<PAGE> 1
EXHIBIT 13.1
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>
AS OF OR FOR THE YEAR ENDED,
----------------------------------------------------------------------
MARCH 31, MARCH 30, MARCH 29, MARCH 28, APRIL 2,
(dollars in thousands, except per share data) 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $113,422 $ 109,722 $172,659 $225,816 $214,488
Other resort and golf operations revenues -- -- 4,113 12,832 17,533
Interest income 6,288 6,255 10,819 14,804 15,652
Gain (loss) on sale of notes receivable 1,100 (96) -- 3,692 2,063
Other income 122 259 312 522 735
-------- --------- -------- -------- --------
Total revenues 120,932 116,140 187,903 257,666 250,471
Income (loss) before income taxes
and minority interest 10,916 (7,390) 17,003 31,917 10,565
Net income (loss) 6,467 (4,360) 10,000 17,040 6,777
Earnings (loss) per common share:
Basic 0.32 (0.21) 0.49 0.77 0.29
Diluted 0.30 (0.21) 0.46 0.66 0.28
BALANCE SHEET DATA:
Notes receivable, net $ 37,194 $ 35,062 $ 81,293 $ 64,380 $ 70,114
Inventory, net 73,595 86,661 107,198 142,628 196,509
Total assets 154,963 169,627 272,963 349,122 415,512
Shareholders' equity 64,698 59,243 69,993 119,349 134,044
Book value per common share 3.15 2.94 3.45 4.95 5.50
OTHER DATA:
EBITDA (1) $ 18,978 $ 8,291 $ 29,897 $ 48,402 $ 30,986
Weighted-average interest rate on notes
receivable at period end 12.4% 13.3% 14.9% 15.0% 15.1%
Resorts division statistics:
Total resort division sales $ 13,825 $ 27,425 $ 60,751 $103,127 $117,271
Number of resorts at period end 3 4 8 10 10
Gross margin on resort sales 67.1% 71.0% 74.0% 75.7% 76.7%
Number of timeshare intervals sold (2) 1,865 3,195 6,904 11,764 12,547
Residential land and golf division statistics:
Total residential land and golf division
sales $ 99,597 $ 82,297 $111,908 $122,689 $ 97,217
Gross margin on sales of land 44.9% 40.3% 47.6% 54.0% 51.1%
Number of land parcels sold (2) 2,553 2,203 2,469 2,380 1,846
</TABLE>
(1) EBITDA should not be considered in isolation or 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>
FOR THE YEAR ENDED
-----------------------------------------------------------------
MARCH 31, MARCH 30, MARCH 29, MARCH 28, APRIL 2,
1996 1997 1998 1999 2000
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 6,467 $(4,360) $10,000 $17,040 $ 6,777
Extraordinary loss, net of income taxes -- -- -- 1,682 --
Interest expense 6,276 5,459 9,281 12,922 13,841
Capitalized interest expense included in cost
of sales 149 956 2,565 1,830 2,407
Income taxes 4,449 (3,030) 6,803 12,610 4,055
Provision for non-recurring costs (a) -- 8,200 -- -- --
Depreciation and amortization (b) 1,637 1,066 1,248 2,318 3,906
------- ------- ------- ------- -------
EBITDA $18,978 $ 8,291 $29,897 $48,402 $30,986
======= ======= ======= ======= =======
</TABLE>
1
<PAGE> 2
(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.
(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.)
2
<PAGE> 3
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 Company's inventories held for sale by the
Resorts Division and Residential Land and Golf Division. "Timeshare
Interests" are of two types: one which entitles the fixed-week buyer to
a fully-furnished vacation residence for an annual one-week period in
perpetuity and the second which entitles the buyer of the Company's
points-based Vacation Club product with an annual allotment of "points"
in perpetuity (supported by an underlying deeded fixed timeshare week
being held in trust for the buyer). "Points" may be exchanged by the
buyer in various increments for lodging for varying lengths of time in
fully-furnished vacation residences at the Company's participating
resorts. "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. Such statements may be identified by
forward-looking words such as "may", "intend", "expect", "anticipate",
"believe", "will", "should", "project", "estimate", "plan" or other
comparable terminology. All statements, trend analyses and other
information relative to the market for the Company's products and
trends in the Company's operations or results are forward-looking
statements. Such forward-looking statements are subject to known and
unknown 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.
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<PAGE> 4
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, or with a shortage of available inventory in the Company's
principal markets.
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 locate external sources of liquidity on
favorable terms to support its operations, acquire, carry and develop
land and timeshare inventories and satisfy its debt and other
obligations.
i) The inability of the Company to locate sources of capital on favorable
terms for the pledge and/or sale of land and timeshare notes
receivable, including the inability to consummate securitization
transactions.
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 materially 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/or 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.
o) Risks associated with selling Timeshare Interests in foreign countries
including, but not limited to, compliance with legal regulations, labor
relations and vendor relationships.
p) The risk that the Company's sales and marketing techniques are not
successful, and the risk that the Company's Vacation Club is not
accepted by consumers or imposes limitations on the Company's
operations, or is adversely impacted by legal or other requirements.
4
<PAGE> 5
The Company does not undertake to update or revise 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 of Notes to 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 $6.0 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, with the majority of the Company's gross revenues and
net earnings historically occurring in the first and second quarters of the
fiscal year. 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 part. In addition, other material fluctuations
in operating results may occur due to the timing of development and the
Company's use of the percentage-of-completion method of accounting. Management
expects that the Company will continue to invest in
5
<PAGE> 6
projects that will require substantial development (with significant capital
requirements). There can be no assurances that historical seasonal trends in
quarterly revenues and earnings will continue or be mitigated by the Company's
efforts.
The Company believes that inflation and changing prices have not had a
material impact on its revenues and results of operations during any of the
three years ended April 2, 2000. Based on the current economic climate, the
Company does not expect that inflation and changing prices will have a material
impact on the Company's revenues or results of operations in the foreseeable
future. To the extent inflationary trends affect short-term interest rates, a
portion of the Company's debt service costs may be affected as well as the
interest rate the Company charges on its new receivables from its customers.
The Company's operations are managed under two divisions. The Resorts
Division manages the Company's timeshare operations and the Residential Land and
Golf Division acquires large tracts of real estate which are subdivided,
improved (in some cases to include a golf course on the property) and sold,
typically on a retail basis. The results of operations from sales of remaining
factory-built manufactured home/lot packages and undeveloped lots, previously
managed under the Company's Communities Division, have been combined with the
results of operations of the Residential Land and Golf Division in the current
and prior periods, due to immateriality.
Inventory is carried at the lower of cost, including costs of
improvements and amenities, incurred subsequent to acquisition, or fair value,
net of costs to dispose (see Note 1 of Notes to Consolidated Financial
Statements).
A portion of the Company's revenues historically has been and, although
no assurances can be given, is expected to continue to be comprised of gains on
sales of loans. The gains are recorded in the Company's revenues and retained
interests in the portfolio are recorded on its balance sheet (as investments in
securities) at the time of sale. The amount of gains recorded is based in part
on management's estimates of future prepayment, default and loss severity rates
and other considerations in light of then-current conditions. If actual
prepayments with respect to loans occur more quickly than was projected at the
time such loans were sold, as can occur when interest rates decline, interest
would be less than expected and earnings would be charged in the future when the
retained interests are realized, except for the effect of reduced interest
accretion on the Company's retained interest, which would be recognized each
period the retained interests are held. If actual defaults or other factors
discussed above 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. Declines in the
fair value of the retained interests that are determined to be other than
temporary are charged to operations. There can be no assurances that the
carrying value of the Company's investments in securities will be fully realized
or that future loan sales will result in gains.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(in thousands) RESIDENTIAL
RESORTS LAND AND GOLF TOTAL
--------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 29, 1998
Sales $ 60,751 100.0% $ 111,908 100.0% $ 172,659 100.0%
Cost of sales (1) 15,808 26.0% 58,631 52.4% 74,439 43.1%
-------- ------ --------- ------ --------- ------
Gross profit 44,943 74.0% 53,277 47.6% 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)% (29,655) (26.5)% (68,449) (39.6)%
-------- ------ --------- ------ --------- ------
Field operating profit $ 7,043 11.6% $ 23,622 21.1% $ 30,665 17.8%
======== ===== ========= ===== ========= =====
YEAR ENDED MARCH 28, 1999
Sales $103,127 100.0% $ 122,689 100.0% $ 225,816 100.0%
Cost of sales (1) 25,013 24.3% 56,482 46.0% 81,495 36.1%
-------- ------ --------- ------ --------- ------
Gross profit 78,114 75.7% 66,207 54.0% 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)% (33,617) (27.4)% (101,392) (44.9)%
-------- ------ --------- ------ --------- ------
Field operating profit $ 11,872 11.5% $ 31,866 26.0% $ 43,738 19.4%
======== ===== ========= ===== ========= =====
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 2, 2000
Sales $117,271 100.0% $ 97,217 100.0% $ 214,488 100.0%
Cost of sales (1) 27,374 23.3% 47,583 48.9% 74,957 34.9%
-------- ----- --------- ----- --------- -----
Gross profit 89,897 76.7% 49,634 51.1% 139,531 65.1%
Other resort and golf operations
revenues 14,826 12.6% 2,707 2.8% 17,533 8.2%
Cost of resort and golf operations (11,536) (9.9)% (3,836) (4.0)% (15,372) (7.2)%
Field selling, general and
administrative expenses (2) (85,777) (73.1)% (25,918) (26.7)% (111,695) (52.1)%
-------- ----- --------- ----- --------- -----
Field operating profit $ 7,410 6.3% $ 22,587 23.2% $ 29,997 14.0%
======== ===== ========= ===== ========= =====
</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 $12.5 million, $15.2 million and $18.7
million for 1998, 1999 and 2000, respectively.
SALES
Consolidated sales were $172.7 million for the year ended March 29,
1998 ("fiscal 1998"), $225.8 million for the year ended March 28, 1999 ("fiscal
1999"), and $214.5 million for the year ended April 2, 2000 ("fiscal 2000"),
representing an increase of 30.8% from fiscal 1998 to fiscal 1999 and a decrease
of 5.0% from fiscal 1999 to fiscal 2000.
Resorts Division
During fiscal 1998, 1999 and 2000, sales of Timeshare Interests
contributed $60.8 million or 35%, $103.1 million or 46% and $117.3 million or
55%, 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.
<TABLE>
<CAPTION>
YEARS ENDED,
------------------------------------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
--------- --------- --------
<S> <C> <C> <C>
Number of Timeshare Interests sold 6,904 11,764 12,547
Average sales price per Timeshare Interest $8,799 $ 8,787 $ 9,061
Gross margin 74% 76% 77%
</TABLE>
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 increase in the number of Timeshare Interests sold during fiscal
2000 as compared to fiscal 1999 is primarily due to the continued success of the
Company's "Bluegreen Air" offsite sales offices. The "Bluegreen Air" offsite
sales offices (i.e., not located onsite at one of the Company's resorts) serve
the Louisville, Kentucky; Cleveland, Ohio; and Detroit, Michigan markets and
provide prospective buyers with a virtual-reality jet airline experience to
present the Company's Vacation Club product. The Company opened the Detroit
office during fiscal 2000, generating 385 Timeshare Interest sales during the
start-up phase. Same location sales increased by 1,230 Timeshare Interests sold
at the Louisville and Cleveland sites due to the success of the sales concept
and the
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<PAGE> 8
maturation of the offices. Overall, the "Bluegreen Air" sales offices
generated an additional 1,615 Timeshare Interest sales during fiscal 2000 as
compared to fiscal 1999.
These increases during fiscal 2000 were partially offset by net
decreases at the Company's Aruba and other existing sales locations. The
Company's La Cabana Beach and Racquet Club sales office in Aruba experienced a
decrease of 665 in the number of Timeshare Interests sold (1,835 and 1,170
Timeshare Interests sold during fiscal 1999 and 2000, respectively). The resort
experienced a slowdown in operations during fiscal 2000 as a result of
transitioning its sales staff from an employee leasing arrangement to permanent
employee status, which resulted in attrition among the sales force. New sales
personnel have since been hired to replace those who left during the transition.
In addition, a decreased amount of available Timeshare Interests related to
summer weeks contributed to decreased sales during the summer months (as buyers
in Aruba tend to want to buy Timeshare Interests related to the same period that
they are currently there on vacation). The Company is currently in negotiations
to enter into a joint venture with a third-party which, if successful, would
result in the availability of additional summer inventory. There can be no
assurances that the Company's negotiations will be successful.
The remaining offsetting decreases at the Company's other existing
sales offices during fiscal 2000 were due to the adverse impact of Hurricanes
Dennis and Floyd on vacation traffic and therefore sales tour flow. Also,
inconsistent methods of selling the Company's Vacation Club product, customer
service issues and the adverse effects during the transition period of a
reorganization of the Resorts Division's regional management structure in order
to better position the Company for future growth had an adverse impact on sales
during fiscal 2000. These factors caused lower prospect-to-sale conversion rates
and higher cancellation rates during fiscal 2000, and therefore lower sales and
higher marketing costs. The Company has taken steps to make the Vacation Club
sales process and pricing more uniform throughout the organization and has
implemented a formal customer service initiative. Although management believes
that these changes will improve sales performance in the first quarter of fiscal
2001, there can be no assurances that this improvement will occur or that any
such improvement will occur in the near term.
The increase in average sales price during fiscal 2000 was primarily
due to sales of Timeshare Interests in the Company's Lodge Alley Inn and
Orlando's Sunshine II resorts, which generated average sales prices of $12,311
and $11,515, respectively.
Additional Resorts Division revenues included in sales include the
impact of percentage-of-completion accounting, revenues from the bulk sale of
certain assets acquired in the AmClub foreclosure (approximately $655,000) (see
Note 4 of Notes to Consolidated Financial Statements), fees charged to the
Company's existing timeshare owners to convert their fixed-weeks into
points-based Timeshare Interests in the Vacation Club (approximately $724,000)
and revenues recognized pursuant to a sales and marketing agreement with a
third-party in Aruba (approximately $905,000).
Other resort service revenues and related costs increased 186.3% and
218.2%, respectively, during fiscal 1999 as compared to fiscal 1998, and 25.9%
and 12.6%, respectively, during fiscal 2000 as compared to fiscal 1999. The
fiscal 1999 increases in other resort revenues and related costs are 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. The increases in fiscal 2000 were due to increased
revenues and costs generated by Resort Title Agency, Inc. ("Title"), the
Company's wholly-owned title company. Title's revenues and costs increased $1.4
million and $200,000, respectively, during fiscal 2000 primarily due to the fact
that all of the Company's Vacation Club sales are now processed through Title
(in fiscal 1999 not all sales were Vacation Club sales - in fiscal 2000, all
sales except those in Aruba were Vacation Club sales). Also, the Company
recognized an additional $1.8 million and $600,000 of revenues and costs,
respectively, related to management and reservation fee income earned for
services provided to Vacation Club members.
The increase in field selling, general and administrative expenses 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 serving the Cleveland, Ohio, Orlando, Florida and Louisville, Kentucky
markets, which generated a combined field operating loss of $2.5 million during
fiscal 1999. A former off-site sales office in Orlando, Florida became an
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<PAGE> 9
"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 newest
off-site, which serves the Detroit, Michigan market, opened in fiscal 2000 and
generated a $230,000 field operating profit during its start-up phase, as the
Company now uses experienced managers of existing off-sites to open new offices.
The increase in field selling, general and administrative expenses as a
percentage of sales during fiscal 2000 as compared to fiscal 1999 is due to the
lower prospect-to-sales conversion rates and the costs of the Aruba sales force
transition, discussed above.
Residential Land and Golf Division
During fiscal 1998, 1999 and 2000, residential land and golf sales
contributed $111.9 million or 65%, $122.7 million or 54% and $97.2 million or
45%, 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.
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
--------- --------- --------
<S> <C> <C> <C>
Number of parcels sold 2,469 2,380 1,846
Average sales price per parcel $45,322 $47,721 $49,741
Gross margin 48% 54% 51%
</TABLE>
The aggregate number of parcels sold decreased during fiscal 1999 as
compared to fiscal 1998 primarily due to the following:
- 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. 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.
- 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.
- 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:
- 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.
- 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.
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<PAGE> 10
- 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.
The aggregate number of parcels sold decreased during fiscal 2000 as
compared to fiscal 1999 primarily due to decreases in available inventories due,
in part, to a strategic decision not to replace certain properties which either
sold out in fiscal 1999 or 2000 or which are approaching sell-out in areas of
the country where the Company has chosen to exit. These areas include Florida,
Tennessee, Wisconsin, Colorado, Arizona, and New Mexico. This factor resulted in
430 fewer lot sales in fiscal 2000 as compared to fiscal 1999. The Company
intends to primarily focus its Residential Land & Golf Division resources on
developing new golf communities, continuing to support its successful regions in
Texas and exploring possible expansion into the California market. In addition,
the Company's Dallas, Texas region generated 134 fewer lot sales in fiscal 2000
due to the sell-out of certain properties during the beginning of fiscal 2000.
On September 14, 1999, the Dallas region acquired an additional 1,550 acres of
land adjacent to the Company's successful Lake Ridge residential land project in
order to replace these sales and generate sales growth in the region. Sales are
expected to commence at this new project during fiscal 2001, although there can
be no assurances that sales will commence when expected. The Company's Winding
River Plantation golf community generated 62 fewer lot sales in fiscal 2000,
primarily due to the impact of Hurricanes Dennis and Floyd on sales tour flow.
The above decreases were partially offset by sales in projects which opened in
fiscal 2000 in the Company's Texas Hill Country region.
Included in the fiscal 2000 results of operations is a bulk sale of
land and mineral rights in Colorado to a developer of oil and gas rights, which
contributed approximately $5.0 million and $4.3 million to Residential Land and
Golf Division sales and field operating profit, respectively.
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 decrease in gross margin during fiscal 2000 as compared to fiscal 1999 was
primarily due to the fiscal 1999 sellout of the Company's Ranches of Sonterra
property in Ruidoso, New Mexico, a project which yielded a 62.4% margin during
fiscal 1999. In addition, certain projects which are approaching sellout in the
Company's Texas and Colorado regions yielded gross margins in the 20% to 30%
range in fiscal 2000 as compared to the 45% to 55% range in fiscal 1999 due to a
lower number of premium lots (e.g., waterfront, views, etc.) being available for
sale during fiscal 2000 and price decreases instituted to promote sellout.
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.
Golf operations generated revenues and related costs for the first time
during fiscal 1999 and increased 156.3% to 115.5%, respectively, during fiscal
2000 as compared to fiscal 1999. The Company opened the first 18 holes of its
Carolina National Golf Course ("Carolina National") for play in July 1998. In
fiscal 2000, the Company opened another nine holes at Carolina National along
with a new clubhouse, featuring food and beverage operations and an expanded pro
shop. The increased play at Carolina National in fiscal 2000 along with the
ancillary revenues from the clubhouse operations accounted for the increase
during fiscal 2000.
INTEREST INCOME
Interest income was $10.8 million, $14.8 million and $15.7 million for
fiscal 1998, 1999 and 2000, 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 1999 was primarily due to an increase
in the average notes receivable balance from $58.2 million during fiscal 1998 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
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<PAGE> 11
financed sales of Timeshare Interests during the year, partially offset by notes
receivable sold. The increase in interest income during fiscal 2000 was
primarily due to an increase in the average notes receivable balance to $74.8
million during fiscal 2000, plus increased interest accretion on securities
retained from the sale of timeshare notes receivable. Approximately 95% of all
of the Company's Timeshare Interest buyers finance their purchases with the
Company compared to 1% of residential land and golf buyers.
GAIN ON SALE OF NOTES RECEIVABLE AND OTHER INCOME
In fiscal 1999 and 2000, the Company recognized $3.7 million and $2.1
million gains, respectively, on the sale of timeshare notes receivable pursuant
to a now fully utilized timeshare receivables purchase facility more fully
described below under "Credit Facilities for Timeshare Receivables and
Inventories". The Company is currently engaged in negotiations to enter into a
new timeshare receivables purchase facility with the same financial institution.
The Company anticipates selling additional timeshare loans on a regular basis in
the future. There can be no assurances that a new purchase facility will be
obtained at terms acceptable to the Company, that such future transactions will
occur or that similar gains on such sales will be recognized.
Other income was $312,000, $522,000 and $735,000 during fiscal 1998,
1999 and 2000, 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 $81.0 million, $116.6 million and $130.4
million for fiscal 1998, 1999 and 2000, respectively. As a percentage of total
revenues, S, G & A Expenses were 43.1% for fiscal 1998, 45.2% for fiscal 1999
and 52.1% for fiscal 2000.
The increases in S, G & A Expenses as a percentage of revenues in
fiscal 1999 and fiscal 2000 were 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. In fiscal 2000, growth in the information systems area continued as
well as increased facilities and depreciation expense to support the future
growth of the Company.
INTEREST EXPENSE
Interest expense totaled $9.3 million, $12.9 million and $13.8 million
for fiscal 1998, 1999 and 2000, respectively. 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. The 7% increase in
interest expense in fiscal 2000 was due to an increase in the average debt
balance outstanding to $202.7 million. This increase was primarily due to
interest incurred on approximately $53.8 million of acquisition and development
borrowings incurred during the second and third fiscal quarters of fiscal 2000.
This increased interest expense incurred was partially offset by an increased
amount of interest capitalized into the carrying cost of the Company's inventory
during fiscal 2000 commensurate with the increased inventory balances during the
period.
The effective cost of borrowing (when adding back capitalized interest)
was 9.7%, 10.0%, and 9.8% for fiscal 1998, 1999 and 2000, respectively.
PROVISION FOR LOAN LOSSES
The allowance for loan losses by division as of March 28, 1999 and
April 2, 2000 was (amounts in thousands):
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<PAGE> 12
<TABLE>
<CAPTION>
RESIDENTIAL
LAND AND GOLF
RESORTS DIVISION DIVISION OTHER TOTAL
---------------- ------------- ------ --------
<S> <C> <C> <C> <C>
MARCH 28, 1999
Notes receivable $ 54,384 $ 11,105 $1,209 $ 66,698
Less: allowance for loan losses (1,983) (335) -- (2,318)
-------- -------- ------ --------
Notes receivable, net $ 52,401 $ 10,770 $1,209 $ 64,380
======== ======== ====== ========
Allowance as a % of gross notes
receivable 3.6% 3.0% --% 3.5%
======== ======== ====== ========
APRIL 2, 2000
Notes receivable $ 61,520 $ 10,883 $ 735 $ 73,138
Less: allowance for loan losses (2,515) (458) (51) (3,024)
-------- -------- ------ --------
Notes receivable, net $ 59,005 $ 10,425 $ 684 $ 70,114
======== ======== ====== ========
Allowance as a % of gross notes
receivable 4.1% 4.2% 6.9% 4.1%
======== ======== ====== ========
</TABLE>
The Company recorded provisions for loan losses totaling $3.0 million,
$2.8 million and $5.3 million during fiscal 1998, 1999 and 2000, respectively.
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 93.8% increase in the provision during fiscal 2000 from fiscal
1999 was due in part to the overall 10% increase in the notes receivable
portfolio. The increase in the provision is also due to increased timeshare
sales, and therefore increased timeshare loans (where historical default rates
exceed those for land loans).
The allowance for loan losses as a percentage of the gross notes
receivable balance increased at April 2, 2000, for the Residential Land and Golf
Division, as the Company exchanged its residual investments in a 1994 REMIC
transaction for the underlying mortgages, a significant portion of which were
delinquent. The 1994 REMIC investment was exchanged during fiscal 2000 in
connection with the termination of the REMIC, as all of the senior 1994 REMIC
security holders had received all of the required cash flows pursuant to the
terms of their REMIC certificates. Although the Company had previously recorded
an unrealized loss of $304,000 on this available-for-sale security, the Company
only realized a $179,000 loss on the exchange.
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 based on various factors, including
the value of the underlying collateral.
PROVISION FOR INCOME TAXES
The provision for income taxes as a percentage of income before taxes
was 40.0%, 39.5% and 38.4% during fiscal 1998, 1999 and 2000, respectively. The
decreases were primarily due to state tax savings generated by a restructuring
of the Company's subsidiaries in a state where the Company has significant
operations.
EXTRAORDINARY ITEM
The Company recognized a $1.7 million extraordinary loss on early
extinguishment of debt, net of taxes, during 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 $10.0 million to $17.0 million in fiscal 1998 and 1999,
respectively, and decreased to $6.8 million in fiscal 2000.
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<PAGE> 13
CHANGES IN FINANCIAL CONDITION
Consolidated assets of the Company increased $66.4 million from March
28, 1999 to April 2, 2000. This increase is due to an additional $10.0 million
in cash and cash equivalents on hand at April 2, 2000 (see Consolidated
Statement of Cash Flows) and a net $53.9 million increase in inventory,
primarily due to the acquisition of additional properties with purchase prices
totaling $42.7 million, and $79.6 million of development spending on the
Company's resort and residential land properties partially offset by inventory
sold during the period. Among the properties acquired during fiscal 2000 were
two tracts totaling 1,766 acres adjacent to the Company's successful Lake Ridge
at Joe Pool Lake residential land project in Dallas, Texas. The additional
tracts were acquired for an aggregate $14.9 million. The Company also acquired a
6,966 acre tract of land for Mystic Shores, a new residential land project in
Canyon Lake, Texas, for approximately $14.9 million. Also, Brickshire, a new
Bluegreen Golf Community situated on 1,135 acres in New Kent County, Virginia,
was acquired for approximately $4.4 million. The Company also purchased 1,346
acres in Boerne, Texas for $5.7 million for a new residential land project to be
called Chisholm Ranch. In addition, as a result of the foreclosure of property
securing certain notes receivable from AmClub, Inc. (see Note 4 of Notes to
Consolidated Financial Statements), the Company received residential land and
land for future resort development at the Shenandoah Crossing Farm & Club resort
in Gordonsville, Virginia with a carrying value of $3.3 million.
Consolidated liabilities increased $52.0 million from $228.7 million at
March 28, 1999 to $280.7 million at April 2, 2000. The increase is primarily due
to an aggregate $53.8 million in borrowings for the acquisition and development
of its resort, residential land and golf projects.
Total shareholders' equity increased $14.7 million during fiscal 2000,
primarily due to net income of $6.8 million and net proceeds from the sale of
$15.0 million of common stock to certain funds which are affiliates of Morgan
Stanley Dean Witter & Co., Inc. These increases were partially offset by the
Company's repurchase of $7.8 million of common stock (1.6 million shares) to be
held in treasury pursuant to stock repurchase programs approved since October
1998 which authorized aggregate repurchases of up to 3.0 million shares. The
Company's book value per common share increased from $4.95 to $5.50 and its
debt-to-equity ratio increased from 1.49:1 to 1.70:1 at March 28, 1999 and April
2, 2000, 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 lot and timeshare sales
which are financed, (iii) net cash generated from other resort services and golf
operations, (iv) 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 (v) 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, 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
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<PAGE> 14
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).
Credit Facilities for Timeshare Receivables and Inventories
The Company maintains various credit facilities with financial
institutions that provide for receivable financing for its timeshare projects.
On June 26, 1998, the Company executed a timeshare receivables purchase
facility with a financial institution. Under the purchase facility (the
"Purchase Facility"), a special purpose finance subsidiary of the Company sold
$103.1 million aggregate principal amount of timeshare receivables to the
financial institution in securitization transactions. The Purchase Facility had
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 was paid at closing in cash, with a portion deferred until
such time as the purchaser has received their portion of principal payments (as
defined in the Purchase Facility agreement), 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 were 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 includes various provisions customary for a transaction of
this type. The Company is currently negotiating a new $90.0 million timeshare
receivables purchase facility with the same financial institution. There can be
no assurances that the Company's negotiations will result in the Company
obtaining such a facility on acceptable terms to the Company, if at all.
The Company has a $35.0 million timeshare receivables warehouse loan
facility, which expires in June 2000, with the same financial institution. Loans
under the warehouse facility bear interest at LIBOR plus 2.75%. The warehouse
facility has detailed requirements with respect to the eligibility of
receivables for inclusion and other conditions to funding. The borrowing base
under the warehouse facility is 95% of the outstanding principal balance of
eligible notes arising from the sale of Timeshare Interests. The warehouse
facility includes affirmative, negative and financial covenants and events of
default. On June 30, 1999, the Company borrowed $8.9 million under the warehouse
facility, which will be repaid as principal and interest payments are collected
on the timeshare notes receivable which collateralize the loan, but in no event
later than June 26, 2000. As of April 2, 2000, the outstanding balance on this
facility was $1.6 million. The Company is currently negotiating an extension of
the maturity date on this recent borrowing as well as an extension of the
funding period under the facility. There can be no assurances that such
negotiations will be successful.
In addition, the same financial institution referred to in the
preceding paragraphs has provided the Company with a $28.0 million acquisition
and development facility for its timeshare inventories. The facility includes a
two-year draw down period, which expires in October 2000, and matures in January
2006. 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%. 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. On September 14, 1999, the Company borrowed
approximately $14.0 million under the acquisition and development facility. The
principal must be repaid by November 1, 2005, through agreed-upon release prices
as Timeshare Interests in the Company's Lodge Alley Inn resort in Charleston,
South Carolina are sold, subject to minimum required amortization. On December
20, 1999, the Company borrowed approximately $13.9 million under the acquisition
and development facility. The principal must be repaid by January 1, 2006,
through agreed-upon release prices as Timeshare Interests in the Company's Shore
Crest II resort are sold, subject to minimum required amortization. The
outstanding balance under the acquisition and development facility at April 2,
2000 was $26.4 million. The Company is currently negotiating an extension and
increase of the facility. There can be no assurances that the Company's
negotiations will be successful.
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<PAGE> 15
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. 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 April 2, 2000, the outstanding principal balances under the
receivables and development portions of this facility were approximately $6.7
million and $301,000, respectively. All principal and interest payments
received on pledged Receivables are applied to principal and interest due under
the facility. The ability to borrow under the facility expires in September
2000. Any outstanding indebtedness is due in September 2002. The Company is
currently negotiating an extension of the facility expiration date. There can
be no assurances that such negotiations will be successful.
The Company has a $35.0 million revolving credit facility, which
expires in March 2002, with a financial institution. The Company uses this
facility to finance the acquisition and development of residential land
projects and, potentially to finance land receivables. The facility is 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 1.25%. On September 14, 1999, in connection with the
acquisition of 1,550 acres adjacent to the Company's Lake Ridge residential
land project in Dallas, Texas ("Lake Ridge II"), the Company borrowed
approximately $12.0 million under the revolving credit facility. Principal
payments will be effected through agreed-upon release prices as lots in Lake
Ridge II and in another recently purchased section of Lake Ridge are sold. The
principal must be repaid by September 14, 2004. On October 6, 1999, in
connection with the acquisition of 6,966 acres for the Company's Mystic Shores
residential land project in Canyon Lake, Texas, the Company borrowed $11.9
million under the revolving credit facility. Principal payments will be
effected through agreed-upon release prices as lots in Mystic Shores are sold.
The principal must be repaid by October 6, 2004. The outstanding balance on
this facility was $23.4 million at April 2, 2000.
On September 24, 1999, the Company obtained two lines-of-credit with a
bank for the purpose of acquiring and developing a new residential land and
golf course community in New Kent County, Virginia, known as Brickshire. The
lines-of-credit have an aggregate borrowing capacity of approximately $15.8
million. On September 27, 1999, the Company borrowed approximately $2.0 million
under one of the lines-of-credit in connection with the acquisition of the
Brickshire property. The outstanding balances under the lines-of-credit bear
interest at prime plus 0.5% and interest is due monthly. Principal payments
will be effected through agreed-upon release prices as lots in Brickshire are
sold, subject to minimum required quarterly amortization commencing on April
30, 2002. The principal must be repaid by January 31, 2004. The loan is secured
by the Company's residential land lot inventory in Brickshire. As of April 2,
2000, the outstanding balance on this loan was $2.0 million.
Concurrent with obtaining the Brickshire lines-of-credit discussed
above, the Company also obtained from the same bank a $4.2 million
line-of-credit for the purpose of developing a golf course on the Brickshire
property (the "Golf Course Loan"). The outstanding balances under the Golf
Course Loan will bear interest at prime plus 0.5% and interest is due monthly.
Principal payments will be payable in equal monthly installments of $35,000
commencing September 1, 2001. The principal must be repaid by October 1, 2005.
The loan is secured by the Brickshire golf course property. As of April 2,
2000, no amounts were outstanding under the Golf Course Loan.
Over the past three years, the Company has received approximately 90%
to 99% 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.
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<PAGE> 16
Historically, the Company has funded development for road and utility
construction, amenities, surveys and engineering fees from internal operations
and has financed the acquisition of residential land and golf properties
through seller, bank or financial institution loans. Terms for repayment under
these loans typically call for interest to be paid monthly and principal to be
repaid through lot releases. The release price is usually defined as a
pre-determined percentage of the gross selling price (typically 25% to 50%) of
the parcels in the subdivision. In addition, the agreements generally call for
minimum cumulative annual amortization. When the Company provides financing for
its customers (and therefore the release price is not available in cash at
closing to repay the lender), it is required to pay the creditor with cash
derived from other operating activities, principally from cash sales or the
pledge of receivables originated from earlier property sales.
Other Credit Facility
On November 3, 1999, the Company increased the borrowing capacity on
its unsecured line-of-credit with a bank from $5 million to $10 million.
Amounts borrowed under the line will bear interest at LIBOR plus 1.75%.
Interest is due monthly and all principal amounts are due on December 31, 2000.
Through April 2, 2000, the Company had not borrowed any amounts under the line.
Summary
The Company intends to continue to pursue a growth-oriented strategy,
particularly with respect to its Resorts Division. In connection with this
strategy, the Company may from time to time acquire, among other things,
additional resort properties and completed Timeshare Interests; land upon which
additional resorts may be built; management contracts; loan portfolios of
Timeshare Interest mortgages; portfolios which include properties or assets
which may be integrated into the Company's operations; and operating companies
providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to the Company's operations
in the timeshare industry. In addition, the Company intends to continue to
focus the Residential Land and Golf Division on larger more capital intensive
projects particularly in those regions where the Company believes the market
for its products is strongest, such as the Southeast, Southwest, Midwest and
Western regions of the United States and to replenish its residential land and
golf inventory in such regions as existing projects are sold-out.
The Company estimates that the total cash required to complete
preparation for the sale of its residential land and golf and timeshare
property inventory as of April 2, 2000 is approximately $212.5 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 proposed timeshare receivables purchase facility (or any
replacement facility) will be sufficient to meet the Company's anticipated
working capital, capital expenditure and debt service requirements for the
foreseeable future. Based on outstanding borrowings at April 2, 2000, and the
existing credit facilities described above, the Company has approximately $87.6
million of available credit at its disposal, subject to customary conditions,
compliance with covenants and eligible collateral. The Company will be required
to obtain a new timeshare receivables purchase facility and to renew or replace
credit facilities scheduled to expire in fiscal 2001. The Company will, in the
future, also require additional credit facilities or issuances of other
corporate debt or equity securities in connection with acquisitions or
otherwise. Any debt incurred or issued by the Company may be secured or
unsecured, bear fixed or variable rate interest and may be subject to such
terms as the lender may require and management deems prudent. There can be no
assurance that sufficient funds will be available from operations or under
existing, proposed or future revolving credit or other borrowing arrangements
or receivables purchase facilities to meet the Company's cash needs, including,
without limitation, its debt service obligations.
The Company's credit facilities, indentures and other outstanding debt
instruments 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
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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 believes it has resolved the potential impact of the year
2000 ("Y2K") issue on its processing of date sensitive information in its
information technology and operation and control systems. The Company, to date,
has not experienced any negative effects due to the Y2K problem, either
internally or with its customers or vendors. If the Company encounters Y2K
problems during the year 2000, and if customers or vendors cannot rectify Y2K
issues, the Company could incur additional costs, which may be substantial, to
develop alternative methods of managing its business and replacing
non-compliant equipment, and may experience delays in obtaining goods or
services from and making payment to vendors, and making sales and/or providing
service to customers. The Company has no contingency plans for critical
functions in the event of non-compliance by its customers and vendors.
Cost
The Company utilized both internal and external resources to remediate
and test its systems regarding the Y2K issue. The total cost of the Y2K project
was $484,000 of which $421,000 has been capitalized and $63,000 has been
expensed. The Y2K project was funded through operating cash flows. The portion
of the costs which were capitalized related to the purchase of marketing
software and hardware which would have been replaced for reasons other than the
Y2K issue. All internal payroll costs relating to the assessment, remediation
and testing phases of the Y2K project were expensed as incurred and are
excluded from the above amounts.
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 2000 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 and $48.3 million of fixed-rate
timeshare notes receivable during fiscal 1999 and 2000, respectively, under the
Purchase Facility (see "Credit Facilities for Timeshare Receivables and
Inventories"). 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 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 April 2, 2000, the Company had fixed interest rate debt of
approximately $162.6 million and floating interest rate debt of approximately
$65.3 million. In addition, the Company's notes receivable from timeshare and
residential land and golf customers were comprised of $66.9 million of fixed
rate loans and $5.5 million of notes bearing floating interest rates. The
floating interest rates are based either upon the prevailing prime or
three-month
17
<PAGE> 18
LIBOR interest rates. 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 or
LIBOR rates, as applicable, 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 $130,000. 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:
<TABLE>
<CAPTION>
Price Range Price Range
---------------------- ----------------------
High Low High Low
--------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
FISCAL 2000 FISCAL 1999
First Quarter $ 6 1/2 $ 4 7/8 First Quarter $11 1/2 $ 7 5/8
Second Quarter 6 3/8 4 9/16 Second Quarter 10 1/4 7 7/16
Third Quarter 5 5/8 4 3/8 Third Quarter 8 3/8 4 3/8
Fourth Quarter 4 15/16 3 1/16 Fourth Quarter 7 11/16 5 1/2
</TABLE>
18
<PAGE> 19
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 28, 1999 and April 2, 2000, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended April 2, 2000. 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 auditing standards
generally accepted in the United States. 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 28, 1999 and April 2, 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 2, 2000, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
West Palm Beach, Florida
May 12, 2000
<PAGE> 20
BLUEGREEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 28, APRIL 2,
1999 2000
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents (including restricted cash of approximately
$15.8 million and $21.1 million at March 28, 1999 and April 2, 2000,
respectively) ................................................................. $ 55,557 $ 65,526
Contracts receivable, net ...................................................... 20,167 8,403
Notes receivable, net .......................................................... 64,380 70,114
Notes receivable from related party ............................................ 4,168 --
Prepaid expenses ............................................................... 3,659 5,003
Inventory, net ................................................................. 142,628 196,509
Investments in securities ...................................................... 17,106 15,330
Property and equipment, net .................................................... 26,052 35,409
Other assets ................................................................... 15,405 19,218
----------- -----------
Total assets ......................................................... $ 349,122 $ 415,512
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable ............................................................... $ 6,207 $ 6,876
Accrued liabilities and other .................................................. 25,362 28,776
Deferred income ................................................................ 5,792 3,973
Deferred income taxes .......................................................... 13,507 13,173
Receivable-backed notes payable ................................................ 9,884 11,167
Lines-of-credit and notes payable .............................................. 17,615 66,364
10.50% senior secured notes payable ............................................ 110,000 110,000
8.00% convertible subordinated notes payable to related parties ................ 6,000 6,000
8.25% convertible subordinated debentures ...................................... 34,371 34,371
----------- -----------
Total liabilities ........................................................... 228,738 280,700
Minority interest .............................................................. 1,035 768
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; 25,063
and 26,935 shares issued at March 28, 1999 and April 2, 2000, respectively .... 251 269
Additional paid-in capital ..................................................... 107,206 122,533
Treasury stock, 968 and 2,558 common shares at March 28, 1999 and
April 2, 2000, respectively, at cost .......................................... (4,545) (12,313)
Net unrealized gains on investments available-for-sale, net of income taxes .... 560 901
Retained earnings .............................................................. 15,877 22,654
----------- -----------
Total shareholders' equity ................................................ 119,349 134,044
----------- -----------
Total liabilities and shareholders' equity ........................... $ 349,122 $ 415,512
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 21
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
--------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales .............................................................. $ 172,659 $ 225,816 $ 214,488
Other resort and golf operations revenues .......................... 4,113 12,832 17,533
Interest income .................................................... 10,819 14,804 15,652
Gain on sale of notes receivable ................................... -- 3,692 2,063
Other income ....................................................... 312 522 735
--------- ----------- -----------
187,903 257,666 250,471
Cost and expenses:
Cost of sales ...................................................... 74,439 81,495 74,957
Cost of other resort and golf operations ........................... 3,219 12,023 15,372
Selling, general and administrative expenses ....................... 80,959 116,555 130,398
Interest expense ................................................... 9,281 12,922 13,841
Provision for loan losses .......................................... 3,002 2,754 5,338
--------- ----------- -----------
170,900 225,749 239,906
--------- ----------- -----------
Income before income taxes and minority interest ..................... 17,003 31,917 10,565
Provision for income taxes ........................................... 6,803 12,610 4,055
Minority interest in (loss) income of consolidated subsidiary ........ 200 585 (267)
--------- ----------- -----------
Income before extraordinary item ..................................... 10,000 18,722 6,777
Extraordinary loss on early extinguishment of debt,
net of income taxes ............................................... -- (1,682) --
--------- ----------- -----------
Net income ........................................................... $ 10,000 $ 17,040 $ 6,777
========= =========== ===========
EARNINGS PER COMMON SHARE:
Basic:
Income before extraordinary item ............................... $ .49 $ .85 $ .29
Extraordinary loss on early extinguishment of debt,
net of income taxes ......................................... -- (.08) --
--------- ----------- -----------
Net income ..................................................... $ .49 $ .77 $ .29
========= =========== ===========
Diluted:
Income before extraordinary item ............................... $ .46 $ .72 $ .28
Extraordinary loss on early extinguishment of debt,
net of income taxes ......................................... -- (.06) --
--------- ----------- -----------
Net income ..................................................... $ .46 $ .66 $ .28
========= =========== ===========
WEIGHTED-AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES:
Basic .............................................................. 20,219 22,167 23,323
========= =========== ===========
Diluted ............................................................ 25,746 28,909 25,375
========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 22
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<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
------ ------ ---------- -------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 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
Net income .............................. -- -- -- -- -- 6,777 6,777
Net unrealized gains on investments
available-for-sale, net of income
taxes .................................. -- -- -- -- 341 -- 341
---------
Comprehensive income .................... 7,118
Sale of Common Stock, net of
issuance costs ......................... 1,765 17 14,956 -- -- -- 14,973
Shares issued to employees and
directors upon exercise of stock
options ................................ 107 1 260 -- -- -- 261
Income tax benefit from stock options
exercised .............................. -- -- 111 -- -- -- 111
Shares repurchased for treasury stock ... -- -- -- (7,768) -- -- (7,768)
------ ---- -------- -------- ---- -------- ---------
Balance at April 2, 2000 ................ 26,935 $269 $122,533 $(12,313) $901 $ 22,654 $ 134,044
====== ==== ======== ======== ==== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 23
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
---------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................... $ 10,000 $ 17,040 $ 6,777
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Extraordinary loss on early extinguishment of debt, net
of income taxes ................................................ -- 1,682 --
Minority interest in (loss) income of consolidated subsidiary .... 200 585 (267)
Depreciation ..................................................... 1,248 1,897 3,206
Amortization ..................................................... 1,058 1,023 1,556
Amortization of discount on note payable ......................... 445 1,353 1,039
Gain on sale of notes receivable ................................. -- (3,692) (2,063)
Loss (gain) on sale of property and equipment .................... (196) (199) 347
Loss on exchange of REMIC certificates ........................... -- -- 179
Provision for loan losses ........................................ 3,002 2,754 5,338
(Benefit) provision for deferred income taxes .................... 3,333 5,841 (360)
Interest accretion on investments in securities .................. (1,416) (2,205) (2,274)
Proceeds from sale of notes receivable ........................... -- 53,261 46,969
Proceeds from borrowings collateralized by notes receivable ...... 26,495 4,137 13,771
Payments on borrowings collateralized by notes receivable ........ (14,282) (3,568) (11,530)
(Increase) decrease in operating assets and liabilities:
Contracts receivable ........................................... (1,175) (4,683) 11,763
Notes receivable ............................................... (31,821) (50,613) (62,882)
Prepaid expenses ............................................... (1,064) (1,547) (1,349)
Inventory ...................................................... 10,104 (26,808) (22,035)
Other assets ................................................... (1,805) (3,013) (2,935)
Accounts payable, accrued liabilities and other ................ 12,408 6,235 2,492
---------- ----------- ----------
Net cash (used) provided by operating activities ..................... 16,534 (520) (12,258)
---------- ----------- ----------
INVESTING ACTIVITIES:
Purchase of related party notes receivable ......................... -- (2,850) --
Loan to related party .............................................. -- (1,318) (256)
Principal payments received on loan to related party ............... -- -- 459
Cash received from investments in securities ....................... 1,959 1,478 6,201
Business acquisitions, net of cash acquired ........................ (2,453) -- (675)
Purchases of property and equipment ................................ (10,337) (11,018) (10,846)
Proceeds from sales of property and equipment ...................... 1,038 939 1,516
---------- ----------- ----------
Net cash used by investing activities ................................ (9,793) (12,769) (3,601)
---------- ----------- ----------
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 .................................................... 32,613 -- 27,885
Payments under line-of-credit facilities and notes payable ......... (47,205) (75,751) (7,516)
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 ..................................... (1,440) (5,813) (2,007)
Capital contribution by minority interest .......................... 250 -- --
Proceeds from issuance of common stock ............................. -- 34,253 14,973
Proceeds from exercise of employee and director stock options ...... 379 397 261
Payments for treasury stock ........................................ (19) (3,156) (7,768)
---------- ----------- ----------
Net cash provided by financing activities ............................ 12,727 37,781 25,828
---------- ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................ 19,468 24,492 9,969
Cash and cash equivalents at beginning of year ....................... 11,597 31,065 55,557
---------- ----------- ----------
Cash and cash equivalents at end of year ............................. 31,065 55,557 65,526
Restricted cash and cash equivalents at end of year .................. (13,153) (15,806) (21,129)
---------- ----------- ----------
Unrestricted cash and cash equivalents at end of year ................ $ 17,912 $ 39,751 $ 44,397
========== =========== ==========
</TABLE>
<PAGE> 24
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
----------- ----------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING, INVESTING
AND FINANCING ACTIVITIES
Inventory acquired through financing ............................... $ 22,974 $ 2,485 $ 25,867
=========== =========== =========
Inventory acquired through foreclosure or deedback in lieu of
foreclosure ...................................................... $ 3,558 $ 6,137 $ 6,982
=========== =========== =========
Foreclosure of notes receivable, inventory and fixed assets
following default on notes receivable from related party .......... $ -- $ -- $ 3,965
=========== =========== =========
Exchange of REMIC certificates for notes receivable and inventory
in connection with termination of REMIC ........................... $ -- $ -- $ 4,353
=========== =========== =========
Property and equipment acquired through financing .................. $ 902 $ 446 $ 713
=========== =========== =========
Investment in securities retained in connection with REMIC
transactions and sale of timeshare notes receivable .............. $ -- $ 5,181 $ 3,436
=========== =========== =========
Sale of inventory in exchange for an investment in securities ...... $ -- $ -- $ 2,500
=========== =========== =========
Net change in unrealized gains on investments ...................... $ 418 $ 257 $ 259
=========== =========== =========
Conversion of 8.25% convertible subordinated debentures
into common stock ................................................ $ -- $ 368 $ --
=========== =========== =========
SUPPLEMENTAL SCHEDULE OF OPERATING CASH FLOW INFORMATION
Interest paid, net of amounts capitalized ........................ $ 8,566 $ 6,366 $ 12,578
=========== =========== =========
Income taxes paid ................................................ $ 2,338 $ 8,188 $ 3,858
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 25
BLUEGREEN CORPORATION
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" are of two types: one which
entitles the fixed-week buyer to a fully-furnished vacation residence for an
annual one-week period in perpetuity and the second which entitles the buyer of
the Company's points-based Vacation Club product to an annual allotment of
"points" in perpetuity (supported by an underlying deeded fixed timeshare week
being held in trust for the buyer). "Points" may be exchanged by the buyer in
various increments for lodging for varying lengths of time in fully-furnished
vacation residences at the Company's participating resorts. 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 in its resorts at four off-site sales locations. 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. During the year ended April 2, 2000, sales
generated by the Company's Resorts Division and Residential Land and Golf
Division comprised approximately 55% and 45%, 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 nominal
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.
Fiscal Year
The Company's fiscal year consists of 52 or 53 weeks, ending on the
Sunday nearest the last day of March in each year. Fiscal years 1998, 1999 and
2000 were 52, 52 and 53 weeks long, respectively.
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 Canada and 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.
<PAGE> 26
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.
Contracts receivable is net of an allowance for cancellations of
residential land sale contracts amounting to approximately $725,000 and
$255,000 at March 28, 1999 and April 2, 2000, respectively.
Other resort and golf operations revenues are recognized as earned.
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 is accreted using the effective
yield method.
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 and Timeshare Interests reacquired through
foreclosure or deedback in lieu of foreclosure are recorded at the lower of
fair value, net of costs to dispose, or the original historical cost of the
inventory. 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 straight-line method based on the estimated useful lives of the related
assets.
<PAGE> 27
GOODWILL
Goodwill is amortized over periods ranging from 2 to 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 $22.1 million, $37.1 million and $44.3 million for the years ended March 29,
1998, March 28, 1999 and April 2, 2000, respectively, and is included in
selling, general and administrative expenses in the consolidated statements of
income.
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 PER COMMON SHARE
Basic earnings per common share is computed by dividing net income by
the weighted-average number of common shares outstanding during the period.
Diluted earnings per common share is computed in the same manner as basic
earnings 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 March 31, 1997, or the date of
issuance, if later.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
--------- --------- --------
<S> <C> <C> <C>
Basic earnings per share - numerators:
Income before extraordinary item ............................. $ 10,000 $ 18,722 $ 6,777
Extraordinary loss on early extinguishment of
debt, net of income taxes ................................... -- (1,682) --
-------- -------- --------
Net income .................................................... $ 10,000 $ 17,040 $ 6,777
======== ======== ========
Diluted earnings per share - numerators:
Income before extraordinary item - basic ..................... $ 10,000 $ 18,722 $ 6,777
Effect of dilutive securities (net of income tax effects) .... 1,859 2,009 297
-------- -------- --------
Income before extraordinary item - diluted ................... 11,859 20,731 7,074
Extraordinary loss on early extinguishment of
debt, net of income taxes ................................... -- (1,682) --
-------- -------- --------
Net income - diluted ......................................... $ 11,859 $ 19,049 $ 7,074
======== ======== ========
</TABLE>
<PAGE> 28
<TABLE>
<S> <C> <C> <C>
Denominator:
Denominator for basic earnings per share-weighted
average shares ............................................ 20,219 22,167 23,323
Effect of dilutive securities:
Stock options ............................................. 472 1,032 522
Convertible securities .................................... 5,055 5,710 1,530
-------- -------- --------
Dilutive potential common shares ............................ 5,527 6,742 2,052
-------- -------- --------
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions ........... 25,746 28,909 25,375
======== ======== ========
Basic earnings per common share:
Income before extraordinary item ............................ $ .49 $ .85 $ .29
Extraordinary loss on early extinguishment
of debt, net of income taxes .............................. -- (.08) --
-------- -------- --------
Net income .................................................. $ .49 $ .77 $ .29
======== ======== ========
Diluted earnings per common share:
Income before extraordinary item ............................ $ .46 $ .72 $ .28
Extraordinary loss on early extinguishment
of debt, net of income taxes .............................. -- (.06) --
-------- -------- --------
Net income .................................................. $ .46 $ .66 $ .28
======== ======== ========
</TABLE>
COMPREHENSIVE INCOME
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 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.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS No. 130. Comprehensive income is shown as a subtotal within
the consolidated statements of shareholders' equity in each year presented.
START-UP COSTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting the Costs of Start-up
Activities". The SOP is effective for the Company's fiscal 2000, and requires
that start-up costs capitalized prior to January 1, 1999 be written-off and any
future start-up costs to be expensed as incurred. The adoption of this SOP had
no significant impact on the Company's results of operations for fiscal 2000.
RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made to
conform to the current year presentation.
2. BUSINESS ACQUISITIONS
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 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 April 2, 2000 was approximately $154,000.
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.
<PAGE> 29
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 expired 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 unaudited pro forma financial information presents the
combined results of operations of the Company and RDI as if the acquisition had
occurred on March 31, 1997, 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 the year ended March 29, 1998
(in thousands, except per share data).
<TABLE>
<S> <C>
Total revenues .......... $ 202,472
=========
Net income .............. $ 10,464
=========
Earnings per share:
Basic .............. $ .52
=========
Diluted ............ $ .47
=========
</TABLE>
On December 30, 1999, a wholly-owned subsidiary of the Company acquired
substantially all of the assets of Branson That's the Ticket ("Branson"), a
ticket reseller and timeshare marketing company in Branson, Missouri for $1.35
million. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of Branson have been
included in the Company's consolidated financial statements since December 30,
1999. The purchase price consisted of $675,000 in cash and a $675,000, 9% note
payable due December 30, 2000. In connection with the acquisition, the Company
recorded approximately $1.3 million in goodwill, which is included in other
assets on the Company's consolidated balance sheet and is being amortized on a
straight-line basis over an eight-year period. Including Branson's results of
operations for fiscal 1999 and 2000 in the Company's results of operations on a
pro forma basis has no impact on earnings per share for these periods as
reported.
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. The portion of BPNV's net income
(loss) included in the Company's consolidated statements of income was $200,000,
$585,000 and $(267,000) in fiscal 1998, 1999 and 2000, respectively.
4. NOTES RECEIVABLE AND NOTES RECEIVABLE FROM RELATED PARTY
The weighted-average interest rate on notes receivable from customers
was 15.0% and 15.1% at March 28, 1999 and April 2, 2000, respectively. The table
below sets forth additional information relating to the Company's notes
receivable (in thousands).
<PAGE> 30
<TABLE>
<CAPTION>
MARCH 28, 1999 APRIL 2, 2000
-------------- -------------
<S> <C> <C>
Notes receivable secured by land ...................... $ 11,105 $ 10,883
Notes receivable secured by Timeshare Interests ....... 54,384 61,520
Other notes receivable ................................ 1,209 735
-------- --------
Notes receivable, gross ............................... 66,698 73,138
Reserve for loan losses ............................... (2,318) (3,024)
-------- --------
Notes receivable, net ................................. $ 64,380 $ 70,114
======== ========
</TABLE>
Approximately 50.3% of the Company's notes receivable secured by land
bear interest at variable rates, while approximately 49.7% bear interest at
fixed rates. The average interest rate charged on loans secured by land was
12.1% at April 2, 2000. 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 April 2, 2000.
The Company's timeshare receivables are secured by property located in
Tennessee, Missouri, 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 loan losses (in
thousands).
<TABLE>
<S> <C>
Reserve for loan losses, March 30, 1998 ..... $ 2,104
Provision for loan losses ................... 2,754
Charge-offs ................................. (2,540)
---------
Reserve for loan losses, March 28, 1999 ..... 2,318
Provision for loan losses ................... 5,338
Charge-offs ................................. (4,632)
---------
Reserve for loan losses, April 2, 2000 ...... $ 3,024
=========
</TABLE>
Installments due on notes receivable held by the Company during each of
the five fiscal years subsequent to fiscal 2000, and thereafter, are set forth
below (in thousands).
<TABLE>
<S> <C>
2001 ............................. $ 14,043
2002 ............................. 9,800
2003 ............................. 8,687
2004 ............................. 8,546
2005 ............................. 7,956
Thereafter ........................ 24,106
---------
Total ......................... $ 73,138
=========
</TABLE>
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 sold
$103.1 million aggregate principal amount of timeshare receivables to the
financial institution in securitization transactions, which fully utilized the
Purchase Facility. The Purchase Facility had 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 was 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. The Company's special purpose finance
subsidiary is required to maintain a specified overcollateralization level and a
cash reserve account. Receivables were 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 includes various provisions customary for a transaction of
this type.
<PAGE> 31
During fiscal 1999 and 2000, the Company sold approximately $54.8
million and $48.3 million, respectively, 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
and $2.1 million, respectively. As a result of the sales, the Company recorded
an $8.6 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 April 2, 2000.
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"). On December 14, 1998, LCC notified AmClub that
the AmClub Notes and AmClub Loan were in default and due immediately. On
September 1, 1999, the Company completed a foreclosure of the underlying
collateral securing the AmClub Notes and the AmClub Loan. As a result of the
foreclosure, the Company obtained a golf course, residential land, land for
future resort development (all of which properties are located at the Shenandoah
Crossing Farm & Club in Gordonsville, Virginia) and a portfolio of timeshare
notes receivable with an aggregate net carrying value of approximately $4.0
million. The aggregate outstanding principal and interest on the AmClub Notes
and AmClub Loan were allocated to the foreclosed assets based on relative fair
market value. On December 17, 1999, the Company sold the golf course and related
buildings for approximately $1.3 million and recorded a field operating profit
(as defined in Note 17) of approximately $510,000. AmClub was owned by the
former stockholders of RDI (see Note 2).
5. INVENTORY
The Company's net inventory holdings as of March 28, 1999 and April 2,
2000, summarized by division, are set forth below (in thousands).
<TABLE>
<CAPTION>
MARCH 28, 1999 APRIL 2, 2000
-------------- -------------
<S> <C> <C>
Resorts ............................................... $ 91,552 $ 109,534
Residential Land and Golf ............................. 51,076 86,975
--------- ---------
$ 142,628 $ 196,509
========= =========
</TABLE>
Resorts Division inventory as of March 28, 1999, consisted of land
inventory of $5.4 million, $32.7 million of construction-in-progress, and $53.5
million of completed units. Resorts Division inventory as of April 2, 2000
consisted of land inventory of $7.2 million, $13.3 million of
construction-in-progress and $89.0 million of completed units.
Interest capitalized during fiscal 1998, fiscal 1999 and fiscal 2000
totaled approximately $3.2 million, $5.3 million and $6.9 million, respectively.
Interest expense in the consolidated statements of income is net of capitalized
interest.
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).
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
======= ====== ==== =======
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C>
APRIL 2, 2000
1995 REMIC debt securities ........ $ 2,395 $ 842 $ -- $ 3,237
1996 REMIC debt securities ........ 2,130 23 -- 2,153
1999-2000 Timeshare debt securities 9,309 631 -- 9,940
------- ------ ------ -------
Total ......................... $13,834 $1,496 $ -- $15,330
======= ====== ====== =======
</TABLE>
Contractual maturities are set forth below (in thousands).
<TABLE>
<CAPTION>
Cost Fair Value
-------- ----------
<S> <C> <C>
After one year but within five ........................ $ 4,525 $ 5,390
After five years but within ten ....................... 9,309 9,940
-------- --------
Total ................................................ $ 13,834 $ 15,330
======== ========
</TABLE>
The net unrealized gain on available-for-sale securities presented as a
separate component of stockholders' equity is net of income taxes of
approximately $595,000.
During fiscal 2000, the Company exchanged its residual investment in
the 1994 REMIC debt securities for the underlying mortgages. The 1994 REMIC
investment was exchanged in connection with the termination of the REMIC, as all
of the senior 1994 REMIC security holders had received all of the required cash
flows pursuant to the terms of their REMIC certificates. Although the Company
had previously recorded an unrealized loss of $304,000 on this
available-for-sale security, the Company only realized a $179,000 loss on the
exchange, based on the net realizable value of the mortgages received and the
amortized cost of the investment.
7. PROPERTY AND EQUIPMENT
The table below sets forth the property and equipment held by the
Company (in thousands).
<TABLE>
<CAPTION>
USEFUL MARCH 28, APRIL 2,
LIFE 1999 2000
----------- ---------- ---------
<S> <C> <C> <C>
Land, buildings and building improvements ...................... 10-30 years $ 9,956 $ 11,256
Golf course land, land improvements, buildings
and equipment ................................................ 10-30 years 10,343 14,661
Office equipment, furniture and fixtures ....................... 3-14 years 10,949 16,274
Aircraft ....................................................... 3-5 years 232 1,021
Vehicles and equipment ......................................... 3-5 years 762 837
--------- ---------
32,242 44,049
Accumulated depreciation ....................................... (6,190) (8,640)
--------- ---------
Total ...................................................... $ 26,052 $ 35,409
========= =========
</TABLE>
8. RECEIVABLE-BACKED NOTES PAYABLE
The Company has various credit facilities for the pledge of residential
land and resort receivables. The Company has a $35 million timeshare receivables
warehouse loan facility, which expires in June 2000, 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 April 2, 2000, the outstanding balance
on the warehouse facility was $1.6 million.
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. 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
<PAGE> 33
9.5%, at April 2, 2000). At April 2, 2000, the outstanding principal balances
under the receivables and development portions of this facility were $6.7
million (included in receivable-backed notes payable) and $301,000 (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 $2.9 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, and debt related to receivables hypothecated
by AmClub prior to the foreclosure described in Note 4. At April 2, 2000, the
total $11.2 million in receivable-backed notes payable were secured by $14.3
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.
<TABLE>
<CAPTION>
MARCH 28, APRIL 2,
1999 2000
-------- --------
(in thousands)
<S> <C> <C>
Lines-of-credit secured by inventory with a carrying value of
$74.1 million at April 2, 2000. Interest rates range from 9.25% at
March 28, 1999 and 9.29% to 10.50% at April 2, 2000. Maturities
range from September 2002 to January 2006 ............................... $ 995 $ 52,031
Notes and mortgage notes secured by certain inventory, property and
equipment and investments with an aggregate carrying value of
$13.1 million at April 2, 2000. Interest rates ranging from 8.50% to
12.00% at March 28, 1999 and 8.75% to 12.00% at April 2, 2000
Maturities range from December 2000 to March 2012 ....................... 15,228 13,067
Unsecured notes payable to former stockholders of RDI. Interest rate of
9.00%. Matured in October 1999. (see Note 14) ........................... 1,000 1,000
Lease obligations with an imputed interest rate of 10.5%. Matures in
December 2001 ........................................................... 392 266
-------- --------
Total ............................................................... $ 17,615 $ 66,364
======== ========
</TABLE>
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 2000. 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
(in thousands).
<TABLE>
<S> <C>
2001 ....................................... $ 13,078
2002 ....................................... 8,825
2003 ....................................... 8,757
2004 ....................................... 6,234
2005 ....................................... 28,615
Thereafter .................................. 2,221
---------
Total ..................................... 67,730
Less: unamortized discount based on
an imputed interest rate of 12% ...... (1,366)
---------
$ 66,364
=========
</TABLE>
The following is a discussion of the Company's significant credit
facilities and material new borrowings in fiscal 2000:
<PAGE> 34
On September 23, 1998, the Company entered into a $5 million, unsecured
line-of-credit with a bank. On November 3, 1999, the Company increased the
borrowing capacity on the line to $10 million. Amounts borrowed under the line
will bear interest at LIBOR plus 1.75%. Interest is due monthly, with all
principal amounts due on December 31, 2000. Through April 2, 2000, the Company
has not borrowed any amounts under the line.
The Company has a $28.0 million acquisition and development facility
for its timeshare inventories from a financial institution (the "Facility"). The
Facility includes a two-year draw down period, which expires in October 2000,
and matures in November 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 is required to have provided equity of
at least 15.0% of the approved project costs. In connection with the Facility,
the Company is also required to pay certain fees and expenses to the financial
institution. On September 14, 1999, the Company borrowed approximately $14.0
million under the Facility. Principal payments are effected through agreed-upon
release prices as Timeshare Interests in the Company's Lodge Alley Inn resort
are sold, subject to minimum required amortization. The principal must be repaid
by November 1, 2005. The loan is secured by the Company's Timeshare Interest
inventory at the Lodge Alley Inn resort in Charleston, South Carolina. As of
April 2, 2000, the outstanding balance on this loan was $12.8 million. On
December 20, 1999, the Company borrowed an additional $13.9 million under the
Facility. Principal payments are effected through agreed-upon release prices as
Timeshare Interests in the Company's Shore Crest II resort are sold, subject to
minimum amortization. The principal must be repaid by January 1, 2006. The loan
is secured by the Company's Timeshare Interest inventory at the Shore Crest II
resort in Myrtle Beach, South Carolina. As of April 2, 2000, the outstanding
balance on this loan was $13.6 million.
The Company has also obtained from a financial institution a $35.0
million revolving credit facility (the "Revolving Credit Facility"), which
expires in March 2002. 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 is 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 1.25% and interest is due
monthly. On September 14, 1999, in connection with the acquisition of 1,550
acres adjacent to the Company's Lake Ridge residential land project in Dallas,
Texas ("Lake Ridge II"), the Company borrowed approximately $12.0 million under
the Revolving Credit Facility. Principal payments are effected through
agreed-upon release prices as lots in Lake Ridge II and in another recently
purchased section of Lake Ridge ("Section 15") are sold. The principal must be
repaid by September 14, 2004. The loan is secured by the Company's residential
land lot inventory in Lake Ridge II and in Section 15. As of April 2, 2000, the
outstanding balance on this loan was $11.6 million. On October 6, 1999, in
connection with the acquisition of 6,966 acres for the Company's Mystic Shores
land project in Canyon Lake, Texas, the Company borrowed $11.9 million under the
Revolving Credit Facility. Principal payments are effected through agreed-upon
release prices as lots in Mystic Shores are sold. The principal must be repaid
by October 6, 2004. As of April 2, 2000 the outstanding balance on this loan was
$11.8 million.
On September 24, 1999, the Company obtained two lines-of-credit with a
bank for the purpose of acquiring and developing a new residential land and golf
course community in New Kent County, Virginia, to be known as Brickshire. The
lines-of-credit have an aggregate borrowing capacity of approximately $15.8
million. On September 27, 1999, the Company borrowed approximately $2.0 million
under one of the lines-of-credit in connection with the acquisition of the
Brickshire property. The outstanding balances under the lines-of-credit bear
interest at prime plus 0.5% and interest is due monthly. Principal payments are
effected through agreed-upon release prices as lots in Brickshire are sold,
subject to minimum required quarterly amortization commencing on April 30, 2002.
The principal must be repaid by January 31, 2004. The loan is secured by the
Company's residential land lot inventory in Brickshire. As of April 2, 2000, the
outstanding balance on this loan was $2.0 million.
Concurrent with obtaining the Brickshire lines-of-credit discussed
above, the Company also obtained from the same bank a $4.2 million
line-of-credit for the purpose of developing a golf course on the Brickshire
property (the "Golf Course Loan"). The outstanding balance under this
line-of-credit bears interest at prime plus 0.5% and
<PAGE> 35
interest is due monthly. Principal payments will be payable in equal monthly
installments of $35,000 commencing September 1, 2001. The principal must be
repaid by October 1, 2005. The loan is secured by the Brickshire golf course
property. As of April 2, 2000, no amounts were outstanding under the Golf Course
Loan.
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. 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 April 2, 2000, the
Pledged Properties had an aggregate carrying value of approximately $21.0
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.
SUPPLEMENTAL GUARANTOR INFORMATION
Supplemental financial information for Bluegreen Corporation, its
combined Non-Guarantor Subsidiaries and its combined Subsidiary Guarantors is
presented below:
<PAGE> 36
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET AT MARCH 28, 1999 AND APRIL 2, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 28, 1999
--------------------------------------------------------------------
COMBINED
NON- COMBINED
BLUEGREEN GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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) --
Property and equipment, net ........................... 6,974 188 18,890 -- 26,052
Other assets .......................................... 7,749 4,236 10,079 (3,000) 19,064
-------- --------- --------- --------- ---------
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) --
Deferred income taxes ................................. 3,473 1,604 8,430 -- 13,507
Lines-of-credit and notes payable ..................... 1,392 15,671 13,436 (3,000) 27,499
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>
<TABLE>
<CAPTION>
APRIL 2, 2000
--------------------------------------------------------------------
COMBINED
NON- COMBINED
BLUEGREEN GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ............................. $ 43,093 $ 12,458 $ 9,975 $ -- $ 65,526
Contracts receivable, net ............................. 221 150 8,032 -- 8,403
Intercompany receivable ............................... 100,441 -- -- (100,441) --
Notes receivable, net ................................. 244 7,238 62,632 -- 70,114
Inventory, net ........................................ 21,346 13,083 162,080 -- 196,509
Investments in securities ............................. -- 15,330 -- -- 15,330
Investments in subsidiaries ........................... 7,980 -- -- (7,980) --
Property and equipment, net ........................... 9,019 298 26,092 -- 35,409
Other assets .......................................... 10,277 2,674 14,270 (3,000) 24,221
-------- --------- --------- --------- ---------
Total assets ....................................... $192,621 $ 51,231 $ 283,081 $(111,421) $ 415,512
======== ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities
Accounts payable, accrued liabilities
and other .......................................... $ 12,764 $ 15,212 $ 11,649 $ -- $ 39,625
</TABLE>
<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C> <C>
Intercompany payable .................................. -- 13,389 87,052 (100,441) --
Deferred income taxes ................................. 3,784 1,585 7,804 -- 13,173
Lines-of-credit and notes payable ..................... 1,979 13,114 65,438 (3,000) 77,531
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 ................................. 168,898 43,300 171,943 (103,441) 280,700
Minority interest ......................................... -- -- -- 768 768
Total shareholders' equity ................................ 23,723 7,931 111,138 (8,748) 134,044
-------- --------- --------- --------- ---------
Total liabilities and shareholders' equity ........ $192,621 $ 51,231 $ 283,081 $(111,421) $ 415,512
======== ========= ========= ========= =========
</TABLE>
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 29, 1998
--------------------------------------------------------------------
COMBINED
NON- COMBINED
BLUEGREEN GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales ................................................. $ 27,749 $ 4,566 $ 140,344 $ -- $ 172,659
Other resort operations revenues ...................... -- 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 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
Provision for loan 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
======== ========= ========= ========= =========
<CAPTION>
YEAR ENDED MARCH 28, 1999
--------------------------------------------------------------------
COMBINED
NON- COMBINED
BLUEGREEN GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales ................................................. $ 32,699 $ 15,668 $ 177,449 $ -- $ 225,816
Other resort and golf operations revenues ............. -- 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
</TABLE>
<PAGE> 38
<TABLE>
<S> <C> <C> <C> <C> <C>
Interest expense ......................... 10,549 1,906 467 -- 12,922
Provision for loan 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
======= ======== ========= ========= =========
<CAPTION>
YEAR ENDED APRIL 2, 2000
------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
REVENUES
Sales .................................... $25,775 $ 10,575 $ 178,138 $ -- $ 214,488
Other resort and golf operations
revenues................................. -- 2,747 14,786 -- 17,533
Management fee revenue ................... 22,066 -- -- (22,066) --
Interest income .......................... 1,231 3,431 10,990 -- 15,652
Gain on sale of notes receivable ......... -- 2,063 -- -- 2,063
Other income ............................. 454 81 200 -- 735
------- -------- --------- --------- ---------
49,526 18,897 204,114 (22,066) 250,471
COSTS AND EXPENSES
Cost of sales ............................ 7,284 2,787 64,886 -- 74,957
Cost of other resort and golf
operations............................... -- 1,228 14,144 -- 15,372
Management fees .......................... -- 1,675 20,391 (22,066) --
Selling, general and administrative
expenses ................................ 42,542 7,219 80,637 -- 130,398
Interest expense ......................... 8,843 2,053 2,945 -- 13,841
Provision for loan losses ................ -- 413 4,925 -- 5,338
------- -------- --------- --------- ---------
58,669 15,375 187,928 (22,066) 239,906
------- -------- --------- --------- ---------
Income (loss) before income taxes and
minority interest ....................... (9,143) 3,522 16,186 -- 10,565
Provision (benefit) for income taxes ..... (3,631) 1,374 6,312 -- 4,055
Minority interest in loss of
consolidated subsidiary ................. -- -- -- (267) (267)
------- -------- --------- --------- ---------
Net income (loss) ........................ $(5,512) $ 2,148 $ 9,874 $ 267 $ 6,777
======= ======== ========= ========= =========
</TABLE>
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 29, 1998
-------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash provided (used) by operating activities .... $(11,696) $(5,260) $ 30,490 $3,000 $ 16,534
-------- ------- -------- ------ --------
INVESTING ACTIVITIES:
Cash received from investments in securities ........ -- 1,959 -- -- 1,959
Business acquisition, 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:
</TABLE>
<PAGE> 39
<TABLE>
<S> <C> <C> <C> <C> <C>
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 payable ................................... (2,523) (908) (43,774) -- (47,205)
Proceeds from issuance of 8.0% convertible
subordinated notes payable to related parties ....... 6,000 -- -- -- 6,000
Payment of debt issuance costs ....................... (490) (62) (888) -- (1,440)
Capital contribution by minority interest ............ -- 250 -- -- 250
Proceeds from exercise of employee stock options ..... 379 -- -- -- 379
Payments for treasury stock .......................... (19) -- -- -- (19)
-------- ------- -------- -------- --------
Net cash provided (used) by financing activities ....... 32,386 5,280 (21,939) (3,000) 12,727
-------- ------- -------- -------- --------
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
======== ======= ======== ======== ========
<CAPTION>
YEAR ENDED MARCH 28, 1999
-------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash (used) provided by operating activities ..... $(83,348) $ 9,624 $ 73,204 $ -- $ (520)
-------- ------- -------- -------- --------
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)
-------- ------- -------- -------- --------
</TABLE>
<PAGE> 40
<TABLE>
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Payments under short-term borrowings from
underwriters ........................................ (22,149) -- -- -- (22,149)
Payments under line-of-credit facilities
and notes payable ................................... (6,992) (6,751) (62,008) -- (75,751)
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 (7,606) (62,065) -- 37,781
-------- ------- -------- -------- --------
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
======== ======= ======== ======== ========
<CAPTION>
YEAR ENDED APRIL 2, 2000
-------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash (used) provided by operating activities ....... $ 2,807 $ 1,528 $(16,593) $ -- $(12,258)
-------- ------- -------- -------- --------
INVESTING ACTIVITIES:
Loan to related party ............................... -- -- (256) -- (256)
Payments received on loan to related party .......... -- -- 459 -- 459
Cash received from investments in securities ........ -- 6,201 -- -- 6,201
Business acquisition, net of cash acquired .......... -- -- (675) -- (675)
Purchases of property and equipment ................. (2,722) (162) (7,962) -- (10,846)
Proceeds from sales of property and equipment ....... -- -- 1,516 -- 1,516
-------- ------- -------- -------- --------
Net cash (used) provided by investing activities ....... (2,722) 6,039 (6,918) -- (3,601)
-------- ------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings under line-of-credit
facilities and notes payable ...................... -- -- 27,885 -- 27,885
Payments under line-of-credit facilities and
notes payable ..................................... (126) (3,596) (3,794) -- (7,516)
Payment of debt issuance costs ...................... (1,042) (203) (762) -- (2,007)
Proceeds from issuance of common stock .............. 14,973 -- -- -- 14,973
Proceeds from exercise of employee and director
stock options ..................................... 261 -- -- -- 261
Payments for treasury stock ......................... (7,768) -- -- -- (7,768)
-------- ------- -------- -------- --------
Net cash provided (used) by financing activities ....... 6,298 (3,799) 23,329 -- 25,828
-------- ------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ... 6,383 3,768 (182) -- 9,969
Cash and cash equivalents at beginning of year ......... 36,710 8,690 10,157 -- 55,557
-------- ------- -------- -------- --------
Cash and cash equivalents at end of year ............... 43,093 12,458 9,975 -- 65,526
Restricted cash and cash equivalents at end of year .... (1,437) (12,458) (7,234) -- (21,129)
-------- ------- -------- -------- --------
Unrestricted cash and cash equivalents at end of year...
$ 41,656 $ -- $ 2,741 $ -- $ 44,397
======== ======= ======== ======== ========
</TABLE>
<PAGE> 41
11. CONVERTIBLE SUBORDINATED NOTES PAYABLE AND DEBENTURES
Notes Payable
The Company financed the cash portion of the purchase price of RDI 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, subject to adjustment under certain
circumstances.
Debentures
The Company has $34.4 million of its 8.25% Convertible Subordinated
Debentures (the "Debentures") outstanding at both March 28, 1999 and April 2,
2000. 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 semi-annually on May 15 and November 15.
Under financial covenants of the Indenture pursuant to which the
Debentures were issued, the Company is required to maintain net worth of not
less than $29.0 million. Should net worth fall below $29.0 million for two
consecutive quarters, the Company is required to make an offer to purchase 20%
of the outstanding Debentures at par, plus accrued interest.
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 note 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.
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. Significant assumptions used
in estimating the fair value of the Company's investments in securities at both
March 28, 1999 and April 2, 2000, included prepayment rates ranging from 18.00%
to 23.00%, loss severity rates ranging from 25.00% to 60.00%, discount rates
ranging from 14.00% to 20.00% and default rates ranging from 0.75% to 2.00%, for
the REMIC debt securities. The default rates for the timeshare debt securities
ranged from 5% to 7% in the first year of a portfolio's maturity and then
decreased in 1% intervals for future years as the respective portfolios mature.
Management believes these assumptions to be conservative and reasonable. There
can be no assurances that these assumptions will prove to be more conservative
than actual future performance.
<PAGE> 42
Lines-of-credit, notes payable 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 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 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.
<TABLE>
<CAPTION>
MARCH 28, 1999 APRIL 2, 2000
---------------------- -----------------------
(in thousands) CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents ........................ $ 55,557 $55,557 $ 65,526 $65,526
Contracts receivable, net ........................ 20,167 20,167 8,403 8,403
Notes receivable, net ............................ 64,380 64,380 70,114 70,114
Notes receivable from related party .............. 4,168 4,168 -- --
Investments in securities ........................ 17,106 17,106 15,330 15,330
Lines-of-credit, notes payable, and receivable-
backed notes payable ........................... 27,499 27,585 77,531 77,531
10.50% senior secured notes payable .............. 110,000 96,800 110,000 71,500
8.00% convertible subordinated notes payable to
related parties ................................ 6,000 6,057 6,000 5,889
8.25% convertible subordinated debentures ........ 34,371 32,481 34,371 23,286
</TABLE>
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 4.1 million
and 1.8 million shares of the Company's common stock for an aggregate of $35
million and $15 million during fiscal 1999 and 2000, respectively. Legal and
other stock issuance costs totaled approximately $774,000. 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 August 14,
2000.
Treasury Stock
During fiscal 1999 and fiscal 2000, the Board authorized a program to
repurchase up to an additional 2 million and 1 million shares of common stock,
respectively. During fiscal 1999, the Company repurchased approximately 518,000
common shares at an aggregate cost of $3.2 million. During fiscal 2000, the
Company repurchased approximately 1.6 million common shares at an aggregate cost
of $7.8 million. Subsequent to April 2, 2000 (through May 12, 2000), the Company
purchased an additional 7,700 common shares for an aggregate cost of $24,545.
<PAGE> 43
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 non-employee Directors
provide for the grant to the Company's non-employee directors (the "Outside
Directors") of non-qualified 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 NUMBER
OF SHARES OUTSTANDING EXERCISE PRICE OF SHARES
RESERVED OPTIONS PER SHARE EXERCISABLE
--------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Employee Stock Option Plans
Balance at March 31, 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
Granted ................................ -- 115 $ 4.88-$ 8.50
Forfeited .............................. (2) (144) $ 3.13-$ 8.50
Exercised .............................. (54) (54) $ 2.29-$ 4.51
----- -----
Balance at April 2, 2000 ................... 3,645 2,829 $ 1.25-$ 9.50 1,288
===== =====
Outside Directors Plans
Balance at March 31, 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
Granted ............................... -- 120 $ 5.94
Exercised ............................. (52) (52) $ 0.83-$ 2.81
----- -----
Balance at April 2, 2000 ............... 903 613 $ 1.46-$ 9.31 408
===== =====
</TABLE>
The weighted-average fair values of options granted during the year ended April
2, 2000 were:
Exercise price equal to fair value at grant date: employees - $2.29,
directors - $2.79.
Exercise price exceeds fair value at grant date: employees - $3.02.
The weighted-average exercise prices and weighted-average remaining
contractual lives of the Company's outstanding stock options at April 2, 2000
(grouped by range of exercise prices) were:
<PAGE> 44
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-AVERAGE
NUMBER NUMBER OF CONTRACTUAL LIFE AVERAGE EXERCISE PRICE
OF OPTIONS VESTED OPTIONS (IN YEARS) EXERCISE PRICE (VESTED ONLY)
---------- -------------- ---------------- -------------- -----------------
(IN 000'S)
----------
<S> <C> <C> <C> <C> <C>
Employees:
$1.25-$1.46 102 102 2.5 $1.35 $1.35
$2.29-$3.13 620 370 6.8 $3.03 $2.98
$3.58-$4.88 953 588 6.9 $4.32 $4.11
$8.50-$9.50 1,154 228 9.0 $9.09 $9.10
----- -----
2,829 1,288
===== =====
Directors:
$1.46-$1.77 72 72 2.5 $1.62 $1.62
$2.81-$3.80 331 306 5.8 $3.29 $3.31
$5.94 120 -- 10.0 $5.94 $ --
$9.31 90 30 9.0 $9.31 $9.31
----- -----
613 408
===== =====
</TABLE>
Pro forma information regarding net income and earnings 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 1998, 1999 and 2000,
respectively: risk free investment rates of 5%, 5% and 5.7%, dividend yields of
0%, 0% and 0%, a volatility factor of the expected market price of the Company's
common stock of .440, .428 and .448; and a weighted average life of the options
of 5 years, 5 years and 5.3 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).
<TABLE>
<CAPTION>
YEAR ENDED
----------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
--------- ---------- ---------
<S> <C> <C> <C>
Pro forma net income ........... $ 9,736 $16,419 $ 5,934
======= ======= =======
Pro forma earnings per share:
Basic ........................ $ .48 $ .74 $ .25
Diluted ...................... .45 .64 .25
</TABLE>
Common Stock Reserved For Future Issuance
As of April 2, 2000, Common Stock reserved for future issuance was
comprised of shares issuable (in thousands):
<TABLE>
<S> <C>
Upon conversion of 8.25% debentures.................. 4,171
Upon conversion of 8.00% notes payable............... 1,530
Upon exercise of employee stock options.............. 3,645
Upon exercise of outside director stock options...... 903
------
10,249
======
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
At April 2, 2000, the estimated cost to complete development work in
subdivisions or resorts from which lots or Timeshare Interests have been sold
totaled $32.6 million. Development is estimated to be completed within the next
two fiscal years as follows: 2001--$30.4 million, 2002--$2.2 million.
<PAGE> 45
The Company leases certain office space and equipment 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 29, 1998, March 28, 1999 and
April 2, 2000, totaled approximately $1.7 million, $3.1 million, and $3.5
million respectively. Lease commitments under these noncancelable operating
leases for each of the five fiscal years subsequent to fiscal 2000, and
thereafter are as follows (in thousands):
<TABLE>
<S> <C>
2001................................. $2,051
2002................................. 1,749
2003................................. 1,483
2004................................. 1,337
2005................................. 1,105
Thereafter........................... 110
------
Total future minimum lease payments $7,835
======
</TABLE>
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 claims and proceedings 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 continuing to evaluate 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.
On September 17, 1999, the Company received a Notice of Proposed Audit
Report (the "Notice") from the State of Wisconsin Department of Revenue (the
"DOR") alleging that, subject to possible changes made in a final Notice of
Field Audit Action, two subsidiaries now owned by the Company failed to pay
sales and use taxes to the State of Wisconsin during the period from January 1,
1994 through September 30, 1997. The majority of the proposed assessment is
based on the subsidiaries not charging sales tax to purchasers of Timeshare
Interests at the Company's Christmas Mountain Village resort. In addition to the
proposed assessment, the Notice indicated that interest would be charged, but no
penalties would be assessed. These subsidiaries were acquired by the Company in
<PAGE> 46
connection with the acquisition of RDI on September 30, 1997. Under the RDI
purchase agreement, the Company has the right to set off payments owed by the
Company to RDI's former stockholders pursuant to a $1 million outstanding note
payable balance (see Note 9) and to make a claim against such stockholders for
certain amounts previously paid for any breach of representations and
warranties. The Company has notified the former stockholders that it intends to
exercise these rights to mitigate any settlement with the DOR in this matter. If
a Notice of Field Audit Action is issued by the DOR in this matter, the Company
intends to vigorously appeal any assessment of sales tax on Timeshare Interest
sales.
15. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
--------------
MARCH 29, 1998 MARCH 28, 1999 APRIL 2, 2000
-------------- -------------- -------------
<S> <C> <C> <C>
Federal:
Current ......... $ 1,802 $ 4,973 $ 3,719
Deferred ........ 3,093 4,994 (303)
-------- -------- --------
4,895 9,967 3,416
State and other:
Current ......... 1,668 1,796 696
Deferred ........ 240 847 (57)
-------- -------- --------
1,908 2,643 639
-------- -------- --------
Total .............. $ 6,803 $ 12,610 $ 4,055
======== ======== ========
</TABLE>
The reasons for the difference between the provision for income taxes
and the amount which results from applying the federal statutory tax rate in
fiscal 1998, 1999 and 2000 to income before income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
----------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
--------- ---------- --------
<S> <C> <C> <C>
Income tax expense at statutory rate ................. $ 5,952 $11,171 $3,698
Effect of state taxes, net of federal tax benefit .... 851 1,439 357
------- ------- ------
$ 6,803 $12,610 $4,055
======= ======= ======
</TABLE>
At March 28, 1999 and April 2, 2000, deferred income taxes consist of
the following components (in thousands):
<TABLE>
<CAPTION>
MARCH 28, APRIL 2,
1999 2000
---------- ----------
<S> <C> <C>
Deferred federal and state tax liabilities (assets):
Installment sales treatment of notes ........................ $ 14,032 $ 13,097
Deferred federal and state loss carryforwards/AMT credits ... (304) (643)
Tax over book depreciation .................................. 908 655
Other ....................................................... (1,129) 64
-------- --------
Deferred income taxes ......................................... $ 13,507 $ 13,173
======== ========
</TABLE>
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 1998
and 1999. The Company made no employer contributions for fiscal 2000.
<PAGE> 47
17. BUSINESS SEGMENTS
The Company has two reportable business segments. The Resorts Division
acquires, develops and markets Timeshare Interests at the Company's resorts and
the Residential Land and Golf Division acquires large tracts of real estate
which are subdivided, improved (in some cases to include a golf course and
related amenities on the property) and sold, typically on a retail basis. The
results of operations from sales of remaining factory-built manufactured
home/lot packages and undeveloped lots previously managed under the Communities
Division have been combined with the results of operations of the Company's
Residential Land and Golf Division in the current and prior periods, due to
immateriality. 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. Field operating profit is operating profit prior to the
allocation of corporate overhead, interest income, gain on sale of receivables,
other income, provision for loan 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
LAND AND
AS OF AND FOR THE YEAR ENDED MARCH 29, 1998 RESORTS GOLF TOTALS
----------- ------------ ----------
<S> <C> <C> <C>
Sales .................................................. $ 60,751 $111,908 $172,659
Other resort operations revenues ....................... 4,113 -- 4,113
Depreciation expense ................................... 393 291 684
Field operating profit ................................. 7,043 23,622 30,665
Inventory .............................................. 59,275 47,923 107,198
AS OF AND FOR THE YEAR ENDED MARCH 28, 1999
Sales .................................................. $103,127 $122,689 $225,816
Other resort and golf operations revenues .............. 11,776 1,056 12,832
Depreciation expense ................................... 684 334 1,018
Field operating profit ................................. 11,872 31,866 43,738
Inventory .............................................. 91,552 51,076 142,628
AS OF AND FOR THE YEAR ENDED APRIL 2, 2000
Sales .................................................. $117,271 $ 97,217 $214,488
Other resort and golf operations revenues .............. 14,826 2,707 17,533
Depreciation expense ................................... 1,303 831 2,134
Field operating profit ................................. 7,410 22,587 29,997
Inventory .............................................. 109,534 86,975 196,509
</TABLE>
Reconciliations to Consolidated Amounts
Field operating profit for reportable segments reconciled to consolidated income
before income taxes (in thousands):
<PAGE> 48
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Field operating profit for reportable segments ...... $ 30,665 $ 43,738 $ 29,997
Interest income ..................................... 10,819 14,804 15,652
Gain on sale of notes receivable .................... -- 3,692 2,063
Other income ........................................ 312 522 735
Corporate general and administrative expenses ....... (12,510) (15,163) (18,703)
Interest expense .................................... (9,281) (12,922) (13,841)
Provision for loan losses ........................... (3,002) (2,754) (5,338)
-------- -------- --------
Consolidated income before income taxes ............. $ 17,003 $ 31,917 $ 10,565
======== ======== ========
</TABLE>
Depreciation expense for reportable segments reconciled to consolidated
depreciation expense (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation expense for reportable segments ........ $ 684 $ 1,018 $ 2,134
Depreciation expense for corporate fixed assets ..... 564 879 1,072
-------- -------- --------
Consolidated depreciation expense ................... $ 1,248 $ 1,897 $ 3,206
======== ======== ========
</TABLE>
Assets for reportable segments reconciled to consolidated assets (in thousands):
<TABLE>
<CAPTION>
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Inventory for reportable segments ................... $107,198 $142,628 $196,509
Assets not allocated to reportable segments ......... 165,765 206,494 219,003
-------- -------- --------
Total assets ........................................ $272,963 $349,122 $415,512
======== ======== ========
</TABLE>
Geographic Information
Sales by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
MARCH 29, MARCH 28, APRIL 2,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
United States ....................................... $168,050 $210,139 $203,899
Aruba ............................................... 4,566 15,668 10,575
Other foreign countries ............................. 43 9 14
-------- -------- --------
Consolidated totals ................................. $172,659 $225,816 $214,488
======== ======== ========
</TABLE>
Inventory by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 28, APRIL 2,
1999 2000
---------- ----------
<S> <C> <C>
United States ....................................... $127,892 $183,394
Aruba ............................................... 14,735 13,083
Other foreign countries ............................. 1 32
-------- --------
Consolidated totals ................................. $142,628 $196,509
======== ========
</TABLE>
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended March
28, 1999 and April 2, 2000 is presented below (in thousands, except for per
share information).
<PAGE> 49
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 28, SEPTEMBER 27, DECEMBER 27, MARCH 28,
1998 1998 1998 1999
-------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
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
<CAPTION>
THREE MONTHS ENDED
JULY 4, OCTOBER 3, JANUARY 2, APRIL 2,
1999 1999 2000 2000
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales .......................................... $62,714 $65,653 $ 45,246 $ 40,875
Gross profit ................................... 40,990 44,555 27,948 26,038
Net income (loss) .............................. 4,424 5,862 (785) (2,724)
Earnings (loss) per common share:
Basic ....................................... 0.19 0.25 (0.03) (0.11)
Diluted ..................................... 0.17 0.22 (0.03) (0.11)
</TABLE>
