UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission File Number: 0-19292
[LOGO OMITTED]
Bluegreen Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 912-8000
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated files. (See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act). (Check one):
Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer |_|
Indicated the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of November 3, 2006,
there were 30,565,882 shares of the registrant's common stock, $0.01 par value,
outstanding.
1
BLUEGREEN CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets at December 31, 2005 and September 30, 2006 ............. 3
Condensed Consolidated Statements of Income - Three months ended September 30, 2005 and 2006 .. 4
Condensed Consolidated Statements of Income - Nine months ended September 30, 2005 and 2006 ... 5
Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2005 and 2006 6
Notes to Condensed Consolidated Financial Statements .......................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 25
Item 4. Controls and Procedures ....................................................................... 46
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................. 46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ................................... 47
Item 5. Other Information ............................................................................. 47
Item 6. Exhibits ...................................................................................... 47
Signatures ............................................................................................ 49
TRADEMARKS
The terms "Bluegreen(R)," "Bluegreen Communities(R)," "Bluegreen Vacation
Club(R)," "Colorful Places To Live And Play(R)," "You're Going To Like What You
See!(R)," "Encore Rewards(R)," "Outdoor Traveler Logo(R)," and the "Bluegreen
Logo(R)" are registered in the U.S. Patent and Trademark Office by Bluegreen
Corporation.
The terms "The Hammocks at Marathon(TM)," "Orlando's Sunshine Resort(TM),"
"Solara Surfside(TM)," "Mountain Run at Boyne(TM)," "The Falls Village(TM),"
"Bluegreen Wilderness Club(TM) ," "The Lodge Alley Inn(TM)," "Carolina
Grande(TM)" "Harbour Lights(TM)," "Patrick Henry Square(TM)", "SeaGlass
Tower(TM)" "Shore Crest Vacation Villas(TM)," "Laurel Crest(TM),"
"MountainLoft(TM)," "Daytona SeaBreeze(TM)," "Shenandoah Crossing(TM),"
"Christmas Mountain Village(TM)," "Traditions of Braselton(TM)," "Sanctuary Cove
at St. Andrews Sound(TM)," "Catawba Falls Preserve(TM)," "Mountain Lakes
Ranch(TM)," "Silver Lakes Ranch(TM)," "Mystic Shores(TM)," "Lake Ridge at Joe
Pool Lake(TM)," "Ridge Lake Shores(TM)," "Mountain Springs Ranch(TM),"
"Havenwood at Hunter's CrossingTM, "Vintage Oaks at the Vineyard(TM), "The
Bridges at Preston Crossing(TM)," "Saddle Creek Forest(TM)," "The Settlement at
Patriot Ranch(TM)," "Carolina National(TM)," "Brickshire(TM)," "Golf Club at
Brickshire(TM)", "Preserve at Jordan Lake(TM)," "Encore Dividends(TM),"
Bluegreen Preferred(TM)," and "Bluegreen Traveler Plus(TM)," are trademarks or
service marks of Bluegreen Corporation in the United States.
The term "Big Cedar(R)" and "Bass Pro Shops(R)" is registered in the U.S.
Patent and Trademark Office by Bass Pro Trademarks, LP.
The term "World Golf Village(R)" is registered in the U.S. Patent and
Trademark Office by World Golf Foundation, Inc.
All other marks are registered marks of their respective owners.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, September 30,
2005 2006
------------ -------------
ASSETS (Unaudited)
Cash and cash equivalents (including restricted cash of $18,321
and $28,222 at December 31, 2005 and September 30, 2006, respectively) .................. $ 84,704 $ 63,720
Contracts receivable, net ................................................................... 27,473 37,364
Notes receivable (net of allowance of $10,869 and $13,659 at
December 31, 2005 and September 30, 2006, respectively) .................................. 127,783 150,528
Prepaid expenses ............................................................................ 6,500 10,918
Other assets ................................................................................ 17,156 28,785
Inventory, net .............................................................................. 240,969 328,318
Retained interests in notes receivable sold ................................................. 105,696 125,460
Property and equipment, net ................................................................. 79,634 92,675
Intangible assets and goodwill .............................................................. 4,328 4,299
----------- -----------
Total assets ...................................................................... $ 694,243 $ 842,067
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ............................................................................ $ 11,071 $ 13,754
Accrued liabilities and other ............................................................... 43,801 50,669
Deferred income ............................................................................. 29,354 42,619
Deferred income taxes ....................................................................... 75,404 94,551
Receivable-backed notes payable ............................................................. 35,731 23,651
Lines-of-credit and notes payable ........................................................... 61,428 111,481
10.50% senior secured notes payable ......................................................... 55,000 55,000
Junior subordinated debentures .............................................................. 59,280 90,208
----------- -----------
Total liabilities ........................................................................ 371,069 481,933
Minority interest ........................................................................... 9,508 13,284
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; 33,193 and 33,321 shares
issued at December 31, 2005 and September 30, 2006, respectively .......................... 333 333
Additional paid-in capital .................................................................. 169,684 171,604
Treasury stock, 2,756 common shares at both December 31, 2005 and
September 30, 2006, at cost ............................................................... (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes ................................. 8,575 11,815
Retained earnings ........................................................................... 147,959 175,983
----------- -----------
Total shareholders' equity ............................................................... 313,666 346,850
----------- -----------
Total liabilities and shareholders' equity ........................................ $ 694,243 $ 842,067
=========== ===========
Note: The condensed consolidated balance sheet at December 31, 2005 has been
derived from the audited consolidated financial statements at that date
but does not include all of the information and footnotes required by
United States generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
3
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
-------------------------------
2005 2006
------------ ------------
Revenues:
Sales of real estate .............................................. $ 166,657 $ 172,549
Other resort and communities operations revenue ................... 21,311 18,503
Interest income ................................................... 9,759 13,020
Gain on sales of notes receivable ................................. 6,446 3,497
------------ ------------
204,173 207,569
Costs and expenses:
Cost of real estate sales ......................................... 52,939 46,727
Cost of other resort and communities operations ................... 20,149 13,052
Selling, general and administrative expenses ...................... 86,438 101,893
Interest expense .................................................. 3,467 6,530
Provision for loan losses ......................................... 8,803 --
Other expense, net ................................................ 985 1,932
------------ ------------
172,781 170,134
------------ ------------
Income before minority interest and provision for income taxes ...... 31,392 37,435
Minority interest in income of consolidated subsidiary .............. 1,584 2,241
------------ ------------
Income before provision for income taxes ............................ 29,808 35,194
Provision for income taxes .......................................... 11,476 13,287
------------ ------------
Net income .......................................................... $ 18,332 $ 21,907
============ ============
Net income per common share:
Basic ........................................................... $ 0.60 $ 0.72
============ ============
Diluted ......................................................... $ 0.59 $ 0.71
============ ============
Weighted average number of common and common equivalent shares:
Basic ........................................................... 30,385 30,547
============ ============
Diluted ......................................................... 31,220 31,053
============ ============
See accompanying notes to condensed consolidated financial statements.
4
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30,
------------------------------
2005 2006
------------ ------------
Revenues:
Sales of real estate ........................................................................ $ 430,006 $ 436,256
Other resort and communities operations revenue ............................................. 58,003 48,790
Interest income ............................................................................. 25,907 30,692
Gain on sales of notes receivable ........................................................... 16,044 4,049
------------ ------------
529,960 519,787
Costs and expenses:
Cost of real estate sales ................................................................... 136,935 140,971
Cost of other resort and communities operations ............................................. 59,148 42,769
Selling, general and administrative expenses ................................................ 229,377 264,055
Interest expense ............................................................................ 11,101 13,362
Provision for loan losses ................................................................... 20,967 --
Other expense, net .......................................................................... 4,669 1,242
------------ ------------
462,197 462,399
------------ ------------
Income before minority interest and provision for income taxes ................................ 67,763 57,388
Minority interest in income of consolidated subsidiary ........................................ 3,305 4,940
------------ ------------
Income before provision for income taxes and cumulative effect of change ...................... 64,458 52,448
in accounting principle
Provision for income taxes .................................................................... 24,816 19,930
------------ ------------
Income before cumulative effect of change in accounting principle ............................. 39,642 32,518
Cumulative effect of change in accounting principle, net of tax ............................... -- (5,678)
Minority interest in income of cumulative effect of change in accounting principle ............ -- 1,184
------------ ------------
Net income .................................................................................... $ 39,642 $ 28,024
============ ============
Income before cumulative effect of change in accounting principle
per common share:
Basic ....................................................................................... $ 1.31 $ 1.07
============ ============
Diluted ..................................................................................... $ 1.27 $ 1.04
============ ============
Cumulative effect of change in accounting principle, net of tax and net of
minority interest in income of cumulative effect of change in accounting
principle per common share:
Basic ....................................................................................... $ -- $ (0.15)
============ ============
Diluted ..................................................................................... $ -- $ (0.14)
============ ============
Net income per common share:
Basic ....................................................................................... $ 1.31 $ 0.92
============ ============
Diluted ..................................................................................... $ 1.27 $ 0.90
============ ============
Weighted average number of common and common equivalent shares:
Basic ....................................................................................... 30,350 30,530
============ ============
Diluted ..................................................................................... 31,239 31,092
============ ============
See accompanying notes to condensed consolidated financial statements.
5
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nne Months Ended
September 30,
--------------------------------
2005 2006
------------ ------------
Operating activities:
Net income ................................................................................ $ 39,642 $ 28,024
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Cumulative effect of change in accounting principle, net ............................... -- 5,678
Non-cash stock compensation expense .................................................... 313 1,758
Minority interest in income of consolidated subsidiary ................................. 3,305 3,756
Depreciation and amortization .......................................................... 14,828 12,508
Gain on sales of notes receivable ...................................................... (16,044) (31,301)
Loss on disposal of property and equipment ............................................. 61 713
Provision for loan losses .............................................................. 20,967 44,090
Provision for deferred income taxes .................................................... 24,816 19,930
Interest accretion on retained interests in notes receivable sold ...................... (6,652) (10,520)
Proceeds from sales of notes receivable ................................................ 125,333 152,355
Proceeds from borrowings collateralized by notes receivable ............................ 24,772 68,393
Payments on borrowings collateralized by notes receivable .............................. (41,913) (82,188)
Change in operating assets and liabilities:
Contracts receivable ..................................................................... (15,673) (9,654)
Notes receivable ......................................................................... (164,434) (213,777)
Inventory ................................................................................ 26,811 (11,779)
Prepaid expenses and other assets ........................................................ (1,025) (12,503)
Accounts payable, accrued liabilities and other .......................................... 8,659 11,613
------------ ------------
Net cash provided (used) by operating activities ........................................... 43,766 (22,904)
------------ ------------
Investing activities:
Purchases of property and equipment ....................................................... (13,600) (19,667)
Installment payments on business acquisition .............................................. (500) --
Investments in statutory business trusts .................................................. (1,780) (928)
Cash received from retained interests in notes receivable sold ............................ 7,342 21,134
------------ ------------
Net cash (used) provided by investing activities ........................................... (8,538) 539
------------ ------------
Financing activities:
Borrowings under line-of-credit facilities and other notes payable ........................ 25,548 41,670
Payments under line-of-credit facilities and other notes payable .......................... (74,574) (67,803)
Payments on 10.50% senior secured notes payable ........................................... (55,000) --
Proceeds from issuance of junior subordinated debentures .................................. 59,280 30,928
Payments of debt issuance costs ........................................................... (3,253) (3,587)
Proceeds from exercise of stock options ................................................... 834 173
------------ ------------
Net cash (used) provided by financing activities ........................................... (47,165) 1,381
------------ ------------
Net decrease in cash and cash equivalents .................................................. (11,937) (20,984)
Cash and cash equivalents at beginning of period ........................................... 100,565 84,704
------------ ------------
Cash and cash equivalents at end of period ................................................. 88,628 63,720
Restricted cash and cash equivalents at end of period ...................................... (20,678) (28,222)
------------ ------------
Unrestricted cash and cash equivalents at end of period .................................... $ 67,950 $ 35,498
============ ============
See accompanying notes to condensed consolidated financial statements.
6
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------------------------
2005 2006
------------ ------------
Supplemental schedule of non-cash operating, investing
and financing activities:
Inventory acquired through financing .................................. $ 28,282 $ 71,447
============ ============
Inventory acquired through foreclosure or deedback in lieu
of foreclosure ...................................................... $ 8,225 $ --
============ ============
Property and equipment acquired through financing ..................... $ 766 $ 4,460
============ ============
Retained interests in notes receivable sold ........................... $ 23,949 $ 25,110
============ ============
Change in net unrealized gains in retained interests in notes
receivable sold ..................................................... $ 1,382 $ (5,268)
============ ============
See accompanying notes to condensed consolidated financial statements.
7
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
1. Organization and Significant Accounting Policies
We have prepared the accompanying unaudited condensed consolidated
financial statements in accordance with United States generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by United States
generally accepted accounting principles for complete financial statements.
The financial information furnished herein reflects all adjustments
consisting of normal recurring items that, in our opinion, are necessary for a
fair presentation of our financial position, results of operations and cash
flows for the interim periods. The results of operations for the nine months
ended September 30, 2006, are not necessarily indicative of the results to be
expected for the year ending December 31, 2006. For further information, refer
to our audited consolidated financial statements for the year ended December 31,
2005, which are included in our 2005 Annual Report on Form 10-K.
Organization
Our resorts business ("Bluegreen Resorts") acquires, develops, markets,
sells and manages real estate based vacation ownership interests ("VOIs") in
resorts generally located in popular, high-volume, "drive-to" vacation
destinations. VOIs in our resorts typically entitle the buyer to use resort
accommodations through an annual or biennial allotment of "points" which
represent their ownership and beneficial rights in perpetuity in our Bluegreen
Vacation Club (supported by an underlying deeded vacation ownership interest
being held in trust for the buyer). Depending on the extent of their ownership
and beneficial rights, members in our Bluegreen Vacation Club may stay in any of
our participating resorts or take advantage of other vacation options, including
cruises and stays at approximately 3,700 resorts offered primarily by a
third-party, worldwide vacation ownership exchange network. We are currently
marketing and selling VOIs in 21 resorts located in the United States and Aruba,
19 of which have active sales offices. We also sell VOIs at 8 off-site sales
offices located in the United States. Our residential communities business
("Bluegreen Communities") acquires, develops and subdivides property and markets
residential land homesites, the majority of which are sold directly to retail
customers who seek to build a home in a high quality residential setting, in
some cases on properties featuring a golf course and other related amenities.
During the nine months ended September 30, 2006, sales recognized by Bluegreen
Resorts comprised approximately 68% of our total sales of real estate while
sales recognized by Bluegreen Communities comprised approximately 32% of our
total sales of real estate. Our other resort and communities operations revenues
consist primarily of resort property management services, resort title services,
resort amenity operations, sales incentives provided to buyers of VOIs, rental
brokerage services, realty operations and daily-fee golf course operations. We
also generate significant interest income by providing financing to individual
purchasers of VOIs.
Principles of Consolidation
Our condensed consolidated financial statements include the accounts of
all of our wholly-owned subsidiaries and entities in which we hold a controlling
financial interest. The only non-wholly owned subsidiary that we consolidate is
Bluegreen/Big Cedar Vacations, LLC (the "Joint Venture"), as we hold a 51%
equity interest in the Joint Venture, have an active role as the day-to-day
manager of the Joint Venture's activities and have majority voting control of
the Joint Venture's management committee. Additionally, we do not consolidate
our wholly-owned statutory business trusts formed to issue trust preferred
securities as these entities are each variable interest entities in which we are
not the primary beneficiary as defined by Financial Accounting Standards Board
("FASB") Interpretation No. 46R. The statutory business trusts are accounted for
under the equity method of accounting. We have eliminated all significant
intercompany balances and transactions.
Use of Estimates
United States generally accepted accounting principles require us to make
estimates and assumptions that affect the amounts reported in our condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Reclassifications and Adjustments
8
We have made certain reclassifications of prior period amounts to conform
to the current period presentation. Additionally, during the third quarter of
2006, we recorded certain adjustments in our condensed consolidated financial
statements. These adjustments, which resulted in a cumulative after-tax increase
to net income of approximately $0.9 million, are primarily a result of
correcting certain errors in methodology and valuation assumptions as originally
used in determining the initial valuation of, and subsequent accounting for, our
retained interest in notes receivable sold in connection with the 2005 Term
Securitization. We believe that these adjustments, considered individually and
in the aggregate, are not material to our audited consolidated financial
statements for the year ended December 31, 2005, and our unaudited condensed
consolidated financial statements for the quarterly periods ended March 31,
2006, June 30, 2006, and September 30, 2006, and will not be material for the
year ended December 31, 2006. Accordingly, results for prior periods have not
been restated.
Earnings Per Common Share
We compute basic earnings per common share by dividing net income by the
weighted-average number of common shares outstanding. Diluted earnings per
common share is computed in the same manner as basic earnings per share, but
also gives effect to all dilutive stock options using the treasury stock method.
There were approximately 1.4 million and 0.8 million stock options not included
in diluted earnings per common share during the three and nine months ended
September 30, 2006, respectively, as the effect would be anti-dilutive. There
were approximately 0.8 million stock options not included in diluted earnings
per common share during the three and nine months ended September 30, 2005, as
the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2005 2006 2005 2006
----------- ----------- ----------- -----------
Basic and diluted earnings per share - numerator:
Net income ....................................... $ 18,332 $ 21,907 $ 39,642 $ 28,024
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings per share -
weighted-average shares ....................... 30,385 30,547 30,350 30,530
----------- ----------- ----------- -----------
Effect of dilutive securities:
Stock options ................................. 835 506 889 562
----------- ----------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted-average shares .............. 31,220 31,053 31,239 31,092
=========== =========== =========== ===========
Basic earnings per common share ................... $ 0.60 $ 0.72 $ 1.31 $ 0.92
=========== =========== =========== ===========
Diluted earnings per common share ................. $ 0.59 $ 0.71 $ 1.27 $ 0.90
=========== =========== =========== ===========
Retained Interests in Notes Receivable Sold
When we sell our notes receivable either pursuant to our vacation
ownership receivables purchase facilities (more fully described in Note 2) or
through term securitizations, we evaluate whether or not such transfers should
be accounted for as a sale pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, ("SFAS No. 140") and related
interpretations. The evaluation of sale treatment under SFAS No. 140 involves
legal assessments of the transactions, which include determining whether the
transferred assets have been isolated from us (i.e. put presumptively beyond our
reach and our creditors, even in bankruptcy or other receivership), determining
whether each transferee has the right to pledge or exchange the assets it
received, and ensuring that we do not maintain effective control over the
transferred assets through either an agreement that (1) both entitles and
obligates us to repurchase or redeem the assets before their maturity or (2)
provides us with the ability to unilaterally cause the holder to return the
assets (other than through a cleanup call).
In connection with such transactions, we retain subordinated tranches,
rights to excess interest spread and servicing rights, all of which are retained
interests in the notes receivable sold. Gain or loss on the sale of the
receivables depends in part on the allocation of the previous carrying amount of
the financial assets involved in the transfer between the assets sold and the
retained interests based on their relative fair value at the date of transfer.
9
We consider our retained interests in notes receivable sold as
available-for-sale investments and, accordingly, carry them at fair value in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Unrealized holding gains or losses on our retained interests
in notes receivable sold are included in our shareholders' equity, net of income
taxes. Declines in fair value that are determined to be other than temporary are
charged to operations.
We measure the fair value of the retained interests in the notes
receivable sold initially and on a quarterly basis based on the present value of
future expected cash flows estimated using our best estimates of the key
assumptions - prepayment rates, loss severity rates, default rates and discount
rates commensurate with the risks involved. Interest on the retained interests
in notes receivable sold is accreted using the effective yield method.
Stock-Based Compensation
Effective January 1, 2006, we adopted the provisions of SFAS No. 123
(revised 2004), Share-Based Payment, ("SFAS No. 123R") for our share-based
compensation plans. We previously accounted for these plans under the
recognition and measurement principles of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, ("APB 25") and related
interpretations and disclosure requirements established by SFAS No. 123,
Accounting for Stock-based Compensation, as amended by SFAS No. 148, Accounting
for Stock Based Compensation--Transition and Disclosure. Under APB 25,
compensation expense was generally not recorded in earnings for our stock-based
options granted under the Bluegreen Corporation 1995 Stock Incentive Plan, 1998
Non-Employee Director Stock Option Plan, or the Bluegreen Corporation 2005 Stock
Incentive Plan (collectively, the "Plans"). The pro forma effects on net income
and earnings per share for the awards issued under the Plans were instead
previously disclosed in a footnote to the financial statements. Under SFAS No.
123R, all share-based compensation is measured at the grant date, based on the
fair value of the award, and is recognized as an expense in earnings over the
requisite service period.
We adopted SFAS No. 123R using the modified prospective method. Under this
transition method, for all share-based awards granted prior to January 1, 2006
that were outstanding as of that date, compensation cost is recognized for the
unvested portion over the remaining requisite service period, using the
grant-date fair value measured under the original provisions of SFAS No. 123 for
pro forma disclosure purposes. Compensation costs will also be recognized for
any awards issued, modified, repurchased, or canceled after January 1, 2006.
We utilized the Black-Scholes model for calculating the fair value pro
forma disclosures under SFAS No. 123 and will continue to use this model, which
is an acceptable valuation approach under SFAS No. 123R. The Black-Scholes
option-pricing model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In
addition, this model requires the input of subjective assumptions, including the
expected price volatility of the underlying stock. Projected data related to the
expected volatility and expected life of stock options is based upon historical
and other information. Changes in these subjective assumptions can materially
affect the fair value of the estimate, and therefore, the existing valuation
models do not provide a precise measure of the fair value of our employee stock
options.
SFAS No. 123R also requires us to estimate forfeitures in calculating the
expense relating to stock-based compensation as opposed to accounting for
forfeitures as they occur, which was allowed under SFAS No. 123. We adjusted for
this effect with respect to unvested options as of January 1, 2006 in the
stock-based compensation expense recognized, which is recorded within selling,
general and administrative expense on our condensed consolidated statements of
income. This adjustment was not recorded as a cumulative effect adjustment
because no compensation cost was recognized prior to the adoption of SFAS No.
123R. In addition, SFAS No. 123R requires us to reflect the tax savings
resulting from tax deductions in excess of expense reflected in its financial
statements as a financing cash flow rather than as an operating cash flow as in
prior periods.
Total compensation costs related to stock-based compensation charged
against income during the three and nine months ended September 30, 2006 were
$0.9 million and $1.8 million, respectively. On July 3, 2006, stock options to
acquire an aggregate of approximately 43,000 shares of our common stock at an
exercise price of $11.43 and 26,247 shares of restricted common stock were
granted to certain of our non-employee directors. Additionally, on July 19, 2006
our Board of Directors granted stock options to acquire an aggregate of
approximately 540,000 shares of our common stock at an exercise price of $12.07
to our Chairman and Vice Chairman and the Company's senior management. There
were 668,000 stock options granted to our employees during the three and nine
months ended September 30, 2005. There were 136,300 stock options granted to
certain of our non-employee directors during the three and nine months ended
September 30, 2005. All stock options granted in 2006 and 2005 were issued with
an exercise price equal to the closing price of our common stock on the date of
grant. The fair value of the options
10
granted during the nine months ended September 30, 2006 and 2005 was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions:
Three and Nine Three and Nine
Months Ended Months Ended
September 30, September 30,
2005 2006
-------------- --------------
Dividend yield.................................. 0.00% 0.00%
Risk-free investment rate....................... 3.98% 5.03%
Volatility factor of expected market price...... 0.61 0.53
Life............................................ 5.5 years 5.8 years
SFAS No. 123R requires companies to continue to provide the pro forma
disclosures required by SFAS No. 123 for all periods presented in which
share-based payments were accounted for under the intrinsic value method of APB
25. The following table illustrates the pro forma effect on net income and
earnings per common share as if we had applied the fair-value recognition
provisions of SFAS No. 123 to all of our share-based compensation awards for
periods prior to the adoption of SFAS No. 123R (in thousands, except per share
data):
Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2005
------------- -------------
(Pro Forma) (Pro Forma)
Net income ..................................................... $ 18,332 $ 39,642
Add: Total stock-based compensation expense included
in the determination of reported net income, net of
related tax effects ........................................ 15 181
Deduct: Total stock-based compensation expense
determined under the fair value-based method for
all awards, net of related tax effects ..................... (839) (1,127)
---------- ----------
Pro forma net income ........................................... $ 17,508 $ 38,696
========== ==========
Earnings per common share:
Basic ....................................................... $ 0.60 $ 1.31
---------- ----------
Diluted ..................................................... $ 0.59 $ 1.27
========== ==========
Pro forma earnings per common share:
Basic ....................................................... $ 0.58 $ 1.27
========== ==========
Diluted ..................................................... $ 0.56 $ 1.24
========== ==========
Comprehensive Income
Accumulated other comprehensive income on our condensed consolidated
balance sheets is comprised of net unrealized gains on retained interests in
notes receivable sold, which are held as available-for-sale investments. The
following table discloses the components of our comprehensive income for the
periods presented (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2005 2006 2005 2006
---------- ---------- ---------- ----------
Net income .................................... $ 18,332 $ 21,907 $ 39,642 $ 28,024
Change in net unrealized gains on retained
interests in notes receivable sold, net of
income taxes ................................ 850 4,444 826 3,240
---------- ---------- ---------- ----------
Total comprehensive income .................... $ 19,182 $ 26,351 $ 40,468 $ 31,264
========== ========== ========== ==========
Cumulative Effect of Change in Accounting Principle from the Adoption of SFAS
No. 152
Effective January 1, 2006, we adopted SFAS No. 152, Accounting for Real
Estate Time-Sharing Transactions ("SFAS No. 152"). This statement amends SFAS
No. 66, Accounting for Sales of Real Estate, and SFAS No. 67,
11
Accounting for Costs and Initial Rental Operations of Real Estate Projects, in
association with the issuance of American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 04-2, Accounting for Real
Estate Time-Sharing Transactions. SFAS No. 152 was issued to address the
diversity in practice resulting from a lack of guidance specific to the
timeshare industry. Among other things, the new standard addresses the treatment
of sales incentives provided by a seller to a buyer to consummate a transaction,
the calculation of and presentation of uncollectible notes receivable, the
recognition of changes in inventory cost estimates, recovery or repossession of
VOIs, selling and marketing costs, operations during holding periods, developer
subsidies to property owners' associations and upgrade and reload transactions.
Restatement of previously reported financial statements is not permitted.
Accordingly, as a result of the adoption of SFAS No. 152, our financial
statements for periods beginning on or after January 1, 2006, are not
comparable, in certain respects, with those prepared for periods ending prior to
January 1, 2006.
Many sellers of timeshare interests, including us, provide incentives to
customers in connection with the purchase of a VOI. Under SFAS No. 152, the
value of such incentives and other similarly treated items are either recorded
as a reduction to VOI revenue or recorded in a separate revenue line item within
the statements of income, in our case other resort and communities operations
revenue. Furthermore, SFAS No. 152 requires that incentives and other similarly
treated items such as cash credits earned through our Sampler Program be
considered in calculating the buyer's down payment toward the buyer's
commitment, as defined in SFAS No. 152, in purchasing the VOI. Our Sampler
Program provides purchasers with an opportunity to utilize our vacation
ownership product during a one year trial period. In the event the Sampler
purchaser subsequently purchases a vacation ownership interest from us, a
portion of the amount paid for their Sampler Package is credited toward the down
payment on the subsequent purchase. Under SFAS No. 152, the credit given is
treated similarly to a sales incentive. If after considering the sales incentive
the required buyer's commitment amount, defined as 10% of sales value, is not
met, the VOI revenue and related cost of sales and direct selling costs are
deferred until the buyer's commitment test is satisfied, generally through the
receipt of required mortgage note payments from the buyer. The net deferred VOI
revenue and related costs are recorded as a component of deferred income in the
accompanying balance sheet as of September 30, 2006. Prior to the adoption of
SFAS No. 152, sales incentives were not recorded apart from VOI revenue and were
not considered in determining the customer down payment required in the buyer's
commitment in purchasing the VOIs.
SFAS No. 152 also amends the relative sales value method of recording VOI
cost of sales. Specifically, consideration is now given not only to the costs to
build or acquire a project and the total revenue expected to be earned on a
project, but also to the sales of recovered vacation ownership interests
reacquired on future cancelled or defaulted sales. The cost of VOI sales is
calculated by estimating these future costs and recoveries. Prior to the
adoption of SFAS No. 152, we did not include the recovery of VOIs in our
projected revenues in determining the related cost of the VOIs sold.
SFAS No. 152 changes the treatment of losses on vacation ownership notes
and contracts receivable and provides specific guidance on methods to estimate
losses. Specifically, SFAS No. 152 requires that the estimated losses on
originated mortgages exclude an estimate for the value of recoveries as the
recoveries are to be considered in inventory costing, as described above. In
addition, the standard requires a change in the classification of our provision
for loan losses for vacation ownership receivables that were historically
recorded as an expense, requiring that such amount be reflected as a reduction
of VOI sales. Furthermore, if we sell our vacation ownership notes receivables
in a transaction that qualifies for off-balance sheet sales treatment under SFAS
No. 140, the associated allowance for loan losses related to the sold
receivables is reversed and reflected as an increase to VOI sales. Prior to the
adoption of SFAS No. 152, the allowance on sold receivables was recorded as a
component of the gain on sale.
Under SFAS No.152, rental operations, including the usage of our Sampler
Program, are accounted for as incidental operations whereby incremental costs in
excess of incremental revenue are charged to expense as incurred. Conversely,
incremental revenue in excess of incremental costs is recorded as a reduction to
VOI inventory. Incremental costs include costs that have been incurred by us
during the holding period of the unsold VOIs, such as developer subsidies and
maintenance fees. During the three and nine months ended September 30, 2006, all
of our rental revenue and Sampler revenue recognized was recorded as an off-set
to cost of other resort and communities operations revenue as such amounts were
less than the incremental cost. Prior to the adoption of SFAS No. 152, rental
revenues were separately presented in the consolidated statements of income as a
component of other resort and communities operations revenue and a portion of
Sampler proceeds was deferred until the buyer purchased a VOI or the Sampler
usage period expired.
The adoption of SFAS No. 152 on January 1, 2006, resulted in a net charge
of $4.5 million, which is presented as a cumulative effect of change in
accounting principle, net of the related tax benefit and the charge related to
minority interest.
12
Recent Accounting Pronouncements
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets an amendment of FASB Statement No. 140, which amends SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, ("SFAS No. 140"). SFAS No. 156 changes SFAS No.
140 by requiring that Mortgage Servicing Rights ("MSRs") be initially recognized
at their fair value and by providing the option to either: (1) carry MSRs at
fair value with changes in fair value recognized in earnings; or (2) continue
recognizing periodic amortization expense and assess the MSRs for impairment as
originally required by SFAS No. 140. This option may be applied by class of
servicing asset or liability. SFAS No. 156 is effective for all separately
recognized servicing assets and liabilities acquired or issued after the
beginning of an entity's fiscal year that begins after September 15, 2006, with
early adoption permitted. The Company will adopt SFAS No. 156 effective January
1, 2007. We do not expect that the adoption of SFAS No. 156 will result in a
material impact to our financial condition, results of operations, cash flows or
disclosures.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. The interpretation is effective for fiscal years beginning after
December 15, 2006. We have not yet completed our analysis of the impact this
Interpretation will have on our financial condition, results of operations, cash
flows or disclosures.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS No. 157"). SFAS No. 157 establishes a common definition for fair under
United States generally accepted accounting principles guidance requiring the
use of fair value, establishes a framework for measuring fair value, and expands
disclosure about such fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. We will adopt SFAS No. 157
effective January 1, 2008, and are currently assessing the impact the statement
will have on our financial condition, results of operations, cash flows or
disclosures.
2. Sales of Notes Receivable
On December 28, 2005, BB&T Capital Markets, a division of Scott &
Stringfellow, Inc., consummated a $203.8 million private offering and sale of
vacation ownership receivable-backed securities (the "2005 Term
Securitization"). In addition, the 2005 Term Securitization allowed for us to
sell an additional $35.3 million in aggregate principal of our qualifying
vacation ownership receivables (the "Pre-funded Receivables"). On December 29,
2005, we sold $16.7 million in Pre-funded Receivables. On March 1, 2006, we sold
the $18.6 million balance of Pre-funded Receivables.
On March 28, 2006, we sold $22.3 million in vacation ownership receivables
pursuant to a vacation ownership receivables purchase facility (the "2006-A GE
Purchase Facility") with General Electric Real Estate ("GE"). On May 23, 2006,
we sold an additional $16.6 million in vacation ownership receivables pursuant
to the 2006-A GE Purchase Facility. Under the 2006-A GE Purchase Facility, a
variable purchase price of approximately 90% of the principal balance of the
receivables sold, subject to certain terms and conditions, is paid at closing in
cash. The balance of the purchase price is deferred until such time as GE has
received a specified return, a specified over-collateralization ratio is
achieved, a cash reserve account is fully funded and all servicing, custodial,
agent and similar fees and expenses have been paid. GE earns a return equal to
the applicable Swap Rate (which is a published interest swap arrangement rate as
defined in the 2006-A GE Purchase Facility agreements) plus 2.35%, subject to
use of alternate return rates in certain circumstances. Subject to compliance
with the terms and conditions of funding, the 2006-A GE Purchase Facility allows
for sales of notes receivable for a cumulative purchase price of up to $125.0
million through March 2008. As of September 30, 2006, the remaining availability
under the 2006-A GE Purchase Facility was $89.9 million of aggregate purchase
price, subject to eligibility requirements and fulfillment of conditions
precedent.
On September 21, 2006, BB&T Capital Markets, served as initial purchaser
and placement agent for a private offering and sale of $139.2 million of our
vacation ownership receivable-backed securities (the "2006 Term
Securitization"). Approximately $153.0 million in aggregate principal of
vacation ownership receivables were securitized in this transaction, including
1) $75.7 million in aggregate principal of receivables that were previously
transferred under an existing vacation ownership receivables purchase facility
in which Branch Banking and Trust Company ("BB&T") serves as Agent (see "BB&T
Purchase Facility" in Note 3 below); 2) $38.0 million of vacation ownership
receivables owned by us immediately prior to the 2006 Term Securitization and 3)
an additional $39.3 million in aggregate principal of our qualifying vacation
ownership receivables (the "2006 Pre-funded Receivables") that can be sold by us
through December 22, 2006. Bluegreen Receivables Finance Corporation XII, our
wholly-owned special purpose finance subsidiary ("BRFC XII"), would then sell
the 2006 Pre-funded Receivables to
13
BXG Receivables Note Trust 2006-B, an owners trust (a qualified special purpose
entity), without recourse to us or BRFC XII, except for breaches of certain
representations and warranties at the time of sale. The expected proceeds of
$35.7 million (at an advance rate of 91%) as payment for the 2006 Pre-funded
Receivables were originally deposited into an escrow account by the indenture
trustee of the 2006 Term Securitization. On October 23, 2006, we sold $27.7
million in 2006 Pre-funded Receivables to BRFC XII and the $25.2 million
purchase price was disbursed to us from the escrow account. Following the sale
we had $10.5 million in proceeds remaining in the escrow account related to the
Pre-funded Receivables.
Sales of notes receivable under the above mentioned transactions during
the nine months ended September 30, 2006 were as follows (in millions):
Aggregate Principal
Balance of Notes Initial Fair Value of
Sale Facility Receivable Purchase Price Gain Recognized Retained Interest
------------- ---------- -------------- --------------- -----------------
2005 Term Securitization $ 18.6 $ 16.7 $ 4.6 $ 3.3
2006-A GE Purchase Facility 39.0 35.1 6.1 4.8
2006 Term Securitization 113.7 103.5 20.6 17.1
-------- -------- -------- --------
Total $ 171.3 $ 155.3 $ 31.3 $ 25.2
======== ======== ======== ========
As a result of adopting SFAS No. 152, approximately $18.1 million and
$27.3 million of the gain were recorded as an increase to VOI sales for the
three and nine months ended September 30, 2006, respectively. The remaining gain
of $3.5 million and $4.0 million have been recorded as a gain on the sales of
notes receivable on the accompanying statements of income for the three and nine
months ended September 30, 2006, respectively.
The following assumptions were used to measure the initial fair value of
the retained interest in notes receivable sold for each of the transactions
during the nine months ended September 30, 2006: prepayment rates ranging from
17.0% to 9.0% per annum as the portfolios mature; loss severity rates ranging
from 35.0% to 71.3%; default rates ranging from 10.0% to 1.0% per annum as the
portfolios mature; and a discount rate of 9.0%.
3. Lines-of-Credit and Receivable-Backed Notes Payable
In February 2006, we increased our revolving acquisition, development and
construction credit facility for Bluegreen Resorts ("The GMAC AD&C Facility")
with GMAC Residential Funding Corporation ("GMAC RFC") from $75.0 million to
$150.0 million. The borrowing period expires on February 15, 2008, and
outstanding borrowings mature no later than August 15, 2013, although specific
draws typically are due four years from the borrowing date. Indebtedness under
The GMAC AD&C Facility bears interest at 30-day LIBOR plus 4.50% (9.83% at
September 30, 2006). We borrowed $13.7 million under The GMAC AD&C Facility in
connection with the acquisition by Bluegreen Resorts of land in Las Vegas,
Nevada, for a total purchase price of $16.1 million, for development of a new
resort. In June 2006, we borrowed $2.0 million and $0.9 million under The GMAC
AD&C Facility in connection with the development of Fountains Resort and
Carolina Grande Resort, respectively. We also financed $12.9 million of the
total $15.2 million purchase price of the first phase of a resort property in
Williamsburg, Virginia under this facility and on October 20, 2006 we borrowed
$8.5 million for the purchase of the second phase of the Williamsburg resort
under The GMAC AD&C Facility.
In February 2006, GMAC RFC extended the borrowing period to February 15,
2008 and the maturity date to February 15, 2015 on our existing $75.0 million
revolving vacation ownership receivables credit facility ("The GMAC Receivables
Facility"). This facility is used to borrow funds collateralized by our eligible
vacation ownership receivables.
In March 2006, we borrowed $18.2 million under an existing acquisition and
development credit facility with GMAC RFC ("The GMAC Communities Facility") in
connection with the acquisition by Bluegreen Communities of approximately 1,580
acres of land in Grayson County, Texas, for a total purchase price of $26.1
million. In addition to the funds borrowed in connection with the land purchase,
we borrowed an additional $9.0 million for general corporate purposes. In April
2006, we borrowed $19.0 million under The GMAC Communities Facility in
connection with the acquisition by Bluegreen Communities of approximately 3,100
acres of land in Comal County, Texas, for a total purchase price of $27.3
million. Also in April 2006, we borrowed an additional $9.0 million under this
facility for general corporate purposes. In June 2006, we borrowed $15.0 million
under The GMAC Communities Facility for general corporate purposes. In October
2006, we borrowed $2.2 million in conjunction with the King Oaks acquisition, a
953 acre community in College Station, TX.
14
In May 2006, we borrowed $4.6 million from Wachovia Bank, NA ("Wachovia")
in connection with Bluegreen Resorts' acquisition of an existing building to be
converted into a sales preview center in Sevierville, Tennessee, for a total
purchase price of $5.5 million.
In June 2006, we executed agreements for a $137.5 million vacation
ownership receivables revolving purchase facility (the "BB&T Purchase Facility")
with BB&T. While ownership of the receivables was transferred for legal
purposes, the transfer of the receivables under the facility are accounted for
as a financing transaction for financial accounting purposes. Accordingly, the
receivables will continue to be reflected as assets and the associated
obligations will be reflected as liabilities on our balance sheet. The BB&T
Purchase Facility utilizes an owner's trust structure, pursuant to which we
transfer receivables to Bluegreen Timeshare Finance Corporation I ("BTFC I"),
our wholly-owned, special purpose finance subsidiary, and BTFC I subsequently
transfers the receivables to an owner's trust without recourse to us or BTFC I,
except for breaches of certain customary representations and warranties at the
time of transfer. We did not enter into any guarantees in connection with the
BB&T Purchase Facility. The BB&T Purchase Facility has detailed requirements
with respect to the eligibility of receivables, and fundings under the BB&T
Purchase Facility are subject to certain conditions precedent. Under the BB&T
Purchase Facility, a variable purchase price of approximately 85.0% of the
principal balance of the receivables transferred, subject to certain terms and
conditions, is paid at closing in cash. The balance of the purchase price is
deferred until such time as BB&T and other liquidity providers arranged by BB&T
have, in the aggregate, received a specified return (the "Specified Return") and
all servicing, custodial, agent and similar fees and expenses have been paid.
The Specified Return is equal to either the commercial paper rate or LIBOR rate
plus 1.25%, subject to use of alternate return rates in certain circumstances.
In addition, we are paying BB&T structuring and other fees totaling $1.7 million
over the term of the facility and we will act as servicer under the BB&T
Purchase Facility for a fee. The BB&T Purchase Facility allows for transfers of
notes receivable for a cumulative purchase price of up to $137.5 million through
May 2008, subject to eligibility requirements and satisfaction of conditions
precedent. All amounts previously borrowed under this facility have been repaid
as of September 30, 2006, through principal and interest payments received on
transferred receivables and through a portion of the proceeds from the 2006 Term
Securitization transaction described in Note 2. As such, there were no
outstanding amounts due under this facility as of September 30, 2006. As of
September 30, 2006, the remaining availability under the BB&T Purchase Facility
was $137.5 million.
In September 2006, we borrowed and repaid $6.5 million under an existing
unsecured credit facility with Wachovia for general corporate purposes.
Total interest expense capitalized to construction in progress was $2.4
million and $7.5 million for the three and nine months ended September 30, 2005,
respectively, and $2.4 million and $8.9 million for the three and nine months
ended September 30, 2006, respectively.
4. Trust Preferred Securities Offerings
We have formed business statutory trusts (collectively, the "Trusts") for
the purpose of issuing trust preferred securities and investing the proceeds
thereof in our junior subordinated debentures. The Trusts are variable interest
entities in which we are not the primary beneficiary as defined by FASB
Interpretation No. 46R. Accordingly, we do not consolidate the operations of the
Trusts; instead, the Trusts are accounted for under the equity method of
accounting.
On April 24, 2006, one of the Trusts, Bluegreen Statutory Trust IV ("BST
IV") issued $15.0 million of trust preferred securities. BST IV used the
proceeds from issuing the trust preferred securities to purchase an identical
amount of junior subordinated debentures from us. Interest on the junior
subordinated debentures and distributions on the trust preferred securities will
be payable quarterly in arrears at a fixed rate of 10.13% through June 30, 2011,
and thereafter at a variable rate of interest, per annum, reset quarterly, equal
to the 3-month LIBOR plus 4.85% until the scheduled maturity date of June 30,
2036. Distributions on the trust preferred securities will be cumulative and
based upon the liquidation value of the trust preferred security. The trust
preferred securities will be subject to mandatory redemption, in whole or in
part, upon repayment of the junior subordinated debentures at maturity or their
earlier redemption. The junior subordinated debentures are redeemable five years
from the issue date or sooner following certain specified events. In addition,
we contributed $464,000 to BST IV in exchange for its common securities, all of
which are owned by us. Those proceeds were also used by BST IV to purchase an
identical amount of junior subordinated debentures from us. The terms of BST
IV's common securities are nearly identical to the trust preferred securities.
On July 21, 2006, a newly-formed wholly-owned statutory business trust,
Bluegreen Statutory Trust V ("BST V"), issued $15.0 million of trust preferred
securities. BST V used the proceeds from issuing the trust preferred securities
to purchase an identical amount of junior subordinated
15
debentures from us. Interest on the junior subordinated debentures and
distributions on the trust preferred securities will be payable quarterly in
arrears at a fixed rate of 10.28% through September 2011, and thereafter at a
floating rate of 4.85% over the 3-month LIBOR until the scheduled maturity date
of September 30, 2036. Distributions on the trust preferred securities will be
cumulative and based upon the liquidation value of the trust preferred security.
The trust preferred securities will be subject to mandatory redemption, in whole
or in part, upon repayment of the junior subordinated debentures at maturity or
their earlier redemption. The junior subordinated debentures are redeemable five
years from the issue date or sooner following certain specified events. In
addition, we contributed $464,000 to BST V in exchange for its common
securities, all of which are owned by us, and those proceeds were used by BST V
to purchase an identical amount of junior subordinated debentures from us. The
terms of BST V's common securities are nearly identical to the trust preferred
securities.
The above issuances of trust preferred securities were part of larger
pooled trust securities offerings which were not registered under the Securities
Act of 1933. Proceeds were used for general corporate purposes and debt
repayment.
We had the following junior subordinated debentures outstanding at
September 30, 2006 (dollars in thousands):
Outstanding
Amount of Fixed Beginning
Junior Initial Interest Variable Optional
Subordinated Equity Rate Interest Rate Redemption Maturity
Trust Debentures To Trust Issue Date (1) (2) Date Date
-------------------------------------------------------------------------------------------------------------------------
Bluegreen Statutory 3-month
Trust I $ 23,196 $ 696 3/15/05 9.160% LIBOR 3/30/10 3/30/35
+ 4.90%
Bluegreen Statutory 3-month
Trust II 25,774 774 5/04/05 9.158% LIBOR 7/30/10 7/30/35
+ 4.85%
Bluegreen Statutory 3-month
Trust III 10,310 310 5/10/05 9.193% LIBOR 7/30/10 7/30/35
+ 4.85%
Bluegreen Statutory 3-month
Trust IV 15,464 464 4/24/06 10.130% LIBOR 6/30/11 6/30/36
+ 4.85%
Bluegreen Statutory 3-month
Trust V 15,464 464 7/21/06 10.280% LIBOR 9/30/11 9/30/36
+ 4.85%
---------------------
$ 90,208 $2,708
=====================
(1) Both the trust preferred securities and junior subordinated debentures
bear interest at a fixed interest rate from the issue date through the
beginning optional redemption date.
(2) Both the trust preferred securities and junior subordinated debentures
bear interest at a variable interest rate from the beginning optional
redemption date through the maturity date.
16
5. Senior Secured Notes Payable
On April 1, 1998, we consummated a private placement offering of $110.0
million in aggregate principal amount of 10.50% senior secured notes payable due
April 1, 2008 (the "Notes"). On September 27, 2005, we redeemed $55.0 million in
aggregate principal amount of the Notes at a redemption price of 101.75% plus
accrued and unpaid interest through September 26, 2005 of approximately $1.4
million. At September 30, 2006, $55.0 million of the Notes remained outstanding.
None of the assets of Bluegreen Corporation secures its obligations under
the Notes, and the Notes are effectively subordinated to our secured
indebtedness to any third party to the extent of assets serving as security
therefor. The Notes are unconditionally guaranteed, jointly and severally, by
each of our subsidiaries (the "Subsidiary Guarantors"), with the exception of
Bluegreen/Big Cedar Vacations, LLC, 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"). Each of the note guarantees covers the full amount of the Notes
and each of the Subsidiary Guarantors is 100% owned, directly or indirectly by
us. Supplemental financial information for Bluegreen Corporation, its combined
Non-Guarantor Subsidiaries and its combined Subsidiary Guarantors is presented
below:
17
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands)
December 31, 2005
--------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents ............................ $ 55,708 $ 15,443 $ 13,553 $ -- $ 84,704
Contracts receivable, net ............................ -- 1,801 25,672 -- 27,473
Intercompany receivable .............................. 92,641 -- -- (92,641) --
Notes receivable, net ................................ -- 48,294 79,489 -- 127,783
Inventory, net ....................................... -- 17,857 223,112 -- 240,969
Retained interests in notes receivable sold .......... -- 105,696 -- -- 105,696
Property and equipment, net .......................... 14,569 1,330 63,735 -- 79,634
Investments in subsidiaries .......................... 265,023 -- 3,230 (268,253) --
Other assets ......................................... 4,028 4,666 19,290 -- 27,984
----------- ----------- ----------- ----------- -----------
Total assets .................................. $ 431,969 $ 195,087 $ 428,081 $ (360,894) $ 694,243
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other .... $ 20,214 $ 15,077 $ 48,935 $ -- $ 84,226
Intercompany payable ............................... -- 4,563 88,078 (92,641) --
Deferred income taxes .............................. (21,798) 41,824 55,378 -- 75,404
Lines-of-credit and notes payable .................. 5,607 27,064 64,488 -- 97,159
10.50% senior secured notes payable ................ 55,000 -- -- -- 55,000
Junior subordinated debentures ..................... 59,280 -- -- -- 59,280
----------- ----------- ----------- ----------- -----------
Total liabilities ............................. 118,303 88,528 256,879 (92,641) 371,069
Minority interest .................................. -- -- -- 9,508 9,508
Total shareholders' equity ......................... 313,666 106,559 171,202 (277,761) 313,666
----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders' equity .... $ 431,969 $ 195,087 $ 428,081 $ (360,894) $ 694,243
=========== =========== =========== =========== ===========
September 30, 2006
(Unaudited)
--------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents ............................ $ 22,195 $ 18,877 $ 22,648 $ -- $ 63,720
Contracts receivable, net ............................ -- 2,703 34,661 -- 37,364
Intercompany receivable .............................. 176,077 -- -- (176,077) --
Notes receivable, net ................................ -- 55,720 94,808 -- 150,528
Inventory, net ....................................... -- 15,686 312,632 -- 328,318
Retained interests in notes receivable sold .......... -- 125,460 -- -- 125,460
Property and equipment, net .......................... 17,408 1,018 74,249 -- 92,675
Investments in subsidiaries .......................... 286,238 -- 3,230 (289,468) --
Other assets ......................................... 7,986 4,011 32,005 -- 44,002
----------- ----------- ----------- ----------- -----------
Total assets .................................. $ 509,904 $ 223,475 $ 574,233 $ (465,545) $ 842,067
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other .... $ 30,894 $ 21,434 $ 54,714 $ -- $ 107,042
Intercompany payable ............................... -- 2,697 173,380 (176,077) --
Deferred income taxes .............................. (17,630) 51,758 60,423 -- 94,551
Lines-of-credit and notes payable .................. 4,582 20,546 110,004 -- 135,132
10.50% senior secured notes payable ................ 55,000 -- -- -- 55,000
Junior subordinated debentures ..................... 90,208 -- -- -- 90,208
----------- ----------- ----------- ----------- -----------
Total liabilities ............................. 163,054 96,435 398,521 (176,077) 481,933
Minority interest .................................. -- -- -- 13,284 13,284
Total shareholders' equity ......................... 346,850 127,040 175,712 (302,752) 346,850
----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders' equity .... $ 509,904 $ 223,475 $ 574,233 $ (465,545) $ 842,067
=========== =========== =========== =========== ===========
18
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Three Months Ended September 30, 2005
--------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ..................................... $ -- $ 16,547 $ 150,110 $ -- $ 166,657
Other resort and communities operations revenue .......... -- 3,679 17,632 -- 21,311
Management fees .......................................... 17,539 -- -- (17,539) --
Equity income from subsidiaries .......................... 14,133 -- -- (14,133) --
Interest income .......................................... 245 5,224 4,290 -- 9,759
Gain on sales of notes receivable ........................ -- 6,446 -- -- 6,446
----------- ----------- ----------- ----------- -----------
31,917 31,896 172,032 (31,672) 204,173
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of real estate sales ................................ -- 5,149 47,790 -- 52,939
Cost of other resort and communities operations .......... -- 1,432 18,717 -- 20,149
Management fees .......................................... -- 336 17,203 (17,539) --
Selling, general and administrative expenses ............. 9,886 7,314 69,238 -- 86,438
Interest expense ......................................... 1,125 1,281 1,061 -- 3,467
Provision for loan losses ................................ -- 473 8,330 -- 8,803
Other expense, net ....................................... 94 686 205 -- 985
----------- ----------- ----------- ----------- -----------
11,105 16,671 162,544 (17,539) 172,781
----------- ----------- ----------- ----------- -----------
Income before minority interest and provision
for income taxes ...................................... 20,812 15,225 9,488 (14,133) 31,392
Minority interest in income of consolidated subsidiary ... -- -- -- 1,584 1,584
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes ................. 20,812 15,225 9,488 (15,717) 29,808
Provision for income taxes ............................... 2,480 3,801 5,195 -- 11,476
----------- ----------- ----------- ----------- -----------
Net income ............................................... $ 18,332 $ 11,424 $ 4,293 $ (15,717) $ 18,332
=========== =========== =========== =========== ===========
Three Months Ended September 30, 2006
--------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ..................................... $ -- $ 18,283 $ 154,266 $ -- $ 172,549
Other resort and communities operations revenue .......... -- 3,718 14,785 -- 18,503
Management fees .......................................... 17,492 -- -- (17,492) --
Equity income from subsidiaries .......................... 20,219 -- -- (20,219) --
Interest income .......................................... 460 8,913 3,647 -- 13,020
Gain on sales of notes receivable ........................ -- 3,497 -- -- 3,497
----------- ----------- ----------- ----------- -----------
38,171 34,411 172,698 (37,711) 207,569
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of real estate sales ................................ -- 5,693 41,034 -- 46,727
Cost of other resort and communities operations .......... -- 1,429 11,623 -- 13,052
Management fees .......................................... -- 222 17,270 (17,492) --
Selling, general and administrative expenses ............. 12,172 8,668 81,053 -- 101,893
Interest expense ......................................... 1,968 1,621 2,941 -- 6,530
Other expense, net ....................................... 1,074 327 531 -- 1,932
----------- ----------- ----------- ----------- -----------
15,214 17,960 154,452 (17,492) 170,134
----------- ----------- ----------- ----------- -----------
Income before minority interest and provision
for income taxes ....................................... 22,957 16,451 18,246 (20,219) 37,435
Minority interest in income of consolidated subsidiary ... -- -- -- 2,241 2,241
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes ................. 22,957 16,451 18,246 (22,460) 35,194
Provision for income taxes ............................... 1,050 5,222 7,015 -- 13,287
----------- ----------- ----------- ----------- -----------
Net income ............................................... $ 21,907 $ 11,229 $ 11,231 $ (22,460) $ 21,907
=========== =========== =========== =========== ===========
19
Nine Months Ended September 30, 2005
--------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ...................................... $ -- $ 39,594 $ 390,412 $ -- $ 430,006
Other resort and communities operations revenue ........... -- 10,149 47,854 -- 58,003
Management fees ........................................... 45,849 -- -- (45,849) --
Equity income from subsidiaries ........................... 33,223 -- -- (33,223) --
Interest income ........................................... 980 13,715 11,212 -- 25,907
Gain on sales of notes receivable ......................... -- 16,044 -- -- 16,044
----------- ----------- ----------- ----------- -----------
80,052 79,502 449,478 (79,072) 529,960
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of real estate sales ................................. -- 11,576 125,359 -- 136,935
Cost of other resort and communities operations ........... -- 3,850 55,298 -- 59,148
Management fees ........................................... -- 901 44,948 (45,849) --
Selling, general and administrative expenses .............. 30,929 18,988 179,460 -- 229,377
Interest expense .......................................... 3,786 3,326 3,989 -- 11,101
Provision for loan losses ................................. -- 1,190 19,777 -- 20,967
Other expense, net ........................................ 1,845 2,372 452 -- 4,669
----------- ----------- ----------- ----------- -----------
36,560 42,203 429,283 (45,849) 462,197
----------- ----------- ----------- ----------- -----------
Income before minority interest and provision
for income taxes ........................................ 43,492 37,299 20,195 (33,223) 67,763
Minority interest in income of consolidated subsidiary .... -- -- -- 3,305 3,305
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes .................. 43,492 37,299 20,195 (36,528) 64,458
Provision for income taxes ................................ 3,850 8,107 12,859 -- 24,816
----------- ----------- ----------- ----------- -----------
Net income ................................................ $ 39,642 $ 29,192 $ 7,336 $ (36,528) $ 39,642
=========== =========== =========== =========== ===========
Nine Months ended September 30, 2006
--------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ..................................... $ -- $ 43,427 $ 392,829 $ -- $ 436,256
Other resort and communities operations revenue .......... -- 10,788 38,002 -- 48,790
Management fees .......................................... 44,843 -- -- (44,843) --
Equity income from subsidiaries .......................... 21,235 -- -- (21,235) --
Interest income .......................................... 1,436 18,412 10,844 -- 30,692
Gain on sales of notes receivable ........................ -- 4,049 -- -- 4,049
----------- ----------- ----------- ----------- -----------
67,514 76,676 441,675 (66,078) 519,787
COSTS AND EXPENSES
Cost of real estate sales ................................ -- 13,030 127,941 -- 140,971
Cost of other resort and communities operations .......... -- 3,907 38,862 -- 42,769
Management fees .......................................... -- 675 44,168 (44,843) --
Selling, general and administrative expenses ............. 32,267 22,044 209,744 -- 264,055
Interest expense ......................................... 2,984 3,170 7,208 -- 13,362
Other expense, net ....................................... 71 710 461 -- 1,242
----------- ----------- ----------- ----------- -----------
35,322 43,536 428,384 (44,843) 462,399
----------- ----------- ----------- ----------- -----------
Income before minority interest and provision
for income taxes ....................................... 32,192 33,140 13,291 (21,235) 57,388
Minority interest in income of consolidated subsidiary ... -- -- -- 4,940 4,940
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes and
cumulative effect of change in accounting principle .... 32,192 33,140 13,291 (26,175) 52,448
Provision for income taxes ............................... 4,168 10,717 5,045 -- 19,930
----------- ----------- ----------- ----------- -----------
Income before cumulative effect of change in accounting
principle .............................................. 28,024 22,423 8,246 (26,175) 32,518
Cumulative effect of change in accounting principle, net
of tax ................................................. -- (1,942) (3,736) -- (5,678)
Minority interest in income of cumulative effect of
change in accounting principle ......................... -- -- -- 1,184 1,184
----------- ----------- ----------- ----------- -----------
Net income ............................................... $ 28,024 $ 20,481 $ 4,510 $ (24,991) $ 28,024
=========== =========== =========== =========== ===========S
20
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30, 2005
-----------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash (used) provided by operating activities .................... $ (15,971) $ (4,345) $ 64,082 $ 43,766
----------- ----------- ----------- -----------
Investing activities:
Purchases of property and equipment ................................ (3,924) (60) (9,616) (13,600)
Installment payments on business acquisition ....................... -- -- (500) (500)
Investment in statutory business trusts ............................ (1,780) -- -- (1,780)
Cash received from retained interests in notes receivable sold ..... -- 7,342 -- 7,342
----------- ----------- ----------- -----------
Net cash (used) provided by investing activities .................... (5,704) 7,282 (10,116) (8,538)
----------- ----------- ----------- -----------
Financing activities:
Borrowings under line-of-credit facilities and other notes payable . -- -- 25,548 25,548
Payments under line-of-credit facilities and other notes payable ... (775) (998) (72,801) (74,574)
Redemption of 10.50% senior secured notes payable .................. (55,000) -- -- (55,000)
Proceeds from issuance of junior subordinated debentures ........... 59,280 -- -- 59,280
Payments of debt issuance costs .................................... (1,855) (37) (1,361) (3,253)
Proceeds from exercise of stock options ............................ 834 -- -- 834
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities .................... 2,484 (1,035) (48,614) (47,165)
----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents ................ (19,191) 1,902 5,352 (11,937)
Cash and cash equivalents at beginning of period .................... 70,256 18,793 11,516 100,565
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period .......................... 51,065 20,695 16,868 88,628
Restricted cash and cash equivalents at end of period ............... (174) (6,709) (13,795) (20,678)
----------- ----------- ----------- -----------
Unrestricted cash and cash equivalents at end of period ............. $ 50,891 $ 13,986 $ 3,073 $ 67,950
=========== =========== =========== ===========
Nine Months Ended September 30, 2006
-----------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash (used) provided by operating activities .................... $ (48,289) $ (15,845) $ 41,230 $ (22,904)
----------- ----------- ----------- -----------
Investing activities:
Purchases of property and equipment ................................ (6,852) (44) (12,771) (19,667)
Investment in statutory business trusts ............................ (928) -- -- (928)
Cash received from retained interests in notes receivable sold ..... -- 21,134 -- 21,134
----------- ----------- ----------- -----------
Net cash (used) provided by investing activities .................... (7,780) 21,090 (12,771) 539
----------- ----------- ----------- -----------
Financing activities:
Borrowings under line-of-credit facilities and other notes payable . -- -- 41,670 41,670
Payments under line-of-credit facilities and other notes payable ... (7,565) (131) (60,107) (67,803)
Proceeds from issuance of junior subordinated debentures ........... 30,928 -- -- 30,928
Payments of debt issuance costs .................................... (980) (1,680) (927) (3,587)
Proceeds from exercise of stock options ............................ 173 -- -- 173
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities .................... 22,556 (1,811) 19,364 1,381
----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents ................ (33,513) 3,434 9,095 (20,984)
Cash and cash equivalents at beginning of period .................... 55,708 15,443 13,553 84,704
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period .......................... 22,195 18,877 22,648 63,720
Restricted cash and cash equivalents at end of period ............... (173) (10,221) (17,828) (28,222)
----------- ----------- ----------- -----------
Unrestricted cash and cash equivalents at end of period ............. $ 22,022 $ 8,656 $ 4,820 $ 35,498
=========== =========== =========== ===========
21
6. Business Segments
We have two reportable business segments. Bluegreen Resorts develops
markets and sells VOIs in our resorts, through the Bluegreen Vacation Club, and
provides resort management services to resort property owners associations.
Bluegreen Communities 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 as homesites. Disclosures for our business
segments are as follows (in thousands):
Bluegreen Bluegreen
Resorts Communities Total
----------- ----------- -----------
For the three months ended September 30, 2005
Sales of real estate ................................................ $ 114,376 $ 52,281 $ 166,657
Other resort and communities operations revenue ..................... 18,368 2,943 21,311
Depreciation expense ................................................ 1,790 415 2,205
Field operating profit .............................................. 23,001 13,565 36,566
For the three months ended September 30, 2006
Sales of real estate ................................................ $ 130,310 $ 42,239 $ 172,549
Other resort and communities operations revenue ..................... 15,408 3,095 18,503
Depreciation expense ................................................ 2,189 404 2,593
Field operating profit .............................................. 31,492 11,128 42,620
For the nine months ended September 30, 2005
Sales of real estate ................................................ $ 277,039 $ 152,967 $ 430,006
Other resort and communities operations revenue ..................... 50,586 7,417 58,003
Depreciation expense ................................................ 5,198 1,258 6,456
Field operating profit .............................................. 50,675 39,252 89,927
For the nine months ended September 30, 2006
Sales of real estate ................................................ $ 295,831 $ 140,425 $ 436,256
Other resort and communities operations revenue ..................... 39,363 9,427 48,790
Depreciation expense ................................................ 6,086 1,230 7,316
Field operating profit .............................................. 36,647 35,484 72,131
Net inventory by business segment (in thousands):
December 31, 2005 September 30,2006
----------------- -----------------
Bluegreen Resorts ................................ $ 173,338 $ 217,658
Bluegreen Communities ............................ 67,631 110,660
----------- -----------
Total ............................................ $ 240,969 $ 328,318
=========== ===========
Reconciliations to Consolidated Amounts
Field operating profit for our reportable segments reconciled to our
consolidated income before minority interest and provision for income taxes is
as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2005 2006 2005 2006
----------- ----------- ----------- -----------
Field operating profit for reportable segments ......... $ 36,566 $ 42,620 $ 89,927 $ 72,131
Interest income ........................................ 9,759 13,020 25,907 30,692
Gain on sales of notes receivable ...................... 6,446 3,497 16,044 4,049
Other expense, net ..................................... (985) (1,932) (4,669) (1,242)
Corporate general and administrative
expenses ............................................... (8,124) (13,240) (27,378) (34,880)
Interest expense ....................................... (3,467) (6,530) (11,101) (13,362)
Provision for loan losses .............................. (8,803) -- (20,967) --
----------- ----------- ----------- -----------
Consolidated income before minority interest and
provision for income taxes ........................... $ 31,392 $ 37,435 $ 67,763 $ 57,388
=========== =========== =========== ===========
22
7. Contingencies
In September 2006, the State of Tennessee Audit Division (the "Division")
approved an assessment of approximately $656,000 for sales tax on the use of
resort accommodations in our Tennessee properties by VOI owners who became
members of Bluegreen Vacation Club through the purchase of non-Tennessee VOIs.
In the past the timeshare industry has been successful in avoiding the attempted
imposition by various states of sales tax on the reservation and use of
accommodations by timeshare owners. We believe the assessment is contrary to
Tennessee law. We intend to vigorously challenge the sales tax assessment;
however, there is no assurance that we will be successful or that other states
won't seek to impose similar assessments.
Bluegreen Southwest One, L.P. ("Southwest"), one of our subsidiaries, is
the developer of the Mountain Lakes residential community in Texas. One of the
lakes that is an amenity in the development has not filled to the expected
level. This condition has resulted in consumer complaints from property owners.
We are reviewing the possible causes for the failure of the lake to fill. We are
unable to predict the potential cost to correct the condition or the
consequences in the event that the condition cannot be corrected.
Also related to the Mountain Lakes subdivision is litigation related to
the development of mineral rights within the subdivision. In April 2006, in
Lesley, et al v. Bluegreen Southwest One, L.P. acting through its General
Partner Bluegreen Southwest Land, Inc., et al, Cause No. 28006 District Court of
the 266th Judicial District, Erath County, Texas, plaintiffs filed a First
Amended Original Petition (April 2006). Pursuant to this First Amended Original
Petition Plaintiffs seek to develop mineral interests in the Mountain Lakes
subdivision and to recover damages from Southwest, alleging breach of contract,
breach of fiduciary duty, tortious interference with existing and prospective
relationships and intentional invasion or interference with property rights by
Southwest, for allegedly interfering with the development of mineral rights held
by plaintiffs. Plaintiffs' claims against Southwest total in the aggregate $25
million. The property owners association has filed a cross complaint against us,
Southwest and individual directors of the property owners association asserting
various tort claims. While no assurances can be given with respect to the
outcome of litigation, based on information currently available, we believe that
the claims lack merit and intend to vigorously defend ourselves in this matter.
We filed suit against the general contractor with regard to alleged
construction defects at our Shore Crest Vacation Villas resort in South
Carolina. Whether the matter is settled by litigation or by negotiation it is
possible that we may need to participate financially in some way to correct the
construction deficiencies. We can not predict the extent of the financial
obligation that we may incur.
8. Subsequent Events
On July 27, 2006, the Board of Directors declared a dividend distribution
of one Preferred Share Purchase Right (the "Rights") on each outstanding share
of our common stock. See our Current Report on Form 8-K and registration
statement on Form 8-A, both of which were filed on August 2, 2006, for further
discussion of the Rights. On October 16, 2006, in connection with the litigation
in the United States District Court for the Southern District of Florida between
us, as plaintiff, David A. Siegel, David A. Siegel Revocable Trust, and Central
Florida Investments, as defendants (collectively, the "Siegel Shareholders"),
and our directors, as counter-defendants (the "Litigation"), the parties entered
into a stipulation (the "Stipulation") resolving the Litigation and releasing
all related claims. Among other items, the Stipulation provides that in the
event any matter recommended for shareholder approval by the Board of Directors
and submitted for a vote of our shareholders relates to a merger or a sale of
all or substantially all of our assets, the Siegel Shareholders shall have the
right to require us to purchase any of our common shares still then owned by the
Siegel Shareholders at $11.99 per share, by delivery at least 10 business days
prior to the scheduled vote on the contemplated transaction of an irrevocable
written notice to us specifying the number of shares to be sold. Closing of the
acquisition of the shares shall be subject to consummation of the proposed
transaction and shall occur no later than 120 days following the consummation of
the transaction. We are currently assessing the accounting consequence, if any,
that this right may have on our results of operations or financial condition
during any future period, including the fourth quarter of 2006. See our Current
Report on Form 8-K and amended registration statement on Form 8-A, both of which
were filed on October 18, 2006, for further discussion.
On October 24, 2006 the Company acquired approximately 242 acres of land
as an addition to Chapel Ridge for approximately $7.4 million. Chapel Ridge is a
1,032-acre (including the 242-acre purchase) Fred Couples signature golf course
community located near Chapel Hill, NC. In conjunction with the acquisition, the
Company borrowed approximately $7.2 million from SunTrust Bank N.A.
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Cautionary Statement Regarding Forward-Looking Statements and Risk Factors
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Reform Act of 1995 (the "Act") and are making the following
statements pursuant to the Act to do so. Certain statements in this Quarterly
Report and our other filings with the SEC constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. You may identify these statements by forward-looking
words such as "may," "intend," "expect," "anticipate," "believe" "will,"
"should," "project," "estimate," "plan" or other comparable terminology or by
other statements that do not relate to historical facts. All statements, trend
analyses and other information relative to the market for our products,
remaining life of project sales, our expected future sales, financial position,
operating results, liquidity and capital resources, our business strategy,
financial plan and expected capital requirements as well as trends in our
operations or results are forward-looking statements. These forward-looking
statements are subject to known and unknown risks and uncertainties, many of
which are beyond our control, including changes in economic conditions,
generally, in areas where we operate, or in the travel and tourism industry,
increases in interest rates, changes in regulations and other factors discussed
throughout our SEC filings all of which could cause our actual results,
performance or achievements, or industry trends, to differ materially from any
future results, performance, or achievements or trends expressed or implied
herein. Given these uncertainties, investors are cautioned not to place undue
reliance on these forward-looking statements and no assurance can be given that
the plans, estimates and expectations reflected herein will be achieved. Factors
that could adversely affect our future results can also be considered general
risk factors with respect to our business, whether or not they relate to a
forward-looking statement. We wish to caution you that the important factors set
forth below and elsewhere in this report in some cases have affected, and in the
future could affect our actual results and could cause our actual consolidated
results to differ materially from those expressed in any forward-looking
statements.
o Our continued liquidity depends on our ability to sell or borrow
against our notes receivable.
o We depend on additional funding to finance our operations.
o Our success depends on our ability to market our products
successfully and efficiently.
o The state of the economy generally, interest rates, the availability
of financing and increased fuel prices, in particular, could affect
our ability to market VOIs and residential homesites.
o We would incur substantial losses if the customers we finance
default on their obligations to pay the balance of the purchase
price.
o Our results of operations and financial condition could be adversely
impacted if our estimates concerning our notes receivable are
incorrect.
o Changes in United States generally accepted accounting principles,
especially those related to the sales of notes receivable and
accounting for real estate time-sharing transactions, could have a
material adverse impact on our results of operations.
o We are subject to the risks of the real estate market and the risks
associated with real estate development, including the risk and
uncertainties relating to the cost and availability of land, labor
and construction materials.
o We may not successfully execute our growth strategy.
o We may face a variety of risks when and if we expand our operations.
o Claims for development-related defects could adversely affect our
financial condition and operating results.
o We may face additional risks when and if we expand into new markets.
24
o The limited resale market for VOIs could adversely affect our
business.
o We may be adversely affected by extensive federal, state and local
laws and regulations and changes in applicable laws and regulations,
including with respect to the imposition of additional taxes on
operations.
o Environmental liabilities, including claims with respect to mold or
hazardous or toxic substances, could have a material adverse impact
on our business.
o We could incur costs to comply with laws governing accessibility of
facilities by disabled persons.
In addition to the foregoing, reference is also made to other risks and
factors detailed in reports filed by the Company with the Securities and
Exchange Commission including our Annual Report on Form 10-K for the year ended
December 31, 2005.
Executive Overview
We operate through two business segments. Bluegreen Resorts develops,
markets and sells VOIs in our Bluegreen Vacation Club resorts, and provides
resort management services to resort property owners associations. Bluegreen
Communities 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, as homesites.
Effective January 1, 2006, we adopted the provisions of SFAS No. 152,
Accounting for Real Estate Time-Sharing Transactions, which changes the rules
for many aspects of timeshare accounting, including revenue recognition,
inventory costing and incidental operations (See Note 1 of the Notes to
Condensed Consolidated Financial Statements for more information on SFAS No. 152
and its impact on our financial statements). The adoption of SFAS No. 152,
increased income before cumulative effect of change in accounting principle by
$2.4 million or $0.08 per diluted share, and reduced income before cumulative
effect of change in accounting principle by $5.5 million or $0.18 per diluted
share for the three and nine months ended September 30, 2006, respectively. In
addition, we recognized a $4.5 million or $0.14 per diluted share charge for the
cumulative effect of a change in accounting principle, net of income tax and
minority interest in the nine months ended September 30, 2006, for the adoption
of SFAS No. 152. Therefore, on a pro forma basis excluding the impact of SFAS
No. 152, net income would have been $19.5 million or $0.63 per diluted share for
the three months ended September 30, 2006. On the same pro forma basis, net
income would have been $38.0 million or $1.22 per diluted share for the nine
months ended September 30, 2006. See "Results of Operations" below for a
discussion of the impact of the adoption of SFAS No. 152 on the Resort Division.
We have historically experienced and expect to continue to experience
seasonal fluctuations in our gross revenues and net earnings. This seasonality
may cause significant fluctuations in our quarterly operating results, with the
majority of our gross revenues and net earnings historically occurring in the
quarters ending in June and September each year. However, as a result of the
required adoption of SFAS No. 152, we anticipate that prospectively the majority
of our gross revenues and net earnings will be recognized in the quarters ending
in September and December of each year, primarily due to the deferral and
subsequent recognition of VOI sales revenue. Also, as SFAS No. 152 does not
allow the restatement of prior year results of operations, our 2006 quarterly
Statements of Income are not easily comparable to the respective 2005 quarterly
Statements of Income. Other material fluctuations in operating results may occur
due to the timing of development and the requirement that we use 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. We
expect that we will continue to invest in projects that will require substantial
development (with significant capital requirements), and as a consequence, our
results of operations may fluctuate significantly between quarterly and annual
periods as a result of the required use of the percentage-of-completion method
of accounting.
We believe that inflation and changing prices have materially impacted our
revenues and results of operations, specifically due to periodic increases in
the sales prices of our VOIs and homesites and continued increases in
construction and development costs. We expect construction and development costs
to continue to increase for the foreseeable future. There is no assurance that
we will be able to continue to increase our sales prices or that increased
construction costs will not have a material adverse impact on our gross margin.
In addition, to the extent that inflation in general or increased prices for our
VOI and homesites adversely impact consumer sentiment, our results of operations
could be adversely impacted. Also, to the extent inflationary trends affect
interest rates, a portion of our debt service costs may increase.
We recognize revenue on homesite and VOI 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
25
sales price is reasonably assured and we have completed substantially all of our
obligations with respect to any development of the real estate sold. Refund or
rescission periods include those required by law and those provided for in our
sales contracts. The provisions of SFAS No. 152 require that incentives and
other similarly treated items such as customer down payment equity earned
through our Sampler Program be considered in calculating the required down
payment for our VOI sales. If, after considering the value of sales incentives
provided, the required 10% of sales price down payment threshold is not met, the
VOI sale and the related cost of sale and direct selling costs are deferred and
not recognized until the buyer's commitment test is satisfied, generally through
the receipt of required mortgage note payments from the buyer. Further, in cases
where all development has not been completed, recognition of income is subject
to the percentage-of-completion method of accounting.
Costs associated with the acquisition and development of vacation
ownership resorts and residential communities, including carrying costs such as
interest and taxes, are capitalized as inventory and are allocated to cost of
real estate sold as the respective revenues are recognized.
A portion of our revenues historically has been and is expected to
continue to be comprised of gains on sales of notes receivable. The gains are
recorded on our consolidated statement of income and the related retained
interests in the notes receivable sold are recorded on our consolidated balance
sheet at the time of sale. Effective January 1, 2006, pursuant to SFAS No. 152,
the portion of these gains related to the reversal of previously recorded
allowances for loan losses on the receivables sold is recorded as a component of
revenue on sales of VOIs. The amount of gains recognized and the fair value of
the retained interests recorded are based in part on management's best estimates
of future prepayment, default rates, loss severity rates, discount rates and
other considerations in light of then-current conditions. If actual prepayments
with respect to loans occur more quickly than we projected at the time such
loans were sold, as can occur when interest rates decline, interest would be
less than expected and may cause a decline in the fair value of the retained
interests and a charge to operations. 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 the cash flow from the
retained interests in notes receivable sold would decrease. Also, to the extent
the portfolio of receivables sold fails to satisfy specified performance
criteria (as may occur due to, for example, an increase in default rates or loan
loss severity) or certain other events occur, the funds received from obligors
must be distributed on an accelerated basis to investors. If the accelerated
payment formula were to become applicable, the cash flow to us from the retained
interests in notes receivable sold would be reduced until the outside investors
were paid or the regular payment formula was resumed. If these situations were
to occur on a material basis, it could cause a decline in the fair value of the
retained interests and a charge to earnings currently. There is no assurance
that the carrying value of our retained interests in notes receivable sold will
be fully realized or that future loan sales will be consummated or, if
consummated, result in gains. See "Vacation Ownership Receivables Purchase
Facilities - Off Balance Sheet Arrangements," below.
In addition, we have historically sold vacation ownership receivables to
financial institutions through warehouse purchase facilities to monetize the
receivables while accumulating receivables for a future term securitization
transaction. We have structured our current warehouse purchase facility with
BB&T so that legal sales of vacation ownership receivables through this facility
will be accounted for as on-balance sheet borrowings rather than as off-balance
sheet sales. Therefore, we will not recognize a gain on the sales of receivables
transferred to BB&T until such receivables are subsequently included in a
properly structured term securitization transaction. In September 2006, we
included in the 2006 Term Securitization receivables previously transferred to
the BB&T Purchase Facility. As a result, as of September 30, 2006, there were no
amounts outstanding under the BB&T Purchase Facility. We expect to transfer
additional receivables to the BB&T Purchase Facility or a similar on-balance
sheet facility for the foreseeable future which will continue to impact future
quarterly earnings patterns as compared to comparable prior periods.
As more fully described in Note 1 of the Condensed Consolidated Financial
Statements, net income for the three and nine months ended September 30, 2006,
was impacted positively by approximately $0.9 million as a result of cumulative
adjustments to correct errors in the methodology and valuation assumptions used
in the original recording of and on-going accounting for our retained interest
in notes receivable sold in connection with the 2005A Term Securitization
transaction. We do not believe the adjustments arising from the changes in
methodology and assumptions were material individually or in the aggregate to
our results of operations for the years ended December 31, 2005, or the quarters
ended March 31, 2006, June 30, 2006, or September 30, 2006, and accordingly,
information for prior periods has not been adjusted.
We continue to spend a substantial amount of management time and resources
to comply with changing laws, regulations and standards relating to accounting,
corporate governance and public disclosure, including the Sarbanes-Oxley Act of
2002, new Securities and Exchange Commission regulations and New York Stock
Exchange rules. In particular, Section 404 of the Sarbanes-Oxley Act of 2002
requires management's annual review and evaluation of
26
our internal control systems, and attestations as to the effectiveness of these
systems by our independent registered accounting firm. We expect to continue to
expend significant management time and resources documenting and testing our
internal control systems and procedures. If we fail to maintain the adequacy of
our internal controls, as such standards are modified, supplemented or amended
from time to time, we may not be in a position to conclude on an ongoing basis
that we have effective internal control over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to maintain an
effective internal control environment could have a material adverse effect on
the market price of our common stock.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial
condition are based upon our condensed consolidated financial statements, which
have been prepared in accordance with United States generally accepted
accounting principles. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
commitments and contingencies. On an ongoing basis, management evaluates its
estimates, including those that relate to the recognition of revenue, including
revenue recognition under the percentage-of-completion method of accounting; our
estimated development cost and future sales on recovered VOIs for the purpose of
recognizing cost of sales related to VOI sales; our estimate of fair value
related to stock-based compensation; our reserve for loan losses; the valuation
of retained interests in notes receivable sold and the related gains on sales of
notes receivable; the recovery of the carrying value of real estate inventories;
golf courses; intangible assets and other assets; and the estimate of contingent
liabilities related to litigation and other claims and assessments. Management
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ materially from these estimates under different assumptions and
conditions. If actual results significantly differ from management's estimates,
our results of operations and financial condition could be materially, adversely
impacted. For a more detailed discussion of these critical accounting policies
see "Critical Accounting Policies and Estimates" in our Annual Report on Form
10-K for the year ended December 31, 2005.
Results of Operations
We review financial information, allocate resources and manage our
business as two segments, Bluegreen Resorts and Bluegreen Communities. The
information reviewed is based on internal reports and excludes general and
administrative expenses attributable to corporate overhead. The information
provided is based on a management approach and is used by us for the purpose of
tracking trends and changes in results. It does not reflect the actual economic
costs, contributions or results of operations of the segments as stand alone
businesses. If a different basis of presentation or allocation were utilized,
the relative contributions of the segments might differ but the relative trends,
in our view, would likely not be materially impacted. The table below sets forth
net revenue and income from operations by segment.
27
Bluegreen Bluegreen
Resorts Communities Total
------- ----------- -----
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
------ -------- ------ -------- ------ --------
(dollars in thousands)
Three Months Ended
September 30, 2005
Sales of real estate ..................... $ 114,376 100% $ 52,281 100% $ 166,657 100%
Cost of real estate sales ................ (25,047) (22) (27,892) (53) (52,939) (32)
--------- --------- ---------
Gross profit ............................. 89,329 78 24,389 47 113,718 68
Other resort and communities
operations revenue .................... 18,368 16 2,943 6 21,311 13
Cost of other resort and
communities operations ................ (17,605) (15) (2,544) (5) (20,149) (12)
Selling and marketing expenses ........... (60,397) (53) (8,354) (16) (68,751) (41)
Field general and
administrative expenses (1) ........... (6,694) (6) (2,869) (5) (9,563) (6)
--------- --------- ---------
Field operating profit ................... $ 23,001 20% $ 13,565 26% $ 36,566 22%
========= ========= =========
Three Months Ended
September 30, 2006
Sales of real estate ..................... $ 130,310 100% $ 42,239 100% $ 172,549 100%
Cost of real estate sales ................ (25,741) (20) (20,986) (50) (46,727) (27)
--------- --------- ---------
Gross profit ............................. 104,569 80 21,253 50 125,822 73
Other resort and communities
operations revenue .................... 15,408 12 3,095 7 18,503 11
Cost of other resort and
communities operations ................ (9,915) (8) (3,137) (7) (13,052) (8)
Selling and marketing expenses ........... (72,203) (55) (6,942) (16) (79,145) (46)
Field general and
administrative expenses (1) ........... (6,367) (5) (3,141) (7) (9,508) (6)
--------- --------- ---------
Field operating profit ................... $ 31,492 24% $ 11,128 26% $ 42,620 25%
========= ========= =========
Nine Months Ended
September 30, 2005
Sales of real estate ..................... $ 277,039 100% $ 152,967 100% $ 430,006 100%
Cost of real estate sales ................ (58,137) (21) (78,798) (52) (136,935) (32)
--------- --------- ---------
Gross profit ............................. 218,902 79 74,169 48 293,071 68
Other resort and communities
operations revenue .................... 50,586 18 7,417 5 58,003 13
Cost of other resort and
communities operations ................ (52,699) (19) (6,449) (4) (59,148) (14)
Selling and marketing expenses ........... (150,220) (54) (26,838) (18) (177,058) (41)
Field general and
administrative expenses (1) ........... (15,894) (6) (9,047) (6) (24,941) (6)
--------- --------- ---------
Field operating profit ................... $ 50,675 18% $ 39,252 26% $ 89,927 21%
========= ========= =========
Nine Months Ended
September 30, 2006
Sales of real estate ..................... $ 295,831 100% $ 140,425 100% $ 436,256 100%
Cost of real estate sales ................ (64,716) (22) (76,255) (54) (140,971) (32)
--------- --------- ---------
Gross profit ............................. 231,115 78 64,170 46 295,285 68
Other resort and communities
operations revenue .................... 39,363 13 9,427 7 48,790 11
Cost of other resort and
communities operations ................ (34,451) (12) (8,318) (6) (42,769) (10)
Selling and marketing expenses ........... (180,016) (61) (21,754) (15) (201,770) (46)
Field general and
administrative expenses (1) ........... (19,364) (7) (8,041) (6) (27,405) (6)
--------- --------- ---------
Field operating profit ................... $ 36,647 12% $ 35,484 25% $ 72,131 17%
========= ========= =========
(1) General and administrative expenses attributable to corporate
overhead have been excluded from the tables. Corporate general and
administrative expenses totaled $8.1 million for the three months
ended September 30, 2005 and $13.2 million for the three months
ended September 30, 2006. Corporate general and administrative
expenses totaled $27.4 million for the nine months ended September
30, 2005 and $34.9 million for the nine months ended September 30,
2006. (See "Corporate General and Administrative Expenses," below,
for further discussion).
Sales and Field Operations. Consolidated sales increased $5.8 million from
$166.7 million during the three months ended September 30, 2005 to $172.5
million during the three months ended September 30, 2006. Consolidated sales
increased $6.3 million from $430.0 million during the nine months ended
September 30, 2005 to $436.3 million during the nine months ended September 30,
2006. Excluding the impact of adopting SFAS No. 152, consolidated sales during
the three and nine months ended September 30, 2006 would have totaled $167.4 and
$457.0 million, respectively.
Bluegreen Resorts. We will use the pro forma presentations below to discuss
Bluegreen Resorts results of operations for the 2006 periods, as the pro forma
results are more comparable to 2005 than our United States generally accepted
accounting principles results of operations under SFAS No. 152.
28
Three Months Ended
Three Months Ended September 30, 2006 September 30, 2005
-------------------------------------------------------------------------
Pro Forma Excluding
Impact of SFAS No. 152
------------------------
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
------ -------- ------ -------- ------ --------
Sales of real estate ........................ $ 130,310 100% $ 125,126 100% $ 114,376 100%
Cost of real estate sales ................... (25,741) (20) (26,028) (21) (25,047) (22)
--------- --------- ---------
Gross profit ................................ 104,569 80 99,098 79 89,329 78
Other resort operations revenue ............. 15,408 12 18,298 15 18,368 16
Cost of other resort operations ............. (9,915) (8) (14,065) (11) (17,605) (15)
Selling and marketing expenses .............. (72,203) (55) (70,674) (56) (60,397) (53)
Field general and administrative
expenses .................................. (6,367) (5) (6,367) (5) (6,694) (6)
--------- --------- ---------
Field operating profit ...................... $ 31,492 24% $ 26,290 21% $ 23,001 20%
========= ========= =========
Nine Months Ended
Nine Months Ended September 30, 2006 September 30, 2005
-------------------------------------------------------------------------
Pro Forma Excluding
Impact of SFAS No. 152
------------------------
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
------ -------- ------ -------- ------ --------
Sales of real estate ........................ $ 295,831 100% $ 316,624 100% $ 277,039 100%
Cost of real estate sales ................... (64,716) (22) (67,327) (21) (58,137) (21)
--------- --------- ---------
Gross profit ................................ 231,115 78 249,297 79 218,902 79
Other resort operations revenue ............. 39,363 13 46,062 15 50,586 18
Cost of other resort operations ............. (34,451) (12) (44,253) (14) (52,699) (19)
Selling and marketing expenses .............. (180,016) (61) (180,609) (57) (150,220) (54)
Field general and administrative
expenses .................................. (19,364) (7) (19,364) (6) (15,894) (6)
--------- --------- ---------
Field operating profit ...................... $ 36,647 12% $ 51,133 16% $ 50,675 18%
========= ========= =========
During the three months ended September 30, 2005 and September 30, 2006,
sales of VOIs contributed $114.4 million (69%) and $130.3 million (76%) of our
total consolidated sales, respectively. During the nine months ended September
30, 2005 and September 30, 2006, sales of VOIs contributed $277.0 million (64%)
and $295.8 million (68%) of our total consolidated sales, respectively.
Excluding the impact of SFAS No. 152, sales of VOIs during the three and nine
months ended September 30, 2006 would have contributed $125.1 million (75%) and
$316.6 million (69%) of our total consolidated sales, respectively.
The following table sets forth certain information for sales of VOIs for
the periods indicated, before giving effect to the percentage-of-completion
method of accounting and sales deferred under SFAS No. 152.
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2006 2005 2006
---- ---- ---- ----
Number of VOI sales transactions 11,861 12,246 28,719 31,365
Average sales price per transaction $9,931 $10,596 $9,967 $10,521
Gross margin 78% 79% 79% 79%
Bluegreen Resorts' sales increased $15.9 million or 14% during the three
months ended September 30, 2006, as compared to the three months ended September
30, 2005. Excluding the impact of SFAS No. 152, sales would have increased $10.8
million or 9% during the three months ended September 30, 2006 compared to the
same period in 2005. The pro forma increase was due primarily to the opening of
new sales offices and an increase in same-resort sales at many of our existing
sales offices. We opened six new sales sites subsequent to September 30, 2005:
an offsite sales office in Atlanta, Georgia (opened in November 2005), an
offsite sales office in Chicago, Illinois (opened in February 2006), an offsite
sales office in Las Vegas, Nevada (opened in July 2006), an offsite sales office
in Wisconsin Dells, Wisconsin (opened in July 2006), and sales offices located
at two of our new resorts: Daytona
29
Seabreeze in Daytona Beach Shores, Florida (opened in December 2005), and
Carolina Grande in Myrtle Beach, South Carolina (opened in March 2006).
Same-resort sales increased by approximately 7% during the three months ended
September 30, 2006, as compared to the three months ended September 30, 2005.
This increase was also due to our continued focus on marketing to our growing
Bluegreen Vacation Club owner base. Sales to owners increased by 39% and
accounted for approximately 34% of Resort sales during the three months ended
September 30, 2006, compared to 29% during the three months ended September 30,
2005. This, combined with a 6% overall increase in the number of sales prospects
seen by Bluegreen Resorts from approximately 88,000 prospects during the three
months ended September 30, 2005 to approximately 93,000 prospects during the
three months ended September 30, 2006 and a relatively consistent, overall
sale-to-tour conversion ratio of 13% during these periods, significantly
contributed to the overall sales increase during the three months ended
September 30, 2006, as compared to the three months ended September 30, 2005.
Our sale-to-tour conversion ratio for new prospects (i.e., excluding sales to
our existing owners) was approximately 10% and 9% for the three months ended
September 30, 2005 and 2006, respectively. The increase in the average sales
price per transaction, primarily due to a system-wide price increase effective
January 1, 2006, reflected in the above table also contributed to the increase
in sales.
Bluegreen Resorts' sales increased $18.8 million or 7% during the nine
months ended September 30, 2006, as compared to the nine months ended September
30, 2005. Excluding the impact of SFAS No. 152, sales would have increased $39.6
million or 14% during the nine months ended September 30, 2006 compared to the
same period in 2005. The pro forma increase was due primarily to same-resort
sales increases at many of our sales offices. Same-resort sales increased by
approximately 11% during the nine months ended September 30, 2006, as compared
to the nine months ended September 30, 2005. This increase was also due to our
continued focus on marketing to our growing Bluegreen Vacation Club owner base.
Sales to owners increased by 46% and accounted for 33% of Resort sales during
the nine months ended September 30, 2006, compared to 27% during the nine months
ended September 30, 2005. This, combined with a 9% overall increase in the
number of sales prospects seen by Bluegreen Resorts from approximately 222,000
prospects during the nine months ended September 30, 2005 to approximately
241,000 prospects during the nine months ended September 30, 2006, and a
relatively consistent, overall sale-to-tour conversion ratio of 13% during these
periods, significantly contributed to the overall sales increase during the nine
months ended September 30, 2006, as compared to the nine months ended September
30, 2005. Our sale-to-tour conversion ratio for new prospects (i.e., excluding
sales to our existing owners) was approximately 10% for both the nine months
ended September 30, 2005 and 2006. The increase in the number of prospects seen
by Bluegreen Resorts and consequently the increase in sales was partially due to
our six new sales sites, as described above. The increase in the average sales
price per transaction, primarily due to a system-wide price increase effective
January 1, 2006, reflected in the above table also contributed to the increase
in sales.
Bluegreen Resorts' gross margin percentages vary between periods based on
the relative costs of the specific VOIs sold in each respective period.
Bluegreen Resorts' gross margin more typically ranges between 75% and 77%.
During the three months ended September 30, 2006, our gross margin was
positively impacted by the application of SFAS No. 152 and the previously
discussed price increase. These increases were partially off-set during the
three months ended September 30, 2006 by a higher proportion of sales of VOIs in
relatively higher cost resorts as a result of rising construction costs. Among
other things, SFAS No. 152 requires the recognition of a constant margin
throughout the selling life of a resort project. As a result of this accounting,
cost of sales was reduced by approximately $1.8 million and $0.9 million during
the three and nine months ended September 30, 2006, respectively.
Other resort operations revenue decreased $3.0 million or 16% during the
three months ended September 30, 2006, as compared to the three months ended
September 30, 2005. Other resort operations revenue decreased $11.2 million or
22% during the nine months ended September 30, 2006, as compared to the nine
months ended September 30, 2005. The adoption of SFAS No. 152 had the impact of
decreasing other resort operations revenue due to the reclassification of rental
proceeds from other resort operations revenue to net against cost of other
resort operations, partially offset by the classification of revenue for sales
incentives for VOI sales to other resort operations revenue. Excluding the
impact of SFAS No. 152, other resort operations revenue would have remained
relatively the same during the three months ended September 30, 2006 and
decreased $4.5 million or 9% during the nine months ended September 30, 2006, as
compared to the same periods in the prior year. The pro forma 2006 results
represent lower sales of mini-vacation packages on behalf of third parties
partially offset by increases in fees earned by our wholly-owned title company
as well as higher resort management fees earned by our resort management
company. During 2006, we have been transitioning our mini-vacation package
business from primarily selling the packages to third-parties to using the sales
tours generated by mini-vacations primarily for use at our own sales offices.
This has had the effect of increasing the profitability of our other resort
operations but consequently increasing our selling and marketing costs. Resort
management fees increased in the aggregate due to an increase in the number of
resorts to which management such services are provided.
30
Cost of other resort operations decreased $7.7 million or 44% during the
three months ended September 30, 2006, as compared to the three months ended
September 30, 2005. Cost of other resort operations decreased $18.2 million or
35% during the nine months ended September 30, 2006, as compared to the nine
months ended September 30, 2005. The adoption of SFAS No. 152 had the impact of
decreasing cost of other resort operations due primarily to the reclassification
of rental proceeds from other resort operations revenue and the reclassification
of the net proceeds of the Sampler Program from selling and marketing expenses
to a reduction to cost of other resort operations. Excluding the impact of SFAS
No. 152, cost of other resort operations would have decreased $3.5 million or
20% and $8.4 million or 16% during the three and nine months ended September 30,
2006, respectively, as compared to the same periods in the prior year. These pro
forma decreases reflect the lower cost of mini-vacations sold on behalf of third
parties due, as previously discussed, to the reduction in related revenues,
partially offset by higher subsidies incurred relative to the property owners'
associations that maintain our resorts.
Selling and marketing expenses for Bluegreen Resorts increased $11.8
million or 20% during the three months ended September 30, 2006, as compared to
the three months ended September 30, 2005. As a percentage of sales, selling and
marketing expenses increased from 53% during the three months ended September
30, 2005 to 55% during the three months ended September 30, 2006. Selling and
marketing expenses for Bluegreen Resorts increased $29.8 million or 20% during
the nine months ended September 30, 2006, as compared to the nine months ended
September 30, 2005. As a percentage of sales, selling and marketing expenses
increased from 54% during the nine months ended September 30, 2005 to 61% during
the nine months ended September 30, 2006. The adoption of SFAS No. 152 had the
impact of increasing selling and marketing expenses as a percentage of sales as
a result of the immediate recognition of marketing expenses associated with
certain VOI sales that have not yet been recognized, and due to the
reclassification of the net profits of the Sampler Program from selling and
marketing expenses to a reduction of cost of other resort operations. Excluding
the impact of SFAS No. 152, selling and marketing expense would have increased
$10.3 million or 17% and $30.4 million or 20% during the three and nine months
ended September 30, 2006, as compared to the same periods in 2005. As a
percentage of sales, on a pro forma basis, selling and marketing expenses
increased from 53% during the three months ended September 30, 2005 to 56%
during the three months ended September 30, 2006 and increased from 54% during
the nine months ended September 30, 2005 to 57% during the nine months ended
September 30, 2006. The increase in selling and marketing expense during the
2006 periods, as compared to the same periods in 2005 reflects a general
increase in overall marketing expenses due primarily to start-up costs related
to new marketing alliances, higher marketing expenses as a percentage of sales
at our newly opened off-site sales offices and the previously discussed
transition of our mini-vacations packages from being sold externally to being
used internally. We believe that selling and marketing expenses as a percentage
of sales is an important indicator of the performance of Bluegreen Resorts and
our performance as a whole. No assurance can be given that selling and marketing
expenses will not increase as a percentage of sales in future periods.
Field general and administrative expenses for Bluegreen Resorts decreased
$0.3 million or 5% during the three months ended September 30, 2006, as compared
to the three months ended September 30, 2005. Field general and administrative
expenses for Bluegreen Resorts increased $3.5 million or 22% during the nine
months ended September 30, 2006, as compared to the nine months ended September
30, 2005. The increase during the nine months ended September 30, 2006 was due
primarily to the incremental cost of opening and operating our new sales
offices.
As of September 30, 2006, approximately $33.9 million and $19.2 million of
sales and field operating profit, respectively, were deferred under SFAS No. 152
because the buyers did not make the minimum required initial investment.
Bluegreen Communities. During the three months ended September 30, 2005 and
September 30, 2006, Bluegreen Communities generated $52.3 million (31%) and
$42.2 million (24%) of our total consolidated sales, respectively. During the
nine months ended September 30, 2005 and September 30, 2006, Bluegreen
Communities generated $153.0 million (36%) and $140.4 million (32%) of our total
consolidated sales, respectively.
The table below sets forth the number of homesites sold by Bluegreen
Communities and the average sales price per homesite for the periods indicated,
before giving effect to the percentage-of-completion method of accounting and
excluding sales of bulk parcels.
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2006 2005 2006
---- ---- ---- ----
Number of homesites sold 469 393 1,880 1,346
Average sales price per homesite $82,426 $84,282 $80,388 $82,626
Gross margin 47% 50% 48% 46%
31
Bluegreen Communities' sales decreased $10.0 million or 19% during the
three months ended September 30, 2006, as compared to the three months ended
September 30, 2005. This was due primarily to the substantial sell-out
subsequent to September 30, 2005 of Sanctuary Cove at St. Andrews Sound, an
approximately 500-acre golf course community in Brunswick, Georgia and lower
recognized sales at Chapel Ridge (Chapel Hill, NC) of approximately $7.4
million. Sales recognized at Sanctuary Cove decreased by $10.9 million. Higher
than average sales at Chapel Ridge during the third quarter of 2005, related
primarily to the opening of new sections of the community for sale at that time,
resulted in an unfavorable sales comparison in the third quarter of 2006.
Additionally, we experienced a sales decrease of $3.4 million at Silver Lakes
Ranch (Sunset, TX) as a result of the substantial sellout of this community at
the end of 2005. Additionally, sales at Sugar Tree on the Brazos (outside Fort
Worth, TX) also decreased $3.4 million. These decreases were partially offset by
sales increases at certain of our other existing communities and sales at
communities which opened for sales after September 30, 2005. Havenwood at
Hunter's Crossing, located near San Antonio, Texas, which opened for sales in
January of 2006, recognized sales of $2.9 million in the third quarter of 2006.
In addition we experienced sales increases at Mystic Shores (Canyon Lake, TX),
Mountain Springs Ranch (Canyon Lake, TX), and Catawba Falls Preserve (Black
Mountain, NC) of $3.4 million, $3.2 million, and $2.6 million, respectively.
Additionally, we also benefited from approximately $1.9 million of incremental
revenue due to the sale of a large, non-subdivided parcel at our Traditions of
Braselton community in Georgia, which previously sold out of retail homesites.
Bluegreen Communities' sales decreased $12.5 million or 8% during the nine
months ended September 30, 2006, as compared to the nine months ended September
30, 2005. The decrease was primarily due to the substantial sell-out of
Traditions of Braselton and Sanctuary Cove. Traditions of Braselton recognized
$2.8 million of sales during the nine months ended September 30, 2006 (including
the sale of the large parcel discussed above), as compared to $22.5 million
during the nine months ended September 30, 2005. Sales at Sanctuary Cove
decreased by $24.8 million for the nine months ended September 30, 2006, as
compared to the nine months ended September 30, 2005. In addition, sales at
Brickshire (New Kent, VA) and Silver Lakes Ranch (Sunset, TX) decreased $1.6
million and $5.7 million, respectively, due primarily to the substantial sell
out of these communities prior to 2006. Sales also decreased $3.3 million at
Sugar Tree on the Brazos and at Chapel Ridge, for reasons previously discussed.
These sales decreases were partially offset by sales at Havenwood at Hunter's
Crossing which recognized sales of $6.1 million in the nine months ended
September 30, 2006. In addition, we recognized increased sales at Fairway
Crossing (Huffman, TX), Lake Ridge at Joe Pool Lake (Cedar Hill, TX), Mystic
Shores (Canyon Lake, TX), Mountain Springs (Canyon Lake, TX), Catawba Falls
(Black Mountain, NC), Saddle Creek Forest (Magnolia, TX) and The Settlement at
Patriot Ranch (Luling, TX) of $1.5 million, $2.7 million, $7.2 million, $9.5
million, $5.6 million, $5.4 million and $3.8 million, respectively. Sales in
2006 also benefited from a $7.0 million bulk sale of property near San Diego,
California.
In March 2006, we purchased The Bridges at Preston Crossings, an
approximately 1,580-acre planned golf community in Grayson County, Texas, which
is located just outside of Dallas, for $26.1 million. Additionally, in April
2006, we purchased Vintage Oaks at the Vineyards, a 3,300-acre parcel in New
Braunfels, Texas, which is located just outside San Antonio, for $27.3 million.
We also acquired 130 acres in April 2006 for $0.7 million for Saddle Creek Ranch
in Magnolia, TX, a follow-on community from our Saddle Creek Forest property. In
September 2006, we completed the purchase of a 953-acre parcel in College
Station, Texas, located northwest of Houston. This new community, expected to be
called King Oaks, was purchased for $3.1 million and is expected be developed
into a community with 432 homesites. In November 2006, we acquired an additional
240 acres of land adjacent to our Chapel Ridge community. Based on our
assessment of current estimated retail prices and the expected number of
homesites to be offered, we currently believe that these recent acquisitions
will, in the aggregate, generate estimated life-of-project sales of
approximately $399.0 million over an eight year period. We commenced sales at
The Bridges at Preston Crossing and Saddle Creek Ranch during September 2006 and
Vintage Oaks at the Vineyard during October 2006. We expect to commence sales at
King Oaks and at the annex to Chapel Ridge in the forth quarter of 2006
As noted above, certain of our properties substantially sold out earlier
in 2005 than previously anticipated as a result of strong demand for our
communities. Also as noted above, we have acquired additional new properties
and, although there is no assurance that we will be successful, we are
continuing to pursue the acquisition of properties in markets where we currently
conduct business and in new regions of the country, in order to maintain what we
believe are appropriate inventory levels.
Bluegreen Communities' gross margin increased from 47% during the three
months ended September 30, 2005 to 50% during the three months ended September
30, 2006, but decreased from 48% during the nine months ended September 30, 2005
to 46% during the nine months ended September 30, 2006. Variations in cost
structures and the market pricing of projects available for sale as well as the
opening of phases of projects which include premium
32
homesites (e.g., water frontage, preferred views, larger acreage homesites,
etc.) impact the gross margin of Bluegreen Communities from period to period.
These factors, as well as the impact of percentage-of-completion accounting,
will cause variations in gross margin between periods, although the gross margin
of Bluegreen Communities has historically been between 45% and 55% of sales and
is expected to approximate these percentages for the foreseeable future. In
addition, during the nine months ended September 30, 2006, gross margin was
negatively impacted by the bulk sale of property near San Diego, California,
which had a relatively low margin.
Selling and marketing expenses for Bluegreen Communities decreased $1.4
million or 17% during the three months ending September 30, 2006, as compared to
the same period in 2005. Selling and marketing expenses decreased $5.1 million
or 19% during the nine months ending September 30, 2006, as compared to the same
period in 2005. As a percentage of sales, selling and marketing expenses for
Bluegreen Communities was 16% during both the three months ended September 30,
2005 and 2006 and decreased from 18% to 15% during the nine months ended
September 30, 2005 and September 30, 2006, respectively. These expenditures
decreased during the nine months ended September 30, 2006 due to lower
commissions as a result of lower sales, as compared to the nine months ended
September 30, 2005. During the three months ended September 30, 2006, the
decrease in commissions due to lower sales was offset by higher advertising
expenses as a percentage of sales due primarily to the substantial sellout of
Sanctuary Cove and Traditions of Braselton, which had unusually low advertising
costs. In addition, these expenses were lower as a result of a relatively lower
commission on the bulk sale of property near San Diego, California in the nine
months ended September 30, 2006.
Bluegreen Communities' general and administrative expenses increased $0.3
million or 9% during the three months ended September 30, 2006, as compared to
the three months ended September 30, 2005, and decreased $1.0 million or 11%
during the nine months ended September 30, 2006, as compared to the nine months
ended September 30, 2005. This decrease in general and administrative expenses
during the nine months ended September 30, 2006, was due to the closure of five
sales offices in the second half of 2005. The offices at Silver Lakes Ranch,
Mountain Lakes Ranch, Quail Springs Ranch, Brickshire, and the Traditions of
Braselton were closed as a result of the substantial sell out at these
locations.
Corporate General and Administrative Expenses. Our corporate general and
administrative expenses consist primarily of expenses associated with
administering the various, centralized support functions at our corporate
headquarters, including accounting, human resources, information technology,
mergers and acquisitions, mortgage servicing, treasury and legal. Such expenses
were $8.1 million and $13.2 million during the three months ended September 30,
2005 and September 30, 2006, respectively. As a percentage of sales of real
estate, corporate general and administrative expenses were 5% and 7% during the
three months ended September 30, 2005 and September 30, 2006, respectively.
Corporate general and administrative expenses were $27.4 million and $34.9
million for the nine months ended September 30, 2005 and September 30, 2006,
respectively. As a percentage of sales of real estate, corporate general and
administrative expenses were approximately 6% and 8% during the nine months
ended September 30, 2005 and September 30, 2006, respectively.
The increase in corporate general and administrative expenses during the
three and nine months ended September 30, 2006, as compared to the three and
nine months ended September 30, 2005, reflects the continued expansion of our
corporate facilities and increases in personnel and other expenses incurred in
our information technology, accounting and acquisition and development areas to
support our growth. Also contributing to higher corporate general and
administrative expenses in 2006 is the recognition of stock-based compensation
as a result of adopting the provisions of SFAS No. 123R and the recognition of
expenses totaling approximately $1.8 million associated with the adoption of our
shareholders' rights plan and related litigation. During the three and nine
months ended September 30, 2006, expense recognized under SFAS No. 123R was $0.8
million and $1.7 million, respectively.
For a discussion of field selling, general and administrative expenses,
please see "Sales and Field Operations," above.
Interest Income. Interest income is earned from our notes receivable, retained
interests in notes receivable sold and cash and cash equivalents. Interest
income totaled $9.8 million and $13.0 million during the three months ended
September 30, 2005 and September 30, 2006, respectively. Interest income totaled
$25.9 million and $30.7 million during the nine months ended September 30, 2005
and September 30, 2006, respectively. The increase in interest income during the
three and nine months ended September 30, 2006, as compared to the same periods
in 2005 was due primarily to higher interest accretion on our retained interest
in notes receivable sold (as a result of the recognition of additional retained
interests late in 2005 and in 2006) and higher average vacation ownership notes
receivable balances during 2006 as compared to 2005.
33
Gain on Sales of Notes Receivable. During the three months ended September 30,
2005 and September 30, 2006, we sold $57.6 million and $113.7 million,
respectively, of vacation ownership notes receivable that qualified for
off-balance sheet sales treatment under SFAS No. 140. In connection with these
sales, we recognized gains on sales of notes receivable of $6.4 million and
$21.6 million during the three months ended September 30, 2005 and September 30,
2006, respectively. As a result of adopting SFAS No. 152, approximately $18.1
million of the gain was reflected as an increase to VOI sales during the three
months ended September 30, 2006.
During the nine months ended September 30, 2005 and September 30, 2006, we
sold $147.6 million and $171.3 million, respectively, of notes receivable and
recognized gains totaling $16.0 million and $31.3 million, respectively. As a
result of adopting SFAS No. 152, approximately $27.3 million of the gain was
reflected as an increase to VOI sales during the nine months ended September 30,
2006.
The amount of notes receivable sold during a period, and therefore the
amount of the gain recognized, depends on several factors, including the amount
of availability, if any, under receivables purchase facilities that qualify for
off-balance sheet (or "sales") treatment under SFAS No. 140, the amount of
eligible receivables available for sale, our cash requirements, the covenants
and other provisions of the applicable vacation ownership receivables purchase
facility (as described further below) and management's discretion as it relates
to the timing and amount of receivables to sell as well as management's
selection of which facility to utilize for such sale. The United States
generally accepted accounting principles governing the accounting for our sale
of receivable transactions is evolving and achieving off-balance sheet
accounting treatment is becoming more difficult. Due to the complexity of the
accounting rules surrounding such transactions, we have decided to limit the use
of off-balance sheet structures in the future. We currently intend to structure
certain of our vacation ownership receivables purchase facilities, specifically
those that are used to accumulate receivables pending a term securitization
transaction, in a manner so as to account for sales of receivables under such
facilities as on-balance sheet borrowings pursuant to SFAS No. 140. Accordingly,
no gains or losses will be recognized on the sales of receivables to such
facilities until the receivables are included in an appropriately structured
term securitization transaction. This accounting treatment is expected to
increase the volatility of our quarterly earnings prospectively, but is not
anticipated to materially impact annual earnings. We intend to follow a
consistent pattern related to the timing of our term securitization transactions
each year, although there can be no assurances that we will be able to achieve
such timing, consummate such transactions prospectively, or recognized gains on
such transactions.
Interest Expense. Interest expense was $3.5 million and $6.5 million during the
three months ended September 30, 2005 and September 30, 2006, respectively.
Interest expense was $11.1 million and $13.4 million during the nine months
ended September 30, 2005 and September 30, 2006, respectively. The increase in
interest expense during the three and nine months ended September 30, 2006, as
compared to the comparable periods ended September 30, 2005 was primarily as a
result of higher average debt outstanding and rising interest rates partially
offset by increased capitalized interest on current development activity.
Average debt outstanding in 2006 increased in part as a result of our on-balance
sheet treatment of transfers to the BB&T Purchase Facility (as discussed further
under "Credit Facilities for Bluegreen Resorts Receivables and Inventories") in
2006.
Total interest expense capitalized to construction in progress was $2.4
million and $7.5 million for the three and nine months ended September 30, 2005,
respectively, and $2.4 million and $8.9 million for the three and nine months
ended September 30, 2006, respectively.
Provision for Loan Losses. During the three and nine months ended September 30,
2005 we recorded a provision for loan losses of $8.8 million and $21.0 million,
respectively. This provision was based on our estimate of the expected
performance of our vacation ownership notes receivable, reduced by the value of
the underlying inventory that was anticipated to be recovered upon default.
Effective January 1, 2006, SFAS No. 152 requires that the estimated losses on
originated mortgages exclude the benefit of an estimate for the value of
recoveries and further requires that the provision for loan losses for vacation
ownership receivables be reflected as a reduction of VOI sales. During the three
and nine months ended September 30, 2006, we recorded provisions for loan losses
of $18.1 million and $44.0 million, respectively, as a reduction to VOI sales.
34
The allowance for loan losses by division as of December 31, 2005 and
September 30, 2006 was as follows:
Bluegreen Bluegreen
Resorts Communities Other Total
------- ----------- ----- -----
(dollars in thousands)
December 31, 2005:
Notes receivable ............................. $ 131,058 $ 7,408 $ 186 $ 138,652
Allowance for loan losses .................... (10,466) (217) (186) (10,869)
----------- ----------- ----------- -----------
Notes receivable, net ........................ $ 120,592 $ 7,191 $ -- $ 127,783
=========== =========== =========== ===========
Allowance as a % of gross notes
receivable .................................. 8% 3% 100% 8%
=========== =========== =========== ===========
September 30, 2006:
Notes receivable ............................. $ 156,951 $ 7,050 $ 186 $ 164,187
Allowance for loan losses .................... (13,265) (208) (186) (13,659)
----------- ----------- ----------- -----------
Notes receivable, net ........................ $ 143,686 $ 6,842 $ -- $ 150,528
=========== =========== =========== ===========
Allowance as a % of gross notes
receivable .................................. 8% 3% 100% 8%
=========== =========== =========== ===========
Other Expense, Net. Other expense, net was $1.0 million for the three months
ended September 30, 2005 as compared to $1.9 million for the three months ended
September 30, 2006. Other expense, net was $4.7 million as compared to $1.2
million for the nine months ended September 30, 2005 and 2006, respectively. The
increase in other expense, net, during the three months ended September 30, 2006
compared to the comparable prior year period was primarily a result of a charge
of approximately $630,000 for the loss on disposal of various fixed assets. The
decrease in other expense, net during the nine months ended September 30, 2006,
as compared to the comparable prior year period was primarily a result of the
2005 recognition of a $1.7 million loss on early extinguishment of $55.0 million
of our 10.5% Senior Secured Notes.
Minority Interest in Income of Consolidated Subsidiary. We include the results
of operations and financial position of Bluegreen/Big Cedar Vacations, LLC (the
"Subsidiary"), our 51%-owned subsidiary, in our consolidated financial
statements. (See Note 1 of the Notes to Condensed Consolidated Financial
Statements). The minority interest in income of consolidated subsidiary is the
portion of our consolidated pre-tax income that is earned by Big Cedar, L.L.C.,
the unaffiliated 49% interest holder in the Subsidiary. Minority interest in
income of consolidated subsidiary was $1.6 million and $2.2 million during the
three months ended September 30, 2005 and September 30, 2006, respectively.
Minority interest in income of consolidated subsidiary was $3.3 million $4.9
million during the nine months ended September 30, 2005 and September 30, 2006,
respectively.
Provision for Income Taxes. Our effective income tax rate during 2006 is 38.0%
as compared to 38.5% during 2005. The decline in 2006 reflects a shift in the
mix of our taxable income to states with lower taxes.
Cumulative Effect of Change in Accounting Principle from the Adoption of SFAS
No. 152. The adoption of SFAS No. 152 on January 1, 2006 resulted in a net
charge of $4.5 million, which is presented as a cumulative effect of change in
accounting principle. The cumulative effect of change in accounting principle
primarily consists of the deferral of VOI sales and related costs for sales that
were previously recognized but did not meet the required down payment threshold
at January 1, 2006, due to sales incentives provided to buyers and the treatment
of our Sampler Program, and the related tax benefit, net of the cumulative
effect of change in accounting principle charge, related to the minority
interest in the Subsidiary.
Summary. Based on the factors discussed above, our net income was $18.3 million
and $21.9 million during the three months ended September 30, 2005 and September
30, 2006, respectively. Net income for the nine months ended September 30, 2005
and 2006 was $39.6 million and $28.0 million, respectively.
Changes in Financial Condition
The following table summarizes our cash flows for the nine months ended
September 30, 2005 and September 30, 2006 (in thousands):
Nine Months Ended
September 30, 2005 September 30, 2006
------------------ ------------------
Cash flows provided (used) by operating activities ......... $ 43,766 $ (22,904)
Cash flows (used) provided by investing activities ......... (8,538) 539
Cash flows (used) provided by financing activities ......... (47,165) 1,381
----------- -----------
Net decrease in cash ....................................... $ (11,937) $ (20,984)
=========== ===========
35
Cash Flows From Operating Activities. Cash flows provided by operating
activities decreased $66.7 million or 152% from an inflow of $43.8 million
during the nine months ended September 30, 2005 to an outflow of $22.9 million
during the nine months ended September 30, 2006. The decrease in cash flows
provided by operating activities during the nine months ended September 30, 2006
compared to the same period the prior year was primarily driven by higher
inventory acquisition and development spending and an increase in notes
receivable due to increased VOI sales. Partially offsetting the decrease in cash
flows from operations was higher proceeds from the sale of notes receivable
during the nine months ended September 30, 2006, as compared to the same period
in 2005.
We report cash flows from borrowings collateralized by notes receivable
and sales of notes receivable as operating activities in the consolidated
statements of cash flows. The majority of Bluegreen Resorts' sales result in the
origination of notes receivable from its customers. We believe that accelerating
the conversion of such notes receivable into cash, either through the pledge or
sale of our notes receivable, on a regular basis is an integral function of our
operations, and have therefore classified such activities as operating
activities.
Cash Flows From Investing Activities. Cash flows provided by investing
activities increased $9.1 million or 106% from an outflow of $8.5 million during
the nine months ended September 30, 2005 to an inflow of $0.5 million during the
nine months ended September 30, 2006, respectively. This increase was due
primarily to higher amounts of cash received from our retained interests in
notes receivable sold partially off-set by higher cash expenditures for property
and equipment during the nine months ended September 30, 2005 as compared to the
nine months ended September 30, 2006. In addition, during the nine months ended
September 30, 2006, we capitalized investments of $0.9 million as compared to
$1.8 million during the nine months ended September 30, 2005, into statutory
business trusts for the purpose of issuing trust preferred securities and
investing the proceeds thereof in our junior subordinated debentures (see
"Liquidity and Capital Resources").
Cash Flows From Financing Activities. Cash flows provided by financing
activities increased $48.5 million or 103% from a cash outflow of $47.2 million
during the nine months ended September 30, 2005 to a cash inflow of $1.4 million
during the nine months ended September 30, 2006. This increase was due primarily
to the redemption of $55.0 million of our 10.5% Senior Secured Notes as well
higher net repayments on our credit facilities during the nine months ended
September 30, 2005 as compared to the nine months ended September 30, 2006. The
higher debt payments in 2005 were partially offset by the receipt of $59.3
million of proceeds in connection with our issuance of the junior subordinated
debentures in the nine months ended September 30, 2005, as compared to the
receipt of only $30.9 million of such proceeds during the nine months ended
September 30, 2006.
Liquidity and Capital Resources
Our capital resources are provided from both internal and external
sources. Our primary capital resources from internal operations are: (i) cash
sales, (ii) down payments on homesite and VOI sales which are financed, (iii)
proceeds from the sale of, or borrowings collateralized by, notes receivable,
including cash received from our retained interests in notes receivable sold,
(iv) principal and interest payments on the purchase money mortgage loans and
contracts for deed owned arising from sales of VOIs and homesites and (v) net
cash generated from other resort services and other communities operations.
Historically, external sources of liquidity have included non-recourse sales of
notes receivable, borrowings under secured and unsecured lines-of-credit, seller
and bank financing of inventory acquisitions and the issuance of debt
securities. Our capital resources are used to support our operations, including
(i) acquiring and developing inventory, (ii) providing financing for customer
purchases, (iii) funding operating expenses and (iv) satisfying our debt and
other obligations. As we are continually selling and marketing real estate (VOIs
and homesites), it is necessary for us to continually acquire and develop new
resorts and communities in order to maintain adequate levels of inventory to
support operations. We anticipate that we will continue to require external
sources of liquidity to support our operations, satisfy our debt and other
obligations and to provide funds for growth.
Our level of debt and debt service requirements have several important
effects on our operations, including the following: (i) we have significant cash
requirements to service debt, reducing funds available for operations and future
business opportunities and increasing our vulnerability to adverse economic and
industry conditions; (ii) our leveraged position increases our vulnerability to
economic and competitive pressures; (iii) the financial covenants and other
restrictions contained in the indentures, the credit agreements and other
agreements relating to our indebtedness require us to meet certain financial
tests and restrict our ability to, among other things, borrow additional funds,
dispose of assets, make investments or pay cash dividends on, or repurchase,
preferred or common stock; and (iv) funds available for working capital, capital
expenditures, acquisitions and general corporate purposes may be limited.
Certain of our competitors operate on a less leveraged basis and have greater
operating and financial flexibility than we do.
36
We currently intend to continue to pursue a growth-oriented strategy,
particularly with respect to our Bluegreen Resorts business segment. In
connection with this strategy, we may from time to time acquire, among other
things, additional resort properties and completed but unsold VOIs; land upon
which additional resorts may be built; management contracts; loan portfolios of
vacation ownership mortgages; portfolios which include properties or assets
which may be integrated into our operations; interests in joint ventures; and
operating companies providing or possessing management, sales, marketing,
development, administration and/or other expertise with respect to our
operations in the vacation ownership industry. In addition, we intend to
continue to focus Bluegreen Communities' activities on larger, more capital
intensive projects particularly in those regions where we believe the market for
our products is strongest, such as new golf communities in the Southeast and
other areas and continued growth in our successful regions in Texas.
The following is a discussion of our purchase and credit facilities that
were important sources of our liquidity as of September 30, 2006. These
facilities do not constitute all of our outstanding indebtedness as of September
30, 2006. Our other indebtedness includes outstanding senior secured notes
payable, junior subordinated debentures, and borrowings collateralized by real
estate inventories that were not incurred pursuant to an ongoing credit facility
and capital leases.
Vacation Ownership Receivables Purchase Facilities - Off-Balance Sheet
Arrangements
Our ability to monetize our notes receivable from VOI buyers is a critical
factor in our continued liquidity. When we sell VOIs, a financed buyer is only
required to pay a minimum down payment of 10% of the purchase price in cash at
the time of sale, however, selling, marketing and administrative expenses are
primarily cash expenses and, in our case for the nine months ended September 30,
2006, approximated 61% of sales. Accordingly, having facilities available for
the hypothecation or sale of these vacation ownership receivables is a critical
factor to our ability to meet our short and long-term cash needs.
The GE Purchase Facility. In March 2006, we executed agreements for a vacation
ownership receivables purchase facility (the "GE Purchase Facility") with
General Electric Real Estate ("GE"). The GE Purchase Facility utilizes an
owner's trust structure, pursuant to which we sell receivables to Bluegreen
Receivables Finance Corporation XI, our wholly-owned, special purpose finance
subsidiary ("BRFC XI"), and BRFC XI sells the receivables to an owner's trust (a
qualified special purpose entity) without recourse to us or BRFC XI except for
breaches of certain customary representations and warranties at the time of
sale. We did not enter into any guarantees in connection with the GE Purchase
Facility. The GE Purchase Facility has detailed requirements with respect to the
eligibility of receivables for purchase, and fundings under the GE Purchase
Facility are subject to certain conditions precedent. Under the GE Purchase
Facility, a variable purchase price of approximately 90% of the principal
balance of the receivables sold, subject to adjustment under certain terms and
conditions, is paid at closing in cash. The balance of the purchase price is
deferred until such time as GE has received a specified return, a specified
overcollateralization ratio is achieved, a cash reserve account is fully funded
and all servicing, custodial, agent and similar fees and expenses have been
paid. GE is entitled to receive a return equal to the applicable Swap Rate
(which is essentially a published interest swap arrangement rate as defined in
the GE Purchase Facility agreements) plus 2.35%, subject to use of alternate
return rates in certain circumstances. In addition, we paid GE a structuring fee
of approximately $437,500 in March 2006. Subject to the terms of the agreements,
we will act as servicer under the GE Purchase Facility for a fee.
The GE Purchase Facility includes various conditions to purchase,
covenants, trigger events and other provisions customary for a transaction of
this type. GE's obligation to purchase under the GE Purchase Facility may
terminate earlier than the dates noted above upon the occurrence of certain
specified events set forth in the GE Purchase Facility agreements. These
specified events, some of which are subject to materiality qualifiers and cure
periods, include, without limitation, (i) the aggregate amount of all advances
under the GE Purchase Facility equaling $125.0 million; (ii) our breach of the
representations or warranties in the GE Purchase Facility; (iii) our failure to
perform our covenants in the GE Purchase Facility; (iv) our commencement of a
bankruptcy or similar proceedings; (v) the amount of any advance under the GE
Purchase Facility failing to meet a specified overcollateralization amount; (vi)
significant delinquencies or defaults on the receivables sold; (vii) recovery
rates falling below a pre-determined amount; (viii) a default or breach under
any other agreement beyond the applicable grace period if such default or breach
(a) involves the failure to make a payment in excess of 5% of our Tangible Net
Worth (as defined in the GE Purchase Facility agreements to include our
subordinated debentures) or (b) causes, or permits the holder of indebtedness to
cause, an amount in excess of 5% of our Tangible Net Worth to become due; (ix)
our Tangible Net Worth at the end of any calendar quarter not equaling at least
$303.3 million plus 50% of net income following December 31, 2005; (x) the ratio
of our debt (excluding our subordinated debentures and receivable-backed debt of
no more than $600 million) to Tangible Net Worth exceeding 2.50 to 1; (xi) the
ratio of our consolidated earnings before interest, taxes, depreciation and
amortization to our interest expense (net of interest income) falling below 2.00
to 1; (xii) the number of points available in the Bluegreen Vacation Club
falling below approximately 930.7 million
37
points; (xiii) our ceasing to conduct the vacation ownership business or to
originate vacation ownership receivables or if certain changes in our ownership
or control occur; (xiv) the failure of certain of our resorts to be part of the
Bluegreen Vacation Club or be managed by us, one of our subsidiaries or another
entity acceptable to GE; (xv) operating budgets and reserve accounts maintained
by the property owners' associations responsible for maintaining certain of our
resorts failing to comply with applicable laws and governing documents; (xvi)
our failure to discharge, stay or bond pending appeal any final judgments for
the payment of an amount in excess of 2.5% of our Tangible Net Worth in a timely
manner; (xvii) our default under or breach of certain resort management or
marketing contracts; or (xviii) our failure to perform our servicing
obligations, otherwise have our servicing rights terminated or if we do not
exercise the Servicer Purchase Option pursuant to the terms of the GE Purchase
Facility.
The GE Purchase Facility allows for sales of notes receivable for a
cumulative purchase price of up to $125.0 million through March 2008. On March
28, 2006, the Company sold $22.3 million in vacation ownership receivables under
the GE Purchase Facility. On May 23, 2006, we sold an additional $16.6 million
in vacation ownership receivables pursuant to the GE Purchase Facility. As of
September 30, 2006, the remaining availability under the GE Purchase Facility
was $89.9 million in cumulative purchase price, subject to eligibility
requirements and fulfillment of conditions precedent.
We have chosen to monetize our receivables through the GE Purchase
Facility and through periodic term securitization transactions historically, as
these off-balance sheet arrangements provide us with cash inflows both currently
and in the future at what we believe to be competitive rates without adding
leverage to our balance sheet or retaining recourse for losses on the
receivables sold. In addition, these sale transactions have generated gains on
our income statement on a quarterly basis, which would not be realized under a
traditional financing arrangement.
The GE Purchase Facility discussed above and the on-balance sheet BB&T
Purchase Facility discussed under "Credit Facilities for Bluegreen Resorts'
Receivables and Inventories" are the only ongoing receivables purchase
facilities under which we currently have the ability to sell or transfer
receivables. Factors which could adversely impact our ability to obtain new or
additional vacation ownership receivable purchase facilities include a downturn
in general economic conditions; negative trends in the commercial paper or LIBOR
markets; increases in interest rates; a decrease in the number of financial
institutions or other entities willing to enter into facilities with vacation
ownership companies; a deterioration in the performance of our vacation
ownership notes receivable or in the performance of portfolios sold in prior
transactions, specifically increased delinquency, default and loss severity
rates; and a deterioration in our performance generally. There can be no
assurance that we will obtain new purchase facilities or will be in a position
to replace our existing purchase facilities when they are fully funded or
expire. As indicated above, our inability to sell vacation ownership receivables
under a current or future facility could have a material adverse impact on our
liquidity. However, management believes that to the extent we could not sell
receivables under a purchase facility, we could potentially mitigate the adverse
impact on our liquidity by using our receivables as collateral under existing or
future credit facilities.
Historically, we have also been a party to a number of securitization-type
transactions, all of which in our opinion utilize customary structures and terms
for transactions of this type. In each securitization-type transaction, we sold
receivables to a wholly-owned special purpose entity which, in turn, sold the
receivables either directly to third parties or to a trust established for the
transaction. In each transaction, the receivables were sold on a non-recourse
basis (except for breaches of certain representations and warranties) and the
special purpose entity has a retained interest in the receivables sold. We have
acted as servicer of the receivables pools in each transaction for a fee, with
the servicing obligations specified under the applicable transaction documents.
Under the terms of the applicable securitization transaction, the cash payments
received from obligors on the receivables sold are distributed to the investors
(which, depending on the transaction, may acquire the receivables directly or
purchase an interest in, or make loans secured by the receivables to, a trust
that owns the receivables), parties providing services in connection with the
facility, and our special purpose subsidiary as the holder of the retained
interests in the receivables according to specified formulas. In general,
available funds are applied monthly to pay fees to service providers, make
interest and principal payments to investors, fund required reserves, if any,
and pay distributions in respect of the retained interests in the receivables.
Pursuant to the terms of the transaction documents, however, to the extent the
portfolio of receivables fails to satisfy specified performance criteria (as may
occur due to an increase in default rates or loan loss severity) or other
trigger events, the funds received from obligors are distributed on an
accelerated basis to investors. In effect, during a period in which the
accelerated payment formula is applicable, funds go to outside investors until
they receive the full amount owed to them and only then are payments made to our
subsidiary in its capacity as the holder of the retained interests. Depending on
the circumstances and the transaction, the application of the accelerated
payment formula may be permanent or temporary until the trigger event is cured.
If the accelerated payment formula were to become applicable, the cash flow on
the retained interests in the receivables would be reduced until the outside
investors were paid or the regular payment formula was resumed. Such a reduction
in cash flow could cause a decline in the fair value of our retained interests
in the receivables sold. Declines in fair value that are determined to
38
be other than temporary are charged to operations in the current period. In each
facility, the failure of the pool of receivables to comply with specified
portfolio covenants can create a trigger event, which results in the use of the
accelerated payment formula (in certain circumstances until the trigger event is
cured and in other circumstances permanently) and, to the extent there was any
remaining commitment to purchase receivables from our special purpose
subsidiary, the suspension or termination of that commitment. In addition, each
securitization facility provides that certain breaches of our obligations as
servicer or other events allow the indenture trustee to cause the servicing to
be transferred to a substitute third party servicer. In that case, our
obligation to service the receivables would terminate and we would cease to
receive a servicing fee.
The following is a summary of significant financial information related to
the GE Purchase Facility and prior off-balance sheet, receivables purchase
facilities during the periods presented (in thousands):
December 31, September 30,
2005 2006
---- ----
On Balance Sheet:
Retained interests in notes receivable sold .......................... $ 105,696 $ 125,460
Off Balance Sheet:
Notes receivable sold without recourse ............................... 429,403 502,056
Principal balance owed to note receivable purchasers ................. 396,679 470,205
Three Months Ended
September 30, September 30,
2005 2006
---- ----
Income Statement:
Gain on sales of notes receivable .................................... $ 6,446 $ 3,497
Interest accretion on retained interests in notes receivable sold .... 2,547 5,372
Servicing fee income ................................................. 1,224 1,588
Nine Months Ended
September 30, September 30,
2005 2006
---- ----
Income Statement:
Gain on sales of notes receivable .................................... $ 16,044 $ 4,049
Interest accretion on retained interests in notes receivable sold .... 6,909 10,516
Servicing fee income ................................................. 3,522 4,910
We recorded gains on the sale of notes receivable of $21.6 million and
$31.3 million during the three and nine months ended September 30, 2006,
respectively. As a result of adopting SFAS No. 152, approximately $18.1 million
and $27.3 million of the gain were recorded as an increase to VOI sales for the
three and nine months ended September 30, 2006, respectively. The remaining gain
of $3.5 million and $4.0 million have been recorded as a gain on the sales of
notes receivable on the accompanying statements of income for the three and nine
months ended September 30, 2006, respectively.
Credit Facilities for Bluegreen's Receivables and Inventories
In addition to the vacation ownership receivables purchase facilities
discussed above, we maintain various credit facilities with financial
institutions that provide receivable, acquisition and development financing for
our operations. We had the following credit facilities, as of September 30, 2006
(see further discussion below):
39
Borrowings
Outstanding During the
Borrowings Nine Months Advance Period
as of Ended Expiration; Rate as of
September September Borrowing Borrowing Borrowing September
Credit Facility 30, 2006 30, 2006 Maturity Limit Rate 30, 2006
------------------------------------------------------------------------------------------------------------------------------------
The GMAC $18.6 million -- February 15, 2008; $75.0 million 30-day LIBOR 9.33%
Receivables February 15, 2015 + 4.00%
Facility
The GMAC $40.7 million $36.4 million February 15, 2008; $150.0 million 30-day LIBOR 9.83%
AD&C Facility August 15, 2013 + 4.50%
The RFL A&D -- -- January 10, 2007; $50.0 million 30-day LIBOR 9.23%
Facility January 10, 2008 + 3.90%
(Min. 6.90%)
The BB&T -- $68.4 million May 25, 2008; $137.5 million LIBOR + 1.25% 6.58%
Purchase March 5, 2019
Facility
The Foothill $2.2 million -- December 31, 2006; $30.0 million Prime + 0.25% 8.50%
Facility December 31, 2008 (Min. 4.00%); to to
Prime + 1.25% 9.50%
The GMAC $46.8 million $70.2 million September 30, 2008; $75.0 million Prime + 1.00% 9.25%
Communities September 30, 2009
Facility
Credit Facilities for Bluegreen Resorts' Receivables and Inventories
The GMAC Receivables Facility. In February 2003, we entered into a revolving
vacation ownership receivables credit facility (the "GMAC Receivables Facility")
with Residential Funding Corporation ("RFC"), an affiliate of GMAC. The GMAC
Receivables Facility has detailed requirements with respect to the eligibility
of receivables for inclusion and other conditions to funding. The borrowing base
under the GMAC Receivables Facility is 90% of the outstanding principal balance
of eligible notes arising from the sale of VOIs. The GMAC Receivables Facility
includes affirmative, negative and financial covenants and events of default.
All principal and interest payments received on pledged receivables are applied
to principal and interest due under the GMAC Receivables Facility. Interest
payments are due monthly. During the nine months ended September 30, 2006, we
did not pledge any vacation ownership receivables under the GMAC Receivables
Facility. As of September 30, 2006, $18.6 million was outstanding under the GMAC
Receivables Facility.
The GMAC AD&C Facility. In September 2003, RFC also provided us with an
acquisition, development and construction revolving credit facility for
Bluegreen Resorts (the "GMAC AD&C Facility"). The borrowing period on the GMAC
AD&C Facility, as amended, expires on February 15, 2008, and outstanding
borrowings mature no later than August 15, 2013, although specific draws
typically are due four years from the borrowing date. Principal will be repaid
through agreed-upon release prices as VOIs are sold at the financed resorts,
subject to minimum required amortization.. Interest payments are due monthly.
During the nine months ended September 30, 2006, we borrowed $36.4 million under
the GMAC AD&C Facility to fund the development of VOIs at The Fountains and the
Carolina Grande resorts and to finance the acquisition of property in Las Vegas,
Nevada and Williamsburg, Virginia. As of September 30, 2006, $40.7 million was
outstanding under the GMAC AD&C Facility. In October 2006, the Company borrowed
$8.5 million under this facility to finance the purchase of the second phase of
a resort property in Williamsburg, Virginia.
The RFL A&D Facility. In January 2005, we entered into a revolving credit
facility with Resort Finance, LLC ("RFL") (the "RFL A&D Facility"). We can use
the proceeds from the RFL A&D Facility to finance the acquisition
40
and development of vacation ownership resorts. The RFL A&D Facility is secured
by the following: 1) a first mortgage and lien on all assets purchased with the
RFL A&D Facility; 2) a first assignment of all construction contracts, related
documents, building permits and completion bond; 3) a negative pledge of our
interest in any management, marketing, maintenance or service contracts; and 4)
a first assignment of all operating agreements, rents and other revenues at the
vacation ownership resorts which serve as collateral for the RFL A&D Facility,
subject to any requirements of the respective property owners' associations.
Borrowings under the RFL A&D Facility can be made through January 10, 2007.
Principal payments will be effected through agreed-upon release prices paid to
RFL as vacation ownership interests in the resorts that serve as collateral for
the RFL A&D Facility are sold. The outstanding principal balance of any
borrowings under the RFL A&D Facility must be repaid by January 10, 2008.
Interest payments are due monthly. We are required to pay a commitment fee equal
to 1.00% of the $50.0 million facility amount, which is paid at the time of each
borrowing under the RFL A&D Facility as 1.00% of each borrowing with the balance
being paid on the unutilized facility amount on January 10, 2007. In addition,
we are required to pay a program fee equal to 0.125% of the $50.0 million
facility amount per annum, payable monthly. The RFL A&D Facility documents
include customary conditions to funding, acceleration provisions and certain
financial affirmative and negative covenants. There were no outstanding amounts
due under this facility as of September 30, 2006.
The BB&T Purchase Facility. In June 2006, we executed agreements for a vacation
ownership receivables purchase facility (the "BB&T Purchase Facility") with
BB&T. While ownership of the receivables is transferred for legal purposes, the
transfer of the receivables under the facility are accounted for as a financing
transaction for financial accounting purposes. Accordingly, the receivables will
continue to be reflected as assets and the associated obligations will be
reflected as liabilities on our balance sheet. The BB&T Purchase Facility
utilizes an owner's trust structure, pursuant to which we transfer receivables
to Bluegreen Timeshare Finance Corporation I, our wholly-owned, special purpose
finance subsidiary ("BTFC I"), and BTFC I subsequently transfers the receivables
to an owner's trust without recourse to us or BTFC I, except for breaches of
certain customary representations and warranties at the time of transfer. We did
not enter into any guarantees in connection with the BB&T Purchase Facility. The
BB&T Purchase Facility has detailed requirements with respect to the eligibility
of receivables, and fundings under the BB&T Purchase Facility are subject to
certain conditions precedent. Under the BB&T Purchase Facility, a variable
purchase price of approximately 85% of the principal balance of the receivables
transferred, subject to certain terms and conditions, is paid at closing in
cash. The balance of the purchase price is deferred until such time as BB&T and
other liquidity providers arranged by BB&T have in aggregate received a
specified return (the "Specified Return") and all servicing, custodial, agent
and similar fees and expenses have been paid. The Specified Return is equal to
either the commercial paper rate or LIBOR rate plus 1.25%, subject to use of
alternate return rates in certain circumstances. In addition, we will pay BB&T
structuring and other fees totaling $1.7 million over the term of the facility
and we will act as servicer under the BB&T Purchase Facility for a fee. The BB&T
Purchase Facility allows for transfers of notes receivable for a cumulative
purchase price of up to $137.5 million, on a revolving basis, through May 2008.
During the nine months ended September 30, 2006, we borrowed $68.4 million under
the BB&T Purchase Facility. All amounts borrowed under this facility had been
repaid as of September 30, 2006, through principal and interest payments
received on transferred receivables and the 2006 Term Securitization described
below. As such, there were no outstanding amounts due under this facility as of
September 30, 2006 and the remaining availability under the BB&T Purchase
Facility was $137.5 million.
On September 21, 2006, BB&T Capital Markets, a division of Scott &
Stringfellow, Inc., served as initial purchaser and placement agent for a
private offering and sale of $139.2 million of Bluegreen Corporation vacation
ownership receivable-backed securities (the "2006 Term Securitization").
Approximately $153.0 million in aggregate principal of vacation ownership
receivables were securitized in this transaction, including 1) $75.7 million in
aggregate principal of receivables that were previously transferred under the
BB&T Purchase Facility; 2) $38.0 million of vacation ownership receivables owned
by us immediately prior to the 2006 Term Securitization and 3) an additional
$39.3 million in aggregate principal of our qualifying vacation ownership
receivables (the "Pre-funded Receivables") that can be sold by us through
December 22, 2006. Excluding the Pre-funded Receivables, the remaining $113.7
million of receivables and the related $66.7 million of receivable-backed debt
under the BB&T Purchase Facility, were accounted for on our balance sheet as
assets and liabilities, respectively, immediately prior to the consummation of
the 2006 Term Securitization. We also recognized an aggregate gain of $20.6
million, of which $18.1 million was classified as an increase to VOI sales in
accordance with the adoption of SFAS No. 152, and recorded a retained interest
in the future cash flows of the notes receivable securitized of $17.1 million in
connection with the 2006 Term Securitization. On October 23, 2006 we sold $27.7
million in Pre-funded Receivables to BRFC XII and the $25.2 million purchase
price was disbursed to us from the escrow account. With this sale we have $10.5
million in proceeds remaining in the escrow account related to the Pre-funded
Receivables. The proceeds will be used by us for general operating purposes.
41
The Foothill Facility. Under an existing $30.0 million revolving credit facility
with Wells Fargo Foothill, Inc. ("Foothill") primarily used for borrowings
collateralized by Bluegreen Communities receivables and inventory, we can also
borrow up to $10.0 million of the facility collateralized by the pledge of
vacation ownership receivables. For further details on this facility, see
"Credit Facilities for Bluegreen Communities' Receivables and Inventories"
below.
Credit Facilities for Bluegreen Communities' Receivables and Inventories
The Foothill Facility. We have a $30.0 million revolving credit facility with
Foothill secured by the pledge of Bluegreen Communities' receivables, with up to
$10.0 million of the total facility available for Bluegreen Communities'
inventory borrowings and, as indicated above, up to $10.0 million of the total
facility available for the pledge of Bluegreen Resorts' receivables (the
"Foothill Facility"). The Foothill Facility requires principal payments based on
agreed-upon release prices as homesites in the encumbered communities are sold
and bears interest at the prime lending rate plus 1.25% (9.5% at September 30,
2006). Interest payments are due monthly. The interest rate charged on
outstanding receivable borrowings under the Foothill Facility, as amended, is
the prime lending rate plus 0.25% (8.5% at September 30, 2006) when the average
monthly outstanding loan balance is greater than or equal to $15.0 million. If
the average monthly outstanding loan balance is less than $15.0 million, the
interest rate is the greater of 4.00% or the prime lending rate plus 0.50%
(8.75% at September 30, 2006). All principal and interest payments received on
pledged receivables are applied to principal and interest due under the Foothill
Facility. At September 30, 2006, the outstanding principal balance under the
facility was $2.2 million, approximately $1.6 million of which relates to
Bluegreen Communities' receivables borrowings and approximately $0.6 million of
which relate to Bluegreen Resorts' receivables borrowings under the Foothill
Facility.
The GMAC Communities Facility. We have a revolving credit facility with RFC (the
"GMAC Communities Facility") for the purpose of financing our Bluegreen
Communities real estate acquisitions and development activities. The GMAC
Communities Facility is secured by the real property homesites (and personal
property related thereto) at the following Bluegreen Communities projects, as
well as any Bluegreen Communities projects acquired by us with funds borrowed
under the GMAC Communities Facility (the "Secured Projects"): Brickshire (New
Kent County, Virginia); Mountain Lakes Ranch (Bluffdale, Texas); Ridge Lake
Shores (Magnolia, Texas); Riverwood Forest (Fulshear, Texas); Waterstone
(Boerne, Texas); Catawba Falls Preserve (Black Mountain, North Carolina); Lake
Ridge at Joe Pool Lake (Cedar Hill and Grand Prairie, Texas); Mystic Shores at
Canyon Lake (Spring Branch, Texas); Yellowstone Creek Ranch (Walsenburg,
Colorado); Havenwood at Hunters' Crossing (New Braunfels, Texas); The Bridges of
Preston Crossings (Grayson County, Texas); King Oaks (College Station, Texas)
and Vintage Oaks at the Vineyards (New Braunfels, Texas). In addition, the GMAC
Communities Facility is secured by our Carolina National and The Preserve at
Jordan Lake golf courses in Southport, North Carolina and Chapel Hill, North
Carolina, respectively.. Principal payments are effected through agreed-upon
release prices paid to RFC, as homesites in the Secured Projects are sold.
Interest payments are due monthly. The GMAC Communities Facility includes
customary conditions to funding, acceleration and event of default provisions
and certain financial affirmative and negative covenants. We use the proceeds
from the GMAC Communities Facility to repay outstanding indebtedness on
Bluegreen Communities projects, finance the acquisition and development of
Bluegreen Communities projects and for general corporate purposes. In March
2006, we borrowed $18.2 million under the GMAC Communities Facility for the
acquisition of The Bridges of Preston Crossings and an additional $9.0 million
for general corporate purposes. In April of 2006, we borrowed $19.0 million for
the purchase of Vintage Oaks at the Vineyards, and $9.0 million for general
corporate purposes. In June 2006, we borrowed $15.0 million for general
corporate purposes. The total borrowings under this facility during the nine
months ended September 30, 2006 was $70.2 million. As of September 30, 2006,
$46.8 million was outstanding under the GMAC Communities Facility. In October
2006, we borrowed $2.2 million in conjunction with the King Oaks acquisition.
Over the past several years, substantially all of our homesite sales have
been for cash and we have not provided a significant amount of financing to
homesite purchasers. Accordingly, in recent years we have reduced the borrowing
capacity under credit agreements secured by Bluegreen Communities' receivables.
We attribute the significant volume of cash sales to an increased willingness on
the part of banks to extend direct customer homesite financing at attractive
interest rates. No assurances can be given that local banks will continue to
provide such customer financing.
Historically, we have funded development for road and utility
construction, amenities, surveys and engineering fees from internal operations
and have financed the acquisition of Bluegreen Communities 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 homesite releases. The release price is usually an amount based on a
pre-determined percentage (typically 25% to 55%) of the gross selling price of
the homesites in the subdivision. In addition, the agreements generally call for
minimum cumulative annual amortization. When we provide financing for our
customers (and therefore the release price is not available in cash at closing
to repay the lender), we are required
42
to pay the lender with cash derived from other operating activities, principally
from cash sales or the pledge of receivables originated from earlier property
sales.
Trust Preferred Securities
We have formed statutory business trusts (collectively, the "Trusts") and
each issued trust preferred securities and invested the proceeds thereof in our
junior subordinated debentures. The Trusts are variable interest entities in
which we are not the primary beneficiary as defined by FASB Interpretation No.
46R. Accordingly, we do not consolidate the operations of the Trusts; instead,
the Trusts are accounted for under the equity method of accounting. In each of
these transactions, the applicable Trust issued trust preferred securities as
part of a larger pooled trust securities offering which was not registered under
the Securities Act of 1933. The applicable Trust then used the proceeds from
issuing the trust preferred securities to purchase an identical amount of junior
subordinated debentures from us. Interest on the junior subordinated debentures
and distributions on the trust preferred securities are payable quarterly in
arrears at the same interest rate. Distributions on the trust preferred
securities are cumulative and based upon the liquidation value of the trust
preferred security. The trust preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated
debentures are redeemable in whole or in part at the Company's option at any
time after five years from the issue date or sooner following certain specified
events. In addition, we made an initial equity contribution to each Trust in
exchange for its common securities, all of which are owned by us, and those
proceeds were also used to purchase an identical amount of junior subordinated
debentures from us. The terms of each Trust's common securities are nearly
identical to the trust preferred securities.
On April 24, 2006, one of the Trusts, Bluegreen Statutory Trust IV ("BST
IV") issued $15.0 million of trust preferred securities. BST IV used the
proceeds from issuing the trust preferred securities to purchase an identical
amount of junior subordinated debentures from us. Interest on the junior
subordinated debentures and distributions on the trust preferred securities will
be payable quarterly in arrears at a fixed rate of 10.13% through June 30, 2011,
and thereafter at a variable rate of interest, per annum, reset quarterly, equal
to the 3-month LIBOR plus 4.85% until the scheduled maturity date of June 30,
2036. Distributions on the trust preferred securities will be cumulative and
based upon the liquidation value of the trust preferred security. The trust
preferred securities will be subject to mandatory redemption, in whole or in
part, upon repayment of the junior subordinated debentures at maturity or their
earlier redemption. The junior subordinated debentures are redeemable five years
from the issue date or sooner following certain specified events. In addition,
we contributed $464,000 to BST IV in exchange for its common securities, all of
which are owned by us. Those proceeds were also used by BST IV to purchase an
identical amount of junior subordinated debentures from us. The terms of BST
IV's common securities are nearly identical to the trust preferred securities.
On July 21, 2006 another of our wholly-owned statutory business trusts,
BST V, issued $15.0 million of trust preferred securities. BST V used the
proceeds from issuing the trust preferred securities to purchase an identical
amount of junior subordinated debentures from us. Interest on the junior
subordinated debentures and distributions on the trust preferred securities will
be payable quarterly in arrears at a fixed rate of 10.28% through September,
2011 and thereafter at a floating rate of 4.85% over the 3-month LIBOR until the
scheduled maturity date of September 30, 2036. Distributions on the trust
preferred securities will be cumulative and based upon the liquidation value of
the trust preferred security. The trust preferred securities will be subject to
mandatory redemption, in whole or in part, upon repayment of the junior
subordinated debentures at maturity or their earlier redemption. The junior
subordinated debentures are redeemable five years from the issue date or sooner
following certain specified events. In addition, we contributed $464,000 to BST
V in exchange for its common securities, all of which are owned by us, and those
proceeds were also used to purchase an identical amount of junior subordinated
debentures from us. The terms of BST V's common securities are nearly identical
to the trust preferred securities.
43
We had the following junior subordinated debentures outstanding at
September 30, 2006 (dollars in thousands):
Outstanding
Amount of Initial Fixed Variable Beginning
Junior Equity Interest Interest Optional
Subordinated To Issue Rate Rate Redemption Maturity
Trust Debentures Trust Date (1) (2) Date Date
------------------------------------------------------------------------------------------------------------------------------------
Bluegreen Statutory 3-month
Trust I LIBOR
$23,196 $ 696 3/15/05 9.160% + 4.90% 3/30/10 3/30/35
Bluegreen Statutory 3-month
Trust II LIBOR
25,774 774 5/04/05 9.158% + 4.85% 7/30/10 7/30/35
Bluegreen Statutory 3-month
Trust III LIBOR
10,310 310 5/10/05 9.193% + 4.85% 7/30/10 7/30/35
Bluegreen Statutory 3-month
Trust IV LIBOR
15,464 464 4/24/06 10.130% + 4.85% 6/30/11 6/30/36
Bluegreen Statutory 3-month
Trust V LIBOR
15,464 464 7/21/06 10.280% + 4.85% 9/30/11 9/30/36
----------------------
$90,208 $2,708
======================
(1) Both the trust preferred securities and junior subordinated debentures
bear interest at a fixed interest rate from the issue date through the
beginning optional redemption date.
(2) Both the trust preferred securities and junior subordinated debentures
bear interest at a variable interest rate from the beginning optional
redemption date through the maturity date.
Unsecured Credit Facility
On July 26, 2006, we executed agreements to renew our $15.0 million
unsecured line-of-credit with Wachovia Bank, N.A. Amounts borrowed under the
line bear interest at 30-day LIBOR plus 2.00% (7.33% at September 30, 2006).
Interest is due monthly and all outstanding amounts are due on June 30, 2007. We
can only borrow an amount under the line-of-credit which is less than the
remaining availability under our current, active vacation ownership receivables
purchase facilities plus availability under certain receivables warehouse
facilities, less any outstanding letters of credit. The line-of-credit agreement
contains certain covenants and conditions typical of arrangements of this type.
As of September 30, 2006, no borrowings were outstanding under the line.
However, an aggregate of $530,000 of irrevocable letters of credit were provided
under this line-of-credit which were required in connection with the obtaining
of plats for one of our Bluegreen Communities projects. These letters of credit
expire on December 31, 2006. This line-of-credit is an available source of
short-term liquidity for us. In September 2006, we borrowed and repaid $6.5
million under this line-of-credit.
Commitments
Our material commitments as of September 30, 2006 include the required
payments due on our receivable-backed debt, lines-of-credit and other notes and
debentures payable, commitments to complete our vacation ownership and
communities projects based on our sales contracts with customers and commitments
under noncancelable operating leases.
The following tables summarize the contractual minimum principal payments
and interest obligations required on all of our outstanding debt (including our
receivable-backed debt, lines-of-credit and other notes and debentures payable)
and our noncancelable operating leases as of September 30, 2006, by period due
(in thousands):
44
Payments Due by Period
------------------------------------------------------------------
Less than 1 -- 3 4 -- 5 After 5
Contractual Obligations 1 year Years Years Years Total
---------------------------------- ------ ----- ----- ----- -----
Receivable-backed notes payable $ 489 $ 4,598 $ -- $ 18,564 $ 23,651
Lines-of-credit and notes payable 17,760 89,830 489 3,402 111,481
10.50% senior secured notes payable -- 55,000 -- -- 55,000
Junior subordinated debentures -- -- -- 90,208 90,208
Noncancelable operating leases 15,457 9,610 95 3,398 28,560
---------- ---------- ---------- ---------- ----------
Total contractual obligations $ 33,706 $ 159,038 $ 584 $ 115,572 $ 308,900
========== ========== ========== ========== ==========
Payments Due by Period
-------------------------------------------------------------------
Less than 1 -- 3 4 -- 5 After 5
Interest Obligations (1) 1 year Years Years Years Total
----------------------------------- ------ ----- ----- ----- -----
Receivable-backed notes payable $ 2,271 $ 4,201 $ 3,623 $ 3,473 $ 13,568
Lines-of-credit and notes payable 10, 225 17,040 458 4,025 31,748
10.50% senior secured notes payable 5,654 5,714 -- -- 11,368
Junior subordinated debentures 8,589 17,179 17,179 215,243 258,190
---------- ---------- ---------- ---------- ----------
Total contractual obligations $ 26,739 $ 44,134 $ 21,260 $ 222,741 $ 314,874
========== ========== ========== ========== ==========
(1) For interest on variable rate debt, we have assumed that the
interest rate remains the same as the rate at September 30, 2006.
We intend to use cash flow from operations, including cash received from
the sale of vacation ownership notes receivable, and cash received from new
borrowings under existing or future debt facilities in order to satisfy the
principal payments in the contractual obligations. While we believe that we will
be able to meet all required debt payments when due, there can be no assurance
that this will be the case.
As noted above, we have $530,000 in letters-of-credit outstanding at
September 30, 2006, all of which were issued under the unsecured line-of-credit
with Wachovia Bank, N.A. These letters-of-credit, which expire December 31,
2006, were required in connection with obtaining governmental approval of plats
for one of our Bluegreen Communities projects.
We estimate that the total cash required to complete resort buildings in
which sales have occurred and resort amenities and other common costs in
projects in which sales have occurred to be approximately $23.6 million as of
September 30, 2006. We estimate that the total cash required to complete our
Bluegreen Communities projects in which sales have occurred to be approximately
$81.1 million as of September 30, 2006. These amounts assume that we are not
obligated to develop any building, project or amenity in which a commitment has
not been made through a sales contract to a customer; however, we anticipate
that we will incur such obligations in the future. We plan to fund these
expenditures over the next five years primarily with available capacity on
existing or proposed credit facilities and cash generated from operations. There
can be no assurance that we will be able to obtain the financing or generate the
cash from operations necessary to complete the foregoing plans or that actual
costs will not exceed those estimated.
We believe that our existing cash, anticipated cash generated from
operations, anticipated new permitted borrowings under existing or proposed
credit facilities and anticipated future sales of notes receivable under the
purchase facility, and one or more replacement facilities we will seek to put in
place will be sufficient to meet our anticipated working capital, capital
expenditures and debt service requirements for the foreseeable future. We will
be required to renew or replace credit and receivables purchase facilities that
have expired or that will expire in the near term. We will, in the future, also
require additional credit facilities or will be required to issue corporate debt
or equity securities in connection with acquisitions or otherwise. Any debt
incurred or issued by us 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 the credit facilities
or receivables purchase facilities which have expired or which are scheduled to,
however, expire in the near term will be renewed or replaced or 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 our cash needs, including, our debt service obligations. To
the extent we are not able to sell notes receivable or borrow under such
facilities, our ability to satisfy our obligations would be materially adversely
affected.
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Our credit facilities, indentures, and other outstanding debt instruments,
and receivables purchase facilities which include customary conditions to
funding, eligibility requirements for collateral, cross-default and other
acceleration provisions, certain financial and other affirmative and negative
covenants, including, among others, limits on the incurrence of indebtedness,
limits on the repurchase of securities, payment of dividends, investments in
joint ventures and other restricted payments, the incurrence of liens,
transactions with affiliates, covenants concerning net worth, fixed charge
coverage requirements, debt-to-equity ratios, portfolio performance requirements
and events of default or termination. No assurance can be given that we will not
be required to seek waivers of such covenants or that such covenants will not
limit our ability to raise funds, sell receivables, satisfy or refinance our
obligations or otherwise adversely affect our operations. In addition, our
future operating performance and ability to meet our financial obligations will
be subject to future economic conditions and to financial, business and other
factors, many of which will be beyond our control.
Item 4. Controls and Procedures.
a) As of the end of the period covered by this report, we carried out
an evaluation under the supervision and with the participation of
our principal executive officer and principal financial officer of
the effectiveness of our disclosure controls and procedures, as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of
September 30, 2006. Based on such evaluation, such officers have
concluded that our disclosure controls and procedures are effective
in timely alerting them to material information relating to us that
is required to be included in our periodic SEC filings.
b) There has been no change in our internal control over financial
reporting during the quarter ended September 30, 2006 that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In April 2006, in Lesley, et al v. Bluegreen Southwest One, L.P. acting
through its General Partner Bluegreen Southwest Land, Inc., et al, Cause No.
28006 District Court of the 266th Judicial District, Erath County, Texas,
plaintiffs filed a First Amended Original Petition (April 2006). Pursuant to
this First Amended Original Petition Plaintiffs seek to develop mineral
interests in the Mountain Lakes subdivision and to recover damages from
Southwest, alleging breach of contract, breach of fiduciary duty, tortious
interference with existing and prospective relationships and intentional
invasion or interference with property rights by Southwest, for allegedly
interfering with the development of mineral rights held by plaintiffs.
Plaintiffs' claims against Southwest total in the aggregate $25 million. The
property owners association has filed a cross complaint against us, Southwest
and individual directors of the property owners association asserting various
tort claims. While no assurances can be given with respect to the outcome of the
litigation, based on information currently available, we believe that the claims
lack merit and intend to vigorously defend ourselves in this matter.
As previously disclosed on July 27, 2006, The Board of Directors declared
a dividend distribution of one Preferred Share Purchase Right (the "Rights") on
each outstanding share of our common stock. See our Current Report on Form 8-K
and registration statement on Form 8-A, both of which were filed on August 2,
2006, for further discussion of the Rights. On October 16, 2006, in connection
with litigation before the United States District Court for the Southern
District of Florida between Bluegreen Corporation, as plaintiff, and as
defendants the Siegel Shareholders, and our directors, as counter-defendants,
the above parties entered into a Stipulation resolving the litigation and
releasing all related claims. See our Current Report on Form 8-K and amended
registration statement on Form 8-A, both of which were filed on October 18,
2006, for further discussion.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We did not purchase any of our equity securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934. Our Board of Directors has
adopted and publicly announced a share repurchase program. Repurchases under
such programs from time to time are subject to the price of our stock,
prevailing market conditions, our financial condition and available resources,
other investment alternatives and other factors. We are not required to seek
shareholder approval of share repurchase programs, have not done so in the past,
and do not anticipate doing so in the future, except to the extent we may be
required to do so under applicable law. We have not repurchased any shares
46
since the fiscal year ended April 1, 2001. As of September 30, 2006, there were
694,500 shares remaining for purchase under our current repurchase program.
Item 5. Other Information.
On July 27, 2006, The Board of Directors declared a dividend distribution
of one Preferred Share Purchase Right (the "Rights") on each outstanding share
of our common stock. See our Current Report on Form 8-K and registration
statement on Form 8-A, both of which were filed on August 2, 2006, for further
discussion of the Rights.
Item 6. Exhibits.
Exhibits:
4.3 Stipulation and Order from the United States District Court,
Southern District of Florida, Case No. 06-80718-CIV-Hurley/Seltzer
between Bluegreen Corporation and David A. Siegel, David A. Siegel
Revocable Trust, and Central Florida Investments (incorporated by
reference to exhibit 99.1 to Current Report on Form 8-K dated
October 18, 2006).
4.4 Amendment to Rights Agreement between Bluegreen Corporation and
Mellon Investor Services LLC, dated October 16, 2006 (incorporated
by reference to exhibit 99.2 to Current Report on Form 8-K dated
October 18, 2006).
10.185 BXG Receivables Note Trust 2006-B, Standard Definitions, dated as
of September 15, 2006.
10.186 Indenture between BXG Receivables Note Trust 2006-B as Issuer,
Bluegreen Corporation as Servicer, Vacation Trust, Inc. as Club
Trustee, Concord Servicing Corporation as Backup Servicer and U.S.
Bank National Association, as Indenture Trustee, Paying Agent and
Custodian dated September 15, 2006.
10.187 Sale Agreement by and among Bluegreen Receivables Finance
Corporation XII, as the Depositor and BXG Receivables Note Trust
2006-B as the Issuer dated September 15, 2006.
10.188 Transfer Agreement by and among Bluegreen Corporation, BXG
Timeshare Trust I as the Seller, and Bluegreen Receivables Finance
Corporation XII as the Depositor, dated September 15, 2006.
10.189 Purchase and Contribution Agreement by and among Bluegreen
Corporation and Bluegreen Receivables Finance Corporation XII,
dated September 15, 2006.
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: November 9, 2006 By: /S/ GEORGE F. DONOVAN
-------------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: November 9, 2006 By: /S/ ANTHONY M. PULEO
-------------------------------------
Anthony M. Puleo
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: November 9, 2006 By: /S/ RAYMOND S. LOPEZ
-------------------------------------
Raymond S. Lopez
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
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