certain instances, limit the payment of cash dividends on its Common Stock.
On August 14, 1998, the Company entered into a Securities Purchase
Agreement (the "Stock Agreement") with 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 2.9 million shares of the Company's Common
Stock for an aggregate of $25 million. On March 26, 1999, the Funds purchased an
additional 1.2 million shares of Common Stock for an aggregate of $10 million.
Aggregate legal and other stock issuance costs totaled approximately $750,000.
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 of the Company occurs (as defined in the Stock Agreement)
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.
Subject to certain exceptions, the Funds have agreed not to offer, sell,
transfer, assign, pledge or hypothecate any shares of Common Stock issued to
them, prior to the earlier of (i) August 14, 2000 or (ii) nine months following
the date on which the Funds have purchased all the shares of Common Stock to be
purchased by them under the Stock Agreement, but in no event earlier than
February 14, 2000.
Shares of Common Stock sold to the Funds were exempt from registration
under the Securities Act of 1933, by virtue of Section 4(2) and Rule 506 of
Regulation D and were issued thereunder.
Item 6. SELECTED FINANCIAL DATA.
The information provided on page 17 of the 1999 Annual Report is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The information provided under the heading "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on pages 18 through
29 of the 1999 Annual Report is incorporated herein by reference.
20
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information provided on pages 29 through 30 of the 1999 Annual Report
is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and its subsidiaries
and the related Notes thereto and report of independent certified public
accountants on pages 31 through 55 of the 1999 Annual Report are incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information with respect to the Company's Directors, see the
information provided under the headings "Proposal 1 - Election of Nominees for
Director" and "Certain Relationships and Other Transactions" in the Proxy
Statement, which sections are incorporated herein by reference. Information
concerning the executive officers of the Company appears immediately after Part
I of this Annual Report on Form 10-K.
Section 16 Compliance
The information provided under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
The information provided under the headings "Proposal 1- Election of
Nominees for Director," "Board of Directors and its Committees," "Compensation
Committee Report on Executive Compensation", "Compensation of Chief Executive
Officer", "Executive Compensation" and "Certain Relationships and Other
Transactions" in the Company's Proxy Statement is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information provided under the heading "Proposal 1 - Election of
Nominees for Director" in the Proxy Statement is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information provided under the headings "Proposal 1 - Election of
Nominees for Director," "Executive Compensation" and "Certain Relationships and
Other Transactions" in the Proxy Statement is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
1. The following Consolidated Financial Statements and Notes thereto of the
Company and its subsidiaries and the report of independent certified public
accountants relating thereto, included in the 1999 Annual Report on pages
31 through 55 are incorporated by reference into Item 8 hereof:
21
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets as of March 29, 1998 and March 28, 1999 31
Consolidated Statements of Operations for each of the three years in the period
ended March 28, 1999 32
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended March 28, 1999 33
Consolidated Statements of Cash Flows for each of the three years in the period
ended March 28, 1999 34
Notes to Consolidated Financial Statements 36
Report of Independent Certified Public Accountants 55
</TABLE>
2. All financial statement schedules are omitted because they are not
applicable, are not present in amounts sufficient to require submission of
the schedules or the required information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) List of Exhibits.
The exhibits which are filed with this Annual Report on Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index which
appears at pages 24 through 27 hereof and is incorporated herein by reference.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
See (a)(3) above.
(d) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable,
are not present in amounts sufficient to require submission of the schedules or
the required information is presented in the Consolidated Financial Statements
or related notes.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: June 22, 1999 By: /S/ GEORGE F. DONOVAN
---------------------------------------
George F. Donovan
President and Chief Executive Officer
Date: June 22, 1999 By: /S/ JOHN F. CHISTE
---------------------------------------
John F. Chiste,
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: June 22, 1999 By: /S/ ANTHONY M. PULEO
---------------------------------------
Anthony M. Puleo,
Vice President and Chief Accounting
Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 22nd day of June, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/S/ GEORGE F. DONOVAN President, Chief Executive Officer and Director
- ---------------------------
George F. Donovan
/S/ JOHN F. CHISTE Senior Vice President, Treasurer and Chief Financial Officer
- --------------------------- (Principal Financial Officer)
John F. Chiste
/S/ ANTHONY M. PULEO Vice President and Chief Accounting Officer
- --------------------------- (Principal Accounting Officer)
Anthony M. Puleo
/S/ JOSEPH C. ABELES Director
- ---------------------------
Joseph C. Abeles
/S/ RALPH A. FOOTE Director
- ---------------------------
Ralph A. Foote
/S/ MICHAEL J. FRANCO Director
- ---------------------------
Michael J. Franco
/S/ JOHN A. HENRY, IV Director
- ---------------------------
John A. Henry, IV
/S/ FREDERICK M. MYERS Director and Chairman of the Board
- ---------------------------
Frederick M. Myers
/S/ J. LARRY RUTHERFORD Director
- ---------------------------
J. Larry Rutherford
/S/ STUART A. SHIKIAR Director
- ---------------------------
Stuart A. Shikiar
/S/ BRADFORD T. WHITMORE Director
- ---------------------------
Bradford T. Whitmore
</TABLE>
23
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
3.1 Restated Articles of Organization, as amended (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K
for the year ended March 31, 1996).
3.2 Restated and amended By-laws of the Registrant (incorporated by
reference to exhibit 3.3 to Current Report on Form 8-K dated August
14, 1998).
4.4 Specimen of Common Stock Certificate (incorporated by reference to
exhibit of same designation to Registration Statement on Form S-1,
File No. 33-13076).
4.6 Form of Indenture dated as of May 15, 1987 relating to the Company's
8.25% Convertible Subordinated Debentures Due 2012, including Form of
Debenture (incorporated by reference to exhibit of same designation to
Registration Statement on Form S-1, File No. 33-13753).
4.7 Indenture dated as of April 1, 1998 by and among the Registrant,
certain subsidiaries of the Registrant, and SunTrust Bank, Central
Florida, National Association, as trustee, for the 10 1/2% Senior
Secured Notes due 2008. (incorporated by reference to exhibit of same
designation to Registration Statement on Form S-4, File No. 333-50717)
4.8 First Supplemental Indenture dated as of March 15, 1999 by and among
the Registrant, certain subsidiaries of the Registrant, and SunTrust
Bank, Central Florida, National Association, as trustee, for the 10
1/2% Senior Secured Notes due 2008.
10.24 Form of Agreement dated June 27, 1989 between the Registrant and
Peoples Heritage Savings Bank relating to sale of mortgage notes
receivable (incorporated by reference to exhibit of same designation
to Annual Report on Form 10-K for the fiscal year ended April 2,
1989).
10.47 Amended and Restated Loan and Security Agreement entered into as of
January 9, 1990 by Patten Receivables Finance Corporation VI, Finova
Capital Corporation (fka Greyhound Real Estate Finance Corporation)
and the Registrant as Guarantor (incorporated by reference to exhibit
of same designation to Annual Report on Form 10-K for the fiscal year
ended April 1, 1990).
10.53 Modification dated July 16, 1990 of Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended April 1, 1990).
10.58 Amendment No. 2 dated March 23, 1991 to the Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990, by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and The Registrant as
Guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended March 31, 1991).
10.59 Amendment No. 3 dated November 21, 1991 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.100 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.60 Amendment No. 4 dated January 30, 1992 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.101 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.61 Amendment No. 5 dated October, 1992 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.102 to Annual
Report on Form 10-K for the year ended March 31, 1996).
24
<PAGE>
10.62 Amendment No. 6 dated May 12, 1993 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.88 to Annual Report
on Form 10-K for the fiscal year ended March 27, 1994).
10.63 Amendment No. 7 dated February 18, 1994 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.89 to Annual Report
on Form 10-K for the fiscal year ended March 27, 1994).
10.64 Amendment No. 8 dated March 25, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.103 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.65 Amendment No. 9 dated June 29, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.91 to Quarterly
Report on Form 10-Q for the period ended September 25, 1994).
10.66 Amendment No. 10 dated December 14, 1994 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.94 to Annual Report
on Form 10-K for the fiscal year ended April 2, 1995).
10.67 Amendment No. 11 dated October 31, 1995 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.104 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.68 Amendment No. 12 dated May 1, 1996 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.105 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.77 Registrant's Amended 1988 Outside Directors Stock Option Plan
(incorporated by reference to exhibit of same designation to Annual
Report on Form 10-K for the fiscal year ended March 29, 1992).
10.78 Registrant's 1988 Amended Outside Director's Stock Option Plan
(incorporated by reference to exhibit to Registration Statement on
Form S-8, File No. 33-61687 ).
10.79 Registrant's 1995 Stock Incentive Plan, as amended (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K
for the fiscal year ended March 29, 1998).
10.80 Registrant's Retirement Savings Plan (incorporated by reference to
Registration Statement on Form S-8, File No. 33-48075).
10.85 Loan and Security Agreement by and between the Registrant and Foothill
Capital Corporation dated as of October 29, 1993 (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K
for the fiscal year ended March 27, 1994).
10.93 Stock Purchase Agreement dated as of November 22, 1994 by and among
Harry S. Patten and the Purchasers named therein (incorporated by
reference to exhibit of same designation to Current Report on Form 8-K
dated November 22, 1994).
25
<PAGE>
10.97 Pooling and Servicing Agreement dated as of April 15, 1994, among
Patten Receivables Finance Corporation IX, the Registrant, Patten
Corporation REMIC Trust, Series 1994-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit 10.84 to
Annual Report on Form 10-K for the fiscal year ended March 27, 1994).
10.98 Pooling and Servicing Agreement dated as of June 15, 1995, among
Patten Receivables Finance Corporation X, the Registrant, Patten
Corporation REMIC Trust, Series 1995-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit to
Current Report on Form 8-K dated July 12, 1995).
10.99 Pooling and Servicing Agreement dated as of April 15, 1996, among
Bluegreen Receivables Finance Corporation I, the Registrant, Bluegreen
Corporation REMIC Trust, Series 1996-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit to
Current Report on Form 8-K dated May 15, 1996).
10.100 Pooling and Servicing Agreement dated as of November 15, 1996, among
Bluegreen Receivables Finance Corporation II, the Registrant,
Bluegreen Corporation REMIC Trust, Series 1996-2 and First Trust
National Association, as Trustee (incorporated by reference to exhibit
to Current Report on Form 8-K dated Decenber 11, 1996).
10.101 Sale and Contribution Agreement dated as of June 26, 1998 by and among
Bluegreen Corporation, Bluegreen Receivables Finance Corporation III
and BRFC III Deed Corporation (incorporated by reference to exhibit
99.1 to Current Report on Form 8-K dated June 26, 1998).
10.102 Asset Purchase Agreement dated as of June 26, 1998 by and among
Bluegreen Corporation, Bluegreen Receivables Finance Corporation III,
BRFC III Deed Corporation, Heller Financial, Inc. and U.S. Bank
National Association, as cash administrator, including Definitions
Annex (incorporated by reference to exhibit 99.2 to Current Report on
Form 8-K dated June 26, 1998).
10.107 Loan and Security Agreement by and between Heller Financial, Inc. and
Bluegreen Resorts, Inc. (fka Patten Resorts, Inc.) dated February 28,
1996 (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the year ended March 31, 1996).
10.108 First Amendment dated February 27, 1997 to Loan and Security Agreement
by and between Heller Financial, Inc. and Bluegreen Resorts, Inc. (fka
Patten Resorts, Inc.) dated February 28, 1996 (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K
for the year ended March 31, 1996).
10.123 Exchange and Registration Rights Agreement dated April 1, 1998, by and
among the Registrant and the persons named therein, relating to the 10
1/2 % Senior Secured Notes due 2008 (incorporated by reference to
exhibit of same designation to Registration Statement on Form S-4,
File No. 333-50717).
10.124 Employment Agreement between George F. Donovan and the Company dated
March, 1998 (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717).
10.125 Employment Agreement between John F. Chiste and the Company dated
March, 1998 (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717).
10.126 Employment Agreement between L. Nicolas Gray and the Company dated
March, 1998 (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717).
10.127 Employment Agreement between Daniel C. Koscher and the Company dated
March, 1998 (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717).
10.128 Employment Agreement between Patrick E. Rondeau and the Company dated
March, 1998 (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717).
26
<PAGE>
10.129 Amended and Restated Credit Facility Agreement entered into as of
April 16, 1998 between Finova Capital Corporation and the Registrant
(incorporated by reference to exhibit of same designation to
Registration Statement on Form S-4, File No. 333-50717).
10.130 Amended and Restated Loan and Security Agreement dated as of September
23, 1997 between Foothill Capital Corporation and the Registrant
(incorporated by reference to exhibit of same designation to
Registration Statement on Form S-4, File No. 333-50717).
10.131 Registrant's 1998 Non-Employee Director Stock Option Plan
(incorporated be reference to exhibit of same designation to Annual
Report on Form 10-K for the year ended March 29, 1998).
10.132 Loan Agreement and Promissory Note dated September 23, 1998, 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 July 31, 1999 (incorporated by reference to exhibit
of same designation to Quarterly Report on Form 10-Q dated September
27, 1998).
10.133 Loan and Security Agreement dated October 20, 1998, by the Registrant
and Bluegreen Resorts, Inc. as Borrowers and Heller Financial, Inc. as
Lender (incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated December 27, 1998).
10.134 Master Bluegreen Resort Loan Facility dated October 20, 1998, by and
between the Registrant and Heller Financial, Inc. (incorporated by
reference to exhibit of same designation to Quarterly Report on Form
10-Q dated December 27, 1998).
10.135 Purchase Agreement dated as of August 14, 1998 by and among Bluegreen
Corporation, Morgan Stanley Real Estate Investors III, L.P., Morgan
Stanley Real Estate Fund III, L.P., MSP Real Estate Fund, L.P. and
MSREF III Special Fund, L.P. (incorporated by reference to exhibit
10.131 to Current Report on Form 8-K dated August 14, 1998).
10.136 Registration Rights Agreement, dated as of August 14, 1998, among
Morgan Stanley Real Estate Investors III, L.P., Morgan Stanley Real
Estate Fund III, L.P., MSP Real Estate Fund, L.P and MSREF III Special
Fund, L.P. and Bluegreen Corporation (incorporated by reference to
exhibit 10.132 to Current Report on Form 8-K dated August 14, 1998).
10.137 Voting and Cooperation Agreement, dated as of August 14, 1998, among
Morgan Stanley Real Estate Investors III, L.P., Morgan Stanley Real
Estate Fund III, L.P., MSP Real Estate Fund, L.P., MSREF III Special
Fund, L.P. and certain shareholders of Bluegreen Corporation
(incorporated by reference to exhibit 10.133 to Current Report on Form
8-K dated August 14, 1998).
13.1 Portions of the 1999 Annual Report.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
27
----------
BLUEGREEN CORPORATION
as Issuer,
CERTAIN OF ITS SUBSIDIARIES SPECIFIED HEREIN
as Subsidiary Guarantors,
and
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
as Notes Trustee,
----------
$110,000,000
10 1/2% SENIOR SECURED NOTES DUE 2008
----------
FIRST SUPPLEMENTAL INDENTURE
Dated as of March 15, 1999
to
INDENTURE
Dated as of April 1, 1998
----------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of March 15, 1999 (this "First
Supplemental Indenture"), to the Indenture (as defined below), among Bluegreen
Corporation, a Massachusetts corporation (the "Company"), the Subsidiary
Guarantors (as defined in the Indenture), the Subsidiary of the Company listed
on Schedule A annexed hereto (the "Additional Guarantor") and SunTrust Bank,
Central Florida, National Association, a national banking association, in its
capacity as trustee (the "Notes Trustee").
WHEREAS, the Company has issued its 10 1/2% Senior Secured Notes due 2008
(the "Notes") in the aggregate principal amount of $110,000,000 under and
pursuant to the Indenture, dated as of April 1, 1998 (the "Indenture"), among
the Company, the Subsidiary Guarantors named therein and the Notes Trustee; and
WHEREAS, the Additional Guarantor has become a Restricted Subsidiary and
pursuant to Section 10.07 of the Indenture is entering into this First
Supplemental Indenture to thereby become a Subsidiary Guarantor as provided in
Article Ten of the Indenture; and
WHEREAS, pursuant to Section 9.01(a)(iv) of the Indenture, the Company, the
Subsidiary Guarantors, the Additional Guarantor and the Notes Trustee may enter
into this First Supplemental Indenture without the consent of any Noteholder;
and
WHEREAS, all consents and notices required to be obtained and given as
conditions to the execution of this First Supplemental Indenture pursuant to the
Indenture and all other documents relating to the Notes have been obtained and
given;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE 1: AUTHORIZATION; DEFINITIONS
SECTION 1.01. FIRST SUPPLEMENTAL INDENTURE.
This First Supplemental Indenture is supplemental to, and is entered into,
in accordance with Section 9.01 of the Indenture, and except as modified,
amended and supplemented by this First Supplemental Indenture, the provisions of
the Indenture are in all respects ratified and confirmed and shall remain in
full force and effect.
SECTION 1.02. DEFINITIONS.
Unless the context shall otherwise require, all terms which are defined in
Section 1.01 of the Indenture shall have the same meanings, respectively, in
this First Supplemental Indenture as such terms are given in said Section 1.01
of the Indenture.
1
<PAGE>
ARTICLE 2: ADDITIONAL GUARANTOR
SECTION 2.01. ADDITIONAL GUARANTOR.
Pursuant to Section 10.07 of the Indenture, the Additional Guarantor hereby
expressly assumes the obligations of, and otherwise agrees to perform all of the
duties of, a Subsidiary Guarantor under the Indenture, subject to the terms and
conditions thereof, as of the date set forth opposite the name of such
Additional Guarantor on Schedule A hereto.
ARTICLE 3: MISCELLANEOUS
SECTION 3.01. EFFECTIVE DATE.
This First Supplemental Indenture shall become effective upon execution and
delivery hereof.
SECTION 3.02. COUNTERPARTS.
This First Supplemental Indenture may be executed in several counterparts,
each of which shall be an original and all of which shall constitute but one and
the same instrument.
SECTION 3.03. ACCEPTANCE.
The Notes Trustee accepts the Indenture, as supplemented by this First
Supplemental Indenture, and agrees to perform the same upon the terms and
conditions set forth therein as so supplemented. The Notes Trustee shall not be
responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this First Supplemental Indenture or the due execution by the
Company, the Subsidiary Guarantors or the Additional Guarantor, or for or in
respect of the recitals contained herein, all of which are made solely by the
Company.
SECTION 3.04. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this First Supplemental Indenture, by the
Company, the Guarantors, the Additional Guarantor or the Notes Trustee shall
bind its respective successors and assigns, whether so expressed or not.
SECTION 3.05. SEVERABILITY.
In case any provision in this First Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
2
<PAGE>
SECTION 3.06. GOVERNING LAW.
This First Supplemental Indenture shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed within the State of New York, without regard to principles of
conflict of laws. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this First Supplemental Indenture.
SECTION 3.07. INCORPORATION INTO INDENTURE.
All provisions of this First Supplemental Indenture shall be deemed to be
incorporated in, and made part of, the Indenture, and the Indenture, as amended
and supplemented by this First Supplemental Indenture, shall be read, taken and
construed as one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed as of the date first above written.
BLUEGREEN CORPORATION
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: Senior Vice President
BLUEGREEN RESORTS
MANAGEMENT, INC.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
BLUEGREEN HOLDING
CORPORATION (TEXAS)
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
3
<PAGE>
PROPERTIES OF THE SOUTHWEST
ONE, INC.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: Executive Vice President
BLUEGREEN SOUTHWEST ONE, L.P.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: Executive Vice President of
Its General Partner,
BLUEGREEN SOUTHWEST LAND, INC.
BLUEGREEN ASSET MANAGEMENT
CORPORATION
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
BLUEGREEN CAROLINA LAND, INC.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
BLUEGREEN CORPORATION OF
MONTANA
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
4
<PAGE>
BLUEGREEN CORPORATION OF
TENNESSEE
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
BLUEGREEN CORPORATION OF THE
ROCKIES
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
BLUEGREEN PROPERTIES OF
VIRGINIA, INC. (formerly known as
VIRGINIA LAND & FOREST
CORPORATION)
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
BLUEGREEN RESORTS
INTERNATIONAL, INC.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
CAROLINA NATIONAL GOLF CLUB,
INC.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
5
<PAGE>
LEISURE CAPITAL CORPORATION
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
BLUEGREEN WEST CORPORATION
(formerly known as PROPERTIES OF THE
WEST, INC.)
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
BG/RDI ACQUISITION CORP.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: President
RDI GROUP, INC.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: Secretary
DELLONA ENTERPRISES, INC.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: Secretary
6
<PAGE>
BLUEGREEN VACATIONS UNLIMITED,
INC. (formerly known as RDI
RESOURCES, INC.)
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: Secretary
BLUEGREEN SOUTHWEST LAND, INC.
By: /s/ Patrick E. Rondeau
----------------------------------
Name: Patrick E. Rondeau
Title: Secretary
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
SUNTRUST BANK, CENTRAL
FLORIDA, NATIONAL ASSOCIATION
By: /s/ Lisa Derryberry
----------------------------------
Name: Lisa Derryberry
Title: Vice President
8
<PAGE>
SCHEDULE A
ADDITIONAL GUARANTOR
Name Date
- ---- ----
Bluegreen Southwest Land, Inc. March 15, 1999
9
Selected Consolidated Financial Data
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related notes, and other
financial information appearing elsewhere in this Annual Report.
<TABLE>
<CAPTION>
April 2, March 31, March 30, March 29, March 28,
As of or for the Year Ended, 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales................................................. $ 91,922 $113,422 $109,722 $172,659 $225,816
Other resort and golf operations revenue.............. -- -- -- 4,113 12,832
Interest income....................................... 7,675 6,288 6,255 10,819 14,804
Gain (loss) on sale of notes receivable............... (411) 1,100 (96) -- 3,692
Other income.......................................... 372 122 259 312 522
-----------------------------------------------------------
Total revenues........................................ 99,558 120,932 116,140 187,903 257,666
Income (loss) before income taxes and minority interest 10,402 10,916 (7,390) 17,003 31,917
Net income (loss)..................................... 6,137 6,467 (4,360) 10,000 17,040
Earnings (loss) per common share:
Basic............................................... 0.30 0.32 (0.21) 0.49 0.77
Diluted............................................. 0.29 0.30 (0.21) 0.46 0.66
Balance Sheet Data:
Notes receivable, net................................. $ 40,678 $ 37,194 $ 35,062 $ 81,293 $ 64,380
Inventory, net........................................ 62,345 73,595 86,661 107,198 142,628
Total assets.......................................... 152,222 154,963 169,627 272,963 349,122
Shareholders' equity.................................. 58,040 64,698 59,243 69,993 119,349
Book value per common share........................... 2.98 3.15 2.94 3.37 4.76
Other Data:
EBITDA(1)............................................. $ 18,522 $ 18,978 $ 8,291 $ 29,897 $ 48,402
Weighted-average interest rate on notes
receivable at period end............................ 12.4% 12.4% 13.3% 14.9% 15.0%
Resorts division statistics:
Total resort division sales......................... $ 5,886 $ 13,825 $ 27,425 $ 60,751 $103,127
Number of resorts at period end..................... 2 3 4 8 10
Gross margin on resort sales........................ 62.2% 67.1% 71.0% 74.0% 75.7%
Number of timeshare intervals sold(2)............... 952 1,865 3,195 6,904 11,764
Residential land and golf division statistics:
Total residential land and golf division sales...... $ 72,621 $ 84,859 $ 72,621 $106,071 $118,908
Gross margin on sales of land....................... 57.2% 51.1% 45.2% 50.3% 55.3%
Number of land parcels sold(2)...................... 2,397 2,347 2,057 2,377 2,302
</TABLE>
(1) EBITDA should not be considered in isolation of construed as a substitute
for the Company's net income (loss), income (loss) from operations, cash
flows from operating activities or liquidity in analyzing the Company's
operating performance, financial position or cash flows. EBITDA is not
necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.
The following table reconciles EBITDA to net income (loss) (amounts in
thousands).
<TABLE>
<CAPTION>
April 2, March 31, March 30, March 29, March 28,
For the Years Ended, 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss)....................................... $ 6,137 $ 6,467 $(4,360) $10,000 $17,040
Extraordinary loss, net of income taxes................. -- -- -- -- 1,682
Interest expense............................... ........ 6,737 6,276 5,459 9,281 12,922
Capitalized interest expense included in cost of sales . 82 149 956 2,565 1,830
Income taxes............................................ 4,265 4,449 (3,030) 6,803 12,610
Provision for non-recurring costs(a).................... -- -- 8,200 -- --
Depreciation and amortization........................... 1,301 1,637 1,066 1,248 2,318
--------------------------------------------------
EBITDA.................................................. $18,522 $18,978 $ 8,291 $29,897 $48,402
--------------------------------------------------
</TABLE>
(a) The provision for non-recurring costs, which is included in Provisions
for Losses on the Consolidated Statement of Operations, represents the
Company's $8.2 million write-down of certain Communities Division and
Residential Land Division properties in the first quarter of fiscal
1997. See Note 5 of Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Results of Operations and
Financial Condition".
(b) Excludes amortization of debt issuance costs, which is included in
interest expense.
(2) Unit sales data includes those sales made during the applicable period
where recognition of revenue is deferred under the percentage-of-completion
method of accounting. See "Contracts Receivable and Revenue Recognition"
under Note 1 of Notes to Consolidated Financial Statements.
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Certain Definitions and Cautionary Statement Regarding Forward-Looking
Statements
The following discussion of the results of operations and financial condition of
Bluegreen Corporation (the "Company") should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes and other
financial information included elsewhere in this Annual Report. Unless otherwise
indicated in this discussion, references to "real estate" and to "inventories"
collectively encompass the Resorts Division, Residential Land and Golf Division
and the Company's other inventories held for sale. "Timeshare Interests"
typically entitle the buyer to a fully-furnished vacation residence for an
annual one-week period in perpetuity ("Timeshare Interests"). "EBITDA" refers to
net income (loss) before extraordinary item, interest expense, income taxes,
depreciation and amortization. "Estimated remaining life-of-project sales"
assumes sales of the existing, currently under construction or development, and
planned Timeshare Interests or residential lots, as the case may be, at current
retail prices.
Market and industry data used throughout this Annual Report were obtained
from internal Company surveys, industry publications, unpublished industry data
and estimates, discussions with industry sources and currently available
information. The sources for this data include, without limitation, the American
Resort Development Association ("ARDA"), a non-profit industry organization.
Industry publications generally state that the information contained therein has
been obtained from sources believed to be reliable, but there can be no
assurance as to the accuracy and completeness of such information. The Company
has not independently verified such market data. Similarly, internal Company
surveys, while believed by the Company to be reliable, have not been verified by
any independent sources. Accordingly, no assurance can be given that any such
data are accurate.
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 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 or achievements expressed or implied by such
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 of real estate 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.
<PAGE>
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 until development is 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.
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. See "Contracts Receivable and Revenue Recognition" under Note 1
to the Consolidated Financial Statements.
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.
Effective September 30, 1997, a wholly-owned subsidiary of the Company
acquired all of the issued and outstanding common stock of RDI Group, Inc. and
Resort Title Agency, Inc. (collectively "RDI") for a purchase price of $7.5
million consisting of $6 million cash and a $1.5 million, 9% promissory note due
October 3, 1999. RDI was privately-held and owned timeshare resorts in Orlando,
Florida and Wisconsin Dells, Wisconsin, as well as a points-based vacation club.
The acquisition was accounted for using the purchase method of accounting and,
accordingly, the results of operations of RDI have been included in the
Company's consolidated financial statements from September 30, 1997.
Approximately $1.8 million of goodwill, which is included in other assets on the
consolidated balance sheet, was recognized in connection with the acquisition of
RDI. The goodwill is being amortized over 25 years (see Note 2 of Notes to
Consolidated Financial Statements).
On December 15, 1997, the Company acquired a 50% ownership interest in
Bluegreen Properties N.V. ("BPNV"), an entity organized in Aruba that previously
had no operations. BPNV then acquired from a third party approximately 8,000
unsold timeshare intervals at the La Cabana Beach & Racquet Club (the "Aruba
Resort"), a fully-developed timeshare resort in Oranjestad, Aruba (see Note 3 of
Notes to Consolidated Financial Statements). In addition to its 50% ownership
interest, the Company will receive a quarterly management fee from BPNV equal to
7% of BPNV's net sales in exchange for the Company's involvement in the
day-to-day operations of BPNV. The Company also has majority control of BPNV's
board of directors and has a controlling financial interest in BPNV. Therefore,
the accounts of BPNV are included in the Company's consolidated financial
statements from December 15, 1997.
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
<PAGE>
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 any of fiscal
1997, 1998 or 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.
During the periods covered by this discussion, the Company's real estate
operations were managed under three 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 Company's Communities Division markets factory-built manufactured
home/lot packages and undeveloped lots. In the first quarter of fiscal 1997
(June 1996), the Company decided to focus on the expansion of the Resorts
Division and the Residential Land and Golf Division in certain locations.
Consistent with this strategy, the Company does not intend to acquire any
additional communities-related inventories and present Communities Division
inventories are being liquidated through a combination of bulk and retail sales.
As of and for the year ended March 28, 1999, the Communities Division comprised
approximately 1.0% and 1.7% of consolidated inventory and sales of real estate,
respectively. Therefore, there is minimal discussion of the Communities
Division's results of operations and financial condition in the following
analysis.
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 (see Note 1 of Notes to Consolidated Financial Statements). During
the first quarter of fiscal 1997, management changed its focus for marketing
certain of the Company's inventories in conjunction with a plan to accelerate
the sale of properties managed under the Communities Division and certain
properties managed under the Residential Land and Golf Division. This decision
was largely the result of management's focus on expansion of the Resort Division
and Residential Land and Golf Division in certain locations. As a result of the
strategy to accelerate sales, management determined that inventories with a
carrying value of $23.2 million should be written-down by $8.2 million during
the first quarter of fiscal 1997. The $8.2 million provision included $4.8
million for certain Communities Division inventories and $3.4 million for
certain Residential Land and Golf Division inventories. Management adopted a
plan to aggressively pursue opportunities for the bulk sale of a portion of the
written-down assets and reduced retail prices on others to increase sales
activity. At the time of the write-down, the Company's Communities Division
primarily consisted of three North Carolina properties acquired in 1988. The
Company began marketing home/lot packages in 1995 to accelerate sales at the
properties. However, the projects had been slow moving and yielded low gross
profits and little to no operating profits. A majority of the Residential Land
and Golf Division parcels subject to write-down were scattered lots acquired
through foreclosure or deedback in lieu of foreclosure, odd lots from former
projects or properties located in parts of the country where the Company has no
plans for expansion. As of March 28, 1999, approximately 89% (as measured by
historical cost basis) of the inventories subject to write-down had been sold
with no material additional losses incurred (see Note 5 of Notes to Consolidated
Financial Statements). The remaining unsold inventory represents approximately
1% of inventory as of March 28, 1999.
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 on its balance sheet (as investments in
securities) at the time of sale, and 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. 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 ultimate realization of the Company's retained
interests on loan sales will not result in a future loss or that future loan
sales will result in gains.
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Residential Land
Resorts and Golf Communities Total
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended March 30, 1997
Sales................................... $ 27,425 100.0% $ 72,621 100.0% $9,676 100.0% $109,722 100.0%
Cost of sales(1)........................ 7,947 29.0% 39,792 54.8% 9,352 96.7% 57,091 52.0%
---------------------------------------------------------------------------
Gross profit............................ 19,478 71.0% 32,829 45.2% 324 3.3% 52,631 48.0%
Field selling, general and
administrative expenses(2)............ 17,806 64.9% 23,297 32.1% 820 8.5% 41,923 38.2%
---------------------------------------------------------------------------
Field operating profit (loss)(3)........ $ 1,672 6.1% $ 9,532 13.1% $ (496) (5.2)% $ 10,708 9.8%
===========================================================================
Year Ended March 29, 1998
Sales................................... $ 60,751 100.0% $106,071 100.0% $5,837 100.0% $172,659 100.0%
Cost of sales(1)........................ 15,808 26.0% 52,703 49.7% 5,928 101.6% 74,439 43.1%
---------------------------------------------------------------------------
Gross profit (loss)..................... 44,943 74.0% 53,368 50.3% (91) (1.6)% 98,220 56.9%
Other resort operations revenues........ 4,113 6.8% -- -- -- -- 4,113 2.4%
Cost of other resort operations......... 3,219 5.3% -- -- -- -- 3,219 1.9%
Field selling, general and
administrative expenses(2)............ 38,794 63.9% 29,476 27.8% 179 3.1% 68,449 39.6%
---------------------------------------------------------------------------
Field operating profit (loss)(3)........ $ 7,043 11.6% $ 23,892 22.5% $(270) (4.7)% $ 30,665 17.8%
===========================================================================
Year Ended March 28, 1999
Sales................................... $103,127 100.0% $118,908 100.0% $3,781 100.0% $225,816 100.0%
Cost of sales(1)........................ 25,013 24.3% 53,183 44.7% 3,299 87.3% 81,495 36.1%
---------------------------------------------------------------------------
Gross profit............................ 78,114 75.7% 65,725 55.3% 482 12.7% 144,321 63.9%
Other resort and golf operations revenues 11,776 11.4% 1,056 0.9% -- -- 12,832 5.7%
Cost of resort and golf operations...... 10,243 9.9% 1,780 1.5% -- -- 12,023 5.3%
Field selling, general and
administrative expenses(2)............ 67,775 65.7% 32,957 27.7% 660 17.5% 101,392 44.9%
---------------------------------------------------------------------------
Field operating profit (loss)(3)........ $ 11,872 11.5% $ 32,044 27.0% $ (178) (4.8)% $ 43,738 19.4 %
===========================================================================
</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 $9.5 million, $12.5 million and $15.2 million for 1997,
1998 and 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 were $109.7 million for the year ended March 30, 1997
("fiscal 1997"), $172.7 million for the year ended March 29, 1998 ("fiscal
1998"), and $225.8 million for the year ended March 28, 1999 ("fiscal 1999"),
representing an increase of 57.4% from fiscal 1997 to fiscal 1998 and an
increase of 30.8% from fiscal 1998 to fiscal 1999.
RESORTS DIVISION
During fiscal 1997, 1998 and 1999, sales of Timeshare Interests contributed
$27.4 million or 25%, $60.8 million or 35%, and $103.1 million or 46%,
respectively, of the Company's total consolidated sales.
The following table sets forth certain information for sales of Timeshare
Interests for the periods indicated, before giving effect to the
percentage-of-completion method of accounting.
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
Number of
Timeshare Interests sold ..... 3,195 6,904 11,764
Average sales price per
Timeshare Interests .......... $8,362 $8,799 $8,787
Gross margin ................... 71% 74% 76%
The increase in the number of Timeshare Interests sold during fiscal 1998
as compared to fiscal 1997 was primarily due to the acquisition of RDI, which
generated sales of 1,101 Timeshare Interests, the Aruba Resort, which generated
sales of 412 Timeshare Interests, and two new resorts that opened for sales by
the Company, Harbour Lights in Myrtle Beach,
<PAGE>
South Carolina, and The Falls Village in Branson, Missouri, which generated
sales of 732 and 627 Timeshare Interests, respectively, during fiscal 1998. The
remaining increase was due to increased Timeshare Interest sales at the
Company's Shore Crest resort in Myrtle Beach, South Carolina (increase of 667
Timeshare Interests) and its resorts in Tennessee (increase of 170 Timeshare
Interests).
The increase in the number of Timeshare Interests sold during fiscal 1999
as compared to fiscal 1998 was primarily due to fiscal 1999 including one full
year of sales of the inventory acquired with RDI (2,658 Timeshare Interests) as
compared to only six months of such sales (1,101 Timeshare Interests) in fiscal
1998. Fiscal 1999 also included one full year of sales at the Aruba Resort
(1,835 Timeshare Interests) as compared to only three months of such sales (412
Timeshare Interests) in fiscal 1998. The Company's new off-site sales offices
and Lodge Alley Inn resort contributed an aggregate 443 Timeshare Interests sold
during fiscal 1999 with no corresponding sales in fiscal 1998. The remaining
sales growth is due to an increase of 1,437 Timeshare Interests sold at the
Company's existing resorts, primarily due to the implementation of the Company's
new vacation club concept at its existing sales sites.
The improvement in gross margins from the Company's resorts during fiscal
1998 was primarily the result of increases to retail selling prices,
particularly at Laurel Crest and inventory sold through the vacation club
acquired with RDI, which generated average gross margins of 76% and 77%,
respectively.
Resorts Division gross margins increased from fiscal 1998 to fiscal 1999
primarily due to approximately $920,000 of fees charged to the Company's
existing timeshare owners to convert their fixed-weeks into points-based
Timeshare Interests in the new vacation club program ("Conversions"). The costs
of Conversions to the Company are minimal. As of March 28, 1999, approximately
4% of the Company's eligible fixed-week owner base had converted their Timeshare
Interests into the vacation club. Also, BPNV recognized $1.4 million in revenue
with no corresponding cost of sales during fiscal 1999, pursuant to a sales and
marketing agreement whereby BPNV sells Timeshare Interests on behalf of a
third-party in Aruba.
The increase in field selling, general and administrative expense as a
percentage of sales for the Resorts Division during fiscal 1999 was primarily
due to the cost of start-up operations at the Company's new off-site sales
offices in Cleveland, Ohio, Orlando, Florida and Jeffersonville, Indiana
(serving the Louisville, Kentucky market), which generated a combined field
operating loss of $2.5 million during fiscal 1999. The Orlando off-site sales
office became an "on-site" operation in December 1998 with the opening of sales
operations in Phase II of the Company's Orlando's Sunshine Resort. The Company's
Cleveland office has completed start-up operations and generated a field
operating profit in the fourth quarter of fiscal 1999. The Jeffersonville office
was still in the start-up phase during the fourth quarter of fiscal 1999, but is
anticipated to start generating field operating profits in the first quarter of
fiscal 2000.
RESIDENTIAL LAND AND GOLF DIVISION
During fiscal 1997, 1998 and 1999, residential land and golf sales contributed
$72.6 million or 66%, $106.1 million or 61%, and $118.9 million or 53%,
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 and excluding sales of bulk parcels.
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
Number of parcels sold ......... 2,057 2,377 2,302
Average sales price
per parcel ................... $38,572 $44,620 $47,705
Gross margin ................... 45% 50% 55%
Increases in number of lots sold during fiscal 1998 were primarily due to
two new projects in Texas which opened in fiscal 1998 (Bentwater and White Oak
Estates); 200 lots sold in fiscal 1998 vs. 16 lots sold in fiscal 1997 at
Winding River Plantation located in North Carolina, the Company's first
residential community featuring a 27-hole championship golf course designed by
Masters champion Fred Couples, and approximately 180 lots sold at the Company's
Woodlake and Crystal Cove properties in Tennessee, both of which were acquired
in March 1997. These increases were partially offset by decreased lot sales in
certain markets where the Company does not intend to expand.
The increase in average selling price during fiscal 1998 was due to
increased sales at the Company's Crossroads Ranch property in Arizona and at
Winding River Plantation in North Carolina, which experienced average selling
prices of approximately $176,000 and $57,000, respectively, during fiscal 1998.
The aggregate number of parcels sold decreased during fiscal 1999 as
compared to fiscal 1998 primarily due to the following:
o The primary reason for the decrease in the number of parcels sold during
fiscal 1999 represented a positive event. The sale of scattered inventory
in areas of the country which are no longer part of the Company's focused
residential land business decreased from 291 sales to 116 sales in fiscal
1998 and fiscal 1999, respectively. This reduction in the sales of
scattered inventory parcels had a positive impact on gross margins in
fiscal 1999 as these sales are usually made at reduced gross margins in
order to dispose of such inventory. There were only 75 of these lots
available for sale at March 28, 1999, with the remaining parcels being
geographically located throughout the Northeast, Midwest and South. This
inventory is carried at the lower of cost or estimated fair value,
<PAGE>
less disposal costs, on the Company's consolidated balance sheet at March
28, 1999. The decrease in these sales of lower-priced lots also contributed
to the overall increase in the average sales price per parcel sold during
fiscal 1999.
o The Company's River Mountain Ranch project, near San Antonio, Texas,
generated 269 lot sales in fiscal 1998 vs. 193 lot sales in fiscal 1999, a
decrease of 76 lots. This project was substantially sold out as of March
28, 1999, with only 3 lots remaining.
o Tamaron, another project in the Texas Hill Country, generated 39 lot sales
in fiscal 1998 to sell out all subdivided lots currently available at the
project.
The above decreases were partially offset by the following increases:
o The Company began selling residential land lots in a new project known as
The Lookout at Brushy Creek commencing in October 1998. Located
approximately 20 minutes north of Austin, Texas, this over-500 acre
property features scenic hillsides, seven ponds and a 15-acre lake. The
Company sold 77 lots in this project during fiscal 1999 and had 178 lots
remaining to sell as of March 28, 1999.
o In April 1998, the Company opened a new property in the Texas Hill Country
known as Falcon Wood. Falcon Wood is located 30 minutes from Austin, Texas,
45 minutes from San Antonio, Texas, and is near the Blanco River and
Cypress Creek. The Company sold 76 Falcon Wood parcels during fiscal 1999
and had 61 lots remaining to sell as of March 28, 1999.
o The Pinnacle, a new project located 20 minutes from San Antonio, Texas,
began selling residential parcels in October 1998. The project is also near
the Guadalupe River and Canyon Lake. During fiscal 1999, the Company sold
77 lots in the Pinnacle project and had 181 lots left to sell as of March
28, 1999.
The increase in gross margin from fiscal 1997 to 1998 was due primarily due
to average gross margins of 73% generated at the Company's Winding River
Plantation property and other gross margin increases in the Company's
Southwestern region. The increase in gross margin during fiscal 1999 as compared
to fiscal 1998 was primarily due to decreased sales of scattered inventory in
areas where the Residential Land and Golf Division is no longer focused, as
discussed above. The Company's Investment Committee approves all property
acquisitions. In order to be approved for purchase by the Investment Committee,
all residential land and golf (as well as resort) properties are expected to
achieve certain minimum economics including a minimum gross margin. No
assurances can be given that such minimum economics will be achieved.
OTHER RESORT AND GOLF OPERATIONS REVENUE AND RELATED COSTS
During fiscal 1998, other resort and golf operations revenue and related costs
were approximately $4.1 million and $3.2 million, respectively. During fiscal
1999, other resort and golf operations revenue and related costs were
approximately $12.8 million and $12.0 million, respectively. Other resort
operations include property management services, title services and amenity and
hotel operations. Golf revenues and costs include the results of operating
Bluegreen's daily-fee golf courses. The increase in other resort and golf
operations revenue and related costs is primarily due to fiscal 1999 including
one full year of results for the other resort operations acquired with RDI,
compared to only six months of such results being included in fiscal 1998. Also,
the first 18 holes of the Company's Carolina National Golf Course opened for
play in July 1998. In addition, the Company acquired the Lodge Alley Inn, an
89-room hotel in Charleston, South Carolina. The results of the hotel operations
exclusive of the timeshare sale operations at Lodge Alley Inn are included in
other resort operations. There were no such other resort and golf operations
during fiscal 1997.
Interest Income
Interest income was $6.3 million, $10.8 million and $14.8 million for fiscal
1997, 1998 and 1999, respectively. The Company's interest income is earned from
its notes receivable, securities retained pursuant to sales of notes receivable
(including REMIC transactions) and cash and cash equivalents. The increase in
interest income during fiscal 1998 was primarily due to an increase in the
average notes receivable balance from $36.1 million to $58.2 million during
fiscal 1997 and 1998, respectively. The increase in interest income during
fiscal 1999 was primarily due to an increase in the average notes receivable
balance to $72.8 million during fiscal 1999, accreted interest on the securities
retained from the sale of $54.8 million of timeshare notes receivable during
fiscal 1999 and increased interest earned on a higher average cash and cash
equivalents balance. The increased average notes receivable balance in fiscal
1999 was primarily due to increased financed sales of Timeshare Interests during
the year, partially offset by notes receivable sold. Approximately 95% of all of
the Company's Timeshare Interest buyers finance their purchases with the Company
compared to 2% of residential land and golf buyers.
Gain (Loss) on Sale of Notes Receivable and Other Income
In fiscal 1999, the Company recognized an aggregate $3.7 million gain on the
sale of timeshare notes receivable pursuant to a timeshare receivables purchase
facility more fully described below under "Credit Facilities for Timeshare
Receivables and Inventories". In fiscal 1997, the Company recognized a $96,000
<PAGE>
loss on the sale of land notes receivable pursuant to a private-placement REMIC
transaction. The Company anticipates selling additional timeshare loans on a
regular basis and additional land loans on a less frequent basis in the future.
There can be no assurances that such future transactions will occur or that
similar gains on such sales will be recognized.
Other income was $259,000, $312,000 and $522,000 during fiscal 1997, 1998
and 1999, respectively, and was less than 1% of total revenues in each fiscal
year.
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 $51.4 million, $81.0 million and $116.6
million for fiscal 1997, 1998 and 1999, respectively. As a percentage of total
revenues, S, G & A Expenses were 44.3% for fiscal 1997, 43.1% for fiscal 1998,
and 45.2% for fiscal 1999.
The increase in S, G & A Expenses as a percentage of revenues in fiscal
1999 was largely the result of higher S, G & A Expenses for the Resorts Division
(due to reasons previously discussed under "Resorts Division") as well as higher
corporate general and administrative expenses. The Company hired additional
information systems, accounting and mortgage servicing personnel during fiscal
1999 to support the continued growth of its Resorts Division.
Interest Expense
Interest expense totaled $5.5 million, $9.3 million and $12.9 million for fiscal
1997, 1998 and 1999, respectively. The 70% increase in interest expense during
fiscal 1998 was primarily due to an increase in the average debt balance
outstanding from $81.7 million during fiscal 1997 to $112.1 million (net of
non-interest bearing debt related to receivables previously sold by RDI with
recourse) during fiscal 1998. The increase in the average outstanding debt
balance was primarily due to $15.4 million of debt incurred in connection with
the acquisition of Timeshare Interests at the Aruba Resort, approximately $17.6
million of debt incurred or assumed in connection with the acquisition of RDI,
$22.1 million of short-term borrowings from certain investment banking firms,
and various other borrowings incurred to support the growth of the Company's
receivables portfolio along with the expansion of the Company's Resorts Division
during the year. The 39% increase in interest expense in fiscal 1999 was
primarily due to an increase in the average debt balance outstanding to $175.2
million. This increase was due to the $21.7 million net increase in debt in
connection with the issuance of the Company's $110 million senior secured notes
payable and the impact of debt incurred in the third and fourth quarter of
fiscal 1998 that was refinanced by the senior secured notes and therefore
carried throughout fiscal 1999 (see also "Liquidity and Capital Resources").
The effective cost of borrowing (when adding back capitalized interest) was
10.2%, 9.7% and 10.0% for fiscal 1997, 1998 and 1999, respectively.
Provisions for Losses
The Company recorded provisions for loan losses totaling $1.3 million, $3.0
million and $2.8 million during fiscal 1997, 1998 and 1999, respectively. The
131% increase in the provision during fiscal 1998 from fiscal 1997 was due to
the corresponding 130% increase in the notes receivable portfolio. 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 8% decrease in fiscal 1999 from fiscal 1998 is primarily due to
the net 16% decrease in the notes receivable balance as of March 28, 1999. This
decrease is due to the sale of $54.8 million of timeshare notes receivable
without recourse during fiscal 1999 (see the discussion below under "Liquidity
and Capital Resources").
The allowance for loan losses by division as of March 29, 1998 and March
28, 1999 was (amounts in thousands):
<TABLE>
<CAPTION>
Residential
Land and Golf
Resorts Division Division Other Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 29, 1998
Notes receivable........................................ $67,430 $14,459 $1,508 $83,397
Less: allowance for loan losses......................... (1,635) (469) -- (2,104)
-------------------------------------------------
Notes receivable, net................................... $65,795 $13,990 $1,508 $81,293
=================================================
Allowance as a % of gross notes receivable.............. 2.4% 3.2% --% 2.5%
=================================================
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%
=================================================
</TABLE>
<PAGE>
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 and Communities Divisions. 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.
Extraordinary Item
The Company recognized a $1.7 million extraordinary loss on early extinguishment
of debt, net of taxes, during fiscal 1999 (see further discussion under
"Liquidity and Capital Resources--Note Offering").
Summary
Based on the factors discussed above, the Company's net income increased from a
net loss of $4.4 million in fiscal 1997 to net income of $10.0 million and $17.0
million in fiscal 1998 and 1999, respectively.
Changes in Financial Condition
Consolidated assets of the Company increased $76.2 million from March 29, 1998
to March 28, 1999. This increase is due to an additional $24.5 million in cash
and cash equivalents on hand at March 28, 1999, primarily due to $34.3 million
of net proceeds from the sale of 4.1 million shares of Common Stock to certain
funds which are affiliates of Morgan Stanley Dean Witter & Co., Inc. (the
"Funds") during fiscal 1999 at a price of $8.50 per share pursuant to a
Securities Purchase Agreement (the "Stock Agreement"). As more fully described
in Note 13 of Notes to Consolidated Financial Statements, the Stock Agreement
includes provisions whereby the Company, subject to certain conditions can
require the Funds to purchase approximately an additional 1.8 million shares at
$8.50 per share any time prior to February 14, 2000. The increase in total
assets is also due to a net $35.4 million increase in inventory, primarily due
to the $16.6 million acquisition of the Lodge Alley Inn, an 89-room resort in
Charleston, South Carolina, which will be marketed and sold as Timeshare
Interests, and $12.2 million in residential land properties acquired in Texas,
Arizona and North Carolina. The remaining increase in total assets is due to
development spending on the Company's Carolina National Golf Course (included in
property and equipment) and additional debt issuance costs incurred in
connection with the issuance of the Company's 10.50% senior secured notes
payable (see further discussion under "Liquidity and Capital Resources--Note
Offering").
Consolidated liabilities increased $26.2 million from $202.5 million at
March 29, 1998 to $228.7 million at March 28, 1999. The increase is due to the
$21.7 million net increase in outstanding debt incurred in connection with the
issuance of the Company's 10.50% senior secured notes payable (see further
discussion under "Liquidity and Capital Resources--Note Offering"), partially
offset by payments on outstanding debt and increased liabilities related to
income taxes due to increased pre-tax income during fiscal 1999.
Total stockholders' equity increased $49.4 million during fiscal 1999,
primarily due to net income of $17.0 million and the sale of Common Stock to the
Funds of $34.3 million. These increases were partially offset by the Company's
repurchase of $3.2 million of Common Stock (518,000 shares) to be held in
treasury pursuant to a stock repurchase program which authorized repurchases of
up to 2.0 million shares. The Company's book value per common share increased
from $3.37 to $4.76 and its debt-to-equity ratio improved from 2.31:1 to 1.49:1
at March 29, 1998 and March 28, 1999, respectively.
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 real estate 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.
NOTE OFFERING
On April 1, 1998, the Company consummated a Rule 144A private placement offering
(the "Offering") of $110.0 million in aggregate principal amount of 10.5% senior
secured notes due April 1, 2008 (the "Notes"). The net proceeds of the Offering
were approximately $106.3 million. In connection with the Offering, the Company
repaid the $22.1 million of short-term borrowings from the two investment
banking firms that were the initial purchasers of the Notes, approximately $28.9
million of line-of-credit and notes payable balances and approximately $36.3
million of the Company's receivable-backed notes payable. In addition, the
Company paid aggregate accrued interest on the repaid debt of approximately $1.0
million and $2.7 million of prepayment penalties. The remaining net proceeds of
the Offering were used to repay other obligations of the Company and for working
capital purposes (see Note 10 of Notes to Consolidated Financial Statements).
<PAGE>
CREDIT FACILITIES FOR TIMESHARE RECEIVABLES AND INVENTORIES
The Company has maintained various credit facilities with financial institutions
that provided for receivable financing for its timeshare projects. In connection
with the Offering, the Company retired all outstanding indebtedness related to
timeshare receivable and inventory financings, except for debt associated with
receivables previously sold to financial institutions with recourse by RDI and
debt related to Aruba, which totaled approximately $4.2 million and $12.7
million, respectively, at March 28, 1999. The Company terminated the existing
credit facilities for timeshare receivable and inventory financings concurrent
with the closing of the Offering.
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 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 present value 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
overcollateralization 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 and recognized a $3.7
million gain. As a result of the sales, the Company recorded a $5.2 million
available-for-sale investment in the residual cash flow of the receivable pools
(i.e. the deferred payment).
The Company has obtained 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 completed Timeshare
Interests. The warehouse facility includes affirmative, negative and financial
covenants and events of default. As of March 28, 1999, the Company has not
incurred any debt under the warehouse facility.
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 March 28, 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 uses the facility as a warehouse until it accumulates a sufficient
quantity of residential land receivables to sell under a private placement REMIC
transaction not registered under the Securities Act. 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 March 28, 1999, the
outstanding principal balances under the receivables and development portions of
this facility were approximately $5.7 million and $1.0 million, 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.
<PAGE>
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 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 outstanding
borrowings is prime plus 1.5%. As of March 28, 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 property 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 predetermined
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 September 23, 1998, the Company entered into a $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
July 31, 1999. Through March 28, 1999, the Company has not borrowed any amounts
under the line. The line is renewable in July 1999, and the Company is currently
negotiating an increase to $10 million of total credit availability. There can
be no assurances that the line will be renewed or increased as anticipated.
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
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 timeshare property inventory as of
March 28, 1999 is approximately $187.4 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 March 28, 1999, and the credit
facilities described above, the Company has approximately $113.3 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
<PAGE>
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.
The Company's credit facilities and, as applicable, the Indenture entered
into in connection with the Offering 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 July 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 85% complete with the Remediation
phase. Remaining tasks are anticipated to be completed by September 30, 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 June 7,
1999. The Company will be commencing the testing process in July 1999, with all
critical systems anticipated to be tested by September 30, 1999. There can be no
assurances that vendor representations regarding the
<PAGE>
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 $450,000 and is being funded through operating cash flows.
Through March 28, 1999, the Company has incurred $20,000, all of which has been
expensed. Of the total remaining project costs, approximately $400,000 is
attributable to the purchase of new software and equipment, which will be
capitalized. The remaining $30,000 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.
Quantitative and Qualitative Disclosures about Market Risk
FOREIGN CURRENCY RISK
The Company's total revenues and net assets denominated in a currency other than
U.S. dollars during fiscal 1999 were less than 1% of consolidated revenues and
consolidated assets, respectively. Sales generated and long-term debt incurred
to date by BPNV are transacted in U.S. dollars. The effects of changes in
foreign currency exchange rates have not historically been significant to the
Company's operations or net assets.
INTEREST RATE RISK
The Company sold $54.8 million of fixed-rate timeshare notes receivable during
fiscal 1999 under the Purchase Facility (see "Credit Facilities for Timeshare
Receivables and Inventories"). The Company can sell up to an additional $45.2
million of fixed-rate notes receivable under the Purchase Facility. The gain on
sale recognized by the Company is based upon the prevailing weighted-average
term treasury rate and many other factors including, but not limited to the
coupon rate and remaining contractual life of the loans sold, and assumptions
regarding the constant prepayment rate, loss severity and annual default rates.
The Company also retains residual interests in pools of fixed and variable rate
land notes receivable sold in private placement REMIC transactions. The Company
believes that it has used conservative assumptions in valuing
<PAGE>
the residual interests retained in the timeshare and land notes sold through the
Purchase Facility and REMIC transactions, respectively, and that such
assumptions should mitigate the impact of a hypothetical one-percentage point
interest rate change on these valuations. There can be no assurances that the
assumptions will prove to be conservative.
As of March 28, 1999, the Company had fixed interest rate debt of
approximately $166.2 million and floating interest rate debt of approximately
$11.7 million. In addition, the Company's notes receivable from timeshare and
residential land and golf customers were comprised of $61.4 million of
fixed-rate loans and $4.1 million of notes bearing floating interest rates. The
floating interest rates are based upon the prevailing prime interest rate. For
floating rate financial instruments, interest rate changes do not generally
affect the market value of debt but do impact future earnings and cash flows,
assuming other factors are held constant. Conversely, for fixed-rate financial
instruments, interest rate changes do affect the market value of debt but do not
impact earnings or cash flows.
A hypothetical one-percentage point change in the prevailing prime rate
would impact after-tax earnings of the Company by a nominal amount per year,
based on the impact of increased interest income on variable rate residential
land and golf notes receivable and cash and cash equivalents offset by the
increased interest expense on variable rate debt. A similar change in the
interest rate would decrease the total fair value of the Company's fixed-rate
debt, excluding the Debentures and the Notes, by approximately $200,000. The
fact that the Debentures are publicly traded and convertible into the Company's
Common Stock makes it impractical to estimate the effect of the hypothetical
change in interest rates on the fair value of the Debentures. In addition, the
fact that the Notes (see "Note Offering") are publicly traded in the
over-the-counter market makes it impractical to estimate the effect of the
hypothetical change in interest rates on the fair value of the Notes. Due to the
non-interest related factors involved in determining the fair value of these
publicly traded securities, their fair values have historically demonstrated
increased, decreased or at times contrary relationships to changes in interest
rates as compared to other types of fixed-rate debt securities. These analyses
do not consider the effects of the reduced level of overall economic activity
that could exist in such an environment. Further, in the event of such a change,
management may likely take actions to mitigate its exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in the
Company's financial structure.
CLOSING PRICES OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE") and
the Pacific Stock Exchange under the symbol "BXG". The following table sets
forth, for the periods indicated, the high and low closing price of the Common
Stock as reported on the NYSE:
Price Range
High Low
- --------------------------------------------------------------------
Fiscal 1999
First Quarter........................... $11 1/2 $7 5/8
Second Quarter.......................... 10 1/4 7 7/16
Third Quarter........................... 8 3/8 4 3/8
Fourth Quarter.......................... 7 11/16 5 1/2
Price Range
High Low
- --------------------------------------------------------------------
Fiscal 1998
First Quarter........................... $3 3/4 $2 3/4
Second Quarter.......................... 4 1/4 2 3/4
Third Quarter........................... 5 1/8 4 1/8
Fourth Quarter.......................... 8 5/8 4 1/4
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 29, March 28,
1998 1999
- ----------------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
<S> <C> <C>
Assets
Cash and cash equivalents (including restricted cash of approximately $13.2 million
and $15.8 million at March 29, 1998 and March 28, 1999, respectively)................... $ 31,065 $ 55,557
Contracts receivable, net................................................................. 15,484 20,167
Notes receivable, net..................................................................... 81,293 64,380
Notes receivable from related party....................................................... -- 4,168
Prepaid expenses.......................................................................... 2,112 3,659
Inventory, net............................................................................ 107,198 142,628
Investments in securities................................................................. 10,941 17,106
Other assets.............................................................................. 7,647 15,405
Property and equipment, net............................................................... 17,223 26,052
----------------------
Total assets......................................................................... $272,963 $349,122
======================
Liabilities and Shareholders' Equity
LIABILITIES
Accounts payable.......................................................................... $ 5,265 $ 6,207
Accrued liabilities and other............................................................. 19,023 25,362
Deferred income........................................................................... 8,392 5,792
Deferred income taxes..................................................................... 8,011 13,507
Short-term borrowing from underwriters.................................................... 22,149 --
Receivable-backed notes payable........................................................... 48,694 9,884
Lines-of-credit and notes payable......................................................... 50,247 17,615
10.50% senior secured notes payable....................................................... -- 110,000
8.00% convertible subordinated notes payable to related parties........................... 6,000 6,000
8.25% convertible subordinated debentures................................................. 34,739 34,371
----------------------
Total liabilities..................................................................... 202,520 228,738
Minority interest......................................................................... 450 1,035
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000 shares authorized; none issued..................... -- --
Common stock, $.01 par value, 90,000 shares authorized; 20,761 and 25,063 shares
outstanding at March 29, 1998 and March 28, 1999, respectively.......................... 208 251
Additional paid-in capital................................................................ 71,932 107,206
Treasury stock, 450 and 968 common shares at March 29, 1998 and March 28, 1999,
respectively, at cost................................................................... (1,389) (4,545)
Net unrealized gains on investments available-for-sale, net of income taxes............... 405 560
Retained earnings (accumulated deficit)................................................... (1,163) 15,877
----------------------
Total shareholders' equity.............................................................. 69,993 119,349
----------------------
Total liabilities and shareholders' equity............................................ $272,963 $349,122
======================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Sales .................................................................... $ 109,722 $ 172,659 $ 225,816
Other resort and golf operations revenue ................................. -- 4,113 12,832
Interest income .......................................................... 6,255 10,819 14,804
Gain (loss) on sale of notes receivable .................................. (96) -- 3,692
Other income ............................................................. 259 312 522
--------- --------- ---------
116,140 187,903 257,666
Cost and expenses:
Cost of sales ............................................................ 57,091 74,439 81,495
Cost of other resort and golf operations ................................. -- 3,219 12,023
Selling, general and administrative expenses ............................. 51,441 80,959 116,555
Interest expense ......................................................... 5,459 9,281 12,922
Provisions for losses .................................................... 9,539 3,002 2,754
--------- --------- ---------
123,530 170,900 225,749
--------- --------- ---------
Income (loss) before income taxes and minority interest .................... (7,390) 17,003 31,917
Provision (benefit) for income taxes ....................................... (3,030) 6,803 12,610
Minority interest in income of consolidated subsidiary ..................... -- 200 585
--------- --------- ---------
Income (loss) before extraordinary item .................................... (4,360) 10,000 18,722
Extraordinary loss on early extinguishment of debt, net of income taxes .... -- -- (1,682)
--------- --------- ---------
Net income (loss) .......................................................... $ (4,360) $ 10,000 $ 17,040
========= ========= =========
Earnings (loss) per common share:
Basic:
Income (loss) before extraordinary item ................................ $ (.21) $ .49 $ .85
Extraordinary loss on early extinguishment of debt, net of income taxes -- -- (.08)
--------- --------- ---------
Net income (loss) ...................................................... $ (.21) $ .49 $ .77
========= ========= =========
Diluted:
Income (loss) before extraordinary item ................................ $ (.21) $ .46 $ .72
Extraordinary loss on early extinguishment of debt, net of income taxes -- -- (.06)
--------- --------- ---------
Net income (loss) ...................................................... $ (.21) $ .46 $ .66
========= ========= =========
Weighted-average number of common and common equivalent shares:
Basic .................................................................... 20,319 20,219 22,167
========= ========= =========
Diluted .................................................................. 20,319 25,746 28,909
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gains on
Investments Retained
Common Additional Treasury Available-for- Earnings
Shares Common Paid-in Stock at Sale, Net of (Accumulated
Issued Stock Capital Cost Income Taxes Deficit) Total
- ----------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1996.................... 20,533 $205 $ 71,296 $ -- $ -- $ (6,803) $ 64,698
Net loss.................................... -- -- -- -- -- (4,360) (4,360)
Net unrealized gains on investments
available-for-sale, net of income taxes... -- -- -- -- 159 -- 159
---------
Comprehensive loss.......................... (4,201)
Shares issued to employees and directors
upon exercise of stock options............ 69 1 115 -- -- -- 116
Shares repurchased for treasury stock....... -- -- -- (1,370) -- -- (1,370)
------------------------------------------------------------------------------
Balance at March 30, 1997................... 20,602 206 71,411 (1,370) 159 (11,163) 59,243
Net income.................................. -- -- -- -- -- 10,000 10,000
Net unrealized gains on investments
available-for-sale, net of income taxes... -- -- -- -- 246 -- 246
---------
Comprehensive income........................ 10,246
Shares issued to employees upon
exercise of stock options................. 159 2 377 -- -- -- 379
Income tax benefit from stock
options exercised......................... -- -- 144 -- -- -- 144
Shares repurchased for treasury stock....... -- -- -- (19) -- -- (19)
------------------------------------------------------------------------------
Balance at March 29, 1998................... 20,761 208 71,932 (1,389) 405 (1,163) 69,993
Net income.................................. -- -- -- -- -- 17,040 17,040
Net unrealized gains on investments
available-for-sale, net of income taxes... -- -- -- -- 155 -- 155
---------
Comprehensive income........................ 17,195
Sale of Common Stock, net of issuance costs. 4,118 41 34,212 -- -- -- 34,253
Conversion of subordinated debentures....... 45 1 367 -- -- -- 368
Shares issued to employees and
directors upon exercise of stock options.. 139 1 396 -- -- -- 397
Income tax benefit from stock
options exercised......................... -- -- 299 -- -- -- 299
Shares repurchased for treasury stock....... -- -- -- (3,156) -- -- (3,156)
------------------------------------------------------------------------------
Balance at March 28, 1999 .................. 25,063 $251 $107,206 $(4,545) $560 $ 15,877 $119,349
------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................................... $ (4,360) $ 10,000 $ 17,040
Adjustments to reconcile net income (loss)
to net cash (used) provided by operating activities:
Extraordinary loss on early extinguishment of debt, net of income taxes. -- -- 1,682
Minority interest in income of consolidated subsidiary.................. -- 200 585
Depreciation............................................................ 811 1,248 1,897
Amortization............................................................ 255 1,058 1,023
(Gain) loss on sale of notes receivable................................. 96 -- (3,692)
Gain on sale of property and equipment.................................. (82) (196) (199)
Provisions for losses................................................... 9,539 3,002 2,754
Provision (benefit) for deferred income taxes........................... (3,419) 3,333 5,841
Interest accretion on investments in securities......................... (997) (1,416) (2,205)
Proceeds from sale of notes receivable.................................. 16,935 -- 53,261
Proceeds from borrowings collateralized by notes receivable............. 18,157 26,495 4,137
Payments on borrowings collateralized by notes receivable............... (16,826) (14,282) (3,568)
(Increase) decrease in operating assets and liabilities:
Contracts receivable.................................................. (1,857) (1,175) (4,683)
Notes receivable...................................................... (19,733) (31,821) (50,613)
Prepaid expenses...................................................... (97) (1,064) (1,547)
Inventory............................................................. (9,126) 10,104 (26,808)
Other assets.......................................................... (979) (1,805) (3,013)
Accounts payable, accrued liabilities and other....................... 3,478 12,408 6,235
------------------------------------
Net cash (used) provided by operating activities............................ (8,205) 16,089 (1,873)
------------------------------------
INVESTING ACTIVITIES:
Purchase of related party notes receivable................................ -- -- (2,850)
Loan to related party..................................................... -- -- (1,318)
Cash received from investments in securities.............................. 1,699 1,959 1,478
Acquisition of RDI Group, Inc. and
Resort Title Agency, Inc., net of cash acquired......................... -- (2,453) --
Purchases of property and equipment....................................... (1,042) (10,337) (11,018)
Proceeds from sales of property and equipment............................. 844 1,038 939
------------------------------------
Net cash (used) provided by investing activities............................ 1,501 (9,793) (12,769)
------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from short-term borrowings from underwriters..................... $ -- $ 22,149 $ --
Payments under short-term borrowings from underwriters.................... -- -- (22,149)
Proceeds from borrowings under line-of-credit facilities and notes payable 20,688 32,613 --
Payments under line-of-credit facilities and notes payable................ (12,340) (46,760) (74,398)
Proceeds from issuance of 10.5% senior secured notes payable.............. -- -- 110,000
Proceeds from issuance of 8.0% convertible subordinated notes
payable to related parties............................................. -- 6,000 --
Payment of debt issuance costs............................................ (181) (1,440) (5,813)
Capital contribution by minority interest................................. -- 250 --
Proceeds from issuance of Common Stock.................................... -- -- 34,253
Proceeds from exercise of employee and director stock options............. 115 379 397
Payments for treasury stock............................................... (1,370) (19) (3,156)
------------------------------------
Net cash provided by financing activities................................... 6,912 13,172 39,134
------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................... 208 19,468 24,492
Cash and cash equivalents at beginning of year.............................. 11,389 11,597 31,065
------------------------------------
Cash and cash equivalents at end of year.................................... 11,597 31,065 55,557
Restricted cash and cash equivalents at end of year......................... (7,978) (13,153) (15,806)
------------------------------------
Unrestricted cash and cash equivalents at end of year....................... $ 3,619 $ 17,912 $ 39,751
====================================
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING,
INVESTING AND FINANCING ACTIVITIES
Inventory acquired through financing.................................... $ 10,031 $ 22,974 $ 2,485
====================================
Inventory acquired through foreclosure or deedback in lieu of foreclosure $ 1,958 $ 3,558 $ 6,137
====================================
Property and equipment acquired through financing....................... $ -- $ 902 $ 446
====================================
Investment in securities retained in connection with
REMIC transactions and sale of timeshare notes receivable................. $ 1,774 $ -- $ 5,181
====================================
Net change in unrealized gains on investments........................... $ 270 $ 418 $ 257
====================================
Conversion of 8.25% convertible subordinated debentures
into Common Stock..................................................... $ -- $ -- $ 368
====================================
SUPPLEMENTAL SCHEDULE OF OPERATING CASH FLOW INFORMATION
Interest paid............................................................. $ 4,964 $ 11,736 $ 11,666
====================================
Income taxes paid......................................................... $ 1,678 $ 2,338 $ 8,188
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
ORGANIZATION
Bluegreen Corporation (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 year ended March 28, 1999, sales
generated by the Company's Resorts Division and Residential Land and Golf
Division comprised approximately 46% and 53%, respectively, of the Company's
total sales. The Company's other resort and golf operations revenues are
generated from resort property management services, resort title services,
resort amenity operations, hotel operations and daily-fee golf course
operations. The Company also generates significant interest income by providing
financing to individual purchasers of Timeshare Interests and, to a lesser
extent, land sold by the Residential Land and Golf Division.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bluegreen
Corporation, 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 consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company invests cash in excess of immediate operating requirements in
short-term time deposits and money market instruments generally with original
maturities of three months or less. The Company maintains cash and cash
equivalents with various financial institutions. These financial institutions
are located throughout the country and in Aruba. Company policy is designed to
limit exposure to any one institution. However, a significant portion of the
Company's unrestricted cash is maintained with a single bank and, accordingly,
the Company is subject to credit risk. Periodic evaluations of the relative
credit standing of financial institutions maintaining Company deposits are
performed to evaluate and mitigate, if necessary, credit risk.
Restricted cash consists of funds collected as servicer of notes receivable
owned by other parties and customer deposits held in escrow accounts.
CONTRACTS RECEIVABLE AND REVENUE RECOGNITION
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 66, "Accounting for Sales of Real Estate", the Company
recognizes revenue on retail land sales and sales of Timeshare Interests when a
minimum of 10% of the sales price has been received in cash, the refund period
has expired, collectibility of the receivable representing the remainder of the
sales price is reasonably assured and the Company has completed substantially
all of its obligations with respect to any development related to the real
estate sold. In cases where all development has not been completed, the Company
recognizes revenue in accordance with the percentage-of-completion method of
accounting.
Sales which do not meet the criteria for revenue recognition described
above are deferred using the deposit method. Under the deposit method, cash
received from customers is classified as a refundable deposit in the liability
section of the consolidated balance sheets and profit recognition is deferred
until the requirements of SFAS No. 66 are met.
<PAGE>
Contracts receivable is net of an allowance for cancellations of
residential land sale contracts amounting to approximately $779,000 and $725,000
at March 29, 1998 and March 28, 1999, respectively.
NOTES RECEIVABLE
Notes receivable are carried at amortized cost. Interest income is suspended on
all notes receivable when principal or interest payments are more than three
months contractually past due and not resumed until such loans are less than
three months past due.
INVESTMENTS IN SECURITIES
The Company's investments in securities consist of retained interests in notes
receivable sold to others through either private-placement REMIC transactions or
timeshare purchase facility transactions (see Note 4). These investments are
considered available-for-sale securities and, accordingly, are carried at fair
value in accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Accordingly, unrealized holding gains or losses on
available-for-sale investments are included in shareholders' equity, net of
income taxes. Declines in fair value that are determined to be other than
temporary are charged to operations.
Interest on the Company's securities accreted using the effective yield
method which reflects interest at pass-through rates.
INVENTORY
Inventory consists of completed Timeshare Interests, Timeshare Interests under
construction, land held for future timeshare development and residential land
acquired or developed for sale. Inventory is carried at the lower of cost,
including costs of improvements and amenities incurred subsequent to
acquisition, capitalized interest, real estate taxes and other costs incurred
during construction, or estimated fair value, less costs to dispose. Residential
land parcels reacquired through foreclosure or deedback in lieu of foreclosure
are recorded at the lower of fair value, net of costs to dispose, or the
carrying value of the loan. Reacquired Timeshare Interest inventory is recorded
at the lower of fair value, net of costs to dispose, or the original historical
cost of the Timeshare Interest. The Company periodically evaluates the recovery
of the carrying amount of individual resort and residential land properties.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on the
straightline method based on the estimated useful lives of the related assets.
GOODWILL
Goodwill is amortized over 25 years using the straight-line method and is
included in other assets on the consolidated balance sheets. The Company
periodically evaluates the recovery of the carrying amount of goodwill by
determining if any impairment indicators are present. These indicators include
duplication of resources resulting from acquisitions, income derived from
businesses acquired, the estimated undiscounted cash flows of the entity over
the remaining amortization period and other factors.
TREASURY STOCK
The Company accounts for repurchases of its Common Stock using the cost method
with Common Stock in treasury classified in the consolidated balance sheets as a
reduction of shareholders' equity.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expense was
$13.9 million, $22.1 million and $37.1 million for the years ended March 30,
1997, March 29, 1998 and March 28, 1999, respectively, and is included in
selling, general and administrative expenses in the consolidated statements of
operations.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require companies to record compensation cost for employee stock options at
fair value. The Company has elected to continue to account for stock options
using the intrinsic value method pursuant to Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the exercise price of the option.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is computed by dividing net income (loss)
by the weighted-average number of common shares outstanding during the period.
Diluted earnings (loss) per common share is computed in the same manner as basic
earnings (loss) per share, 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 weighted-average common 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 April 1, 1996, or the date of
issuance, if later. See also Note 13, for disclosure of other contingently
issuable common shares.
<PAGE>
The following table sets forth the computation of basic and diluted
earnings (loss) per share (amounts in thousands, except per share data):
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
Basic earnings (loss)
per share--numerators:
Income (loss) before
extraordinary item ........... $ (4,360) $ 10,000 $ 18,722
Extraordinary loss on
early extinguishment
of debt, net of
income taxes ................. -- -- (1,682)
---------------------------------------
Net income (loss) .............. $ (4,360) $ 10,000 $ 17,040
=======================================
Diluted earnings (loss)
per share--numerators:
Income (loss)
before extraordinary
item--basic .................. $ (4,360) $ 10,000 $ 18,722
Effect of dilutive securities
(net of income
tax effects) ................. -- 1,859 2,009
---------------------------------------
Income (loss)
before extraordinary
item--diluted ................ (4,360) 11,859 20,731
Extraordinary loss on early
extinguishment of debt,
net of income taxes .......... -- -- (1,682)
---------------------------------------
Net income (loss)--
diluted ...................... $ (4,360) $ 11,859 $ 19,049
=======================================
Denominator:
Denominator for basic
earnings (loss) per
share--weighted
average shares ............... 20,319 20,219 22,167
Effect of dilutive securities:
Stock options ................ -- 472 1,032
Convertible securities ....... -- 5,055 5,710
---------------------------------------
Dilutive potential
common shares ................ -- 5,527 6,742
---------------------------------------
Denominator for diluted
earnings (loss) per
share--adjusted
weighted-average
shares and assumed
conversions .................. 20,319 25,746 28,909
=======================================
Basic earnings (loss) per
common share:
Income (loss) before
extraordinary item ........... $ (.21) $ .49 $ .85
Extraordinary loss on early
extinguishment of debt,
net of income taxes .......... -- -- (.08)
---------------------------------------
Net income (loss) .............. $ (.21) $ .49 $ .77
=======================================
Diluted earnings (loss) per
common share:
Income (loss) before
extraordinary item ........... $ (.21) $ .46 $ .72
Extraordinary loss on early
extinguishment of debt,
net of income taxes .......... -- -- (.06)
---------------------------------------
Net income (loss) .............. $ (.21) $ .46 $ .66
=======================================
COMPREHENSIVE INCOME (LOSS)
As of March 30, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income (loss) or shareholders' equity. SFAS
No. 130 requires unrealized gains or losses on the Company's available-for-sale
securities to be included in other comprehensive income (loss). Prior year
financial statements have been reclassified to conform to the requirements of
SFAS No. 130. Comprehensive income (loss) is shown as a subtotal within the
consolidated statements of shareholders' equity in each year presented.
BUSINESS SEGMENTS
Effective March 30, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 superseded SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect the results of operations or
financial position of the Company, but did affect the disclosure of segment
information (see Note 17).
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 Company estimates that adopting
this SOP will have no significant impact on its fiscal 2000 results of
operations.
RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made to conform to
the current year presentation.
2. Acquisition
Effective September 30, 1997, a wholly-owned subsidiary of the Company acquired
all of the issued and outstanding common stock of RDI Group Inc. and Resort
Title Agency, Inc. (collectively "RDI") for a purchase price of $7.5 million
consisting of $6 million cash and a $1.5 million, 9% promissory note due October
3, 1999. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of RDI have been included
in the
<PAGE>
Company's consolidated financial statements since September 30, 1997.
Approximately $1.8 million of goodwill, which is included in other assets on the
consolidated balance sheets, was recognized in connection with the acquisition
of RDI. The goodwill is being amortized over 25 years. Accumulated amortization
at March 28, 1999 was approximately $76,000.
The Company financed the cash portion of the purchase price by issuing two
8% convertible subordinated promissory notes in the aggregate principal amount
of $6 million (the "8% Notes") to a member of the Board of Directors of the
Company (the "Board") and an affiliate of a Board member. The 8% Notes, which
were executed on September 11, 1997, are due on September 11, 2002, and are
convertible into shares of the Company's Common Stock at a conversion price of
$3.92 per share.
Headquartered in Fort Myers, Florida, RDI was privately-held and owned
timeshare resorts in Orlando, Florida, and Wisconsin Dells, Wisconsin, as well
as a points-based vacation club.
In fiscal 1999, the Company closed RDI's corporate offices and relocated or
terminated the majority of RDI's corporate employees. The Company provided
severance compensation to terminated employees and incurred relocation costs for
certain employees. The RDI office lease expires in August, 1999. The Company was
unable to sublease out duplicate facilities at RDI's corporate offices. In
connection with the Company's consolidation of RDI's corporate functions with
its own, the Company had accrued approximately $550,000 of severance, relocation
and duplicate facility costs in connection with recording the purchase of RDI.
During fiscal 1999, the Company incurred substantially all of these costs, which
were applied to the accrual.
The following pro forma financial information presents the combined results
of operations of the Company and RDI as if the acquisition had occurred on April
1, 1996, after giving effect to certain adjustments, including increased
interest expense on debt related to the acquisition, and related income tax
effects. The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the Company and RDI
constituted a single entity during such periods.
March 30, March 29,
Years Ended, 1997 1998
- --------------------------------------------------------------------------------
(Unaudited--amounts in thousands,
except per share data)
Total revenues .......................... $138,871 $202,472
============================
Net income (loss) ....................... $ (5,277) $ 10,464
============================
Earnings (loss) per share:
Basic ................................. $ (.26) $ .52
============================
Diluted ............................... $ (.26) $ .47
============================
3. Joint Venture
On December 15, 1997, the Company invested $250,000 of capital in Bluegreen
Properties N.V. ("BPNV"), an entity organized in Aruba that previously had no
operations, in exchange for a 50% ownership interest. Concurrently, the Company
and an affiliate of the other 50% owner of BPNV (who is not an affiliate of the
Company), each loaned BPNV $3 million pursuant to promissory notes due on
December 15, 2000 and bearing interest at the prime rate plus 1%. BPNV then
acquired from a third party approximately 8,000 unsold timeshare intervals at
the La Cabana Beach & Racquet Club, a fully developed timeshare resort in
Oranjestad, Aruba, in exchange for $6 million cash and the assumption of
approximately $16.6 million of interest-free debt from a bank in Aruba. The debt
was recorded by BPNV at approximately $12.5 million, which reflects a discount
based on an imputed interest rate of 12%. The debt is to be repaid over five
years through release-prices as intervals are sold, subject to minimum monthly
principal payments of approximately $278,000.
In addition to its 50% ownership interest, the Company receives a quarterly
management fee from BPNV equal to 7% of BPNV's net sales in exchange for the
Company's involvement in the day-to-day operations of BPNV. The Company also has
majority control of BPNV's board of directors and has a controlling financial
interest in BPNV. Therefore, the accounts of BPNV are included in the Company's
consolidated financial statements in fiscal 1998 and 1999. Approximately 4% and
7% of the Company's net income in fiscal 1998 and 1999, respectively, was
generated by BPNV.
4. Notes Receivable and Notes Receivable From Related Party
The weighted-average interest rate on notes receivable from retail customers was
14.9% and 15.0% at March 29, 1998 and March 28, 1999, respectively. The table
below sets forth additional information relating to the Company's notes
receivable (in thousands).
March 29, March 28,
1998 1999
- --------------------------------------------------------------------------------
Notes receivable secured by land ......... $14,459 $11,105
Notes receivable secured
by Timeshare Interests ................. 67,430 54,384
Other notes receivable ................... 1,508 1,209
--------------------------
Notes receivable, gross .................. 83,397 66,698
Reserve for loan losses .................. (2,104) (2,318)
--------------------------
Notes receivable, net .................... $81,293 $64,380
==========================
Approximately 37.7% of the Company's notes receivable secured by land bear
interest at variable rates, while approximately 62.3% bear interest at fixed
rates. The average interest rate charged on loans secured by land was 11.9% at
March 28, 1999. All of the Company's timeshare loans bear interest at fixed
rates. The average interest rate charged on loans secured by Timeshare Interests
was 15.7% at March 28, 1999.
<PAGE>
The Company's timeshare receivables are secured by property located in
Tennessee, Missouri, Aruba, Wisconsin, Florida, Virginia and South Carolina. No
concentrations of credit risk exist for the Company's notes receivable secured
by land.
The table below sets forth activity in the reserve for estimated loan
losses (in thousands).
- --------------------------------------------------------------------------------
Reserve for loan losses, March 31, 1997 ...................... $ 1,216
Provision for loan losses .................................... 2,610
Charge-offs .................................................. (1,722)
-------
Reserve for loan losses, March 29, 1998 ...................... 2,104
Provision for loan losses .................................... 2,754
Charge-offs .................................................. (2,540)
-------
Reserve for loan losses, March 28, 1999 ...................... $ 2,318
=======
Installments due on notes receivable held by the Company during each of the
five fiscal years subsequent to fiscal 1999, and thereafter, are set forth below
(in thousands).
- --------------------------------------------------------------------------------
2000 .................................................. $13,106
2001 .................................................. 9,738
2002 .................................................. 7,594
2003 .................................................. 8,090
2004 .................................................. 7,750
Thereafter ............................................ 20,420
-------
Total ................................................. $66,698
=======
On June 26, 1998, the Company executed a timeshare receivables purchase
facility (the "Purchase Facility") with a financial institution. Under 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 a securitization transaction. The Purchase Facility has
detailed requirements with respect to the eligibility of receivables for
purchase. Under the 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% and 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 present value 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
overcollateralization 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 and recognized an
aggregate gain of $3.7 million. As a result of the sales, the Company recorded a
$5.2 million available-for-sale investment in the residual cash flow of the
receivable pools (i.e. the deferred payments) included in investments in
securities in the consolidated balance sheet as of March 28, 1999.
On October 7, 1998, Leisure Capital Corporation ("LCC"), a wholly-owned
subsidiary of the Company, acquired from a bank delinquent notes receivable
issued by AmClub, Inc. ("AmClub") with an aggregate outstanding principal
balance of $5.3 million (the "AmClub Notes"). LCC acquired the AmClub Notes for
a purchase price of approximately $2.9 million. During fiscal 1999, the Company
had also advanced $1.3 million to AmClub, primarily for timeshare resort
improvements (the "AmClub Loan"). The AmClub Notes and the AmClub Loan, which
are included in notes receivable from related party on the March 28, 1999
consolidated balance sheet, are collateralized by mortgages receivable, real
estate and fixed assets with an estimated aggregate fair market value in excess
of the aggregate carrying amount of the AmClub Notes and the AmClub Loan based
primarily on the current retail selling prices of the real estate inventory and
property tax appraisals. On December 14, 1998, LCC notified AmClub that the
AmClub Notes and AmClub Loan were in default and due immediately. As the AmClub
Notes and the AmClub Loan are still outstanding as of March 28, 1999 the Company
intends to foreclose on the underlying collateral. There can be no assurances
that the foreclosure will be completed as intended. The AmClub Notes bear
interest at prime plus 4%. During fiscal 1999, the Company recognized $195,000
of interest income on the AmClub Notes and AmClub Loan. Interest was accrued on
the net carrying value of the AmClub Notes and AmClub Loan, with cash received
being applied first to accrued interest and then principal.
AmClub is a corporation owned by the former shareholders of RDI. AmClub
started developing a timeshare resort in Gordonsville, Virginia known as
Shenandoah Crossing Farm & Club, at which the Company has continued developing
Timeshare Interests.
<PAGE>
5. Inventory
The Company's net inventory holdings as of March 29, 1998 and March 28, 1999,
summarized by division, are set forth below (amounts in thousands).
March 29, March 28,
1998 1999
- --------------------------------------------------------------------------------
Resorts .................................... $ 59,275 $ 91,552
Residential Land and Golf .................. 45,249 49,683
Communities ................................ 2,674 1,393
---------------------------
$107,198 $142,628
===========================
Resorts Division inventory as of March 29, 1998, consists of land inventory
of $8.5 million, $11.7 million of unit construction-in-progress, and $39.1
million of completed units. Resorts Division inventory as of March 28, 1999
consists of land inventory of $5.4 million, $32.7 million of unit
construction-in-progress and $53.5 million of completed units.
Communities Division inventory as of March 29, 1998, consists of land
inventory of $500,000 and $2.2 million of housing unit construction-in-progress.
Communities Division inventory as of March 28, 1999, consists of land inventory
of approximately $380,000 and $1,013,000 of housing unit
construction-in-progress.
Interest capitalized during fiscal 1997, fiscal 1998 and fiscal 1999
totaled approximately $3.0 million, $3.2 million and $5.3 million, respectively.
Interest expense in the consolidated statements of operations is net of
capitalized interest.
During the first quarter of fiscal 1997, management changed its focus for
marketing certain of the Company's inventories in conjunction with a plan to
accelerate the sale of properties managed under the Communities Division and
certain properties managed under the Residential Land and Golf Division. This
decision was largely the result of management's focus on expansion of the
Company's Resorts Division and Residential Land and Golf Division in certain
locations. Because of the strategy to accelerate sales, management determined
that inventories with a carrying value of $23.2 million should be written-down
by $8.2 million during fiscal 1997. The $8.2 million in provisions included $4.8
million for certain Communities Division inventories and $3.4 million for
certain Residential Land and Golf Division inventories. Management adopted a
plan to aggressively pursue opportunities for the bulk sale of a portion of the
written-down assets and reduced retail prices on others to increase sales
activity. The Company's Communities Division primarily consists of three North
Carolina properties acquired in 1988. The Company began marketing home/lot
packages in 1995 to accelerate sales at the properties. However, the projects
had been slow moving and yielded low gross profits and little to no operating
profits. A majority of the Residential Land and Golf Division parcels subject to
write-down were scattered lots acquired through foreclosure or deedback in lieu
of foreclosure, odd lots from former projects and properties located in parts of
the country where the Company has no plans for expansion. As of March 28, 1999,
approximately 89% (measured by historical cost basis) of the inventories subject
to write-down had been sold. The remaining unsold inventory represents
approximately 1% of consolidated inventory as of March 28, 1999.
6. Investments in Securities
The Company's investments in securities, which are classified as
available-for-sale, and associated unrealized gains and losses are set forth
below (in thousands).
Gross Gross
Unrealized Unrealized Fair
Cost Gain Loss Value
- --------------------------------------------------------------------------------
March 29, 1998
1994 REMIC
debt securities .............. $ 4,432 $ -- $ 19 $ 4,413
1995 REMIC
debt securities .............. 3,477 618 -- 4,095
1996 REMIC
debt securities .............. 2,344 89 -- 2,433
---------------------------------------------
Total ...................... $10,253 $ 707 $ 19 $10,941
=============================================
March 28, 1999
1994 REMIC
debt securities .............. $ 5,003 $ -- $ 304 $ 4,699
1995 REMIC
debt securities .............. 2,749 1,207 -- 3,956
1996 REMIC
debt securities .............. 2,690 -- 46 2,644
1999 Timeshare
debt securities .............. 5,730 77 -- 5,807
---------------------------------------------
Total ...................... $16,172 $ 1,284 $ 350 $17,106
=============================================
Contractual maturities are set forth below (in thousands)
Fair
Cost Value
- --------------------------------------------------------------------------------
After one year but within five ................. $ 7,752 $ 8,655
After five years but within ten ................ 8,420 8,451
-----------------------
Total .......................................... $16,172 $17,106
=======================
The net unrealized gain on available-for-sale securities presented as a
separate component of stockholders' equity is net of income taxes of
approximately $373,000.
7. Property and Equipment
The table below sets forth the property and equipment held by the Company (in
thousands).
Useful March 29, March 28,
Life 1998 1999
- --------------------------------------------------------------------------------
Land, buildings and
building improvements .................. 14-30 years $ 7,017 $ 9,956
Golf course land, land
improvements, buildings
and equipment ............................ 10-30 years 6,999 10,343
Office equipment, furniture
and fixtures ........................... 3-14 years 9,004 10,949
Aircraft ................................. 3- 5 years 1,297 232
Vehicles and equipment ................... 3- 5 years 801 762
-------- ---------
25,118 32,242
Accumulated depreciation ................. (7,895) (6,190)
--------------------
Total .................................. $ 17,223 $ 26,052
====================
<PAGE>
8. Receivable-Backed Notes Payable
The Company has various credit facilities for the pledge of residential land and
resort receivables. The Company has obtained a two-year, $35 million timeshare
receivables warehouse loan facility with a 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 primarily from the sale of completed Timeshare Interests.
The warehouse facility includes affirmative, negative and financial covenants,
and events of default. As of March 28, 1999, the Company has not utilized the
warehouse facility.
The Company also has a $20.0 million revolving credit facility with a
financial institution for the pledge of Residential Land and Golf Division
receivables. The Company uses 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.
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 and golf acquisition and development purposes. The interest
rate charged on outstanding borrowings ranges from prime plus 0.5% to 1.5%
(prime plus 0.5%, which was 8.25%, at March 28, 1999). At March 28, 1999, the
outstanding principal balances under the receivables and development portions of
this facility were $5.7 million (included in receivable-backed notes payable)
and $995,000 (included in lines-of-credit), respectively in the consolidated
balance sheet. 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 remaining $4.2 million of receivable-backed notes payable balances are
related to notes receivable sold by RDI with recourse, prior to the acquisition
of RDI by the Company. At March 28, 1999, the total $9.9 million in
receivable-backed notes payable were secured by $11.7 million in notes
receivable.
9. Lines-of-Credit and Notes Payable
The Company has outstanding borrowings with various financial institutions and
other lenders which have been used to finance the acquisition and development of
inventory and to fund operations. Financial data related to the Company's
borrowing facilities is set forth below.
March 29, March 28,
1998 1999
- --------------------------------------------------------------------------------
(Amounts in thousands)
Lines-of-credit secured by inventory
with a carrying value of $4.0
million at March 28, 1999. Interest
rates range from 9.50% to 11.25% at
March 29, 1998 and 9.25% at March
28, 1999. Matures in September
2000 .......................................... $13,551 $ 995
Notes and mortgage notes secured by
certain inventory, property and
equipment and investments with an
aggregate carrying value of $16.3
million at March 28, 1999. Interest
rates ranging from 7.90% to 11.00%
at March 29, 1998 and 8.50% to
12.00% at March 28, 1999
Maturities range from March 2000 to
November 2003 ................................. 34,518 15,228
Unsecured notes payable to former
stockholders of RDI. Interest rate
of 9.00%. Matures in October
1999 .......................................... 1,500 1,000
Lease obligations with a
weighted-average imputed interest
rate of 10.4% and 10.5% at March
29, 1998 and March 28, 1999,
respectively. Matures in December
2001 .......................................... 678 392
---------------------
Total .......................................... $50,247 $17,615
=====================
The table below sets forth the contractual minimum principal payments
required on the Company's lines-of-credit and notes payable for each of the five
fiscal years subsequent to fiscal 1999. Such minimum contractual payments may
differ from actual payments due to the effect of principal payments required on
a lot or timeshare interval release basis for certain of the above obligations
(amounts in thousands).
- --------------------------------------------------------------------------------
2000 ................................................................ $ 4,026
2001 ................................................................ 7,064
2002 ................................................................ 3,287
2003 ................................................................ 2,490
2004 ................................................................ 748
--------
Total ............................................................... $17,615
========
On September 23, 1998, the Company entered into a $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
July 31, 1999. Through March 28, 1999, the Company has not borrowed any amounts
under the line.
The Company has obtained a $25 million acquisition and development facility
for its timeshare inventories from a financial institution. The facility
includes a two-year draw down period and has a term of seven years. Principal
will be repaid through agreed-upon release prices as Timeshare Interests are
sold at the financed resort, subject to minimum
<PAGE>
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 of 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 March 28, 1999, the Company has not utilized this acquisition and
development facility.
The Company has also obtained from a financial institution a $35 million
revolving credit facility. The Company expects to use this facility to finance
the acquisition and development of residential land and golf projects and 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 outstanding borrowings is expected
to be approximately prime plus 1.5%. As of March 28, 1999, the Company has not
utilized this revolving credit facility.
10. Short-Term Borrowings from Underwriters and Note Offering
The Company borrowed an aggregate of $22.1 million from two investment banking
firms pursuant to a short-term loan agreement dated December 15, 1997 (the
"Bridge Loan"). The Bridge Loan bore interest at a rate equal to the greater of
10.00% or prime plus 2.75%. In addition, the Company paid a fee equal to 1.00%
of each advance.
On April 1, 1998, the Company consummated a private placement offering (the
"Offering") of $110 million in aggregate principal amount of 10.50% senior
secured notes due April 1, 2008 (the "Notes"). The initial purchasers in the
Offering were the investment banking firms who provided the Company with the
Bridge Loan. Interest on the Notes is payable semiannually on April 1 and
October 1 of each year, commencing October 1, 1998. The Notes are redeemable at
the option of the Company, in whole or in part, in cash, on or after April 1,
2003, together with accrued and unpaid interest, if any, to the date of
redemption at the following redemption prices: 2003--105.25%; 2004--103.50%;
2005--101.75% and 2006 and thereafter--100.00%. In addition, prior to April 1,
2001, the Company may redeem up to 35% of the aggregate principal amount of the
Notes with the proceeds of one or more public equity offerings, at a redemption
price equal to 110.5% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption, provided that at least $65 million
principal amount of Notes remains outstanding after any such redemption. The
Notes are senior obligations of the Company and rank pari passu in right of
payment with all existing and future senior indebtedness of the Company and rank
senior in right of payment to all existing and future subordinated obligations
of the Company. 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 existing and future 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 than
$50,000 of assets (collectively, "Non-Guarantor Subsidiaries"). The Note
guarantees are senior obligations of each Subsidiary Guarantor and rank pari
passu in right of payment with all existing and future senior indebtedness of
each such Subsidiary Guarantor and senior in right of payment to all existing
and future subordinated indebtedness of each such Subsidiary Guarantor. The Note
guarantees of certain Subsidiary Guarantors are secured by a first (subject to
customary exceptions) mortgage or similar instrument (each, a "Mortgage") on
certain residential land and golf properties of such Subsidiary Guarantors (the
"Pledged Properties"). Absent the occurrence and the continuance of an event of
default, the Notes trustee is required to release its lien on the Pledged
Properties as property is sold and the Trustee does not have a lien on the
proceeds of any such sale. As of March 28, 1999, the Pledged Properties had an
aggregate carrying value of approximately $26.4 million. The Notes' indenture
includes certain negative covenants including restrictions on the incurrence of
debt and liens and on payments of cash dividends.
The net proceeds of the Offering were approximately $106.3 million. In
connection with the Offering, the Company repaid the Bridge Loan, approximately
$28.9 million of the line-of-credit and notes payable balances and approximately
$36.3 million of the Company's receivable-backed notes payable outstanding at
March 29, 1998. In addition, the Company paid aggregate accrued interest on the
repaid debt of approximately $1.0 million and $2.7 million of prepayment
penalties. The remaining net proceeds of the Offering were used to repay other
obligations of the Company and for working capital purposes. In connection with
the Offering, the Company wrote-off approximately $692,000 of debt issuance
costs related to the extinguished debt and recognized a $1.7 million
extraordinary loss on early extinguishment of debt, which is net of taxes of
$1.1 million.
<PAGE>
SUPPLEMENTAL GUARANTOR INFORMATION
Supplemental financial information for Bluegreen Corporation, its combined
Non-Guarantor Subsidiaries and its combined Subsidiary Guarantors is presented
below:
CONDENSED CONSOLIDATING BALANCE SHEET AT MARCH 29, 1998 AND MARCH 28, 1999
<TABLE>
<CAPTION>
Combined Combined
(In thousands)(Unaudited) Bluegreen Non-Guarantor Subsidiary
March 29, 1998 Corporation Subsidiaries Guarantors Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ...................... $ 16,100 $ 5,186 $ 9,779 $ -- $ 31,065
Contracts receivable, net ...................... 364 730 14,390 -- 15,484
Intercompany receivable ........................ 9,688 2,825 -- (12,513) --
Notes receivable, net .......................... 1,368 5,770 74,155 -- 81,293
Inventory, net ................................. 14,768 17,113 75,317 -- 107,198
Investments in securities ...................... -- 10,941 -- -- 10,941
Investments in subsidiaries .................... 7,980 -- -- (7,980) --
Other assets ................................... 1,982 837 9,967 (3,027) 9,759
Property and equipment, net .................... 3,586 230 13,407 -- 17,223
----------------------------------------------------------------
Total assets ................................. $ 55,836 $ 43,632 $197,015 $(23,520) $272,963
================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable, accrued liabilities and other $ 8,826 $ 4,909 $ 18,972 $ (27) $ 32,680
Intercompany payable ........................... -- -- 12,513 (12,513) --
Lines-of-credit and notes payable .............. 30,087 21,069 72,934 (3,000) 121,090
Deferred income taxes .......................... 3,268 332 4,411 -- 8,011
8.00% convertible subordinated notes
payable to related parties ................... 6,000 -- -- -- 6,000
8.25% convertible subordinated debentures ...... 34,739 -- -- -- 34,739
----------------------------------------------------------------
Total liabilities ............................ 82,920 26,310 108,830 (15,540) 202,520
Minority interest .............................. -- -- -- 450 450
Total shareholders' equity ..................... (27,084) 17,322 88,185 (8,430) 69,993
----------------------------------------------------------------
Total liabilities and shareholders' equity ... $ 55,836 $ 43,632 $197,015 $(23,520) $272,963
================================================================
March 28, 1999
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents ...................... $ 36,710 $ 8,690 $ 10,157 $ -- $ 55,557
Contracts receivable, net ...................... 551 350 19,266 -- 20,167
Intercompany receivable ........................ 108,494 -- -- (108,494) --
Notes receivable, net .......................... 184 6,583 57,613 -- 64,380
Note receivable from related party ............. -- -- 4,168 -- 4,168
Inventory, net ................................. 17,201 14,735 110,692 -- 142,628
Investments in securities ...................... -- 17,106 -- -- 17,106
Investments in subsidiaries .................... 7,980 -- -- (7,980) --
Other assets ................................... 7,749 4,236 10,079 (3,000) 19,064
Property and equipment, net .................... 6,974 188 18,890 -- 26,052
----------------------------------------------------------------
Total assets ................................. $185,843 $ 51,888 $230,865 $(119,474) $349,122
================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable, accrued liabilities and other $ 8,951 $ 12,479 $ 15,931 $ -- $ 37,361
Intercompany payable ........................... -- 16,692 91,802 (108,494) --
Lines-of-credit and notes payable .............. 1,392 15,671 13,436 (3,000) 27,499
Deferred income taxes .......................... 3,473 1,604 8,430 -- 13,507
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 ............................ 164,187 46,446 129,599 (111,494) 228,738
Minority interest .............................. -- -- -- 1,035 1,035
Total shareholders' equity ..................... 21,656 5,442 101,266 (9,015) 119,349
----------------------------------------------------------------
Total liabilities and shareholders' equity ... $185,843 $ 51,888 $230,865 $(119,474) $349,122
================================================================
</TABLE>
<PAGE>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Combined Combined
(In thousands)(Unaudited) Bluegreen Non-Guarantor Subsidiary
Year Ended March 30, 1997 Corporation Subsidiaries Guarantors Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales .......................................... $ 28,148 $ -- $ 81,574 $ -- $109,722
Management fee revenue ......................... 8,297 -- -- (8,297) --
Interest income ................................ 2,378 1,125 2,752 -- 6,255
Loss on sale of notes receivable ............... -- (96) -- -- (96)
Other income ................................... 253 -- 6 -- 259
----------------------------------------------------------------
39,076 1,029 84,332 (8,297) 116,140
COSTS AND EXPENSES
Cost of sales .................................. 20,616 -- 36,475 -- 57,091
Selling, general and administrative expenses ... 22,298 100 37,340 (8,297) 51,441
Interest expense ............................... 2,886 600 1,973 -- 5,459
Provisions for losses .......................... 4,425 -- 5,114 -- 9,539
----------------------------------------------------------------
50,225 700 80,902 (8,297) 123,530
----------------------------------------------------------------
Income (loss) before income taxes .............. (11,149) 329 3,430 -- (7,390)
Provision (benefit) for income taxes ........... (4,571) 135 1,406 -- (3,030)
----------------------------------------------------------------
Net income (loss) .............................. $ (6,578) $ 194 $ 2,024 $ -- $ (4,360)
================================================================
Year Ended March 29, 1998
- ----------------------------------------------------------------------------------------------------------------------
REVENUES
Sales .......................................... $ 27,749 $ 4,566 $140,344 $ -- $172,659
Other resort and golf operations revenue ....... -- 448 3,665 -- 4,113
Management fee revenue ......................... 15,896 -- -- (15,896) --
Interest income ................................ 883 2,139 7,797 -- 10,819
Other income ................................... 185 3 124 -- 312
----------------------------------------------------------------
44,713 7,156 151,930 (15,896) 187,903
COSTS AND EXPENSES
Cost of sales .................................. 10,679 1,333 62,427 -- 74,439
Cost of other resort and golf operations ....... -- 293 2,926 -- 3,219
Management fees ................................ -- 715 15,181 (15,896) --
Selling, general and administrative expenses ... 27,186 2,089 51,684 -- 80,959
Interest expense ............................... 4,683 1,029 3,569 -- 9,281
Provisions for losses .......................... -- -- 3,002 -- 3,002
----------------------------------------------------------------
42,548 5,459 138,789 (15,896) 170,900
----------------------------------------------------------------
Income before income taxes and minority interest. 2,165 1,697 13,141 -- 17,003
Provision for income taxes ..................... 855 679 5,269 -- 6,803
Minority interest in income of consolidated
subsidiary ................................... -- -- -- 200 200
----------------------------------------------------------------
Net income ..................................... $ 1,310 $ 1,018 $ 7,872 $ 200 $ 10,000
================================================================
Year Ended March 28, 1999
- ----------------------------------------------------------------------------------------------------------------------
REVENUES
Sales .......................................... $ 32,699 $ 15,668 $177,449 $ -- $225,816
Other resort and golf operations revenue ....... -- 1,305 11,527 -- 12,832
Management fee revenue ......................... 21,878 -- -- (21,878) --
Interest income ................................ 1,981 2,954 9,869 -- 14,804
Gain on sale of notes receivable ............... -- 3,692 -- -- 3,692
Other income (expense) ......................... 532 105 (115) -- 522
----------------------------------------------------------------
57,090 23,724 198,730 (21,878) 257,666
COSTS AND EXPENSES
Cost of sales .................................. 10,079 4,094 67,322 -- 81,495
Cost of other resort and golf operations ....... -- 1,073 10,950 -- 12,023
Management fees ................................ -- 1,993 19,885 (21,878) --
Selling, general and administrative expenses ... 35,344 7,920 73,291 -- 116,555
Interest expense ............................... 10,549 1,906 467 -- 12,922
Provisions for losses .......................... -- 344 2,410 -- 2,754
----------------------------------------------------------------
55,972 17,330 174,325 (21,878) 225,749
----------------------------------------------------------------
Income before income taxes and minority interest 1,118 6,394 24,405 -- 31,917
Provision for income taxes ..................... 441 2,526 9,643 -- 12,610
Minority interest in income of consolidated
subsidiary .................................. -- -- -- 585 585
----------------------------------------------------------------
Income before extraordinary item ............... 677 3,868 14,762 585 18,722
Extraordinary loss on early extinguishment
of debt, net of income taxes ................. -- -- (1,682) -- (1,682)
----------------------------------------------------------------
Net income ..................................... $ 677 $ 3,868 $ 13,080 $ 585 $ 17,040
================================================================
</TABLE>
<PAGE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Combined Combined
(In thousands)(Unaudited) Bluegreen Non-Guarantor Subsidiary
Year Ended March 30, 1997 Corporation Subsidiaries Guarantors Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash (used) provided by operating activities ........... $ 2,416 $ (1,360) $ (9,261) $ -- $ (8,205)
-----------------------------------------------------------------
INVESTING ACTIVITIES:
Cash received from investments in securities ............... -- 1,699 -- -- 1,699
Purchases of property and equipment ........................ (614) -- (428) -- (1,042)
Proceeds from sales of property and equipment .............. -- -- 844 -- 844
-----------------------------------------------------------------
Net cash provided (used) by investing activities ............. (614) 1,699 416 -- 1,501
-----------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from borrowings under line-of-credit
facilities and notes payable ............................. 606 -- 20,082 -- 20,688
Payments under line-of-credit facilities and
notes payable ............................................ (2,103) -- (10,237) -- (12,340)
Payment of debt issuance costs ............................. -- -- (181) -- (181)
Proceeds from exercise of employee and director
stock options ............................................ 115 -- -- -- 115
Payments for treasury stock ................................ (1,370) -- -- -- (1,370)
-----------------------------------------------------------------
Net cash provided (used) by financing activities ............. (2,752) -- 9,664 -- 6,912
-----------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ......... (950) 339 819 -- 208
Cash and cash equivalents at beginning of year ............... 4,303 3,103 3,983 -- 11,389
-----------------------------------------------------------------
Cash and cash equivalents at end of year ..................... 3,353 3,442 4,802 -- 11,597
Restricted cash and cash equivalents at end of year .......... (1,932) (3,442) (2,604) -- (7,978)
-----------------------------------------------------------------
Unrestricted cash and cash equivalents at end of year $ ...... 1,421 $ -- $ 2,198 $ -- $ 3,619
=================================================================
Year Ended March 29, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net cash provided (used) by operating activities ........... $(11,696) $ (5,705) $ 30,490 $ 3,000 $ 16,089
-----------------------------------------------------------------
INVESTING ACTIVITIES:
Cash received from investments in securities ............... -- 1,959 -- -- 1,959
Acquisition of RDI Group, Inc. and
Resort Title Agency, Inc., net of cash acquired .......... (6,230) -- 3,777 -- (2,453)
Purchases of property and equipment ........................ (1,713) (235) (8,389) -- (10,337)
Proceeds from sales of property and equipment .............. -- -- 1,038 -- 1,038
-----------------------------------------------------------------
Net cash (used) provided by investing activities ............. (7,943) 1,724 (3,574) -- (9,793)
-----------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from short-term borrowings from
underwriters ............................................. 22,149 -- -- -- 22,149
Proceeds from borrowings under line-of-credit
facilities and notes payable ............................. 6,890 6,000 22,723 (3,000) 32,613
Payments under line-of-credit facilities and notes ......... (2,523) (463) (43,774) -- (46,760)
Proceeds from issuance of 8.0% convertible payable
subordinated notes payable to related parties ............ 6,000 -- -- -- 6,000
Payment of debt issuance costs ............................. (490) (62) (888) -- (1,440)
Proceeds from exercise of employee stock options ........... 379 -- -- -- 379
Capital contribution by minority interest .................. -- 250 -- -- 250
Payments for treasury stock ................................ (19) -- -- -- (19)
-----------------------------------------------------------------
Net cash provided (used) by financing activities ............. 32,386 5,725 (21,939) (3,000) 13,172
-----------------------------------------------------------------
Net increase in cash and cash equivalents .................... 12,747 1,744 4,977 -- 19,468
Cash and cash equivalents at beginning of year ............... 3,353 3,442 4,802 -- 11,597
-----------------------------------------------------------------
Cash and cash equivalents at end of year ..................... 16,100 5,186 9,779 -- 31,065
Restricted cash and cash equivalents at end of year .......... (1,217) (5,186) (6,750) -- (13,153)
-----------------------------------------------------------------
Unrestricted cash and cash equivalents at end of year ........ $ 14,883 $ -- $ 3,029 $ -- $ 17,912
=================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Combined Combined
(In thousands)(Unaudited) Bluegreen Non-Guarantor Subsidiary
Year Ended March 28, 1999 Corporation Subsidiaries Guarantors Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash (used) provided by operating activities ......... $ (83,348) $ 8,271 $ 73,204 $ -- $ (1,873)
-------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of related party notes receivable ............... -- -- (2,850) -- (2,850)
Loan to related party .................................... -- -- (1,318) -- (1,318)
Cash received from investments in securities ............. -- 1,478 -- -- 1,478
Purchases of property and equipment ...................... (4,330) (54) (6,634) -- (11,018)
Proceeds from sales of property and equipment ............ 836 62 41 -- 939
-------------------------------------------------------------------
Net cash (used) provided by investing activities ........... (3,494) 1,486 (10,761) -- (12,769)
-------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments under short-term borrowings from underwriters ... (22,149) -- -- -- (22,149)
Payments under line-of-credit facilities and notes payable (6,992) (5,398) (62,008) -- (74,398)
Proceeds from issuance of 10.5% senior secured
notes payable .......................................... 110,000 -- -- -- 110,000
Payment of debt issuance costs ........................... (4,901) (855) (57) -- (5,813)
Proceeds from issuance of Common Stock ................... 34,253 -- -- -- 34,253
Proceeds from exercise of employee and director
stock options .......................................... 397 -- -- -- 397
Payments for treasury stock .............................. (3,156) -- -- -- (3,156)
-------------------------------------------------------------------
Net cash provided (used) by financing activities ........... 107,452 (6,253) (62,065) -- 39,134
-------------------------------------------------------------------
Net increase in cash and cash equivalents .................. 20,610 3,504 378 -- 24,492
Cash and cash equivalents at beginning of year ............. 16,100 5,186 9,779 -- 31,065
-------------------------------------------------------------------
Cash and cash equivalents at end of year ................... 36,710 8,690 10,157 -- 55,557
Restricted cash and cash equivalents at end of year ........ (1,597) (8,595) (5,614) -- (15,806)
-------------------------------------------------------------------
Unrestricted cash and cash equivalents at end of year ...... $ 35,113 $ 95 $ 4,543 $ -- $ 39,751
===================================================================
</TABLE>
11. Convertible Subordinated Debentures
The Company has $34.7 million and $34.4 million of its 8.25% Convertible
Subordinated Debentures (the "Debentures") outstanding at March 29, 1998 and
March 28, 1999, respectively. The Debentures are convertible at any time prior
to maturity (2012), unless previously redeemed, into Common Stock of the Company
at a current conversion price of $8.24 per share, subject to adjustment under
certain conditions. The Debentures are redeemable at any time, at the Company's
option, in whole or in part at 100% of the face amount. The Company is obligated
to redeem annually 10% of the principal amount of the Debentures originally
issued, commencing May 15, 2003. Such redemptions are calculated to retire 90%
of the principal amount of the Debentures prior to maturity. The Debentures are
unsecured and subordinated to all senior indebtedness of the Company. Interest
is payable semiannually on May 15 and November 15.
Under financial covenants of the Indenture pursuant to which the Debentures
were issued, the Company is required to maintain net worth of not less than
$29.0 million. Should net worth fall below $29.0 million for two consecutive
quarters, the Company is required to make an offer to purchase 20% of the
outstanding Debentures at par, plus accrued interest.
During fiscal 1999, holders of $368,000 in aggregate principal amount of
the Debentures elected to convert said Debentures into an aggregate 44,658
shares of the Company's Common Stock.
12. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:
CASH AND CASH EQUIVALENTS: The amounts reported in the consolidated balance
sheets for cash and cash equivalents approximate fair value.
CONTRACTS RECEIVABLE: The amounts reported in the consolidated balance sheets
for contracts receivable approximate fair value. Contracts receivable are
non-interest bearing and generally convert into cash or an interest bearing
mortgage notes receivable within thirty days.
NOTES RECEIVABLE AND NOTES RECEIVABLE FROM RELATED PARTY: The amounts reported
in the consolidated balance sheets for notes receivable and notes receivable
from related party approximate fair value based on discounted future cash flows
using current rates at which similar loans with similar maturities would be made
to borrowers with similar credit risk.
<PAGE>
INVESTMENTS IN SECURITIES: Investments in securities, which represent retained
interests in REMIC and timeshare receivable pools sold are carried at fair value
based on discounted cash flow analyses.
LINES-OF-CREDIT, NOTES PAYABLE, SHORT-TERM BORROWINGS FROM UNDERWRITERS AND
RECEIVABLE-BACKED NOTES PAYABLE: The amounts reported in the balance sheets
approximate their fair value for indebtedness which provides for variable
interest rates. The fair value of the Company's fixed-rate indebtedness was
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
10.50% SENIOR SECURED NOTES PAYABLE: The fair value of the Company's 10.50%
senior secured notes payable is based on the quoted market price in the
over-the-counter bond market.
8.00% CONVERTIBLE SUBORDINATED NOTES PAYABLE TO RELATED PARTIES: The fair value
of the Company's $6 million notes payable was estimated using a discounted cash
flow analysis, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
8.25% CONVERTIBLE SUBORDINATED DEBENTURES: The fair value of the Company's 8.25%
convertible subordinated debentures is based on the quoted market price as
reported on the New York Stock Exchange.
March 29, 1998 March 28, 1999
- --------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------
Cash and
cash equivalents ....... $ 31,065 $ 31,065 $ 55,557 $ 55,557
Contracts
receivable, net ........ 15,484 15,484 20,167 20,167
Notes receivable, net .... 81,293 81,293 64,380 64,380
Notes receivable
from related party ..... -- -- 4,168 4,168
Investments
in securities .......... 10,941 10,941 17,106 17,106
Lines-of-credit, notes
payable, short-term
borrowings from
underwriters and
receivable-backed
notes payable .......... 121,090 121,090 27,499 27,585
10.50% senior secured
notes payable .......... -- -- 110,000 96,800
8.00% convertible
subordinated notes
payable to
related parties ........ 6,000 5,779 6,000 6,057
8.25% convertible
subordinated
debentures ............. 34,739 34,739 34,371 32,481
13. Common Stock and Stock Option Plans
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 2.9 million shares of the
Company's Common Stock for an aggregate of $25 million. On March 26, 1999, the
Funds purchased an additional 1.2 million shares of Common Stock for an
aggregate of $10 million. Legal and other stock issuance costs totaled
approximately $750,000.
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 of the Company occurs (as defined in the Stock Agreement)
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 year ended March 28, 1999.
Subject to certain exceptions, the Funds have agreed not to offer, sell,
transfer, assign, pledge or hypothecate any shares of Common Stock issued to
them, prior to the earlier of (i) August 14, 2000 or (ii) nine months following
the date on which the Funds have purchased all the shares of Common Stock to be
purchased by them under the Stock Agreement, but in no event earlier than
February 14, 2000.
TREASURY STOCK
During fiscal 1997, the Company repurchased 443,000 shares of Common Stock at an
aggregate cost of $1.4 million. During fiscal 1998, the Company repurchased an
additional 6,800 shares for $19,000.
<PAGE>
During fiscal 1999, the Board authorized a program to repurchase up to an
additional 2 million shares of Common Stock. During fiscal 1999, the Company
repurchased approximately 518,000 common shares at an aggregate cost of $3.2
million. Subsequent to March 28, 1999 (through May 14, 1999), the Company
purchased an additional 762,900 common shares for an aggregate cost of $3.8
million.
STOCK OPTION PLANS
Under the Company's employee stock option plans, options vest ratably over a
five-year period and expire ten years from the date of grant. All options were
granted at exercise prices which either equaled or exceeded fair market value at
the respective dates of grant.
Stock option plans covering the Company's nonemployee Directors provide for
the grant to the Company's nonemployee directors (the "Outside Directors") of
nonqualified stock options which vest ratably over a three-year period and
expire ten years from the date of grant. The 1988 Outside Directors Plan expired
on April 22, 1998. The 1998 Outside Directors Plan was approved by the
stockholders of the Company on July 28, 1998. A summary of stock option activity
related to the Company's Employee and Outside Directors Plans is presented below
(in thousands, except per share data).
<TABLE>
<CAPTION>
Number of Outstanding Exercise Price Number of
Shares Reserved Options Per Share Shares Exercisable
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EMPLOYEE STOCK OPTION PLANS
Balance at April 1, 1996.............. 2,102 1,102 $1.25-$11.64 382
Granted............................. -- 75 $4.25
Forfeited........................... (97) (97) $1.25-$11.64
Exercised........................... (45) (45) $1.25-$ 4.16
----------------------------
Balance at March 30, 1997............. 1,960 1,035 $1.25-$11.64 566
Granted............................. -- 925 $2.75-$ 4.88
Forfeited........................... (60) (75) $2.29-$11.64
Exercised........................... (160) (160) $1.25-$ 4.51
----------------------------
Balance at March 29, 1998............. 1,740 1,725 $1.25-$ 4.88 541
Additional options authorized....... 2,000 -- $--
Granted............................. -- 1,234 $8.50-$ 9.50
Forfeited........................... (3) (11) $2.29-$ 3.13
Exercised........................... (36) (36) $2.29-$ 2.60
----------------------------
Balance at March 28, 1999............. 3,701 2,912 $1.25-$ 9.50 821
============================
OUTSIDE DIRECTORS PLANS
Balance at April 1, 1996.............. 558 433 $0.83-$ 4.78 276
Granted............................. -- 75 $3.13
Exercised........................... -- (24) $0.83-$ 1.46
----------------------------
Balance at March 30, 1997............. 558 484 $0.83-$ 4.78 328
Granted............................. -- 74 $3.13
----------------------------
Balance at March 29, 1998............. 558 558 $0.83-$ 4.78 408
Additional options authorized....... 500 -- $--
Granted............................. -- 90 $9.31
Exercised........................... (103) (103) $1.77-$ 4.78
----------------------------
Balance at March 28, 1999............. 955 545 $0.83-$ 9.31 381
============================
</TABLE>
The weighted-average fair values of options granted during the year ended March
28, 1999 were:
Exercise price equal to fair value at grant date: employees--$4.24,
directors--$4.15.
Exercise price exceeds fair value at grant date: employees--$2.43.
<PAGE>
The weighted-average exercise prices and weighted-average remaining
contractual lives of the Company's outstanding stock options at March 28, 1999
(grouped by range of exercise prices) were:
<TABLE>
<CAPTION>
Weighted-
Average Weighted-
Remaining Weighted- Average
Number Number of Contractual Average Exercise Price
of Options Vested Options Life (in years) Exercise Price (vested only)
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Employees:
$1.25-$1.46....................... 102 102 3.5 $1.35 $1.35
$2.29-$3.13....................... 711 260 7.8 $3.04 $2.94
$3.58-$4.88....................... 864 459 7.5 $4.25 $3.95
$8.50-$9.50....................... 1,235 -- 10.0 $9.06 $ --
---------------------------
2,912 821
===========================
Directors:
$0.83............................. 12 12 3.0 $0.83 $0.83
$1.46-$1.77....................... 107 107 3.5 $1.62 $1.62
$2.81-$3.80....................... 336 262 6.7 $3.28 $3.33
$9.31............................. 90 -- 10.0 $9.31 $ --
---------------------------
545 381
===========================
</TABLE>
Pro forma information regarding net income (loss) and earnings (loss) per
share as if the Company had accounted for its employee stock options under the
fair value method of SFAS No. 123 is presented below. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for fiscal 1997, 1998 and
1999, respectively: risk free investment rates of 5%, 5% and 5%, dividend yields
of 1%, 0% and 0%, a volatility factor of the expected market price of the
Company's common stock of .369, .440 and .428, and a weighted-average life of
the options of 10 years, 5 years and 5 years, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per share data).
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
Pro forma net income (loss) ........ $ (4,562) $ 9,736 $ 16,419
===================================
Pro forma
earnings (loss) per share:
Basic .......................... $ (.22) $ .48 $ .74
Diluted ........................ (.22) .45 .64
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
As of March 28, 1999, Common Stock reserved for future issuance was comprised of
shares issuable (in thousands):
- --------------------------------------------------------------------------------
Upon conversion of 8.25% debentures ............................. 4,171
Upon conversion of 8.00% notes payable .......................... 1,531
Upon exercise of employee stock options ......................... 3,701
Upon exercise of outside director stock options ................. 955
Under the Stock Agreement with the Funds ........................ 1,765
------
12,123
======
14. Commitments and Contingencies
At March 28, 1999, the estimated cost to complete development work in
subdivisions or resorts from which lots or Timeshare Interests have been sold
totaled $55.4 million. Development is estimated to be completed within the next
two fiscal years as follows: 2000--$53.6 million, 2001--$1.8 million.
The Company leases certain office space, equipment and aircraft under
various noncancelable operating leases. Certain of these leases contain stated
escalation clauses while others contain renewal options.
Rent expense for the years ended March 30, 1997, March 29, 1998 and March
28, 1999 totaled approximately $1.1 million, $1.7 million and $3.1 million,
respectively. Lease commitments under these noncancelable operating leases for
each of the five fiscal years subsequent to fiscal 1999, and thereafter are as
follows (in thousands):
- --------------------------------------------------------------------------------
2000 .......................................................... $1,570
2001 .......................................................... 1,590
2002 .......................................................... 1,366
2003 .......................................................... 1,220
2004 .......................................................... 1,051
Thereafter .................................................... 1,721
------
Total future minimum lease payments ......................... $8,518
======
In connection with the acquisition of RDI, the Company (a) was granted an
option (the "AmClub Option") to acquire the capital stock or assets of AmClub, a
corporation owned by the former stockholders of RDI (the "RDI Stockholders"),
which owns a timeshare resort in Virginia known as Shenandoah Crossing Farm &
Club and (b) agreed to indemnify the RDI Stockholders from any obligations in
<PAGE>
respect of guarantees executed by the RDI Stockholders of indebtedness of RDI
and its affiliates (including indebtedness of AmClub). Although all AmClub
indebtedness covered by such guarantees is collateralized by notes receivable,
there can be no assurance that the Company will not be required to make payments
with respect to such indemnification obligation. Pursuant to the AmClub Option,
the exercise price for the purchase of AmClub's capital stock is $10,000, while
the exercise price for any assets of AmClub is equal to the fair market value of
such assets at the time of exercise. As of March 28, 1999, AmClub's total
liabilities were $13.5 million, and the total indebtedness guaranteed by the
Company was $1.1 million (see also Note 4).
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.
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 (the "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.
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.
15. Income Taxes
The provision (benefit) for income taxes consists of the following (in
thousands):
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
Federal:
Current ..................... $ 270 $ 1,802 $ 4,973
Deferred .................... (3,193) 3,093 4,994
-------------------------------------
(2,923) 4,895 9,967
State and other:
Current ..................... 119 1,668 1,796
Deferred .................... (226) 240 847
-------------------------------------
(107) 1,908 2,643
-------------------------------------
Total ......................... $(3,030) $ 6,803 $12,610
=====================================
The reasons for the difference between the provision (benefit) for income
taxes and the amount which results from applying the federal statutory tax rate
in fiscal 1997, 1998 and 1999 to income (loss) before income taxes are as
follows (in thousands):
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
Income tax expense (benefit)
at statutory rate ........... $(2,512) $ 5,952 $11,171
Effect of state taxes, net of
federal tax benefit ......... (518) 851 1,439
----------------------------------------
$(3,030) $ 6,803 $12,610
========================================
At March 29, 1998 and March 28, 1999, deferred income taxes consist of the
following components (in thousands):
March 29, March 28,
1998 1999
- --------------------------------------------------------------------------------
Deferred federal and state tax
(assets) liabilities:
Installment sales treatment of notes ......... $ 18,095 $ 14,032
Deferred federal and state loss
carryforwards/AMT credits .................. (6,245) (304)
Other ........................................ (3,839) (221)
-----------------------
Deferred income taxes ............................ $ 8,011 $ 13,507
=======================
As of March 28, 1999, the Company had $304,000 of AMT credit carryforwards
which have no expiration period.
<PAGE>
16. Employee Retirement Savings Plan
The Company's Employee Retirement Plan is a code section 401(k) Retirement
Savings Plan (the "Plan"). All employees at least 21 years of age with one year
of employment with the Company are eligible to participate in the Plan. Employer
contributions to the Plan are at the sole discretion of the Company and were not
material to the operations of the Company for fiscal 1997, 1998 and 1999.
17. Business Segments
The Company has three 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 Company's Communities Division markets
factory-built manufactured home/lot packages and undeveloped lots. The Company's
reportable segments are business units that offer different products. The
reportable segments are each managed separately because they sell distinct
products with different development, marketing and selling methods.
The Company evaluates performance and allocates resources based on field
operating profit (loss). Field operating profit (loss) is operating profit
(loss) prior to the allocation of corporate overhead, interest income, gain on
sale of receivables, other income, provisions for losses, interest expense,
income taxes and minority interest. Inventory is the only asset that the Company
evaluates on a segment basis--all other assets are only evaluated on a
consolidated basis. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
Required disclosures for the Company's business segments are as follows (in
thousands):
<TABLE>
<CAPTION>
Residential
As of and for the Year Ended March 30, 1997 Resorts Land and Golf Communities Totals
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales.............................................. $ 27,425 $ 72,621 $9,676 $109,722
Depreciation expense............................... 169 272 24 465
Field operating profit (loss)...................... 1,672 9,532 (496) 10,708
Inventory.......................................... 27,524 53,452 5,685 86,661
As of and for the Year Ended March 29, 1998
- --------------------------------------------------------------------------------------------------
Sales.............................................. $ 60,751 $106,071 $5,837 $172,659
Other resort and golf operations revenues.......... 4,113 -- -- 4,113
Depreciation expense............................... 393 274 17 684
Field operating profit (loss)...................... 7,043 23,892 (270) 30,665
Inventory.......................................... 59,275 45,249 2,674 107,198
As of and for the Year Ended March 28, 1999
- --------------------------------------------------------------------------------------------------
Sales.............................................. $103,127 $118,908 $3,781 $225,816
Other resort and golf operations revenues.......... 11,776 1,056 -- 12,832
Depreciation expense............................... 684 320 14 1,018
Field operating profit (loss)...................... 11,872 32,044 (178) 43,738
Inventory.......................................... 91,552 49,683 1,393 142,628
</TABLE>
RECONCILIATIONS TO CONSOLIDATED AMOUNTS
Field operating profit for reportable segments reconciled to consolidated income
(loss) before income taxes (in thousands):
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
Field operating profit for
reportable segments ............. $ 10,708 $ 30,665 $ 43,738
Interest income ................... 6,255 10,819 14,804
Gain (loss) on sale of
notes receivable ................ (96) -- 3,692
Other income ...................... 259 312 522
Corporate general and
administrative expenses ......... (9,518) (12,510) (15,163)
Interest expense .................. (5,459) (9,281) (12,922)
Provisions for losses ............. (9,539) (3,002) (2,754)
---------------------------------------
Consolidated income (loss)
before income taxes ............. $ (7,390) $ 17,003 $ 31,917
=======================================
Depreciation expense for reportable segments reconciled to consolidated
depreciation expense (in thousands):
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
Depreciation expense for
reportable segments ................ $ 465 $ 684 $1,018
Depreciation expense for
corporate fixed assets ............. 346 564 879
--------------------------------------
Consolidated
depreciation expense ............... $ 811 $ 1,248 $1,897
======================================
Assets for reportable segments reconciled to consolidated assets (in
thousands):
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
Inventory for
reportable segments ............. $ 86,661 $107,198 $142,628
Assets not allocated to
reportable segments ............. 82,966 165,765 206,494
--------------------------------------
Total assets ...................... $169,627 $272,963 $349,122
======================================
<PAGE>
GEOGRAPHIC INFORMATION
Sales by geographic area are as follows (in thousands):
March 30, March 29, March 28,
Years Ended, 1997 1998 1999
- --------------------------------------------------------------------------------
United States ..................... $109,690 $168,050 $210,139
Aruba ............................. -- 4,566 15,668
Other foreign countries ........... 32 43 9
--------------------------------------
Consolidated totals ............... $109,722 $172,659 $225,816
======================================
Inventory by geographic area is as follows (in thousands):
March 29, March 28,
Years Ended, 1998 1999
- --------------------------------------------------------------------------------
United States ..................... $ 90,080 $127,892
Aruba ............................. 17,113 14,735
Other foreign countries ........... 5 1
------------------------
Consolidated totals ............... $107,198 $142,628
========================
18. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for the years ended March 29, 1998
and March 28, 1999 is presented below (in thousands, except for per share
information).
<TABLE>
<CAPTION>
June 29, September 28, December 28, March 29,
Three Months Ended, ................ 1997 1997 1997 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales .............................. $33,091 $45,320 $44,490 $49,758
Gross profit ....................... 17,935 23,902 25,787 30,596
Net income ......................... 1,739 2,770 2,475 3,016
Earnings per common share:
Basic ............................ .09 .14 .12 .15
Diluted .......................... .08 .13 .11 .13
June 28, September 27, December 27, March 28,
Three Months Ended, ................ 1998 1998 1998 1999
- ---------------------------------------------------------------------------------------
Sales .............................. $55,658 $61,403 $55,669 $53,086
Gross profit ....................... 34,790 39,864 34,890 34,777
Income before extraordinary item ... 5,740 5,460 4,273 3,249
Net income ......................... 4,058 5,460 4,273 3,249
Earnings per common share:
Basic
Income before extraordinary item .28 .25 .18 .14
Net income ..................... .20 .25 .18 .14
Diluted
Income before extraordinary item .23 .21 .16 .13
Net income ..................... .17 .21 .16 .13
</TABLE>
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Bluegreen Corporation
We have audited the accompanying consolidated balance sheets of Bluegreen
Corporation as of March 29, 1998 and March 28, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 28, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bluegreen
Corporation at March 29, 1998 and March 28, 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 28, 1999, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
West Palm Beach, Florida
May 14, 1999
Jurisdiction of
Subsidiary Incorporation
- ---------- -------------
BG/RDI ACQUISITION CORP. Delaware
BLUEGREEN ASSET MANAGEMENT CORPORATION Delaware
BLUEGREEN CAROLINA LAND, INC. Delaware
BLUEGREEN CORPORATION Massachusetts
BLUEGREEN CORPORATION GREAT LAKES (WI) Wisconsin
BLUEGREEN CORPORATION OF CANADA Delaware
BLUEGREEN CORPORATION OF MONTANA Montana
BLUEGREEN CORPORATION OF TENNESSEE Delaware
BLUEGREEN CORPORATION OF THE ROCKIES Delaware
BLUEGREEN GOLF CLUBS, INC. Delaware
BLUEGREEN HOLDING CORPORATION (TEXAS) Delaware
BLUEGREEN LAND AND REALTY, INC. Colorado
BLUEGREEN PROPERTIES N.V. Aruba
BLUEGREEN PROPERTIES OF VIRGINIA, INC. Delaware
BLUEGREEN RECEIVABLES FINANCE CORPORATION I Delaware
BLUEGREEN RECEIVABLES FINANCE CORPORATION II Delaware
BLUEGREEN RECEIVABLES FINANCE CORPORATION III Delaware
BLUEGREEN RESORTS HOLDING CORP. (TENN) Delaware
BLUEGREEN RESORTS INTERNATIONAL, INC. Delaware
BLUEGREEN RESORTS MANAGEMENT, INC. Delaware
BLUEGREEN RESORTS, L.P. Delaware
BLUEGREEN SOUTHWEST LAND, INC. Delaware
BLUEGREEN SOUTHWEST ONE, L.P. Delaware
BLUEGREEN WEST CORPORATION Delaware
BRFC III DEED CORPORATION Delaware
BXG REALTY TENN, INC. Tennessee
CAROLINA NATIONAL GOLF CLUB, INC. North Carolina
LEISURE CAPITAL CORP. Vermont
NEW ENGLAND ADVERTISING CORP. Vermont
PATTEN RECEIVABLES FINANCE CORPORATION IX Delaware
PATTEN RECEIVABLES FINANCE CORPORATION VI Delaware
PATTEN RECEIVABLES FINANCE CORPORATION X Delaware
PROPERTIES OF THE SOUTHWEST ONE, INC. Delaware
SOUTH FLORIDA AVIATION, INC. Florida
WINDING RIVER REALTY, INC. North Carolina
BLUEGREEN VACATIONS UNLIMITED, INC. f/k/a RDI RESOURCES, INC. Florida
BLUE RIDGE PUBLIC SERVICE COMPANY Virginia
BXG REALTY OF FLORIDA, INC. f/k/a RDI REALTY, INC. Florida
DELLONA ENTERPRISES, INC. Wisconsin
RESORT TITLE AGENCY, INC. Florida
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Bluegreen Corporation of our report dated May 14, 1999, included in the 1999
Annual Report to Shareholders of Bluegreen Corporation.
We also consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 33-48075) pertaining to the Registrant's Retirement
Savings Plan and in the related Prospectus, (ii) the Registration Statement
(Form S-8 No. 33-61687) pertaining to the Registrant's 1988 Amended and Restated
Outside Directors Stock Option Plan and 1995 Stock Incentive Plan and in the
related Prospectus and (iii) the Registration Statement (Form S-8 No. 333-64659)
pertaining to the Registrant's 1998 Non-Employee Directors Stock Option Plan,
Amended and Restated 1995 Stock Incentive Plan and Retirement Savings Plan and
in the related Prospectus of our report dated May 14, 1999, with respect to the
consolidated financial statements of Bluegreen Corporation incorporated herein
by reference for the year ended March 28, 1999.
ERNST & YOUNG LLP
West Palm Beach, Florida
June 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> MAR-28-1999
<CASH> 55,557
<SECURITIES> 17,106
<RECEIVABLES> 91,757
<ALLOWANCES> 3,042
<INVENTORY> 142,628
<CURRENT-ASSETS> 0
<PP&E> 32,242
<DEPRECIATION> 6,190
<TOTAL-ASSETS> 349,122
<CURRENT-LIABILITIES> 0
<BONDS> 177,871
0
0
<COMMON> 251
<OTHER-SE> 119,098
<TOTAL-LIABILITY-AND-EQUITY> 349,122
<SALES> 225,816
<TOTAL-REVENUES> 257,666
<CGS> 81,495
<TOTAL-COSTS> 93,518
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,754
<INTEREST-EXPENSE> 12,922
<INCOME-PRETAX> 31,917
<INCOME-TAX> 12,610
<INCOME-CONTINUING> 18,722
<DISCONTINUED> 0
<EXTRAORDINARY> (1,682)
<CHANGES> 0
<NET-INCOME> 17,040
<EPS-BASIC> 0.77
<EPS-DILUTED> 0.66
</TABLE>
