-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D6F58ZsMk9N+1n3FZ2EeAwpW9U/a7b0sJUca9vwsV4dI5/gK0w/uRE/zzLnvDKDw sFqB5y9QDPCqE0B1furmSw== 0000778946-97-000003.txt : 19970626 0000778946-97-000003.hdr.sgml : 19970626 ACCESSION NUMBER: 0000778946-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970330 FILED AS OF DATE: 19970625 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUEGREEN CORP CENTRAL INDEX KEY: 0000778946 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 030300793 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09292 FILM NUMBER: 97629201 BUSINESS ADDRESS: STREET 1: 5295 TOWN CENTER RD SUITE 400 CITY: BOCA RATON STATE: FL ZIP: 33486 BUSINESS PHONE: 4073916336 FORMER COMPANY: FORMER CONFORMED NAME: PATTEN CORP DATE OF NAME CHANGE: 19920703 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended March 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number 0-19292 BLUEGREEN CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 03-0300793 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5295 Town Center Road, Boca Raton, Florida 33486 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (561) 361-2700 Securities Registered Pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.01 par value New York Stock Exchange, Pacific Stock Exchange 8.25% Convertible Subordinated Debentures ....due 2012 New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained in the definitive proxy statement incorporated by reference into Part III of this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant: $60,962,843 based upon the closing sale price of the Company's Common Stock on the New York Stock Exchange on June 13, 1997 ($3.625 per share). The market value of voting stock held by non-affiliates excludes any shares issuable upon conversion of any 8.25% Convertible Subordinated Debentures which are convertible at a current conversion price of $8.24 per share. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 20,601,871 shares of Common Stock, $.01 par value, outstanding as of June 13, 1997. DOCUMENTS INCORPORATED BY REFERENCE Specifically identified portions of the Company's 1997 Annual Report to Shareholders (the "Annual Report") are incorporated by reference into Part II and IV hereof and specifically identified portions of the Company's definitive proxy statement to be filed for its Annual Meeting of Shareholders to be held on July 30, 1997 (the "Proxy Statement") are incorporated by reference into Part III hereof.
BLUEGREEN CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K PART I PAGE Item 1. BUSINESS Summary.................................................. 1 Acquisition of Inventory ................................ 3 Marketing and Sale of Inventory.......................... 6 Customer Financing....................................... 10 Loan Underwriting........................................ 11 Collection Policies...................................... 12 Sales of Receivables/Pledging of Receivables............. 13 Receivables Servicing.................................... 14 Customer Service......................................... 14 Regulation............................................... 14 Competition.............................................. 15 Personnel................................................ 15 Executive Officers of the Company........................ 15 Item 2. PROPERTIES......................................................... 16 Item 3. LEGAL PROCEEDINGS.................................................. 16 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 17 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ...................................... 17 Item 6. SELECTED FINANCIAL DATA........................................... 17 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................... 17 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 17 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................................... 17 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 17 Item 11. EXECUTIVE COMPENSATION..................................................... 18 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 18 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 18 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.. 18 Signatures................................................................. 20 Exhibit Index.............................................................. 21 PART I Item 1. BUSINESS. Summary Bluegreen Corporation, together with its subsidiaries (the "Company"), is the successor to a real estate business that was formed as a sole proprietorship in 1966 and incorporated in 1976. As approved at a special meeting of the Company's shareholders held in February, 1996, the Company changed its name from Patten Corporation to Bluegreen Corporation in March, 1996. The Company's real estate operations are currently managed under three divisions. The Land Division acquires large acreage tracts of real estate which are subdivided, improved and sold, typically on a retail basis. The Resorts Division acquires and develops timeshare property to be sold in vacation ownership intervals, whereby fixed week intervals or undivided fee simple interests are sold in fully-furnished vacation units. The Communities Division is engaged in the sale of manufactured homes on residential land parcels at a North Carolina project as well as the sale of residential lots primarily in three additional southeastern projects. The Land Division is segregated into two broad property types offered for sale to prospective customers: (i) land intended for residential use and (ii) land intended for general recreational use. Land intended for residential use is fully improved and generally includes provisions for water, electricity and telephone as well as the construction of access roads leading to the subdivided lots. General recreational property is typically used for hunting, fishing and camping or as a potential homesite in the longer-term. The Company's Resorts Division, introduced in 1994, is responsible for the development and operation of timeshare properties which are located in popular, regional family vacation destinations. The Division is also responsible for the marketing and sale of timeshare interests in its resorts, generally through one week vacation ownership intervals. Under the Company's Communities Division, factory-built manufactured home and lot packages are marketed in a North Carolina development. In addition, residential lots from two other projects in North Carolina and a project in Orlando, Florida are being developed and sold. The North Carolina land inventories were acquired prior to the formation of the investment committee. (defined below). Sales of the North Carolina inventories are expected to yield gross margins lower than those historically experienced under the Land Division. The Company is liquidating its current communities inventories through a combination of bulk sales and retail sales and the Company does not intend to expand its communities related activities beyond the projects currently being marketed. The Company recorded provisions for the write-down of certain inventories totaling $8.2 million during the first quarter of fiscal 1997. See "Results of Operations" under Management's Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. The Company's Land, Resorts and Communities divisions accounted for 66% ($72.6 million), 25% ($27.4 million) and 9% ($9.7 million), respectively, of consolidated sales of real estate for fiscal 1997. See Management's Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into Item 7, Part II herein from the Company's 1997 Annual Report. All inventory acquisitions require the prior approval of the Company's investment committee, which consists of certain executive officers of the Company (the "Investment Committee"). The Company seeks to reduce its cash outlay and risks by making small downpayments when contracting to acquire properties and, in the case of the Land Division, by completing as many preparations for resale as possible before actually completing the purchase. The Company has historically acquired substantially all of the inventory it has placed under contract. The downpayment and any preliminary development costs are the only amounts at risk if the Company fails to complete a purchase. See "Acquisition of Inventory". The Company seeks external sources of capital to fund its property acquisitions. Such sources generally consist of seller, bank or similar financial institution term financing. In addition, the Company has secured lines-of-credit for the acquisition and development of its inventories. See Management's Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. The aggregate amount of inventory acquisition and development funded through term financing and lines-of-credit during fiscal 1997, 1996 and 1995 totaled $26.9 million or 29%, $12.4 million or 18% and $23.1 million or 32%, respectively. The Company's continued growth depends upon obtaining outside sources of capital to finance new property purchases and development, fund operations, satisfy debt obligations and provide loans to purchasers of land parcels and timeshare vacation ownership intervals. In the past, the Company has funded its activities through various sources, including borrowings under secured and unsecured lines-of-credit, sales of notes receivables and the sale of debt and equity securities. These arrangements require the Company to comply with certain covenants and retain certain contingent liabilities. As of March 30, 1997, the Company had outstanding $34.7 million of 8.25% convertible subordinated debentures, $21.1 million in receivable-backed notes payable and $35.9 million in lines-of-credit and notes payable, with an aggregate weighted average interest rate on all such indebtedness of 9.0% at March 30, 1997. The Company anticipates that it will continue to require external sources of capital. See Management's Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. The Company begins to market parcels under its Land Division as soon as practicable, with the sale of acquired properties typically being completed within 24 months from closing of the acquisition. The holding period may be extended in areas where the subdivision approval process is more complex or in certain larger projects. Land Division sales were $72.6 million, $84.9 million and $72.6 million for fiscal 1997, fiscal 1996 and 1995, respectively. To minimize the risk associated with holding its timeshare inventory, the Resorts Division sells vacation ownership intervals during construction. Resorts Division sales were $27.4 million, $13.8 million and $5.9 million for fiscal 1997 1996 and 1995, respectively. The Company seeks to minimize market exposure for inventory held by the Communities Division by limiting the number of factory-built homes that are purchased on a speculative basis. The Company attempts to obtain contracts for sales of homes prior to development. Communities Division sales were $9.7 million, $14.7 million and $13.4 million for fiscal 1997, 1996 and 1995, respectively. For information on the Company's revenue recognition policy, see Note 1 to the Consolidated Financial Statements which are incorporated by reference into Item 8, Part II herein from the 1997 Annual Report. The Company offers financing of up to 90% of the purchase price of land real estate sold to all purchasers who qualify for such financing. The Company also offers financing of up to 90% of the purchase price to timeshare purchasers. Sales of factory-built manufactured homes under the Communities Division are financed by third party lenders and, accordingly, the proceeds of such sales are received entirely in cash. The Company structures its sales and financing activities so that the purchase money mortgages arising from land sales and the contracts for deed from timeshare sales loans (the "Receivables") may be pledged or sold in separate financing transactions to provide liquidity for the Company. This liquidity allows the Company to continue to provide financing to its customers for the sale of land and vacation ownership intervals. During fiscal 1997, 1996 and 1995, the Company financed 30%, 26% and 24%, respectively, of its aggregate sales of real estate which closed during the applicable period and received cash for the remaining amounts. See "Customer Financing" and Management's Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into Item 7, Part II herein from the Company's 1997 Annual Report. The Receivables originated by the Company are typically pledged to financial institutions or sold in private placement transactions. In recent years, private placement Real Estate Mortgage Investment Conduit ("REMIC") financings have provided substantial capital resources to the Company. To date, REMIC transactions have included land receivables. In these transactions, (i) the Company sells or otherwise absolutely transfers a pool of mortgage loans to a newly-formed special purpose subsidiary, (ii) the subsidiary sells the mortgage loans to a trust in exchange for certificates representing the entire beneficial ownership in the trust and (iii) the subsidiary sells one or more senior classes of the certificates to an institutional investor in a private placement and retains the remaining certificates, which remaining certificates are subordinated to the senior classes. See Management's Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. At March 30, 1997, the Company had 453 full-time and 45 part-time employees. The Company's executive offices are located at 5295 Town Center Road, Boca Raton, Florida 33486. Its telephone number at such address is (561) 361-2700. The Company's common stock is listed on the New York Stock Exchange and on the Pacific Stock Exchange under the symbol "BXG." The Company's 8.25% convertible subordinated debentures due 2012 are also listed on the NYSE. Acquisition of Inventory In order to provide centralized and uniform controls on the type, location and amount of inventory that the Company acquires, all inventory acquisitions have required the approval of the Investment Committee since 1989. The Investment Committee is comprised of George F. Donovan, President and Chief Executive Officer; Daniel C. Koscher, Senior Vice President, Land Division; L. Nicholas Gray, Senior Vice President, Resorts Division and Patrick E. Rondeau, Vice President, Director of Legal Affairs and Clerk. The Investment Committee reviews each proposed acquisition to determine whether the property meets certain criteria. The Investment Committee considers such established criteria as the economic conditions in the area in which the parcel is located, environmental sensitivity, availability of financing, whether the property is consistent with the Company's general policies and the anticipated ability of that property to produce acceptable profit margins and cash flow. Since the establishment of the Investment Committee, sales of property approved by it have generally resulted in average gross margins of at least 55%. No assurances can be given that future sales of property approved by the Investment Committee will yield comparable gross margins. Prior to the formation of the Investment Committee, the determination of whether to buy most properties was typically made by the Company's regional managers, together with one or more members of the Company's senior management. Land Division The Land Division, through the Company's regional offices, and subject to Investment Committee review and approval, typically acquires inventory that (i) is located within one to three hours of a major city, (ii) is suitable for subdivision, (iii) maintains attractive topographical features and (iv) will result in an acceptable profit margin and cash flow to the Company based upon anticipated resale value. Properties are generally subdivided for resale into parcels ranging in size from one to 35 acres. In fiscal 1997, the Company acquired 19,254 acres in 23 separate transactions for a total purchase price of $29.7 million, or $1,541 per acre. These properties ranged in size from seven to 4,454 acres. Seller, bank or similar financial institution financing of $15.0 million, or 51% of the $29.7 million total purchase price, was obtained. The Land Division has several specialists who assist regional management in locating inventory for acquisition. The Company has established contacts with numerous land owners and real estate brokers in many of its market areas, and because of such contacts and its long history of acquiring properties, the Company is generally in a favorable position to learn of available inventory. The Company's objective is to develop strong relationships with major property owners and brokers. Regional offices regularly contact property owners, such as timber companies, financial institutions and real estate brokers, by a combination of telephone, mail and personal visits. In addition, the Company occasionally places advertisements in local and national newspapers indicating an interest in acquiring land. To date, the Company's regional offices generally have been able to locate and acquire adequate quantities of inventory which meet the criteria established by the Investment Committee to support their operational activities. Once an appropriate property is located, the Company begins performing due diligence procedures and enters into a purchase agreement with the seller. It is generally the Company's policy to advance only a small downpayment of 1% - 3% of the purchase price when signing a contract to acquire inventory and to limit the liquidated damages associated with such contracts to the amount of its downpayment and any preliminary development costs. In most cases, the Company is not required to advance the full purchase price or enter into a note payable obligation until regulatory approvals for the subdivision and sale of at least the initial phase of the project have been obtained. While local approvals are being sought, the Company will, in certain instances, engage in test marketing of the subdivided parcels and, with the consent of the seller and the knowledge of prospective purchasers, occasionally attempt to pre-sell parcels, subject to closing its purchase of the property. When the necessary regulatory approvals have been received, the closing on the property occurs and the Company obtains title. The time between execution of a purchase agreement and closing on a property has generally been six to 12 months. Although the Company generally retains the right to cancel purchase agreements without any loss beyond forfeiture of the downpayment and preliminary development costs, few purchase agreements have been canceled historically. By requiring, in most cases, that regulatory approvals be obtained prior to closing and by making small downpayments upon signing purchase agreements, the Company is typically able to place a number of properties under contract without expending significant amounts of cash. This strategy enables the Company's Land Division to reduce (i) the time during which it actually owns specific properties, (ii) the market risk associated with holding real estate and (iii) the risk of acquiring property that may not be suitable for sale. It also provides a source of available properties to meet customer demand. In certain instances, however, the Company has acquired properties and then held such properties until their prime marketing seasons. Prior to closing on a purchase of inventory, the Company's policy is to complete its own environmental assessment of the property. The purpose of the Company's assessment is to evaluate the impact the proposed subdivision will have on such items as flora and fauna, wetlands, endangered species, open space, scenic vistas, recreation, transportation and community growth and character. To obtain this information, the Company's acquisition specialists typically consult with various groups and agencies including the appropriate county and state planning agencies, environmental groups, state heritage programs, soil conservation agencies and forestry groups. If the Company's environmental assessment indicates that the proposed subdivision meets environmental criteria and complies with zoning, building, health and other laws, the Company develops a formal land use plan, which forms a basis for determining an appropriate acquisition price. The Company attempts, where possible, to accommodate the existing topographical features of the land, such as streams, hills, wooded areas, stone walls, farm buildings and roads. Prior to closing on an acquisition, the Company will typically have the property surveyed by a professional surveyor and have soil analyses conducted to determine the suitability of the site for septic systems. At closing, the Company obtains title insurance on the property. Resorts Division The Company obtains information with respect to resort acquisition opportunities through interaction by the Company's management team with resort operators, lodging companies or financial institutions with which the Company has established business relationships. To date, all resorts have been purpose-built for timesharing use. The Company's Resorts Division employs due diligence procedures similar to those used by the Land Division in acquiring property for future resorts. A full property review, including an environmental assessment, is presented to the Investment Committee for approval prior to purchase. During the review process, acquisition specialists analyze market, tourism and demographic data as well as the quality and diversity of the location's existing attractions to determine the availability of a variety of recreational opportunities for prospective purchasers. Specifically, the Company evaluates the following factors, among others, to determine the viability of a potential new timeshare resort: (i) supply versus demand ratios for vacation intervals in the particular market, (ii) alternative lodging establishments in the relevent market, (iii) barriers to entry that would limit competition and (iv) the market's growth as a vacation destination. While the Company's Land Division inventory is expected to turn frequently, the Company anticipates that each of its timeshare resorts will generally have a sell-out term of about seven years. During the year ended March 30, 1997, the Company acquired 8 acres located in Gatlinburg, Tennessee in two separate transactions for an aggregate purchase price of $100,000. The acreage purchased is contiguous with the Company's Mountainloft project and will be used for additional unit development. Communities Division The land supporting the subdivisions managed under the Communities Division was acquired by the Company primarily in the late 1980's and comprises three properties in North Carolina and one property in Florida. The Company entered into the housing industry during fiscal 1994, primarily as a means to accelerate lot sales of these older projects. The Company does not intend to expand its communities related activities beyond the projects currently being marketed. The Company's net inventory as of March 30, 1997 and March 31, 1996 summarized by division and classified by major geographic region is set forth in the tables to follow.
March 30, 1997 ------------------------------------------------------------------------ Geographic Region Land Resorts(1) Communities(2) Total Southeast............ $ 7,997,611 $15,028,592 $ 5,685,074 $28,711,277 Midwest.............. 8,050,969 12,495,034 --- 20,546,003 Southwest............ 19,959,473 --- --- 19,959,473 Rocky Mountains ..... 7,533,939 --- --- 7,533,939 West ................ 5,511,879 --- --- 5,511,879 Mid-Atlantic......... 4,015,647 --- --- 4,015,647 Northeast............ 382,341 --- --- 382,341 Totals............... $53,451,859 $27,523,626 $ 5,685,074 $86,660,559
March 31, 1996 ------------------------------------------------------------------------ Geographic Region Land Resorts(1) Communities(2) Total Southeast............ $ 2,252,239 $ 5,189,815 $ 13,983,521 $21,425,575 Midwest.............. 6,293,008 10,839,389 --- 17,132,397 Southwest............ 15,118,191 --- 142,790 15,260,981 Rocky Mountains ..... 9,299,344 --- 50,800 9,350,144 West ................ 5,923,972 --- --- 5,923,972 Mid-Atlantic......... 2,490,025 --- --- 2,490,025 Northeast............ 1,982,895 --- --- 1,982,895 Canada............... 29,025 --- --- 29,025 Totals............... $43,388,699 $16,029,204 $ 14,177,111 $73,595,014
(1) Resorts Division inventory as of March 30, 1997, consists of land inventory of $5.4 million and $22.1 million of unit construction-in-progress. Resorts Division inventory as of March 31, 1996, consists of land inventory of $6.1 million and $9.9 million of unit construction-in-progress. (2) Communities Division inventory as of March 30, 1997, consists of land inventory of $1.5 million and $4.2 million of housing unit construction-in-progress. Communities Division inventory as of March 31, 1996, consists of land inventory of $10.5 million and $3.7 million of housing unit construction-in-progress. The Company attempts to maintain inventory at a level adequate to support anticipated sales of real estate in its various operating regions. In addition, in its Land Division, the Company has (since 1996) committed more resources to fewer projects in locations where the Company has historically achieved strong operating results such as Texas (Southwest), North Carolina and South Carolina (Southeast), Tennessee (Midwest), Virginia (Mid-Atlantic) and Arizona (West). The following table sets forth additional data with respect to each of the properties managed under the Resorts Division.
Mountainloft Laurel Crest Shore Crest Harbour Lights The Falls Village Location Galinburg, TN Pigeon Forge, TN Myrtle Beach, SC Myrtle Beach, SC Branson, MO Date acquired 11/93 2/95 9/95 3/97 4/97 Number of units completed or under construction (1) 76 28 114 --- 12 Number of additional units planned (1)(2) 100 160 86 240 200 Average interval selling price through March 30, 1997 $7,800 $8,000 $10,000 --- --- Number of intervals sold through March 30, 1997 3,777 1,460 775 --- ---
(1) The number of units completed, under construction or planned are intended to be sold in 52 weekly intervals. (2) There can be no assurance that the Company will have the resources to complete all such planned units or that such units will be sold at favorable prices. See "Uses of Capital" under Management's Discussion and Analysis of Financial Condition which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. There are inherent risks associated with carrying increased levels of inventory. In the event that the market for real estate or the economy in general experiences a downturn in the Company's markets of operations, the Company's ability to sell inventory at current rates of sales could be materially adversely affected. If inventory is not sold as planned, the Company will incur additional carrying costs. For further information on the Company's inventory holdings, see "Uses of Capital" under Management's Discussion and Analysis of Financial Condition which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. Marketing and Sale of Inventory Land Division In general, as soon as a property has been acquired and during the time period that appropriate improvements are being completed, the Company establishes selling prices for the individual parcels taking into account such matters as regional economic conditions, quality as a building site, scenic views, road frontage and natural features such as lakes, mountains, streams, ponds and wooded areas. The Company also considers recent sales of comparable parcels in the area. Initial decisions on pricing of parcels in a given area are made by the Company's regional managers and, in all cases, are subject to approval by the Investment Committee. The most widely used marketing technique is advertising in major newspapers in metropolitan areas located within a one to three hour drive from the property. The Company also advertises its land properties in local newspapers. A sales representative who is knowledgeable about the property answers each inquiry, discusses the property with the prospective purchaser, attempts to ascertain the purchaser's needs and determine whether the parcel would be suitable for that person, and arranges an appointment for the purchaser to visit the property. Substantially all prospective customers inspect a property before purchasing. The Land Division also conducts direct mail campaigns to market property through the use of brochures describing available parcels, as well as television and radio advertising. During fiscal 1997, the Land Division incurred $6.3 million in advertising expense, or 9% of the division's $72.6 million in sales. The success of the Company's marketing efforts depends heavily on the knowledge and experience of its sales personnel (substantially all of whom are employees of the Company). The Company requires that, prior to initiating the marketing effort for a property, every sales representative walk the property and become knowledgeable about each parcel and applicable zoning, subdivision and building code requirements. Continued training programs are conducted, including training with regional office sales managers, weekly sales meetings and frequent site visits by an executive officer of the Company. Additionally, the sales staff is evaluated against performance standards established by the executive officers of the Company. Substantially all of a sales representative's compensation is commission-based. The Company requires its sales staff to provide each customer with a written disclosure statement regarding the real estate to be sold prior to the time the customer signs a purchase agreement. Either a U.S. Department of Housing and Urban Development ("HUD") lot information statement, where required, or a Company generated "Vital Information Statement" sets forth relevant information with respect to, and risks associated with, the property and is signed by every purchaser. The Company believes that each information statement contains all material and relevant information a customer requires to make an informed decision as to whether or not to purchase, such as availability and estimated cost of utilities, restrictions regarding property usage, status of access roads and information regarding rescission rights. After deciding to purchase a parcel, the buyer enters into a contract and pays the Company a deposit of at least 10% of the purchase price. It is the Company's policy to give purchasers the right to cancel purchase agreements within specified periods after execution in accordance with statutory requirements. The closing of a land sale usually occurs two to eight weeks after payment of the deposit. Upon closing of a land sale, the Company typically delivers a warranty deed and a recent survey of the property to the buyer. Title insurance is available at the purchaser's expense. The table to follow sets forth certain information regarding sales of parcels by the Land Division for the periods indicated. Years Ended ------------------------------------------ March 30, March 31, April 2, 1997 1996 1995 Number of parcels sold................... 2,057 2,347 2,397 Average sales price per parcel........... $38,572 $34,856 $30,969 Gross margin (1)......................... 45% 51% 57% 1) Gross margin is computed as the difference between the sales price and the related cost of inventory (including the cost of improvements, amenities and in certain cases capitalized interest), divided by the sales price. A charge of $3.4 million was recorded during 1997 for the write-down of certain inventories. See Note 4 to the Consolidated Financial Statements which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. Certain sales have been deferred under percentage of completion accounting. See Contracts Receivable and Revenue Recognition under Note 1 to the Consolidated Financial Statements which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. The table to follow sets forth the number of parcels sold and the average sales price per parcel for the Company's Land Division by geographic region for the fiscal years indicated.
Years Ended ------------------------------ -------------------------------- ---------------------------------- March 30, 1997 March 31, 1996 April 2, 1995 Average Average Average Number of Sales Price Number of Sales Price Number of Sales Price Geographic Region Parcels Sold Per Parcel Parcels Sold Per Parcel Parcels Sold Per Parcel Southwest......... 1,131 $ 39,719 1,117 $ 37,489 1,107 $ 34,999 Southeast......... 291 $ 35,736 223 $ 36,925 289 $ 28,311 Rocky Mountains. 218 $ 40,499 297 $ 44,524 317 $ 28,740 West.............. 34 $ 147,816 19 $ 138,347 --- $ --- Mid-Atlantic...... 152 $ 31,605 236 $ 21,951 215 $ 23,136 Northeast......... 53 $ 20,982 106 $ 12,472 113 $ 19,382 Canada............ 3 $ 10,545 15 $ 11,674 17 $ 10,160 Totals............ 2,057 $ 38,572 2,347 $ 34,856 2,397 $ 30,969
For further information on sales attributable to the Company's Land Division, see "Results of Operations" under Management's Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. Resorts Division The Company requires its sales staff to provide each timeshare customer with a written disclosure statement regarding the real estate to be sold prior to the time the customer signs a purchase agreement. A public disclosure statement sets forth relevant information with respect to vacation ownership at the resort and is signed by every purchaser. The Company believes that the information statement contains all material and relevant information a customer requires to make an informed decision as to whether or not to purchase. After deciding to purchase a vacation ownership interval, the buyer enters into a contract and pays the Company a deposit of at least 10% of the purchase price. It is the Company's policy to give all purchasers the right to cancel purchase agreements within specified periods after execution in accordance with statutory requirements. Substantially all timeshare purchasers visit the resort prior to purchasing. In the marketing and sale of timeshare intervals, the Company generally targets family households in the middle income bracket who prefer outdoor recreational activities at destination locations. The Company's primary means of selling vacation ownership intervals is through an on-site sales presentation. The division employs various programs to reach its target market and generate prospects for these sales presentations including targeted mailings and direct mail mini-vacation invitations. The division provides hotel accommodations to prospective purchasers at reduced prices in exchange for their touring the timeshare resort. In addition, cross-marketing to current owners and referral sales are becoming more significant. Timeshare resorts are staffed with, among others, sales representatives, sales managers and an on-site manager who oversees the day-to-day operations, all of whom are employees of the Company. Sales personnel are generally experienced in resort sales and undergo ongoing Company-sponsored training. During fiscal 1997, total advertising expense for the Resorts Division was $7.6 million or 28% of the division's $27.4million in sales. The attractiveness of vacation interval ownership has been enhanced significantly by the availability of exhange networks that allow interval owners to exchange the occupancy right in their vacation interval for a particular year, for an interval at another participating network resort at either the same or different time. The Company's resorts at March 30, 1997 qualify for exchange with Interval International, one of the largest exchange organizations. The following table sets forth certain information for sales of intervals associated with the Company's Resorts Division for the periods indicated. Certain sales have been deferred under percentage of completion accounting. See Contracts Receivable and Revenue Recognition under Note 1 to the Consolidated Financial Statements which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. Years Ended ---------------------------------------- March 30, March 31, April 2, 1997 1996 1995 Number of intervals sold........... 3,195 1,865 952 Average sales price per interval... $8,362 $7,325 $7,119 Gross margin (1)................... 71% 67% 62% 1) Gross margin is computed as the difference between the sales price and the related cost of inventory (including the cost of improvements, amenities and in certain cases capitalized interest), divided by the sales price. For further information on sales attributable to the Company's Resorts Division, see "Results of Operations" under Management's Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. Communities Division The Company entered into the housing industry during fiscal 1994, primarily as a means to accelerate lot sales of certain older projects in certain markets. Marketing of home and lot packages is accomplished primarily through a combination of print media, supplemented by television advertising. During fiscal 1997, total advertising expense for the division was $278,000 or 3% of the division's $9.7 million in sales. The Company works with its home purchasers in obtaining conventional bank financing through local institutions, and accordingly, all such sales are received in cash. The closing on a home sale typically occurs two to six months after payment of the deposit. Upon closing of a sale, the Company delivers a warranty deed and a recent survey of the property to the buyer. Title insurance is available at the purchaser's expense. The following table sets forth certain information for sales associated with the Company's Communities Division for the periods indicated. Years Ended ------------------------------------------ March 30, March 31, April 2, 1997 1996 1995 Number of homes/lots sold....... 146 206 133 Average sales price............. $66,422 $71,546 $100,866 Gross margin (1)................ 3% 10% 12% 1) Gross margin is computed as the difference between the sales price and the related cost of inventory (including the cost of improvements) divided by the sales price. A charge of $4.8 million was recorded during 1997 for the write-down of certain inventories managed under the Communities Division. See Note 4 to the Consolidated Financial Statements which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. For further information on sales attributable to the Company's Communities Division, see "Results of Operations" under Management's Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. Total Sales During fiscal 1997, sales attributable to the Company's Land, Resorts and Communities divisions was $72.6 million or 66%, $27.4 million or 25% and $9.7 million or 9%, respectively, of total consolidated revenues from sales of real estate. The tables to follow set forth sales by geographic region and division for the years indicated.
Year Ended March 30, 1997 -------------------------------------------------------------------------------- Geographic Region Land Resorts Communities Total % Southwest............ $41,586,115 $ --- $ 157,000 $ 41,743,115 38.1% Southeast............ 8,299,410 7,682,005 9,363,246 25,344,661 23.1% Midwest.............. 3,970,953 19,743,566 --- 23,714,519 21.6% Rocky Mountains ..... 8,828,680 --- 154,750 8,983,430 8.2% West................. 4,875,073 --- --- 4,875,073 4.4% Mid-Atlantic......... 3,917,096 --- --- 3,917,096 3.6% Northeast............ 1,112,033 --- --- 1,112,033 1.0% Canada............... 31,634 --- --- 31,634 .0% Totals............... $72,620,994 $27,425,571 $ 9,674,996 $109,721,561 100.0%
Year Ended March 31, 1996 -------------------------------------------------------------------------------- Geographic Region Land Resorts Communities Total % Southwest............ $43,457,483 $ --- $ 2,734,570 $ 46,192,053 40.7% Southeast............ 8,569,869 --- 11,594,167 20,164,036 17.8% Midwest.............. 9,981,574 13,825,162 --- 23,806,736 21.0% Rocky Mountains ..... 13,223,744 --- 409,817 13,633,561 12.0% West................. 2,628,600 --- --- 2,628,600 2.3% Mid-Atlantic......... 5,500,146 --- --- 5,500,146 4.8% Northeast............ 1,321,982 --- --- 1,321,982 1.2% Canada............... 175,114 --- --- 175,114 .2% Totals............... $84,858,512 $13,825,162 $14,738,554 $113,422,228 100.0%
Year Ended April 2, 1995 -------------------------------------------------------------------------------- Geographic Region Land Resorts Communities Total % Southwest............ $38,600,075 $ --- $ 2,012,112 $ 40,612,187 44.2% Southeast............ 7,846,343 --- 7,881,426 15,727,769 17.1% Midwest.............. 8,297,375 5,886,427 --- 14,183,802 15.4% Rocky Mountains ..... 10,859,280 --- 3,521,637 14,380,917 15.6% Mid-Atlantic......... 4,654,483 --- --- 4,654,483 5.1% Northeast............ 2,190,110 --- --- 2,190,110 2.4% Canada............... 172,722 --- --- 172,722 .2% Totals............... $72,620,388 $5,886,427 $13,415,175 $ 91,921,990 100.0%
Customer Financing During fiscal 1997, 1996 and 1995, the Company financed 30%, 26% and 24%, respectively, of the aggregate purchase price of its sales of real estate to customers that closed during these periods and received cash for the remaining amounts. The increase in the percentage of sales financed by the Company from 1995 to 1997 is primarily attributable to an increase in timeshare sales over the same period. Timeshare sales accounted for 25% of consolidated sales of real estate during 1997, compared to 12% of consolidated sales during 1996 and 6% of sales during 1995. Almost all timeshare buyers finance with the Company (compared to 14% of land buyers in fiscal 1997). The Company believes its financing is attractive to purchasers who find it convenient to handle all facets of the purchase of land and vacation ownership intervals through a single source and because downpayments required by the Company are similar to those required by banks and mortgage companies which offer this type of credit. Land Division The Company offers financing of up to 90% of the purchase price to all purchasers of its properties who qualify for such financing. The term of repayment on the financing has historically ranged from five to 15 years although the Company, by offering reduced interest rates, has been successful in encouraging customers during recent years to finance their purchases over shorter terms and provide increased downpayments. Management believes such strategy has improved the quality of its notes receivable in recent years. An average note receivable underwritten by the Company during fiscal 1996 and 1997 has a term of ten years. Most notes receivable bear interest at a fixed interest rate or variable rate tied to the prime lending rate and are secured by a first lien on the land. During fiscal 1997, 14% of land purchasers qualified for, and received, Company financing. Such purchasers made an average downpayment of 22% of the purchase price. Resorts Division The Company also offers financing of up to 90% of the purchase price to its timeshare purchasers. During fiscal 1997, 94% of timeshare purchasers elected to receive the Company's financing and provided an average downpayment of 15%. The average financing extended by the Company on a timeshare interval during fiscal 1996 and 1997 provides for a term of seven years and a fixed interest rate. At the closing, the Company and the purchaser execute a contract for deed agreement. After the obligation is paid in full, the Company delivers a deed to the purchaser. Total Loans The weighted average interest rate on notes receivable was 13.3% and 12.4% at March 30, 1997 and March 31, 1996, respectively. The table below sets forth additional information relating to the Company's notes receivable. March 30, 1997 March 31, 1996 Notes receivable secured by land ............... $ 12,334,283 $ 26,243,222 Notes receivable secured by timeshare intervals. 23,501,163 11,667,049 Notes receivable, gross ........................ 35,835,446 37,910,271 Reserve for loan losses......................... ( 1,216,121) ( 896,469) Notes receivable, net........................... $ 34,619,325 $ 37,013,802 Approximately 69% of the Company's notes receivable secured by land bear interest at variable rates, while approximately 31% bear interest at fixed rates. The average interest rate charged on loans secured by land was 12.0% at March 30, 1997. All of the Company's timeshare loans bear interest at fixed rates. The average interest rate charged on loans secured by timeshare intervals was 15.7% at March 30, 1997. Loan Underwriting Land Division The Company has established loan underwriting criteria and procedures designed to reduce credit losses on its loan portfolio. The loan underwriting process includes reviewing the applicant's credit history, verifying employment and income as well as calculating certain debt-to-income ratios. The primary focus of the Company's underwriting is to determine the applicant's ability to repay the loan in accordance with its terms. This assessment is based on a number of factors, including the relationship of the applicant's required monthly payment to disposable income. The Company also examines the applicant's credit history through various credit reporting agencies. In order to verify an applicant's employment status, the Company generally contacts the applicant's employer. The Company also obtains current pay stubs, recent tax returns and other tax forms from the applicant. Loans by the Company are made solely to finance land sold by the Company. Customer financing on Land Division sales requires the submission of a completed and signed credit application, purchase and sale agreement and pre-authorized checking agreement accompanied by a voided check, if applicable, to the credit department. All credit decisions are made at the Company's corporate headquarters. Loan amounts under $50,000 are approved by designated personnel located in the Company's corporate headquarters, while loan amounts of $50,000 or more require approval from a senior executive officer. In addition, rejected applications and any material exceptions to the underwriting policy are also reviewed by senior management. Customers are notified of the reasons for credit denial by mail. The Company encourages customers to increase their downpayment and reduce the loan term through the structure of its loan programs. Customers receive a lower rate of interest as their downpayment increases and the loan term shortens. Additionally, the Company encourages its customers to make timely payments through a pre-authorized payment arrangement. Customers who do not choose a pre-authorized payment plan are charged interest at a rate which is one percent greater than the prevailing rate. Approximately 90% of purchasers using the Company's financing have historically participated in the pre-authorized payment plan. After the credit decision has been made, the credit department categorizes the file as either approved, pending or declined. Upon receipt of a credit approval, the regional office schedules the closing with the customer. Closings are typically conducted at the office of the Company's local attorney or settlement agent, although in some cases the closing may take place at the sales site or by mail. When the original closing documents are received from the closing agent, the Company verifies that the loan closed under terms approved by the Company's credit department. A quality control audit is performed to verify that required documents have been received and that they have been prepared and executed correctly. If any revisions are required, notification is sent to the regional office. A loan file typically includes a copy of the signed security instrument, the mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and sale agreement, credit application, local counsel opinion, Vital Information Statement or purchaser's acknowledgment of receipt of HUD lot information statement, HUD settlement statement and a copy of the assignment of mortgage and an original note endorsement from the Company's subsidiary originating the sale and the loan to the Company (if applicable). After the initial closing documents are received, the recorded mortgage and assignment and original title insurance policy are obtained in order to complete the loan file. Resorts Division The Company also extends financing for timeshare sales. Timeshare financing is not subject to the same loan underwriting criteria established for Land Division loans. Customer financing on timeshare sales requires (i) receipt of a minimum downpayment of 10% of the purchase price and (ii) a contract for deed and other closing documents between the Company and the customer. The Company encourages customers to make increased downpayments by offering a lower interest rate. In addition, customers who do not elect to participate in the Company's pre-authorized payment plan are charged interest at a rate which is one percent greater than the prevailing rate. See "Collection Policies" below. Collection Policies Land Division Collection efforts and delinquency information are managed at the Company's corporate headquarters. Servicing of the Receivables is handled by a staff of experienced collectors, assisted by an on-line mortgage collection computer system. Unless circumstances otherwise dictate, collection efforts are generally made by mail and telephone. Collection efforts begin when an account is ten days past due, at which time the Company mails a reminder letter. Attempts are then made to contact the borrower via telephone to determine the reason for the delinquency and to bring the account current. The determination of how to work a delinquent loan is based upon many factors, including the borrower's payment history and the reason for the current inability to make timely payments. If no agreement is made or the borrower does not abide by the agreement, collection efforts continue until the account is either brought current or legal action is commenced. If not accelerated sooner, the Company declares the loan in default when the loan becomes 60 days delinquent. When the loan is 90 days past due, the accrual of interest is stopped (unless the loan is considered an in-substance foreclosure loan, in which case all accrued interest is reversed since the Company's means of recovery is determined to be through resale of the underlying collateral and not through collection on the note) and the Credit/Collection Manager determines the action to be taken. Resorts Division Consistent with industry practice in the areas where the Company has operations, timeshare Receivables are documented by contracts for deed and the Company retains title to the unit until the obligation is paid in full. Accordingly, no foreclosure process is required in the event of a default. In the event that a contract for deed becomes delinquent 10 days, a reminder letter is mailed to the customer. If the customer fails to bring the account current, a late notice is mailed when the account is 15 days delinquent (and telephone contact commences). After an account is 45 days delinquent, the Company typically sends a third letter advising the customer that such customer has 15 days within which to bring the account current. Under the terms of the contract for deed, the borrower is in default when the account becomes 60 days delinquent. At this time a default letter is sent advising the borrower that he/she has 30 days to bring the account current or lose his/her contractual interest in the timeshare unit. When the account becomes 90 days delinquent, the Company forwards a final letter informing the purchaser that the contract for deed has been terminated. At such time, the timeshare interval can be resold to a new purchaser. Total Receivables At March 30, 1997, approximately 6% or $2.1 million of the aggregate $36.7 million principal amount of loans which were held by the Company or by third parties under sales transactions where the Company had a recourse liability, were more than 30 days past due. Of the $36.7 million principal amount of loans, $35.8 million were held by the Company, while approximately $840,000 were associated with programs under which the Company has a limited recourse liability. In most cases of limited recourse liability, the recourse to the Company terminates when the principal balance of the loan becomes 70% or less of the original selling price of the property underlying the loan. At March 31, 1996, approximately 7% or $2.8 million of the aggregate $39.2 million principal amount of loans which were held by the Company or by third parties under sales transactions where the Company had a recourse liability, were more than 30 days past due. Reserve for loan losses as a percentage of period end notes receivable was 3.4% and 2.4% at March 30, 1997 and March 31, 1996, respectively. The adequacy of the Company's reserve for loan losses is determined by management and reviewed on a regular basis considering, among other factors, historical frequency of default, loss experience, present and expected economic conditions as well as the quality of Receivables. The increase in the reserve for loan losses as a percent of period end loans is primarily the result of the portfolio consisting of more timeshare receivables where historical default rates exceed those on land receivables. The table below sets forth activity in the reserve for estimated loan losses. Reserve for loan losses, April 2, 1995................. $1,089,652 Provision for losses................................... 344,718 Charge-offs............................................ (537,901) Reserve for loan losses, March 31, 1996................ 896,469 Provision for losses................................... 1,008,271 Charge-offs............................................ (688,619) Reserve for loan losses, March 30, 1997................ $1,216,121 Sales of Receivables/Pledging of Receivables Since 1986, the Company has sold or pledged substantially all of its Receivables originations, generally retaining the right and obligation to service the Receivables. In the case of land receivables, the Company typically transfers the Receivables to its special purpose finance subsidiaries, which in turn enter into institutional financing transactions or securitizations. The Receivables are typically sold with limited or no recourse. In the case of Receivables pledged, the Company generally must maintain a debt to eligible collateral rate (based on outstanding principal balance of the pledged loans) of 90%. The Company is obligated to pledge additional eligible Receivables or make additional principal payments in order to maintain this collateralization rate. Repurchases and additional principal payments have not been material to date. At March 30, 1997, the Company was subject to limited recourse requirements on approximately $840,000 of Receivables sold. The delinquency on such Receivables was immaterial at March 30, 1997. See "Sources of Capital" under Management's Discussion and Analysis of Financial Condition which is incorporated by reference into Item 7, Part II herein from the 1997 Annual Report. As discussed above, private placement REMIC financings have provided substantial capital resources to the Company. Under the terms of these transactions, the Receivables are sold to a REMIC trust and the Company has no obligation to repurchase the Receivables due to default by the borrowers. The Company does, however, have the obligation to repurchase the Receivables in the event that there is any material defect in the loan documentation and related representations and warranties as of the time of sale. See Note 8 to the Consolidated Financial Statements which are incorporated by reference into Item 8, Part II herein from the 1997 Annual Report. Receivables Servicing Receivables servicing includes collecting payments from borrowers and remitting such funds to the owners, lenders or investors in such Receivables, accounting for Receivables principal and interest, making advances when required, contacting delinquent borrowers, foreclosing in the event that defaults are not remedied and performing other administrative duties. The Company's obligation to provide Receivables servicing and its rights to collect fees are set forth in a servicing agreement. The Company has the obligation and right to service all of the Receivables it originates and retains the obligation and right with respect to substantially all of the Receivables it sells (through REMICs). The Company typically receives an annual servicing fee of approximately .5% of the outstanding scheduled principal balance, which is deducted from payments received on substantially all of the Company's servicing portfolio. At March 30, 1997, the Receivables servicing portfolio, representing Receivables originated and sold, approximated $71.5 million. Customer Service The Company emphasizes customer satisfaction and maintains two full-time customer service representatives in its Boca Raton headquarters to respond to customer inquiries. At closing, all purchasers are provided with a toll-free customer service phone number to facilitate any additional information requests. Customer service surveys are sent to each purchaser to measure customer satisfaction and to alert the Company to problems, if any. Regulation The real estate industry is subject to extensive regulation. The Company is subject to compliance with various federal, state and local environmental, zoning and other statutes and regulations regarding the acquisition, subdivision and sale of real estate and timeshare interests and various aspects of its financing operations. The Company believes that it is in compliance in all material respects with such regulations. The Company's Land and Communities divisions are subject to the Interstate Land Sales Full Disclosure Act which establishes strict guidelines with respect to the marketing and sale of land in interstate commerce. HUD has enforcement powers with respect to this statute. In some instances, the Company has been exempt from HUD registration requirements because of the size or number of the subdivided parcels and the limited nature of its offerings. The Company, at its discretion, may formally request an exemption advisory opinion from HUD to confirm the exempt status of any particular offering. Several such exemption requests have been submitted to, and approved by, HUD. In those cases where the Company and its legal counsel determine parcels must be registered to be sold, the Company files registration materials disclosing financial information concerning the property, evidence of title and a description of the intended manner of offering and advertising such property. The Company bears the cost of such registration, which includes legal and filing fees. Many states also have statutes and regulations governing the sale of real estate. Consequently, the Company regularly consults with counsel for assistance in complying with federal, state and local law. The Company must obtain the approval of numerous governmental authorities for its acquisition and marketing activities and changes in local circumstances or applicable laws may necessitate the application for, or the modification of, existing approvals. The Company's Resorts Division sells vacation ownership interests to customers through weekly intervals in fully furnished vacation units. Many state and local authorities have imposed restrictions and additional regulations on developers of vacation ownership properties. The Company's resorts in Gatlinburg, Tennessee; Pigeon Forge, Tennessee; and Myrtle Beach, South Carolina are subject to various regulatory requirements including state and local approvals. Although these restrictions have generally increased the cost of selling vacation ownership intervals, the Company has not experienced material difficulties in complying with such regulations or operating within such restrictions. In compliance with state laws, the Company provides its timeshare purchasers with a public disclosure statement which contains, among other items, detailed information about the surrounding vicinity, the resort and the purchaser's rights and obligations as an interval owner. The Company's customer financing activities are also subject to extensive regulation, which may include, Truth-in-Lending-Reg. Z, Fair Debt Collection Practices Act, Equal Credit Opportunity Act-Reg. B, Electronic Funds Transfer Act-Reg. E, Home Mortgage Disclosure Act-Reg. C, Unfair or Deceptive Acts or Practices-Reg. AA and Right to Financial Privacy Act. The Company believes that it is in compliance in all material respects with such regulations. Management is not aware of any pending regulatory contingencies that are expected to have a materially adverse impact on the Company. Competition The real estate industry is highly competitive. In each of its markets, the Company competes against numerous developers and others in the real estate business, some of which are larger and have greater financial resources than the Company. Competition may be generally smaller with respect to the Company's lot sales in the more rural markets in which it operates. The Company believes that it can compete on the basis of its reputation and the price, location and quality of the products it offers for sale, as well as on the basis of its experience in land acquisition, development and sale. Although the Resorts Division competes with various high profile and well-established operators, the Company believes that it can compete on the basis of its general reputation and the price, location and quality of its timeshare resorts. In its customer financing activities, the Company competes with banks, mortgage companies, other financial institutions and governmental agencies offering financing of real estate. In recent years, the Company has experienced increased competition with respect to the financing of land sales as evidenced by the low percentage of land sales internally financed during fiscal 1995 through fiscal 1997. The Company believes that, based on its interest rates and repayment schedules, the financing packages it offers are convenient for customers and competitive with those of other institutions which offer such financing. Personnel As of March 30, 1997, the Company had 453 full-time and 45 part-time employees. Of the 498 employees, 82 were located at the Company's headquarters in Boca Raton, Florida and 416 were located in regional offices throughout the United States and Canada (the field personnel include 239 field employees supporting the Company's Land Division as follows: 4 land divisional presidents, 7 land regional and district managers, 123 land sales personnel, 14 land project managers, 10 land acquisition specialists and 81 land administrative and other support personnel. In addition, the Company employed 177 field employees supporting the Company's Resorts Division as follows: 4 timeshare divisional Presidents/regional directors, 100 timeshare sales personnel, 1 director of development and 72 timeshare administrative and other support personnel). None of the Company's employees are represented by a collective bargaining unit, and the Company believes that relations with its employees generally are excellent. Executive Officers of the Company The following table sets forth certain information regarding the executive officers of the Company.
Name Age Position George F. Donovan 58 President and Chief Executive Officer Daniel C. Koscher 39 Senior Vice President - Land Division L. Nicholas Gray 50 Senior Vice President - Resorts Division Patrick E. Rondeau 50 Senior Vice President, Director of Corporate Legal Affairs and Clerk Allan J. Herz 37 Vice President and Director of Mortgage Operations Joan A. McCormick 54 Vice President and Director of Management Information Systems Susan J. Milanese 38 Vice President and Director of Human Resources Mary Jo Wiegand 33 Vice President, Director of Investor Relations, Controller and Treasurer
George F. Donovan joined the Company as a Director in 1991 and was appointed President and Chief Operating Officer in October, 1993 and Chief Executive Officer in December, 1993. Mr. Donovan was President of Leisure Management International from 1991 to 1993. From 1989 to 1991, Mr. Donovan served as President and Chief Executive Officer of Thousand Trails. Prior to that time, Mr. Donovan served as an officer of a number of other recreational real estate corporations. Mr. Donovan holds a B.S. in Electrical Engineering. Daniel C. Koscher joined the Company in 1986. During his tenure, he has served in various financial management positions including Divisional Controller, Director of Accounting and Chief Accounting Officer. In 1990, Mr. Koscher was elected Vice President and in 1995 he became Director of Planning/Budgeting. In 1997, he became Senior Vice President, Land Division. Prior to his employment with the Company, Mr. Koscher was employed by the William Carter Company, a manufacturing company located in Needham, Massachusetts. He has also been employed by Cipher Data Products, Inc., a computer peripheral manufacturer located in San Diego, California as well as the State of Nevada as an audit agent. Mr. Koscher holds a B.B.A. in Accounting along with a M.B.A. L. Nicholas Gray joined the Company in 1995 to oversee the Company's timeshare resorts operation and was named Senior Vice President in 1997. Mr. Gray has over 25 years of experience in the hospitality, timeshare and related resort industries. Mr. Gray served as Director of Development for Resort Condominium International, a timeshare exchange organization, from 1993 to 1994. Prior to that time, Mr. Gray was Executive Vice President and General Manager for resort developments of Thousand Trails from 1989 to 1991 and Fairfield Communities from 1979 to 1989. Patrick E. Rondeau joined the Company in 1990 and was elected Vice President and Director of Corporate Legal Affairs. He became Clerk in 1993 and Senior Vice President in 1997. For more than five years prior to his employment with the Company, Mr. Rondeau was a senior partner of Freedmen, DeRosa & Rondeau, located in North Adams, Massachusetts, which firm serves as legal counsel to the Company on various matters. Mr. Rondeau holds a B.A. in Political Science along with a J.D. Allan J. Herz joined the Company in 1992 and was named Director of Mortgage Operations in September, 1992. Mr. Herz was elected Vice President in 1993. From 1982 to 1992, Mr. Herz worked for AmeriFirst Federal Savings Bank based in Miami, Florida. During his 10 year tenure with the bank, he held various lending positions, the most recent being Division Vice President in Consumer Lending. Mr. Herz holds a B.B.A. and a M.B.A. Joan A. McCormick joined the Company in 1993 as its Director of Management Information Systems and was elected Vice President in February, 1995. Ms. McCormick has over 20 years of experience in information systems management in the real estate, hotel, banking and manufacturing fields. Prior to joining the Company, Ms. McCormick was Assistant Vice President MIS for Atlantic Gulf Communities Corporation. She has also held management positions with Arvida/JMB Partners Ltd., Southeast Banking Corporation and General Motors Corporation. She holds a B.A. in Business Administration. Susan J. Milanese joined the Company in 1988. During her tenure, she has held various management positions in the Company including Assistant to the Chief Financial Officer, Divisional Controller and Director of Accounting. In 1995, she was elected Vice President and Director of Human Resources. From 1983 to 1988, Ms. Milanese was employed by General Electric Company in various financial management positions including the corporate audit staff. Ms. Milanese holds her B.B.A in Accounting. Mary Jo Wiegand joined the Company in 1988. During her tenure, she has held various management positions within the accounting, finance and treasury departments, including managing external financial reporting. In 1995, she was elected Vice President, Director of Investor Relations and Controller. In 1997, she was named acting Treasurer. From 1985 to 1988, Ms. Wiegand was employed by Price Waterhouse. Ms. Wiegand holds a B.S. in Accounting. John F. Chiste will be joining the Company in July, 1997 as Treasurer and Chief Financial Officer. From January, 1997 to June, 1997, Mr. Chistee was employed by Compscript, Inc. From December, 1992 to January, 1997, he served as the Chief Financial Officer, Secretary and Treasurer of Computer Integration Corporation, a publicly held distribution company which provides information products and services to corporations nation wide. From 1983 through 1992, Mr. Chiste practiced as a Certified Public Accountant with Ernst & Young, LLP. The Company's By-Laws provide that, except as otherwise provided by law or the charter and by-laws of the Company, the President, Treasurer and the Clerk hold office until the first meeting of the Board of Directors following the next annual meeting of shareholders and until their respective successors are chosen and qualified and that all other officers hold office for the same period unless a shorter time is specified in the vote appointing such officer or officers. Item 2. PROPERTIES. The Company's principal executive office is located in Boca Raton, Florida in approximately 17,000 square feet of leased space. On March 30, 1997, the Company also maintained regional sales offices in the Northeastern, Mid-Atlantic, Southeastern, Midwestern, Southwestern, Rocky Mountain and Western regions of the United States as well as the Province of Ontario, Canada. Item 3. LEGAL PROCEEDINGS. In the ordinary course of its business, the Company from time to time becomes subject to claims or proceedings relating to the purchase, subdivision, sale and/or financing of real estate. Additionally, from time to time, the Company becomes involved in disputes with existing and former employees. The Company believes that substantially all of the above are incidental to its business. See Note 10 to the Consolidated Financial Statements which are incorporated by reference into Item 8, Part II herein from the 1997 Annual Report. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information provided on page 15 of the 1997 Annual Report is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA. The information provided on page 17 of the 1997 Annual Report is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information provided under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18 - 33 of the 1997 Annual Report is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements of the Company and its subsidiaries and the related Notes thereto and report of independent certified public accountants on pages 35 - 48 of the 1997 Annual Report are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. For information with respect to the Company's Directors, see the information provided under the headings "Proposals 1 and 2 - Fixing of Number of Directors at Seven and Election of Named Directors" and "Certain Transactions and Other Information" in the Proxy Statement, which sections are incorporated herein by reference. Information concerning the executive officers of the Company appears in Part I of this Annual Report on Form 10-K. The present members of the Board of Directors of the Company are: Joseph C. Abeles, Private Investor George F. Donovan, President and Chief Executive Officer, Bluegreen Corporation Ralph A. Foote, Esq., Senior Partner, Conley & Foote Frederick M. Myers, Esq., Senior Partner, Cain, Hibbard, Myers & Cook J. Larry Rutherford, President and Chief Executive Officer, Atlantic Gulf Communities Corporation Stuart A. Shikiar, President, Shikiar Asset Management Inc. Bradford T. Whitmore, General Partner, Grace Brothers, Ltd. Section 16 Compliance The information provided under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION. The information provided under the headings "Proposals 1 and 2 - Fixing of Number of Directors at Seven and Election of Named Directors," "Board of Directors and its Committees," "Compensation Committee Report on Executive Compensation", "Compensation of Chief Executive Officer", "Executive Compensation" and "Certain Transactions and Other Information" in the Company's Proxy Statement is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (a) The information provided under the heading "Proposals 1 and 2 - Fixing of Number of Directors at Seven and Election of Named Directors" in the Proxy Statement is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (a) The information provided under the headings "Proposals 1 and 2 - Fixing of Number of Directors at Seven and Election of Named Directors," "Executive Compensation" and "Certain Transactions and Other Information" in the Company's Proxy Statement is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) and (a)(2) List of Financial Statements and Schedules. 1. The following Consolidated Financial Statements and Notes thereto of the Company and its subsidiaries and the report of independent certified public accountants relating thereto, included in the 1997 Annual Report on pages 35 - 48 are incorporated by reference into Item 8 hereof: Page Consolidated Balance Sheets as of March 30, 1997 and March 31, 1996 35 Consolidated Statements of Operations for each of the three years in the period ended March 30, 1997 36 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended March 30, 1997 37 Consolidated Statements of Cash Flows for each of the three years in the period ended March 30, 1997 38 - 39 Notes to Consolidated Financial Statements 40 - 47 Report of Independent Certified Public Accountants 48 2. All financial statement schedules are omitted because they are not applicable, are not present in amounts sufficient to require submission of the schedules or the required information is presented in the Consolidated Financial Statements or related notes. (a)(3) List of Exhibits. The exhibits which are filed with this Annual Report on Form 10-K or which are incorporated herein by reference are set forth in the Exhibit Index which appears at pages 21 - 24 hereof. (b) Reports on Form 8-K. None. (c) Exhibits. See (a)(3) above. (d) Financial Statement Schedules. All financial statement schedules are omitted because they are not applicable, are not present in amounts sufficient to require submission of the schedules or the required information is presented in the Consolidated Financial Statements or related notes. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BLUEGREEN CORPORATION (Registrant) Date: June 25, 1997 By: /s/ GEORGE F. DONOVAN George F. Donovan, President and Chief Executive Officer Date: June 25, 1997 By: /s/ MARY JO WIEGAND Mary Jo Wiegand, Vice President, Director of Investor Relations, Treasurer and Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 25th day of June, 1997. Signature Title /s/ GEORGE F. DONOVAN President, Chief Executive Officer and Director George F. Donovan /s/ MARY JO WIEGAND Vice President, Director of Investor Relations, Mary Jo Wiegand Treasurer and Controller (Principal Accounting Officer) /s/ JOSEPH C. ABELES Director Joseph C. Abeles /s/ RALPH A. FOOTE Director Ralph A. Foote /s/ FREDERICK M. MYERS Director Frederick M. Myers /s/ J. LARRY RUTHERFORD Director J. Larry Rutherford /s/ STUART A. SHIKIAR Director Stuart A. Shikiar /s/ BRADFORD T. WHITMORE Director Bradford T. Whitmore
Number Description Page 3.1 Restated Articles of Organization, as amended (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the year ended March 31, 1996). 3.2 Restated and amended By-laws of the Registrant (incorporated by reference to exhibit 3.3 to Annual Report on Form 10-K for the fiscal year ended April 2, 1995). 4.4 Specimen of Common Stock Certificate (incorporated by reference to exhibit of same designation to Registration Statement on Form S-1, File No. 33-13076). 4.6 Form of Indenture dated as of May 15, 1987 relating to the Company's 8.25% Convertible Subordinated Debentures Due 2012, including Form of Debenture (incorporated by reference to exhibit of same designation to Registration Statement on Form S-1, File No. 33-13753). 10.24Form of Agreement dated June 27, 1989 between the Registrant and Peoples Heritage Savings Bank relating to sale of mortgage notes receivable (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended April 2, 1989). 10.47Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended April 1, 1990). 10.53Modification dated July 16, 1990 of Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended April 1, 1990). 10.58Amendment No. 2 dated March 23, 1991 to the Amended and Restated Loan and Security Agreement entered into as of January 9, 1990, by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and The Registrant as Guarantor (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended March 31, 1991). 10.59Amendment No. 3 dated November 21, 1991 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.100 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.60Amendment No. 4 dated January 30, 1992 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.101 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.61Amendment No. 5 dated October, 1992 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.102 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.62Amendment No. 6 dated May 12, 1993 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.88 to Annual Report on Form 10-K for the fiscal year ended March 27, 1994). 10.63Amendment No. 7 dated February 18, 1994 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.89 to Annual Report on Form 10-K for the fiscal year ended March 27, 1994). 10.64Amendment No. 8 dated March 25, 1994 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.103 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.65Amendment No. 9 dated June 29, 1994 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.91 to Quarterly Report on Form 10-Q for the period ended September 25, 1994). 10.66Amendment No. 10 dated December 14, 1994 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.94 to Annual Report on Form 10-K for the fiscal year ended April 2, 1995). 10.67Amendment No. 11 dated October 31, 1995 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.104 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.68Amendment No. 12 dated May 1, 1996 to Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant as Guarantor (incorporated by reference to exhibit 10.105 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.77Registrant's Amended 1988 Outside Directors Stock Option Plan (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended March 29, 1992). 10.78Registrant's 1988 Amended Outside Director's Stock Option Plan (incorporated by reference to exhibit to Registration Statement on Form S-1, File No. 33-61687 ). 10.79Registrant's 1995 Stock Incentive Plan (incorporated by reference to exhibit to Registration Statement on Form S-1, File No. 33-61687 ). 10.80Registrant's Retirement Savings Plan (incorporated by reference to Registration Statement on Form S-8, File No. 33-48075). 10.85Loan and Security Agreement by and between the Registrant and Foothill Capital Corporation dated as of October 29, 1993 (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended March 27, 1994). 10.86First Amendment dated December 23, 1993 to Loan and Security Agreement entered into on October 29, 1993 by and between the Registrant and Foothill Capital Corporation (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended March 27, 1994). 10.87Amendment No. 2 dated February 16, 1995 to Amended Loan and Security Agreement entered into on October 29, 1993 by and between the Registrant and Foothill Capital Corporation (incorporated by reference to exhibit 10.111 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.88Amendment No. 3 dated March 28, 1995 to Amended Loan and Security Agreement entered into on October 29, 1993 by and between the Registrant and Foothill Capital Corporation (incorporated by reference to exhibit 10.112 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.89Amendment No. 4 dated June 15, 1995 to Amended Loan and Security Agreement entered into on October 29, 1993 by and between the Registrant and Foothill Capital Corporation (incorporated by reference to exhibit 10.113 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.90Amendment No. 5 dated June 26, 1995 to Amended Loan and Security Agreement entered into on October 29, 1993 by and between the Registrant and Foothill Capital Corporation (incorporated by reference to exhibit 10.114 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.91Amendment No. 6 dated March 8, 1996 to Amended Loan and Security Agreement entered into on October 29, 1993 by and between the Registrant and Foothill Capital Corporation (incorporated by reference to exhibit 10.115 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.92Amendment No. 7 dated March 24, 1997 to Amended Loan and Security Agreement entered into on October 29, 1993 by and between the Registrant and Foothill Capital Corporation. 10.93Stock Purchase Agreement dated as of November 22, 1994 by and among Harry S. Patten and the Purchasers named therein (incorporated by reference to exhibit of same designation to Current Report on Form 8-K dated November 22, 1994). 10.97Pooling and Servicing Agreement dated as of April 15, 1994, among Patten Receivables Finance Corporation IX, the Registrant, Patten Corporation REMIC Trust, Series 1994-1 and First Trust National Association, as Trustee (incorporated by reference to exhibit 10.84 to Annual Report on Form 10-K for the fiscal year ended March 27, 1994). 10.98Pooling and Servicing Agreement dated as of June 15, 1995, among Patten Receivables Finance Corporation X, the Registrant, Patten Corporation REMIC Trust, Series 1995-1 and First Trust National Association, as Trustee (incorporated by reference to exhibit to Current Report on Form 8-K dated July 12, 1995). 10.99Pooling and Servicing Agreement dated as of April 15, 1996, among Bluegreen Receivables Finance Corporation I, the Registrant, Bluegreen Corporation REMIC Trust, Series 1996-1 and First Trust National Association, as Trustee (incorporated by reference to exhibit to Current Report on Form 8-K dated May 15, 1996). 10.100 Pooling and Servicing Agreement dated as of November 15, 1996, among Bluegreen Receivables Finance Corporation II, the Registrant, Bluegreen Corporation REMIC Trust, Series 1996-2 and First Trust National Association, as Trustee (incorporated by reference to exhibit to Current Report on Form 8-K dated Decenber 11, 1996). 10.106 Construction Loan Agreement by and between the National Bank of South Carolina and Bluegreen Resorts, Inc. (fka Patten Resorts, Inc.) dated February 28, 1996 (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the year ended March 31, 1996). 10.107 Loan and Security Agreement by and between Heller Financial, Inc. and Bluegreen Resorts, Inc. (fka Patten Resorts, Inc.) dated February 28, 1996 (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the year ended March 31, 1996). 10.108 First Amendment dated February 27, 1997 to Loan and Security Agreement by and between Heller Financial, Inc. and Bluegreen Resorts, Inc. (fka Patten Resorts, Inc.) dated February 28, 1996 (incorporated by reference to exhibit of same designation to Annual Report on Form 10-K for the year ended March 31, 1996). 10.115 Acquisition, Construction and Receivables Loan and Security Agreement by and between Finova Capital Corporation and the Registrant dated June 9, 1995 (incorporated by reference to exhibit 10.108 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.116 Amendment No. 1 dated March 8, 1996 to Acquisition, Construction and Receivables Loan and Security Agreement by and between Finova Capital Corporation and the Registrant dated June 9, 1995 10.120 Amended and Restated Loan and Security Agreement dated as of December 14, 1994 by and between Finova Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the Registrant (incorporated by reference to exhibit 10.95 to Annual Report on Form 10-K for the fiscal year ended April 2, 1995). 10.121 Amendment No. 1 dated April 12, 1995 to the Amended and Restated Loan and Security Agreement entered into on December 14, 1994 between Finova Capital Corporation and the Registrant (incorporated by reference to exhibit 10.109 to Annual Report on Form 10-K for the year ended March 31, 1996). 10.122 Amendment No. 2 dated November 21, 1995 to the Amended and Restated Loan and Security Agreement entered into on December 14, 1994 between Finova Capital Corporation and the Registrant (incorporated by reference to exhibit 10.110 to Annual Report on Form 10-K for the year ended March 31, 1996). 11.1 Statement re: Computation of Earnings Per Share (such information is incorporated by reference to the Statement of Operations of the Consolidated Financial Statements appearing on page 36 of the Company's 1997 Annual Report to Shareholders, which is an exhibit hereto). 13.1 Portions of the 1997 Annual Report incorporated by reference in Items 7 and 8. 23 Consent of Ernst & Young LLP. 27 Financial Data Schedule.
EX-10.116 2 AMENDMENT NO. 1 DATED MARCH 8, 1996 AMENDMENT NO. 1 TO ACQUISITION, CONSTRUCTION AND RECEIVABLES LOAN AND SECURITY AGREEMENT BY THIS AMENDMENT NO. 1 To ACQUISITION, CONSTRUCTION, AND RECEIVABLES LOAN AND SECURITY AGREEMENT ("Amendment") dated as of March 8, 1996, PATTEN CORPORATION, a Massachusetts corporation ("Borrower") and FINOVA CAPITAL CORPORATION (fka Greyhound Financial Corporation), a Delaware corporation ("Lender"), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby confirm and agree as follows: ARTICLE 1. INTRODUCTION 1.1 Borrower and Lender previously entered into an Acquisition, Construction, and Receivables Loan and Security Agreement dated as of June 9, 1995 ("Loan Agreement") relating to an acquisition loan in a maximum principal amount not to exceed $1,210,000, a construction loan in a maximum aggregate principal amount not to exceed $4,250,000 and a revolving line of credit loan in a maximum principal amount not to exceed S5,000,000 at any time. 1.2 Borrower and Lender wish to amend the Loan Agreement, all as more fully provided below. ARTICLE 2. AGREEMENT 2.1 Capitalized terms used but not otherwise defined herein shall have the meaning given them in the Loan Agreement. 2.2 The Loan Agreement is amended as follows: (a) Paragraph 3-2 is deleted in its entirety an d the following is substituted in its place: 3.2 If (a) a previously Eligible Instrument which is part of the Receivables Collateral ceases to be an Eligible Instrument ("Ineligibility Event") and (b) as a result such Ineligibility Event, the outstanding principal balance of the Loan exceeds the Borrowing Base of all Eligible Instruments, then within thirty (30) days thereafter, Borrower will either (i) make to Lender a principal payment in an amount equal to the excess ("Borrowing Base Shortfall") of the outstanding principal balance of the Loan over the Borrowing Base of all Eligible Instruments on the date of the Ineligibility Event, plus accrued and unpaid interest on such principal payment, or (ii) replace any one or more of such ineligible Instruments with one or more Eligible Instruments having an aggregate Borrowing Base not less than the Borrowing Base Shortfall. Simultaneously with such payment or the delivery of the replacement Instrument to Lender, Borrower will deliver to Lender all of the items (except for a "Request for Advance and Certification") required to be delivered by Borrower to Lender pursuant to paragraph 4.1E, together with a "Borrower's Certificate" in form and substance identical to Exhibit G. Lender will reassign to Borrower, without recourse or warranty of any kind, the ineligible Instrument causing an Ineligibility Event if: (a) no Event of Default or Incipient Default exists; and (b) (i) Borrower has made any principal payment or replacement with an Eligible Instrument as required above in connection with the Ineligibility Event; or (ii) there is no Borrowing Base Shortfall and Borrower has requested Lender in writing to release the ineligible Instrument. Borrower will prepare the reassignment instrument, which shall be in form and substance identical to Exhibit G is and shall deliver it to Lender for execution. (b) Paragraph 5.2(a) and (b) are deleted in their entirety, and the following is inserted in their place: (a) Construction Loan Partial Release Payments. Commencing on the date of the first Construction Loan Advance, and until all principal , interest and other sums due under the loan Documents have been paid, exclusive of principal, interest and other charges on the Acquisition Loan Note and the Receivables Loan Note, Borrower will make to Lender at the time of each partial release of a Time-Share Interest from the Borrower's Mortgage a principal payment in an amount equal to the Partial Release Fee (Construction Loan) required to be paid in connection with such release as determined under the terms of the Borrower's Mortgage. (b) Acquisition Loan Partial Release Payments. Until principal, interest and other charges on the Acquisition Loan Note have been paid, Borrower will make to Lender at the time of each partial release of a Time Share Interest from the Borrower's Mortgage, in addition to the Partial Release Fee (Construction Loan), a principal payment in an amount equal to the Partial Release Fee (Acquisition Loan), as that term is defined in the Borrower's Mortgage; provided, however, that anything in the foregoing or in the Borrower's Mortgage to the contrary notwithstanding, Borrower's obligation to make any principal payment under this subparagraph or to pay any Partial Release Fee (Acquisition Loan) shall not commence until the date of the first Construction Loan Advance. (c) Paragraph 5.2(e) is deleted in its entirety and the following inserted in its place: (c) Receivables Loan Minimum Required Principal Payments. If there exists a Borrowing Base Shortfall for any reason other than an Ineligibility Event which is subject to the provisions of paragraph 3.2, Borrower, without notice or demand, will immediately (a) make to Lender a principal payment in an amount equal to the Borrowing Base Shortfall plus accrued and unpaid interest on such principal payment or (b) deliver to Lender one or more Eligible Instruments having an aggregate Borrowing Base not less than the Borrowing Base Shortfall. Simultaneously with the delivery of the Eligible Instruments to correct the Borrowing Base Shortfall, Borrower will deliver to Lender all of the items (except for a "Request for Advance and Certification") required to be delivered by Borrower to Lender pursuant to paragraph 4.1E, together with a "Borrower's Certificate" in form and substance identical to Exhibit G. (d) Paragraphs (d) and (e) of Exhibit B are deleted in their entirety and the following is inserted in their place: (d) The Instrument must provide for consecutive level monthly installments of principal and interest in U.S. funds sufficient to repay the Instrument over a term not exceeding eighty-four (84) months from the date of its execution, with interest accruing at not less than nine percent (9%) per annum; provided, that the payment term for up to ten percent (10%) of all Eligible Instruments may be one hundred twenty (120) months. So long as the nine percent (9%) minimum rate is maintained, installments on the Instrument may vary to the extent required by a floating interest rate. The foregoing notwithstanding, an Instrument will not fail to qualify as an Eligible Instrument solely because it does not bear interest, so long as the down-payment is at least 50% of the total sales price (no part of which has been advanced or paid to the Purchaser by Borrower, directly or indirectly) and the unpaid principal balance of all such Instruments hypothecated to Lender does not exceed 15% of all Eligible Instruments hypothecated to Lender. (e) The Instrument must be beyond the applicable rescission period and no payment is more than 29 days past due and no payment has been deferred; and if at any time the aggregate principal balance of all Instruments which comprise the Receivables Collateral and which have payments more than sixty (60) days past due exceeds three percent (3%) of the aggregate principal balance of all Instruments comprising the Receivables Collateral, an aging requirement may be instituted at Lerider's option. 2.3 Borrower will on demand pay, or at Lender's election, reimburse Lender for Lender's reasonable attorneys' fees and other reasonable out-of-pocket expenses in connection with the documentation of this Amendment. 2.4 Borrower confirms and restates to Lender as of the date hereof all its representations and warranties set forth in the Loan Agreement. Borrower further acknowledges that Lender has performed and is not in default of its obligations under the Documents and the Other Loan Documents and that there are no offsets, defenses or counterclaims with respect to any of Borrower's Obligations under the Documents, 2.5 This Amendment constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and this Amendmentsupersedes all prior written or oral understandings and agreements between the parties in connection with its subject matter. 2.6 This Amendment may be executed in one or more counterparts, and any number of which having been signed by all the parties hereto shall be taken as one original. 2.7 Borrower and Lender hereby ratify and confirm the Loan Agreement, as amended hereby, in all respects; and, except as expressly amended hereby, the Loan Agreement shall remain in full force and effect. IN WITNESS WHEREOF this instrument is executed as of the date set forth above. BORROWER: PATTEN CORPORATION, a Massachusetts corporation By: Type/Print Name: Title: LENDER: FINOVA CAPITAL CORPORATION, a Delaware corporation By: Type/Print Name: Title: By executing this Consent, PATTEN RECEIVABLES FINANCE CORPORATION VI acknowledges to FINOVA CAPITAL CORPORATION (fka Greyhound Financial Corporation) its consent to the foregoing Amendment No. 1 to Acquisition, Construction and Receivables Loan and Security Agreement ("Amendment") and that such Amendment shall not impair any of its obligations to FINOVA Capital Corporation. PATTEN RECEIVABLES FINANCE CORPORATION VI. By: Type/Print Name: Title: EX-10.92 3 AMENDMENT NO. 7 DATED MARCH 24, 1997 SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") is made and entered into this 24th day of March, 1997, by and between BLUEGREEN CORPORATION, f/k/a PATTEN CORPORATION, a Massachusetts corporation, with its chief executive office located at 5295 Town Center Road, Suite 400, Boca Raton, Florida 33486 ("Bluegreen") , BLUEGREEN CORPORATION OF THE ROCKIES, f/k/a PATTEN CORPORATION WEST, a Delaware corporation, with its chief executive office located at 5295 Town Center Road, Suite 400, Boca Raton, Florida 33486 ("Bluegreen/Rockies") and FOOTHILL CAPITAL CORPORATION, a California corporation, with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333 ("Foothill"), and is made with reference to the following facts: W I T N E S S E T H: WHEREAS, on or about October 29, 1993, Foothill and Bluegreen entered into that certain Loan and Security Agreement which provided for borrowings from time to time by Bluegreen and pledges of various security interests to secure the repayments of such borrowings, all on the terms and conditions set forth therein; and WHEREAS, on or about December 23, 1993, Bluegreen and Foothill entered into that certain First Amendment to Loan Agreement; and WHEREAS, on or about February 16, 1995, Bluegreen and Foothill entered into that certain Amendment. No. Two to the Loan and Security Agreement: Patten Corporation; and WHEREAS, on or about March 28, 1995, Bluegreen and Foothill entered into that certain Amendment No. Three to the Loan and Security Agreement: Patten Corporation; and WHEREAS, on or about June 15, 1995, Bluegreen and Foothill entered into that certain Amendment No. Four to the Loan and Security Agreement: Patten Corporation ("Fourth Amendment"); and WHEREAS, on or about June 26, 1995 Bluegreen, Bluegreen/Rockies and Foothill entered into that certain Fourth [sic] Amendment to Loan and Security Agreement ("Fifth Amendment"); and WHEREAS, on or about March 8, 1996 Bluegreen, Bluegreen/Rockies and Foothill entered into that certain Sixth Amendment to Loan and Security Agreement ("Sixth Amendment"; The Loan Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, and the Sixth Amendment is hereafter referred to as the "Loan Agreement"); and WHEREAS, Bluegreen, Bluegreen/Rockies, and Foothill desire to amend the Loan Agreement on the terms and conditions specifically set forth herein, NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The definition of "Loan Documents" in Section 1.1 of the Loan Agreement is deleted in its entirety and the following substituted in its place and stead: "Loan Documents" means this Agreement, the Pledge Agreement, the Lock Box Agreements, the Mortgages, the Term Note, the C-Term Note, any other note or notes executed by Borrower and payable to Foothill, and any other agreement entered into in connection with this Agreement." 2. The definition of "Note Mortgages" in Section 1.1 of the Loan Agreement is deleted in its entirety and the following substituted in its place and stead: "Note Mortgage(s)" means those certain deeds of trust, mortgages or security interests encumbering certain real property, which serves as collateral for the repayment of the Pledged A Notes, the Pledged B Notes, and the Pledged C Notes." 3. The definition of "Obligations" in Section 1.1 of the Loan Agreement is deleted in its entirety and the following substituted in its place and stead: "Obligations" means all loans, advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), premiums, liabilities (including all amounts charged to Borrower's loan account pursuant to any agreement authorizing Foothill to charge Borrower's loan account), obligations, fees (including Early Termination Premiums), lease payments guaranties, covenants, and duties owing by Borrower to Foothill of any kind and description (whether pursuant to or evidenced by the Loan Documents, by any note or other instrument (including the Term Note and the Term-C Note), or pursuant to any other agreement between Foothill and Borrower, and irrespective of whether for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Foothill Expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise." 4. The definition of "Pledged Notes (s)" in Section 1.1 of the Loan Agreement is deleted in its entirety and the following substituted in its place and stead: "Pledged Note(s)" means collectively the Pledged A Notes, the Pledged B Notes, and the Pledged C Notes." 5. A new definition is added to Section 1.1 of the Loan Agreement as follows: "Pledged C Notes" means all of the notes and other evidences of indebtedness, along with all security securing the repayment of same (including the Mortgages), which are more particularly described in Schedule PN-C attached hereto and incorporated by reference hereby." 6. A new definition is added to Section 1.1 of the Loan agreement as follows: "Term-C Note" has the meaning set forth in Section 2.3 hereof." 7. Section 2.3 of the Loan Agreement is deleted in its entirety and the following substituted in its place and instead: 2.3 Term Loan. Foothill has agreed to make: (a) a term loan to Borrower in the original principal amount of Eight Hundred Fifty Thousand Three Hundred Eleven Dollars and Thirty-eight Cents ($850,311.38) Dollars, to be evidenced by and repayable in accordance with the terms and conditions of a promissory note (the "Term Note"), of even date herewith, executed by Borrower in favor of Foothill. All amounts evidenced by the Term Note shall constitute Obligations; and (b) a term loan to Borrower in the original principal amount of Seven Hundred and Forty-One Thousand Dollars ($741,000), to be evidenced by and repayable in accordance with the terms and conditions of a promissory note (the "Term-C Note"), of even date herewith, executed by Borrower in favor of Foothill. All amounts evidenced by the Term Note shall constitute obligations." 8. Section 2.4 (f) of the Loan Agreement is deleted in its entirety and the following substituted in its place and stead: "In no event shall the interest rate or rates payable under this Agreement,, the Term Note, or the Term-C Note, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable, Borrower and Foothill, in executing this Agreement, the Term Note, and the Term-C Note intend to legally agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein or in the Term-C Note or the Term Note to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto as of the date of this Agreement, the Term-C Note, and the Term Note, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess." 9. A new Section 2.4 (g) shall be added to the Loan Agreement as follows: "(g) Principal Reductions on the Term-C Note. In addition to the interest payable on the Term-C Note, in accordance with the terms hereof, Borrower shall reduce the outstanding principal balance on the Term-C Note in accordance with the schedule set forth on Schedule 2.4(g) (1) attached hereto and incorporated by reference hereby. Should Borrower and Foothill agree to extend the Maturity Date on or before June 30, 1997, the reduction schedule for the outstanding principal balances shall be adjusted accordingly. Thus, by way of example, if the Maturity Date is extended by five (5) years, Schedule 2.4(g)(1) would be amended to reflect the figured set forth on Schedule 2.4(g) (2) attached hereto and incorporated by reference hereby." 10. There are added new Sections 4.6 (vi) and 4.6 (vii) of the Loan Agreement as follows: (vi) with respect to payment received on the Pledged C Notes, to payment of interest on the Term-C Note set forth in Section 2.3 hereof, then, the balance, if any, to; (vii) the Pledged C Notes, I.-o payment of principal on the Term-C Note set forth in Section 2.3 hereof, then, the balance if any to pay off other obligations in the manner decided by Foothill." 11. There shall be added a new Section 6.15 which reads as follows: 6.15 Within thirty (30) days of the funding of the Term-C Note, Borrower shall deliver to Foothill the following: (a) Conformed copies of the recorded assignments of the Note Mortgages for the Pledged C Notes, which such assignments assign the beneficial or mortgagee's interest in such Note Mortgages to Foothill; (b) A conformed copy of that certain Mortgage, Assignment of Rents, Security Agreement and Fixture Filing encumbering that certain real property owned by Bluegreen and which is the subject of that certain Land Sale Contract dated as of September 18, 1995 entered into between Bluegreen and Patrick Guarglia and Deborah Roche ("NY Mortgage"); (c) A 1970 ALTA form Lenders policy of title insurance, in form and substance satisfactory to Foothill, insuring the lien of the NY Mortgage; and (d) the original policies of title insurance insuring the Note Mortgages for the Pledged C Notes set forth on Schedule PN-C2, along with a CLTA form 104.4 endorsement, in form and substance satisfactory to Foothill." 12. In accordance with Section 7,5 of the Loan Agreement, Foothill consents for one time only to the name change of Patten Corporation West to BLUEGREEN CORPORATION OF THE ROCKIES, 13. Except as expressly modified herein, the Loan Agreement remains in full force and effect and is reaffirmed by the parties hereto. This agreement may be executed in counterparts, and by telefacsimile signature. The delivery by either party of a telefacsimile signature on any counterpart shall fully bind such signatory, to the same extent as if an original signature were delivered. "Bluegreen" BLUEGREEN CORPORATION f/k/a PATTEN CORPORATION, a Massachusetts corporation By "Bluegreen/Rockies" BLUEGREEN CORPORATION OF THE ROCKIES, a Delaware corporation By "Foothill: FOOTHILL CAPITAL CORPORATION, a California corporation By Ben Silver NOTICE TO BORROWER: THIS DOCUMENT CONTAINS PROVISIONS FOR INTEREST RATE AND PAYMENT AMOUNT ADJUSTMENTS SECURED PROMISSORY NOTE $741,000,00 March 24, 1997 1. FOR VALUE RECEIVED, the undersigned BLUEGREEN CORPORATION, f/k/a PATTEN CORPORATION, a Massachusetts corporation, with its chief executive office located at 5295 Town Center Road, Suite 400, Boca Raton, Florida 33489 "Bluegreen") and BLUEGREEN CORPORATION OF THE ROCKIES, f/k/a PATTEN CORPORATION WEST, a Delaware corporation, with its chief executive office located at 5295 Town Center Road, Suite 400, Boca Raton, Florida 33486 ("Bluegreen/Rockies": Bluegreen and Bluegreen/Rockies are sometimes hereinafter jointly and severally referred to as "Maker") hereby promise to pay to the order of FOOTHILL CAPITAL CORPORATION, a California corporation (hereinafter "Lender"),, as hereinafter provided, in such coin or currency of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, the principal sum of SEVEN HUNDRED FORTY-ONE THOUSAND DOLLARS ($741,000.00) (the "principal sum') together with interest thereon from the date advanced until paid, in accordance with the provisions of that certain Loan and Security Agreement dated October 29, 1993 entered into between Maker and Lender, as amended by those certain Seven (7) amendments thereto ("Loan Agreement"). 2. The principal sum, interest rate, and default rate of interest shall be due and payable in accordance with the terms of the Loan Agreement. 3. In no contingency or event whatsoever, whether by reason of advancement of the proceeds hereof, or otherwise shall the amount paid or agreed to he paid to Lender for the use,, forbearance, or detention of the money advanced or to be advanced hereunder exceed the highest lawful rate permissible under any law which a court of competent jurisdiction may deem applicable hereto. If any amount is received in excess of such highest lawful rate, such amount shall be applied by Lender in reduction of the principal sum. 4. Maker, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, and the benefit of any exemption under the homestead exemption laws, if any, or any other exemption or insolvency laws, and consents that Lender may release or surrender, exchange or substitute any real estate and/or personal property or other collateral security now held or which may hereafter be held as security for the payment of this Note, and may extend the time. for payment or otherwise modify the terms of the payment of any part or the whole of the debt evidenced hereby. 5. This Note is secured by, inter alia, the Loan Agreement and the other documents and Collateral set forth therein ("Security Documents") . All of the terms, covenants, and conditions of the Security Documents and all other instruments evidencing and/or securing the indebtedness evidenced by this Note are hereby made a part of this Note and are deemed incorporated herein in full. Any default in any of the conditions, covenants, obligations, or agreements contained in this Note, the Security Documents or any other instruments securing and/or evidencing the indebtedness evidenced by this Note shall constitute a default under this Note and shall entitle Lender to accelerate the entire indebtedness evidenced by this Note and take such other action as may be provided for in the Security Documents, 6. Maker agrees to pay all charges incident to, arising out of or in connection with the preparation, execution, delivery and enforcement of this Note, including, without limitation, all attorneys' fees and disbursements incurred by Lender, whether incurred prior to litigation, or in litigation at trial, arbitration or on appeal and all expenses, including, without limitation, attorneys' fees and disbursements incident to the enforcement of payment of this Note, by any action or participation in, or in connection with, a case or proceeding under Chapters 7 or 11 of the Bankruptcy Code or any successor statute thereto. 7. THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF MAKER AND LENDER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION, MAKER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. MAKER AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION A COPY OF THE AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 8. This Note and the indebtedness evidenced hereby shall be governed by the laws of the state of California. 9. This Note may be executed and delivered by telefacsimile signature. The delivery by Maker of a telefacsimile signature on a copy of this Note shall fully hind each signatory, to the same extent as if an original signature were delivered. IN WITNESS WHEREOF, Maker has executed and delivered this Note on the day and year first above written, "MAKER" "Bluegreen" BLUEGREEN CORPORATION, f/k/a PATTEN CORPORATION, a Massachusetts corporation By "Bluegreen/Rockies" BLUEGREEN CORPORATION OF THE ROCKIES, a Delaware corporation By EX-10.108 4 FIRST AMENDMENT DATED FEBRUARY 27, 1997 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") is executed this 27th day of February, 1 997, by and between BLUEGREEN RESORTS, INC. (formerly known as PATTEN RESORTS, INC.). a Delaware corporation ("Borrower"), whose principal place of business is 5295 Town Center Road, Suite 400, Boca Raton, Florida 33486, and HELLER FINANCIAL, INC., a Delaware corporation ("Lender"), whose principal place of business is 500 West Monroe Street, 1 5th Floor, Chicago, Illinois 60661. RECITALS A. Borrower and Lender entered into that certain Loan and Security Agreement as of February 28, 1996 ("Agreement"), in connection with the Loan described therein. B. It is the mutual desire of the parties to modify a provision of the Agreement. NOW, THEREFORE, in consideration of these premises and for other good and valuable consideration, it is agreed that: 1. Paragraph 5.7 of the Agreement is hereby amended to read in its entirety as follows: Management. The manager and the management contracts for the Resort shall at all times be satisfactory to Lender. For so long as Borrower controls the Timeshare Association for the Resort, Borrower shall not change the Resort manager or amend, modify or waive any provision of or terminate the management contract for the Resort without the prior written consent of Lender, which consent shall not be unreasonably withheld. George Donovan and Patrick Rondeau shall remain the principal officers of the Borrower and George Donovan shall have authority to make all material business decisions during the term of the Loan. 2. All other terms and revisions of the Agreement remain in full force and effect to the extent they are consistent with the above revised provision. IN WITNESS WHEREOF, the parties hereto have executed this Amendment or have caused the same to be executed by their duly authorized representatives as of the date first above written. BORROWER: WITNESSES: BLUEGREEN RESORTS, INC. By: Patrick E. Rondeau President LENDER: WITNESSES: HELLER FINANCIAL, INC. By: Kathryn Plouff Vice President EX-13 5 SELECTED PORTIONS OF ANNUAL REPORT The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Annual Report.
(Dollars in Thousands Except Average Sales Price Data and Per Share Data) March 30, March 31, April 2, March 27, March 28, 1997 1996 1995 1994 1993 INCOME STATEMENT DATA Sales of real estate..................... $ 109,722 $113,422 $ 91,922 $ 63,389 $ 53,349 Interest income and other (1)........... 6,159 7,388 7,264 7,952 10,191 Total revenues......................... 115,881 120,810 99,186 71,341 63,540 (Loss) income from operations............ ( 7,649) 10,794 10,029 6,778 3,604 Net (loss) income........................ ( 4,359) 6,467 6,137 4,931 3,457 Net (loss) income per common share....... ( .21) .30 .29 .23 .16 OPERATING DATA Gross margin on sales of real estate (2). 48.0% 47.6% 50.9% 51.5% 46.7% Average sales price of land parcels sold (3)...................................... $ 38,572 $ 34,856 $ 30,296 $ 25,468 $ 20,839 Number of land parcels sold (3).......... 2,057 2,347 2,397 2,489 2,560 Average sales price of timeshare intervals sold (3)....................... $ 8,362 $ 7,325 $ 7,119 $ --- $ --- Number of timeshare intervals sold (3)... 3,195 1,865 952 --- --- Average sales price of homes/lots sold... $ 66,422 $ 71,546 $100,866 $ 70,044 $ --- Number of homes/lots sold................ 146 206 133 44 --- Weighted average rate on notes receivable at period end............................ 13.3% 12.4% 12.4% 10.9% 11.0% BALANCE SHEET DATA Notes receivable, net ................... $ 34,619 $ 37,014 $ 40,311 $ 44,203 $ 35,653 Inventory, net .......................... 86,661 73,595 62,345 38,793 28,245 Total assets............................. 169,627 154,963 152,222 139,617 122,853 Short-term debt.......................... --- --- --- --- 6,500 Current portion of lines-of-credit, notes payable and receivable-backed notes payable.................................. 25,911 8,938 10,856 5,741 5,684 Long-term portion of lines-of-credit, notes payable and receivable-backed notes payable.................................. 31,050 28,073 29,090 31,556 14,418 8.25% convertible subordinated debentures 34,739 34,739 34,739 34,739 34,739 Shareholders' equity..................... 59,243 64,698 58,040 51,854 46,868 Book value per common share.............. $ 2.94 $ 3.15 $ 2.98 $ 2.91 $ 2.74 Shares outstanding at end of year (000's) 20,159 20,533 19,471 17,796 17,083 ASSET QUALITY RATIOS Charge-offs, net of recoveries, to average loans ........................... 1.9% 1.4% 1.6% 3.6% 3.0% Reserve for loan losses to period end loans ................................... 3.4% 2.4% 2.6% 2.2% 4.3%
1) Interest income for fiscal 1997, 1996, 1995, 1994 and 1993 includes a $96,000 loss, a $1.1 million gain, a $411,000 loss, a $238,000 loss and a $695,000 gain, respectively, from sales of notes receivable in connection with private placement REMIC transactions. 2) Gross margin is computed as the difference between the sales price and the related cost of inventory (including the cost of improvements, amenities and in certain cases capitalized interest), divided by the sales price. 3) Average sales price and unit sales data includes those sales where recognition of revenue is deferred under the percentage of completion method of accounting. See "Contracts Receivable and Revenue Recognition" under Note 1 to the Consolidated Financial Statements. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Reform Act of 1995 (the "Act") and is making the following statements pursuant to the Act in order to do so. This report contains forward-looking statements that involve a number of risks and uncertainties. The Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause the Company's actual consolidated results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. a) Changes in national or regional economic conditions that can affect the real estate market, which is cyclical in nature and highly sensitive to such changes, including, among other factors, levels of employment and discretionary disposable income, consumer confidence, available financing and interest rates. b) The imposition of additional compliance costs on the Company as the result of changes in any federal, state or local environmental, zoning or other laws and regulations that govern the acquisition, subdivision and sale of real estate and various aspects of the Company's financing operation. c) Risks associated with a large investment in real estate inventory at any given time (including risks that real estate inventories will decline in value due to changing market and economic conditions and that the development and carrying costs of inventories may exceed those anticipated) or risks associated with an inability to locate suitable inventory for acquisition. d) Risks associated with delays in bringing the Company's inventories to market due to changes in regulations governing the Company's operations, adverse weather conditions or changes in the availability of development financing on terms acceptable to the Company. e) Changes in applicable usury laws or the availability of interest deductions or other provisions of federal or state tax law. f) A decreased willingness on the part of banks to extend direct customer lot financing, which could result in the Company receiving less cash in connection with the sales of real estate. g) The inability of the Company to find external sources of liquidity on favorable terms to: support its operations, acquire, carry and develop land and timeshare inventories and satisfy its debt and other obligations. h) The inability of the Company to find sources of capital on favorable terms for the pledge of land and timeshare note receivables. i) An increase in prepayment rates, delinquency rates or defaults with respect to Company-originated loans or an increase in the costs related to reacquiring, carrying and disposing of properties reacquired through foreclosure or deeds in lieu of foreclosure. j) Costs to develop inventory for sale and/or selling, general and administrative expenses exceed those anticipated. k) An increase or decrease in the number of land or resort properties subject to percentage of completion accounting which requires deferral of profit recognition on such projects until development is substantially complete. See "Contracts Receivable and Revenue Recognition" under Note 1 to the Consolidated Financial Statements. Liquidity and Capital Resources Unless otherwise indicated, references to real estate and to inventories in the discussion of "Sources and Uses of Capital" collectively encompass land properties, timeshare resorts and projects managed under the Company's Communities Division. Sources of Capital. The Company's capital resources are provided from both internal and external sources. The Company's primary capital resources from internal operations include (i) downpayments on real estate sales which are financed, (ii) cash sales of real estate, (iii) principal and interest payments on the purchase money mortgage loans arising from land sales and contracts for deed arising from sales of timeshare intervals (collectively "Receivables") and (iv) proceeds from the sale of, or borrowings collateralized by, Receivables. Historically, external sources of liquidity have included borrowings under secured lines-of-credit, seller and bank financing of inventory acquisitions and the issuance of debt and equity securities. Currently, the primary external sources of liquidity include seller and bank financing of inventory acquisitions and development along with borrowings under secured lines-of-credit. The Company anticipates that it will continue to require external sources of liquidity to support its operations and satisfy its debt and other obligations. Net cash used by the Company's operations was $8.2 million for the year ended March 30, 1997 ("1997"). Net cash provided by operations was $15.0 million and $9.4 million for the years ended March 31, 1996 ("1996") and April 2, 1995 ("1995"), respectively. The decrease in net cash received from operations from 1996 to 1997 was primarily attributable to: (i) a reduction in proceeds from Real Estate Mortgage Investment Conduit ("REMIC") transactions totaling $11.8 million during 1997, (ii) a reduction in cash received from customers totaling $6.5 million during 1997, (iii) an increase in cash paid for land acquisitions and real estate development in the amount of $3.6 million during 1997 and (iv) an increase in cash paid to suppliers of goods and services, employees and sales representatives amounting to $4.1 million during 1997. These four factors were partially offset by a reduction in income taxes paid in 1997. In recent years, interval sales from the Company's timeshare resorts has represented an increasing percentage of aggregate sales. At the same time, land sales have decreased from 1996 to 1997. Accordingly, with the decline in land sales (where nine out of ten customers currently pay cash for their purchase) and the increase in timeshare sales (where virtually all customers finance with the Company), cash received from customers on the Consolidated Statements of Cash Flows declined. The increase in cash paid for land acquisitions and development along with cash paid to suppliers, employees and sales representatives during 1997 reflects investments made into infrastructure to support the Company's Resorts (timeshare) Division as well as investments made into fewer, more capital-intensive land projects. The increase in cash from operations from 1995 to 1996 was primarily attributable to $16.3 million more in cash received from customers. In addition, the proceeds from a REMIC transaction completed in 1996 together with borrowings (net of payments) collateralized by Receivables, generated $12.4 million more in cash during 1996 than during the prior year. Interest received, net of interest paid, increased $1.2 million from 1995 to 1996. However, cash paid for land acquisition and development increased by $12.9 million from 1995 to 1996. Along with higher acquisition and development spending, cash paid to suppliers and employees (including sales representatives) increased from 1995 to 1996 by $11.2 million. During 1997 and 1996, the Company received in cash $75.3 million or 70% and $84.7 million or 74%, respectively, of its sales of real estate that closed during these periods. During 1995, the Company received in cash $67.9 million or 77% of its sales of real estate that closed. The decrease in the percentage of cash received from 1995 to 1997 is primarily attributable to an increase in timeshare sales over the same period. Timeshare sales accounted for 25% of consolidated sales of real estate during 1997, 12% of consolidated sales during 1996 and 6% of consolidated sales during 1995. Management expects that in fiscal 1998, the aggregate percentage of sales received in cash may decrease further due to anticipated increases in timeshare sales as a percentage of consolidated sales. Receivables arising from land and timeshare real estate sales generally are pledged to institutional lenders. In addition, the Company has historically sold land loans in connection with private placement REMIC financings. The Company currently is advanced 90% of the face amount of the eligible notes when pledged to lenders. The Company classifies the indebtedness secured by Receivables as "Receivable-backed notes payable" on the Consolidated Balance Sheets. During 1997, 1996 and 1995, the Company borrowed $18.2 million, $19.4 million and $8.6 million, respectively, through the pledge of Receivables. During 1997, 1996 and 1995, the Company raised an additional $16.9 million, $28.7 million and $22.7 million, respectively, net of transaction costs and prior to the retirement of debt, from sales of land receivables under private placement REMIC transactions. The Company does not plan to complete a REMIC transaction for land receivables during fiscal 1998 due to the expectation that a high percentage of such sales will be received in cash (and therefore a sufficient quantity of land receivables will not be accumulated to make a REMIC transaction cost effective). The discussion below and Note 8 to the Consolidated Financial Statements provide additional information with respect to credit facilities secured by Receivables and the sale of Receivables through private placement transactions. Credit Facilities for Timeshare Receivables The Company has a $20.0 million credit facility with a financial institution which provides for receivable financing for the first and second phases of a multi-phase timeshare project in Gatlinburg, Tennessee. The interest rate charged under the facility is prime plus 2.0%. At March 30, 1997, the outstanding principal balance under the credit agreement was $10.6 million. The ability to borrow under the facility expires in November, 1998. The Company has another credit facility with this same lender which provides for receivable financing in the amount of $5.0 million on a second timeshare resort located in Pigeon Forge, Tennessee. The interest rate charged under the facility is prime plus 2.0%. At March 30, 1997, the outstanding principal balance under the credit agreement was $3.9 million. The ability to borrow under the facility expired in April, 1997. The Company is currently engaged in discussions with the lender to increase the limit and extend the expiration date to borrow. No assurances can be given that the agreement will be amended to provide for the increase in borrowing capacity and expanded borrowing term. If such facility is not amended and alternative financing is not obtained, the Company's sales at this resort would be materially adversely affected. All principal and interest payments received from the pledged Receivables under the two credit agreements discussed above are applied to the principal and interest due under the facilities. Furthermore, at no time may the Receivable related indebtedness exceed 90% of the face amount of eligible pledged Receivables. The Company is obligated to pledge additional eligible Receivables or make additional principal payments on the Receivable related indebtedness in order to maintain this collateralization rate. Repurchases and additional principal payments have not been material to date. The indebtedness secured by Receivables under each credit facility matures seven years from the date of the last advance. The Company has a third credit facility with another lender which provides for receivable financing in the amount of $10.0 million on a third timeshare resort located in Myrtle Beach, South Carolina. The interest rate charged under the line-of-credit is the three-month London Interbank Offered Rate ("LIBOR") plus 4.25%. At March 30, 1997, the outstanding principal balance under the facility was $1.2 million. All principal and interest payments received from the pledged Receivables are applied to the principal and interest due under the Receivables portion of this facility. In April, 1997 the Company acquired additional property in Myrtle Beach, South Carolina for its fourth timeshare resort. The Company has received a commitment letter from this same lender for Receivables financing on the project in the amount of $7.0 million. No assurances can be given that the facility will be obtained on terms satisfactory to the Company, if at all. Credit Facilities for Land Receivables The Company has a $15.0 million revolving credit facility with another financial institution for the pledge of land receivables. The Company uses the facility as a temporary warehouse until it accumulates a sufficient quantity of land receivables to sell under private placement REMIC transactions. Under the terms of this facility, the Company is entitled to advances secured by Receivables equal to 90% of the outstanding principal balance of eligible pledged Receivables. The interest rate charged on outstanding borrowings is prime plus 2.0%. At March 30, 1997, the outstanding principal balance under the facility was $1.2 million. All principal and interest payments received on pledged Receivables are applied to principal and interest due under the facility. The facility expires and the indebtedness is due in October, 1998. The Company has $3.5 million outstanding and secured by land receivables as of March 30, 1997 with another lender. The interest rate charged under the agreement is prime plus 2.0%. All principal and interest payments received from the pledged Receivables are applied to the principal and interest due under the facility. Furthermore, at no time may Receivable related indebtedness exceed 90% of the face amount of eligible pledged Receivables. The Company is obligated to pledge additional Receivables or make additional principal payments on the Receivable related indebtedness in order to maintain this collateralization rate. Repurchases and additional principal payments have not been material to date. The indebtedness secured by Receivables matures ten years from the date of the last advance. The ability to receive additional advances under the facility expired in October, 1996 and the Company is currently engaged in discussions with the lender about the renewal of the facility. No assurances can be given that the facility will be renewed on terms satisfactory to the Company, if at all. Over the past three years, the Company has received 80% to 90% of its land sales in cash. Accordingly, in recent years the Company has reduced the borrowing capacity under credit agreements secured by land receivables. The Company attributes the significant cash sales to an increased willingness on the part of certain local banks to extend more direct customer lot financing. Financing of Inventories Historically, the Company has financed the acquisition of land and timeshare property through seller, bank or financial institution loans. The capital required for development (for road and utility construction, resort unit construction, amenities, surveys, and engineering fees) has historically been funded from internal operations. Terms for repayment under these loans typically call for interest to be paid monthly and principal to be repaid through lot/interval releases. The release price is usually defined as a pre-determined percentage of the gross selling price (typically 25% to 50%) of the parcels in the subdivision or intervals in the resort. In addition, the agreements generally call for minimum cumulative annual amortization. When the Company provides financing for its customers (and therefore the release price is not available in cash at closing to repay the lender), it is required to pay the creditor with cash derived from other operating activities, principally cash sales or the pledge of Receivables originated from earlier property sales. In addition to term financing for the acquisition of property, the Company has credit arrangements for the development of certain larger land and timeshare projects. See also the discussion of capital requirements to develop the Company's inventories under "Uses of Capital". The Company had a $13.5 million secured line-of-credit with a South Carolina financial institution for the construction and development of Phase I of its Myrtle Beach timeshare resort. The indebtedness was repaid in May, 1997 (and is included in fiscal 1998 repayments in the debt obligation table set forth below). The interest rate charged under the facility was prime plus .5%. At March 30, 1997, there was $11.3 million outstanding under the line-of-credit. In May, 1997 the lender was repaid with proceeds from a take-out loan. The interest rate charged under the take-out loan is the three-month LIBOR plus 4.25%. Principal is repaid through release payments as weekly intervals are sold. Interest is paid monthly. The Company has another credit facility for up to $12.6 million for the development of residential lots and a golf course for a property located in North Carolina. The first development advance occurred in May, 1997 and, accordingly, as of March 30, 1997 there were no outstanding borrowings. The interest rate charged under the agreement is prime plus 1%. The agreement calls for interest to be paid monthly and principal to be repaid through release payments as lots are sold. Total Debt The following table sets forth the minimum contractual principal payments required on the Company's lines-of-credit and notes payable as well as the scheduled principal reductions with respect to receivable-backed indebtedness for years subsequent to 1997. Installments due on lines-of-credit and notes payable primarily consist of payments due on indebtedness secured by property inventory. In most instances, as inventory is sold, the Company is required to repay the creditor a pre-determined percentage of the selling price (typically 25% to 50%). The agreements also generally call for certain minimum amortization. All principal and interest collections on Receivables pledged as collateral for receivable-backed notes payable are dedicated to the payment of principal and interest on the related debt. Under the terms of the receivable-backed note agreements, the Company is not required to advance delinquent customer payments to the creditor. However, in most cases the Company is obligated to maintain a receivable-backed notes payable balance of not more than 90% of eligible pledged Receivables. Lines-of- Receivable- Credit and Backed Notes Notes Payable Payable Total 1998................................ $21,020,491 $ 4,890,941 $25,911,432 1999................................ 5,702,848 5,363,014 11,065,862 2000................................ 5,974,495 5,954,346 11,928,841 2001................................ 590,039 4,846,701 5,436,740 2002................................ 235,052 --- 235,052 Thereafter.......................... 2,382,627 --- 2,382,627 Total............................... $35,905,552 $21,055,002 $56,960,554 The Company is required to comply with certain covenants under several of its debt agreements discussed above, including, without limitation, the following financial covenants: I. Maintain net worth of at least $42.0 million. II. Maintain a leverage ratio of not more than 4.0 to 1.0. The leverage ratio is defined as consolidated indebtedness of the Company divided by consolidated net worth. III. Maintain an adjusted leverage ratio of not more than 2.0 to 1.0. The adjusted leverage ratio is defined as consolidated indebtedness of the Company excluding the convertible subordinated debentures divided by consolidated net worth including the convertible subordinated debentures. IV. Limit selling, general and administrative expenses to 50% of gross revenue from sales of real estate. The Company was in compliance with each of such covenants at March 30, 1997 and for each reporting period during 1997, 1996 and 1995. In recent years, private placement REMIC financings have provided substantial capital resources to the Company. To date, all of the Company's completed REMIC transactions have included land receivables. The Company does not plan to complete a REMIC transaction for land receivables during fiscal 1998 due to the expectation that a high percentage of such sales will be received in cash (and therefore a sufficient quantity of land receivables will not be accumulated to make a REMIC transaction cost effective). In REMIC transactions, (i) the Company sells or otherwise absolutely transfers a pool of mortgage loans to a newly-formed special purpose subsidiary, (ii) the subsidiary sells the mortgage loans to a trust in exchange for certificates representing the entire beneficial ownership in the trust and (iii) the subsidiary sells one or more senior classes of the certificates to an institutional investor in a private placement and retains the remaining certificates, which remaining certificates are subordinated to the senior classes. The certificates are not registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registrations. The certificates are issued pursuant to a pooling and servicing agreement (the "Pooling Agreement"). Collections on the mortgage pool, net of certain servicing and trustee fees, are remitted to the certificateholders on a monthly basis in the order of priority specified in the applicable Pooling Agreement. The Company acts as servicer under the Pooling Agreement and is paid an annualized servicing fee of .5% of the scheduled principal balance of those notes in the mortgage pool on which the periodic payment of principal and interest is collected in full. Under the terms of the Pooling Agreement, the Company has the obligation to repurchase or replace mortgage loans in the pool with respect to which there was a breach of the Company's representations and warranties at the date of sale, which breach materially and adversely affects the rights of certificateholders. In addition, the Company, as servicer, is required to make advances of delinquent payments to the extent deemed recoverable. However, the certificates are not obligations of the Company, the subsidiary or any of their affiliates and the Company has no obligation to repurchase or replace the mortgage loans solely due to delinquency. On May 11, 1994, the Company sold $27.7 million aggregate principal amount of mortgage notes receivable (the "1994 Mortgage Pool") to a subsidiary and the subsidiary sold the 1994 Mortgage Pool to a REMIC Trust (the "1994 REMIC Trust"). Simultaneous with the sale, the 1994 REMIC Trust issued four classes of Adjustable Rate REMIC Mortgage Pass-Through Certificates. The initial principal balances of the Class A, Class B and Class C certificates were approximately $23.3 million, $2.8 million and $1.6 million, respectively. The Class R Certificates have no initial principal balance and do not bear interest. The 1994 REMIC Trust is comprised primarily of a pool of fixed and adjustable rate first mortgage loans secured by property sold by the Company. On May 11, 1994, the subsidiary sold the Class A and Class B Certificates to an institutional investor for aggregate proceeds of approximately $26.0 million in a private placement transaction and retained the Class C and Class R Certificates. A portion of the proceeds from the transaction was used to repay approximately $13.5 million of outstanding debt. An additional $2.4 million was used to retire securities previously sold pursuant to the Company's 1989 REMIC transaction. The balance of the proceeds, after payment of transaction expenses and fees, resulted in an increase of $12.4 million in the Company's unrestricted cash. On July 12, 1995, the Company sold $68.1 million aggregate principal amount of mortgage notes receivable (the "1995 Mortgage Pool") to a subsidiary and the subsidiary sold the 1995 Mortgage Pool to a REMIC Trust (the "1995 REMIC Trust"). Simultaneous with the sale, the 1995 REMIC Trust issued four classes of Adjustable Rate REMIC Mortgage Pass-Through Certificates. The initial principal balances of the Class A, Class B and Class C certificates were approximately $61.3 million, $4.8 million and $2.0 million, respectively. The Class R Certificates have no initial principal balance and do not bear interest. The 1995 REMIC Trust is comprised primarily of a pool of fixed and adjustable rate first mortgage loans secured by property sold by the Company. The $68.1 million of loans comprising the Mortgage Pool were previously owned by the REMIC trust established by the Company in 1992 ($46.8 million) or held by the Company or pledged to an institutional lender ($21.3 million). The Class C and Class R Certificates are subordinated to the Class A and Class B Certificates, as provided in the Pooling Agreement. On July 12, 1995, the subsidiary sold the Class A and Class B Certificates to two institutional investors for aggregate proceeds of approximately $66.1 million in a private placement transaction. The subsidiary retained the Class C and Class R Certificates. A portion of the proceeds from the transaction was used to repay approximately $12.9 million of outstanding debt. An additional $36.3 million was used to retire securities previously sold pursuant to the Company's 1992 REMIC transaction. The balance of the proceeds, after payment of transaction expenses and fees, resulted in an increase of more than $15.8 million in the Company's unrestricted cash. The pre-tax gain from the transaction was approximately $1.1 million and the after-tax gain was approximately $672,000. On May 15, 1996, the Company sold $13.2 million aggregate principal amount of mortgage notes receivable (the "1996-1 Mortgage Pool") to a subsidiary and the subsidiary sold the 1996-1 Mortgage Pool to a REMIC Trust (the "1996-1 REMIC Trust"). Simultaneous with the sale, the 1996-1 REMIC Trust issued three classes of Fixed Rate REMIC Mortgage Pass-Through Certificates. The initial principal balances of the Class A and Class B certificates were approximately $11.8 million and $1.3 million, respectively. The Class R Certificates have no initial principal balance and do not bear interest. The 1996-1 REMIC Trust is comprised primarily of a pool of fixed and adjustable rate first mortgage loans secured by property sold by the Company. On May 15, 1996, the subsidiary sold the Class A Certificates to an institutional investor for aggregate proceeds of approximately $11.8 million in a private placement transaction and retained the Class B and Class R Certificates. A portion of the proceeds from the transaction was used to repay approximately $5.6 million of outstanding debt. An additional $263,000 was used to fund a cash reserve account. The balance of the proceeds, after payment of transaction expenses and fees, resulted in an increase of $5.8 million in the Company's unrestricted cash. On December 11, 1996, the Company sold $5.7 million aggregate principal amount of mortgage notes receivable (the "1996-2 Mortgage Pool") to a subsidiary and the subsidiary sold the 1996-2 Mortgage Pool to a REMIC Trust (the "1996-2 REMIC Trust"). Simultaneous with the sale, the 1996-2 REMIC Trust issued three classes of Fixed Rate REMIC Mortgage Pass-Through Certificates. The initial principal balances of the Class A and Class B certificates were approximately $5.3 million and $400,000, respectively. The Class R Certificates have no initial principal balance and do not bear interest. The 1996-2 REMIC Trust is comprised primarily of a pool of fixed and adjustable rate first mortgage loans secured by property sold by the Company. On December 11, 1996, the subsidiary sold the Class A Certificates to an institutional investor for aggregate proceeds of approximately $5.3 million in a private placement transaction and retained the Class B and Class R Certificates. A portion of the proceeds from the transaction was used to repay approximately $2.6 million of outstanding debt. An additional $115,000 was used to fund a cash reserve account. The balance of the proceeds, after payment of transaction expenses and fees, resulted in an increase of $2.5 million in the Company's unrestricted cash. In addition to the sources of capital available under credit facilities discussed above, the balance of the Company's unrestricted cash and cash equivalents was $3.6 million at March 30, 1997. As discussed under "Uses of Capital", the Company's business has changed in recent years to include timeshare development and sales. Additionally, the Company has recently invested greater resources into fewer, more capital intensive land projects. As of result, capital requirements to develop inventories owned as of March 30, 1997 are materially higher than that historically needed. The Company plans to seek external sources of capital for the development of a substantial portion of its inventories. Based upon existing credit relationships, the current financial condition of the Company and its operating plan, management believes the Company can obtain adequate financial resources to satisfy its anticipated capital requirements, although no assurances can be given. In the event that an existing facility expires and is not amended and/or the Company can not obtain additional capital under satisfactory terms, lower ready-for-sale inventories would result in reduced sales and the Company's ability to meet its liquidity and capital resource requirements would be materially adversely affected. Uses of Capital. The Company's capital resources are used to support the Company's operations, including (i) acquiring and developing inventory, (ii) providing financing for customer purchases, (iii) meeting operating expenses and (iv) satisfying the Company's debt and other obligations. The Company's net inventory was $86.7 million at March 30, 1997 and $73.6 million at March 31, 1996. Management recognizes the inherent risk of carrying increased levels of inventory (including the risk that the inventory will decline in value). Furthermore, during the first quarter of 1997, management changed its focus for marketing certain of its inventories and implemented a plan to accelerate the sale of certain inventories managed under the Communities Division and Land Division. These inventories were intended to be liquidated through a combination of bulk sales and retail sales at reduced prices. As a result, management determined that inventories with a carrying value of $23.2 million should be written-down by $8.2 million to reflect the strategy for accelerated sale. The $8.2 million charge included $4.8 million for certain Communities Division inventories and $3.4 million for certain Land Division inventories. As of March 30, 1997 approximately 50% of the inventories subject to write-down had been sold (as measured by both number of properties and cost basis). Although no assurances can be given, the inventories subject to write-down are expected to be fully liquidated in 12 - 18 months. See "Results of Operations" and Note 4 to the Consolidated Financial Statements. With respect to its inventory holdings, the Company requires capital to (i) improve land intended for recreational, vacation, retirement or primary homesite use by purchasers, (ii) develop timeshare property and (iii) fund its housing operation in certain locations. The Company estimates that the total cash required to complete preparation for the retail sale of the consolidated inventories owned as of March 30, 1997 is approximately $115.2 million. The $115.2 million excludes the cost of any manufactured/modular homes not yet acquired or under contract for sale, which the Company is unable to determine at this time. The Company anticipates spending an estimated $40.4 million of the capital development requirements during fiscal 1998. In addition, the Company acquired two timeshare properties subsequent to year end that will require an estimated $5.6 million in development during fiscal 1998. The allocation of anticipated cash requirements for inventories owned as of March 30, 1997 to operating divisions is discussed below. Land Division: The Company expects to spend $63.6 million to develop land which typically includes expenditures for road and utility construction, amenities, surveys and engineering fees, including $34.0 million to be spent during fiscal 1998. Resorts Division: The Company expects to spend $51.1 million for building materials, amenities and other infrastructure costs such as road and utility construction, surveys and engineering fees, including $5.9 million to be spent during fiscal 1998. Communities Division: The Company expects to spend $510,000 for the purchase of factory built manufactured homes currently under contract for sale, building materials and other infrastructure costs, including road and utility construction, surveys and engineering fees. The Company attempts to pre-qualify prospective home purchasers and secure a purchase contract prior to commencing unit construction to reduce standing inventory risk. The total cash requirement of $510,000 is expected to be spent during 1998. The table to follow outlines certain information with respect to the estimated funds expected to be spent to fully develop property owned as of March 30, 1997. The real estate market is cyclical in nature and highly sensitive to changes in national and regional economic conditions, including, among other factors, levels of employment and discretionary disposable income, consumer confidence, available financing and interest rates. No assurances can be given that actual costs will not exceed those reflected in the table or that historical gross margins which the Company has experienced will not decline in the future as a result of changing market and economic conditions, reduced consumer demand or other factors.
Geographic Region Land Resorts Communities Total Southeast......................... $20,476,568 $12,894,404 $ 509,571 $ 33,880,543 Midwest........................... 7,353,653 38,183,608 --- 45,537,261 Southwest......................... 29,456,380 --- --- 29,456,380 Rocky Mountains .................. 628,630 --- --- 628,630 West ............................. 3,558,090 --- --- 3,558,090 Mid-Atlantic...................... 2,120,309 --- --- 2,120,309 Northeast......................... 36,429 --- --- 36,429 Total estimated spending.......... 63,630,059 51,078,012 509,571 115,217,642 Net inventory at March 30,1997................... 53,451,859 27,523,626 5,685,074 86,660,559 Total estimated cost basis of fully developed inventory.......................$117,081,918 $78,601,638 $6,194,645 $201,878,201
The Company's net inventory summarized by division as of March 30, 1997 and March 31, 1996 is set forth below.
March 30, 1997 ------------------------------------------------------------------------ Geographic Region Land Resorts(1) Communities(2) Total Southeast............ $ 7,997,611 $15,028,592 $ 5,685,074 $28,711,277 Midwest.............. 8,050,969 12,495,034 --- 20,546,003 Southwest............ 19,959,473 --- --- 19,959,473 Rocky Mountains ..... 7,533,939 --- --- 7,533,939 West ................ 5,511,879 --- --- 5,511,879 Mid-Atlantic......... 4,015,647 --- --- 4,015,647 Northeast............ 382,341 --- --- 382,341 Totals............... $53,451,859 $27,523,626 $ 5,685,074 $86,660,559
March 31, 1996 ------------------------------------------------------------------------ Geographic Region Land Resorts(1) Communities(2) Total Southeast............ $ 2,252,239 $ 5,189,815 $ 13,983,521 $21,425,575 Midwest.............. 6,293,008 10,839,389 --- 17,132,397 Southwest............ 15,118,191 --- 142,790 15,260,981 Rocky Mountains ..... 9,299,344 --- 50,800 9,350,144 West ................ 5,923,972 --- --- 5,923,972 Mid-Atlantic......... 2,490,025 --- --- 2,490,025 Northeast............ 1,982,895 --- --- 1,982,895 Canada............... 29,025 --- --- 29,025 Totals............... $43,388,699 $16,029,204 $ 14,177,111 $73,595,014
(1) Resorts Division inventory as of March 30, 1997, consists of land inventory of $5.4 million and $22.1 million of unit construction-in-progress. Resorts Division inventory as of March 31, 1996, consists of land inventory of $6.1 million and $9.9 million of unit construction-in-progress. (2) Communities Division inventory as of March 30, 1997, consists of land inventory of $1.5 million and $4.2 million of housing unit construction-in-progress. Communities Division inventory as of March 31, 1996, consists of land inventory of $10.5 million and $3.7 million of housing unit construction-in-progress. The Company attempts to maintain inventory at a level adequate to support anticipated sales of real estate in its various operating regions. In addition, in its Land Division, the Company is committing more resources to fewer projects in locations where the Company has historically achieved strong operating results such as Texas (Southwest), North Carolina and South Carolina (Southeast), Tennessee (Midwest), Virginia (Mid-Atlantic) and Arizona (West). The Company is also dedicating significant resources to increasing the size of its timeshare inventories. Significant changes in the composition of the Company's inventories as of March 30, 1997 are discussed below. The Company's aggregate Land Division inventory increased by $10.1 million from March 31, 1996 to March 30, 1997. The increase in land holdings is primarily attributable to certain large acquisitions in the Southwestern, Southeastern, Midwestern and Rocky Mountain regions of the country (an aggregate of 14,430 acres), partially offset by sales activity and provisions for the write-down of certain inventories totaling $3.4 million. See Note 4 to the Consolidated Financial Statements. In the Southwest, the Company acquired two Texas properties which include 3,600 acres purchased in June, 1996 for $6.5 million and 1,474 acres purchased in July, 1996 for $2.9 million. In the Southeast, the Company acquired 1,098 acres located in North Carolina for $2.7 million in June, 1996. These three projects are intended to be used as primary and secondary homesites and, although no assurances can be given, the term to sell-out is estimated to be five years. The Company also acquired two properties in Tennessee covering 1,118 acres for $3.6 million. In Colorado, the Company acquired 4,450 acres for $1.4 million in May, 1996 and 2,690 acres for $1.1 million in August, 1996. The increase in inventory as a result of these seven acquisitions was partially offset by sales activity. Although no assurances can be given, future acquisitions will be focused primarily in the Company's five most profitable markets which include Texas, North Carolina, Virginia, Tennessee and Arizona. The Company's aggregate resort inventory increased by $11.5 million from March 31, 1996 to March 31, 1997. The increase was attributable to additional infrastructure development at each of the Company's two Tennessee resorts and South Carolina resort, partially offset by sales activity at the projects. The Company's aggregate communities inventory decreased by $8.5 million from March 31, 1996 to March 30, 1997. The decrease in land inventory, which resulted from sales activity and $4.8 million in provisions for losses, was partially offset by additional housing unit construction-in-progress associated with the Company's manufactured and modular home developments in North Carolina. The Company does not intend to acquire any additional communities related inventories and present operations will be terminated through a combination of retail sales efforts and the bulk sale of the remaining assets. The Company offers financing of up to 90% of the purchase price of land real estate sold to all purchasers of its properties who qualify for such financing. The Company also offers financing of up to 90% of the purchase price to timeshare purchasers. During 1997 and 1996, the Company received 30% and 26%, respectively, of its consolidated sales of real estate which closed during the period in the form of Receivables. The increase in the percentage of sales financed by the Company from 1996 to 1997 is primarily attributable to an increase in timeshare sales over the same period. Timeshare sales accounted for 25% of consolidated sales of real estate during 1997, compared to 12% of consolidated sales during 1996. Almost all timeshare buyers finance with the Company (compared to one out of ten land buyers). During 1995, the Company received 24% of its consolidated sales of real estate which closed during the period in the form of Receivables. The lower percentage of sales financed during 1995 compared to 1996 was primarily attributable to (i) an increased willingness on the part of certain local banks to extend more direct customer lot financing during 1995 and (ii) an increased amount of home sales in the revenue mix during 1995, the proceeds of which were received entirely in cash. At March 30, 1997, $27.0 million of Receivables were pledged as collateral to secure Company indebtedness, while $8.8 million of Receivables were not pledged or encumbered. At March 31, 1996, $27.0 million of Receivables were pledged as collateral to secure Company indebtedness while $10.9 million of Receivables were not pledged or encumbered. The table below provides further information on the Company's land and timeshare receivables at March 30, 1997 and March 31, 1996. Proceeds from home sales under the Company's Communities Division are received entirely in cash. (Dollars In Millions) March 30, 1997 March 31, 1996 ----------------------------- ------------------------------- Receivables Land Timeshare Total Land Timeshare Total Encumbered....... $ 8.1 $18.9 $27.0 $ 18.4 $ 8.6 $ 27.0 Unencumbered..... 4.2 4.6 8.8 7.8 3.1 10.9 Total............ $12.3 $23.5 $35.8 $ 26.2 $11.7 $ 37.9 The reduction in encumbered land Receivables from March 31, 1996 to March 30, 1997 was primarily attributable to the repayment of receivable-backed debt and the sale of Receivables pursuant to the 1996-1 and 1996-2 REMIC transactions. See "Sources of Capital". The table below provides information with respect to the loan-to-value ratio of land and timeshare receivables held by the Company at March 30, 1997 and March 31, 1996. Receivables held include those which are unencumbered and those which have been pledged to secure indebtedness of the Company. Loan-to-value ratio is defined as the unpaid balance of the loan divided by the contract purchase price. March 30, 1997 March 31, 1996 -------------------- --------------------- Receivables Land Timeshare Land Timeshare Loan-to-Value Ratio ... 54% 78% 63% 75% Because the Company sold a substantial portion of its less seasoned land receivables in connection with the 1996 REMICs (and retained the more seasoned land receivables), the related loan-to-value ratio was lower at March 30, 1997 than at March 31, 1996. In cases of default by a customer on a land mortgage note, the Company may forgive the unpaid balance in exchange for title to the parcel securing such note. Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at the lower of estimated fair value (net of costs to dispose) or the balance of the loan. Related costs incurred to reacquire, carry and dispose of the property are capitalized to the extent deemed recoverable. Timeshare loans represent contracts for deed. Accordingly, no foreclosure process is required. Following a default on a timeshare note, the purchaser ceases to have any right to use the applicable unit and the timeshare interval can be resold to a new purchaser. Reserve for loan losses as a percentage of period end notes receivable was 3.4% and 2.4% at March 30, 1997 and March 31, 1996, respectively. The adequacy of the Company's reserve for loan losses is determined by management and reviewed on a regular basis considering, among other factors, historical frequency of default, loss experience, present and expected economic conditions as well as the quality of Receivables. The increase in the reserve for loan losses as a percent of period end loans is primarily the result of the portfolio consisting of more timeshare receivables where historical default rates exceed those on land receivables. At March 30, 1997, approximately 6% or $2.1 million of the aggregate $36.7 million principal amount of loans which were held by the Company or by third parties under sales for which the Company had a recourse liability, were more than 30 days past due. Of the $36.7 million principal amount of loans, $35.8 million were held by the Company, while approximately $840,000 were associated with programs under which the Company has a limited recourse liability. In most cases of limited recourse liability, the recourse to the Company terminates when the principal balance of the loan becomes 70% or less of the original selling price of the property underlying the loan. At March 31, 1996, approximately 7% or $2.8 million of the aggregate $39.2 million principal amount of loans which were held by the Company or by third parties under sales for which the Company had a recourse liability, were more than 30 days past due. Factors contributing to delinquency (including the economy and levels of unemployment in some geographic areas) are believed to be similar to those experienced by other lenders. In July, 1996, the Company's Board of Directors authorized the repurchase of up to 500,000 shares of the Company's common stock in the open market from time to time subject to the Company's financial condition and liquidity, the terms of its credit agreements, market conditions and other factors. As of March 30, 1997, 443,000 shares had been repurchased at an average cost of $3.09 per share. Results of Operations The following tables set forth selected financial data for the business units comprising the consolidated operations of the Company for the years ended March 30, 1997, March 31, 1996 and April 2, 1995. This information should be read in conjunction with the Consolidated Financial Statement and related Notes. General The real estate market is cyclical in nature and highly sensitive to changes in national and regional economic conditions, including, among other factors, levels of employment and discretionary disposable income, consumer confidence, available financing and interest rates. Management believes that general economic conditions have strengthened in many of its principal markets of operation. A downturn in the economy in general or in the market for real estate could have a material adverse effect on the Company. In addition, the Company has been dedicating greater resources to fewer, more capital intensive land and timeshare projects. As a result, the current results reflect an increased amount of revenue deferred under the percentage of completion method of accounting. Under this method of revenue recognition, income is recognized as work progresses. Measures of progress are based on the relationship of costs incurred to date to expected total costs. See "Contracts Receivable and Revenue Recognition" under Note 1 to the Consolidated Financial Statements. Seasonality/Fluctuating Results The Company has historically experienced and expects to continue to experience seasonal fluctuations in its gross revenues and net earnings in the third fiscal quarter. This seasonality may cause significant fluctuations in the quarterly operating results of the Company. In addition, additional material fluctuations in operating results may occur due to the timing of development and the Company's use of the percentage of completion method of accounting. Management expects that the Company will continue to invest in projects that will require more substantial development (with greater capital requirements) than in years prior to 1997. Impact of Inflation Inflation and changing prices have not had a material impact on the Company's revenues and results of operations during any of the three most recent years. Due to the current economic climate, the Company does not expect that inflation and changing prices will have a material impact on the Company's revenues or earnings. To the extent inflationary trends affect short-term interest rates, a portion of the Company's debt service costs may be affected as well as the rate the Company charges on its Receivables.
(Dollars in Thousands) Year Ended March 30, 1997 Land Resorts Communities Total Sales of real estate. $72,621 100.0% $27,425 100.0% $9,675 100.0% $109,721 100.0% Cost of real estate sold (1)............ 39,792 54.8% 7,947 29.0% 9,351 96.7% 57,090 52.0% Gross profit......... 32,829 45.2% 19,478 71.0% 324 3.3% 52,631 48.0% Field selling, general and administrative expense(2).......... 23,297 32.1% 17,806 64.9% 820 8.5% 41,923 38.2% Field operating profit(loss)(3)..... $ 9,532 13.1% $ 1,672 6.1% $( 496) (5.2)% $10,708 9.8%
(Dollars in Thousands) Year Ended March 31, 1996 Land Resorts Communities Total Sales of real estate. $84,859 100.0% $13,825 100.0% $14,739 100.0 % $113,423 100.0% Cost of real estate sold (1)............ 41,510 48.9% 4,550 32.9% 13,333 90.5 % 59,393 52.4% Gross profit......... 43,349 51.1% 9,275 67.1% 1,406 9.5 % 54,030 47.6% Field selling, general and administrative expense (2)......... 24,649 29.0% 8,591 62.1% 2,727 18.5 % 35,967 31.7% Field operating profit(loss) (3).... $18,700 22.1% $ 684 5.0% $(1,321) (9.0)% $18,063 15.9%
(Dollars in Thousands) Year Ended April 2, 1995 Land Resorts Communities Total Sales of real estate. $72,621 100.0% $5,886 100.0% $13,415 100.0% $91,922 100.0% Cost of real estate sold (1)............ 31,082 42.8% 2,225 37.8% 11,799 88.0% 45,106 49.1% Gross profit......... 41,539 57.2% 3,661 62.2% 1,616 12.0% 46,816 50.9% Field selling, general and administrative expense (2)......... 22,647 31.2% 3,523 59.9% 1,863 13.9% 28,033 30.5% Field operating profit (loss) (3)... $18,892 26.0% $ 138 2.3% $ (247) ( 1.9)% $18,783 20.4%
(1) Cost of sales represents the cost of inventory including the cost of improvements, amenities and in certain cases capitalized interest. (2) General and administrative expenses attributable to corporate overhead have been excluded from the tables. Corporate general and administratives expense totaled $9.5 million, $7.8 million and $8.5 million for 1997, 1996 and 1995, respectively. (3) The tables presented above outline selected financial data. Accordingly, interest income, interest expense, provisions for losses, other income and income taxes have been excluded. Sales and Business Line Data Consolidated sales of real estate decreased 3% to $109.7 million for 1997 compared to $113.4 million for 1996 and $91.9 million for 1995. Increases in 1997 timeshare sales were more than offset by lower land and communities sales. Among other reasons, decreases in 1997 land revenues were the result of $6.7 million more in sales being deferred and subject to percentage of completion accounting. The Company's leisure products business is currently operated through three divisions. The Land Division acquires large acreage tracts of real estate which are subdivided, improved and sold, typically on a retail basis. The Resorts Division acquires and develops timeshare property to be sold in vacation ownership intervals. Vacation ownership is a concept whereby fixed week intervals or undivided fee simple interests are sold in fully-furnished vacation units. The Communities Division is engaged in the development and sale of primary residential homes at selected sites together with land parcels. The Company does not intend to acquire any additional communities related inventories and present operations are being terminated through a combination of retail sales and bulk sales. Land Division During 1997, 1996 and 1995, land sales contributed $72.6 million or 66%, $84.9 million or 75% and $72.6 million or 79%, respectively, of the Company's total consolidated revenues from the sale of real estate. The following table sets forth certain information for sales of parcels associated with the Company's Land Division for the periods indicated, before giving effect to the percentage of completion method of accounting. Accordingly, the calculation of multiplying the number of parcels sold by the average sales price per parcel yields aggregate sales different than that reported on the earlier table (outlining sales revenue by business unit after applying percentage of completion accounting to sales transactions). Years Ended ------------------------------------------ March 30, March 31, April 2, 1997 1996 1995 Number of parcels sold............ 2,057 2,347 2,397 Average sales price per parcel.... $38,572 $34,856 $30,969 Gross margin (1).................. 45% 51% 57% 1) Gross margin is computed as the difference between the sales price and the related cost of inventory (including the cost of improvements, amenities and in certain cases capitalized interest), divided by the sales price. A charge of $3.4 million was recorded during 1997 for the write-down of certain inventories and is included in the Consolidated Statement of Operations under "Provisions for losses". The table set forth below outlines the numbers of parcels sold and the average sales price per parcel for the Company's Land Division by geographic region for the periods indicated.
Years Ended ------------------------------ -------------------------------- ---------------------------------- March 30, 1997 March 31, 1996 April 2, 1995 Average Average Average Number of Sales Price Number of Sales Price Number of Sales Price Geographic Region Parcels Sold Per Parcel Parcels Sold Per Parcel Parcels Sold Per Parcel Southwest......... 1,131 $ 39,719 1,117 $ 37,489 1,107 $ 34,999 Southeast......... 291 $ 35,736 223 $ 36,925 289 $ 28,311 Rocky Mountains. 218 $ 40,499 297 $ 44,524 339 $ 32,033 Midwest........... 175 $ 24,111 334 $ 27,451 317 $ 28,740 West.............. 34 $ 147,816 19 $ 138,347 --- $ --- Mid-Atlantic...... 152 $ 31,605 236 $ 21,951 215 $ 23,136 Northeast......... 53 $ 20,982 106 $ 12,472 113 $ 19,382 Canada............ 3 $ 10,545 15 $ 11,674 17 $ 10,160 Totals............ 2,057 $ 38,572 2,347 $ 34,856 2,397 $ 30,969
1996 vs 1997 Comparison of Land Division Parcels Sold and Average Sales Prices The number of parcels sold in the Southwest, which includes Texas and New Mexico, increased during 1997 due to more sales made from the Company's Houston, Texas and Dallas, Texas projects than during 1996. The increase in sales from these markets in the current year was partially offset by lower sales from San Antonio, Texas properties due to a temporary shortage of ready-to-market inventories which was remedied with a large acquisition in June, 1996. The number of parcels sold in the Southeast, which includes North and South Carolina, increased during 1997 due to the recent introduction of lots from an 1,100 acre golf course community located in North Carolina. It is expected that the average selling price of land sales from the Southeast will increase during 1998. The number of parcels sold in the Rocky Mountains region decreased during 1997 due to fewer sales from the Company's Idaho and Montana properties. The Company does not expect to expand operations in these states beyond the properties currently being marketed. The number of parcels sold in the Midwest decreased during 1997 due to a shortage of inventory in Tennessee. The Company acquired two Tennessee properties during the fourth quarter of 1997. Sales activity at the projects recently commenced. Sales in the West in 1996 and 1997 were derived from the Company's subdivision in Arizona. Greater parcel sales and higher average sales prices are indicative of the project gaining more momentum as it matures. The Arizona property is being marketed in parcels of at least 35 acres at retail prices from $130,000 to $150,000. Projects in the Mid-Atlantic region have historically been located in Pennsylvania, Virginia and West Virginia. Lower parcel sales in 1997 reflect reduced inventory holdings in Pennsylvania and West Virginia where the Company has no plans for expansion. The number of parcels sold in the Northeast and Canada reflect lower inventory levels in these regions where the Company has no plans for expansion. The Company plans to continue to dedicate greater resources to fewer land properties located in areas with proven records of strong operating performance. These locations include, but are not limited to: Texas, the Carolinas, Virginia, Tennessee and Arizona. 1995 vs 1996 Comparison of Land Division Parcels Sold and Average Sales Prices The number of parcels sold in the Southwest increased only slightly from 1995 to 1996 due to a shortage of ready-to-market Texas property during the first quarter. The reduction in the number of sales from Texas properties was offset by an increase in the number of sales from the Company's New Mexico project. The average sales price per parcel in the Southwest increased during 1996 due to a greater number of parcel sales from the Company's New Mexico project at a higher average selling price than during 1995. There were 139 sales from the New Mexico project at an average sales price of $44,141 during 1996 compared to 71 sales at an average sales price of $41,599 during 1995. The number of parcels sold in the West increased due to the Company's entry into the Arizona market during 1996. The number of parcels sold in the Rocky Mountains region decreased during 1996 due to fewer sales from the Company's Montana properties, partially offset by more sales from Colorado properties. The average sales price per parcel in the Rocky Mountains region increased during 1996 due to the sale of larger acreage tracts in two projects located in Colorado. In addition, during 1996 the average sales price was affected by a single bulk sale constituting approximately 8,300 acres in Colorado for $2.5 million. The average sales price per parcel in the Rocky Mountains region, excluding the $2.5 million bulk sale, was $36,228. The number of parcels sold in the Midwest increased during 1996 due to more sales momentum from the Tennessee properties which were reaching maturity. The number of parcels sold in the Southeast decreased because of slow sales in a new project in South Carolina during the first quarter of 1996. This was partially offset by higher sales of more expensive parcels from a North Carolina property. Comparison of Land Division Gross Margins The average gross margin for the Land Division was 45%, 51% and 57% for 1997, 1996 and 1995, respectively. The decrease in the gross margin from 1995 to 1997 was attributable to the continued liquidation of properties where the Company is discontinuing land operations (and experienced sub-par operating results) in locations such as the Northeast, Pennsylvania, West Virginia, Montana and Idaho. The Company's Investment Committee, consisting of four executive officers, approves all property acquisitions. In order to be approved for purchase by the Committee, all land (and timeshare) properties under contract for purchase are expected to achieve certain minimum economics including a minimum gross margin. No assurances can be given that such minimum economics will be achieved. During the first quarter of fiscal 1997, the Company recorded provisions for the write-down of certain land inventories in the amount of $3.4 million. See discussion later herein and Note 4 to the Consolidated Financial Statements. Resorts Division During 1997, 1996 and 1995, sales of timeshare intervals contributed $27.4 million or 25%, $13.8 million or 12% and $5.9 million or 6%, respectively, of the Company's total consolidated revenues from the sale of real estate. The following table sets forth certain information for sales of intervals associated with the Company's Resorts Division for the periods indicated, before giving effect to the percentage of completion method of accounting. Accordingly, the calculation of multiplying the number of intervals sold by the average sales price per interval yields aggregate sales different than that reported on the earlier table (outlining sales revenue by business unit after applying percentage of completion accounting to sales transactions). Years Ended ------------------------------------ March 30, March 31, April 2, 1997 1996 1995 Number of intervals sold............. 3,195 1,865 952 Average sales price per interval..... $8,362 $7,325 $7,119 Gross margin (1).................... 71% 67% 62% 1) Gross margin is computed as the difference between the sales price and the related cost of inventory (including the cost of improvements, amenities and in certain cases capitalized interest), divided by the sales price. The number of timeshare intervals sold increased to 3,195 during 1997 compared to 1,865 during 1996 and 952 during 1995. During 1995, all interval sales were generated from the Company's first resort in Gatlinburg, Tennessee. During 1996, 1,374 intervals were sold from the Gatlinburg resort, 484 intervals were sold from the Company's second resort in neighboring Pigeon Forge, Tennessee and seven intervals were sold from the Company's resort in Myrtle Beach, South Carolina. During 1997, 1,451 intervals were sold from the Gatlinburg resort, an additional 976 intervals were sold from the Company's second resort in neighboring Pigeon Forge, Tennessee and 768 intervals were sold from the Company's resort in Myrtle Beach, South Carolina. An immaterial amount of revenues were deferred under the percentage of completion method of accounting at March 30, 1997. Gross margins on interval sales increased from 62% for 1995 to 67% for 1996 to 71% for 1997. During 1997, gross margins from the Company's resorts in Gatlinburg, Pigeon Forge and Myrtle Beach were 69%, 72% and 73%, respectively. The improvement in gross margins from the Company's resorts was primarily the result of increases to the retail selling prices. Although no assurances can be given, the Company may raise retail selling prices further during fiscal 1998. Communities Division During 1997, the Company's Communities Division contributed $9.7 million in sales revenue, or approximately 9% of total consolidated revenues from sales of real estate. During 1996, the Company's Communities Division contributed $14.7 million in sales revenue, or approximately 13% of total sales of real estate. During 1995, the Communities Division generated $13.4 million in sales revenue, or approximately 15% of total sale of real estate. The following table sets forth certain information for sales associated with the Company's Communities Division for the periods indicated. Years Ended --------------------------------------- March 30, March 31, April 2, 1997 1996 1995 Number of homes/lots sold........ 146 206 133 Average sales price.............. $66,422 $71,546 $100,866 Gross margin (1)................. 3% 10% 12% 1) Gross margin is computed as the difference between the sales price and the related cost of inventory (including the cost of improvements) divided by the sales price. A charge of $4.8 million was recorded during 1997 for the write-down of certain inventories managed under the Communities Division and is included in the Consolidated Statement of Operations under "Provisions for losses". The reduction in the average sales price from 1995 to 1997 was primarily attributable to a fewer number of site-built homes and a greater number of lot-only sales. The $9.7 million in 1997 sales was comprised of 73 manufactured homes with an average sales price of $79,282, an additional 4 site-built homes with an average sales price of $172,225 and 69 sales of lots at an average sales price of $46,355. The $14.7 million in 1996 sales was comprised of 114 manufactured homes with an average sales price of $75,232, an additional 20 site-built homes with an average sales price of $198,592, 71 sales of lots-only at an average sales price of $23,279 and one larger acreage Southwestern bulk lot sale for $530,320. The $13.4 million in 1995 sales was comprised of 110 manufactured homes with an average sales price of $77,243 and 23 site-built homes with an average sales price of $213,640. During 1997, the Company recorded provisions for the write-down of certain communities related inventories in the amount of $4.8 million. See Note 4 to the Consolidated Financial Statements and discussion of provision for losses later herein. The tables set forth below outline sales by geographic region and division for the years indicated.
Year Ended March 30, 1997 ----------------------------------------------------------------------------- Geographic Region Land Resorts Communities Total % Southwest............ $41,586,115 $ --- $ 157,000 $ 41,743,115 38.1% Southeast............ 8,299,410 7,682,005 9,363,246 25,344,661 23.1% Midwest.............. 3,970,953 19,743,566 --- 23,714,519 21.6% Rocky Mountains ..... 8,828,680 --- 154,750 8,983,430 8.2% West................. 4,875,073 --- --- 4,875,073 4.4% Mid-Atlantic......... 3,917,096 --- --- 3,917,096 3.6% Northeast............ 1,112,033 --- --- 1,112,033 1.0% Canada............... 31,634 --- --- 31,634 .0% Totals............... $72,620,994 $27,425,571 $ 9,674,996 $109,721,561 100.0%
Year Ended March 31, 1996 ---------------------------------------------------------------------------- Geographic Region Land Resorts Communities Total % Southwest............ $43,457,483 $ --- $ 2,734,570 $ 46,192,053 40.7% Southeast............ 8,569,869 --- 11,594,167 20,164,036 17.8% Midwest.............. 9,981,574 13,825,162 --- 23,806,736 21.0% Rocky Mountains ..... 13,223,744 --- 409,817 13,633,561 12.0% West................. 2,628,600 --- --- 2,628,600 2.3% Mid-Atlantic......... 5,500,146 --- --- 5,500,146 4.8% Northeast............ 1,321,982 --- --- 1,321,982 1.2% Canada............... 175,114 --- --- 175,114 .2% Totals............... $84,858,512 $13,825,162 $14,738,554 $113,422,228 100.0%
Year Ended April 2, 1995 -------------------------------------------------------------------------------- Geographic Region Land Resorts Communities Total % Southwest............ $38,600,075 $ --- $ 2,012,112 $ 40,612,187 44.2% Southeast............ 7,846,343 --- 7,881,426 15,727,769 17.1% Midwest.............. 8,297,375 5,886,427 --- 14,183,802 15.4% Rocky Mountains ..... 10,859,280 --- 3,521,637 14,380,917 15.6% Mid-Atlantic......... 4,654,483 --- --- 4,654,483 5.1% Northeast............ 2,190,110 --- --- 2,190,110 2.4% Canada............... 172,722 --- --- 172,722 .2% Totals............... $72,620,388 $5,886,427 $13,415,175 $ 91,921,990 100.0%
Interest Income Interest income was $6.2 million for 1997 compared to $7.4 million and $7.3 million for 1996 and 1995, respectively. The Company's interest income is earned from its note receivables, securities retained pursuant to REMIC financings and cash and cash equivalents. Interest income for each year was also affected by the sale of receivables in REMIC transactions. The table set forth below outlines interest income earned from each category of asset for the periods indicated. Years Ended ----------------------------------- March 30, March 31, April 2, Interest income and other: 1997 1996 1995 Receivables held and servicing fees from whole-loan sales.......................$4,539,673 $4,232,887 $4,561,825 Securities retained in connection with REMIC financings including REMIC servicing fee.... 1,367,377 1,602,831 2,556,274 Gain (loss) on REMIC transaction............. (96,211) 1,119,572 (411,000) Cash and cash equivalents.................... 348,070 432,805 556,660 Totals.......................................$6,158,909 $7,388,095 $7,263,759 The table to follow sets forth the average interest bearing assets for the twelve month periods indicated. March 30, March 31, April 2, 1997 1996 1995 Average interest bearing assets Receivables ............................... $33,671,030 $33,689,211 $36,788,911 Securities retained in connection with REMIC financings ................................ 10,917,033 11,802,168 21,877,283 Cash and cash equivalents................... 8,310,996 7,894,825 12,370,222 Totals...................................... $52,899,059 $53,386,204 $71,036,416 The reduction in securities retained in connection with REMIC financings from 1995 to 1996 was the result of the retirement of securities issued pursuant to the Company's 1992 REMIC. The mortgage notes receivable securing the certificate obligations were sold in connection with the Company's REMIC transaction completed in July, 1995. Selling, General and Administrative Expenses S,G & A expenses totaled $51.4 million, $43.7 million and $36.5 million for 1997, 1996 and 1995, respectively. As a percentage of sales of real estate, S,G & A expenses increased from 39% for 1996 to 47% for 1997. S,G&A expenses as a percent of sales were 40% for 1995. The increase as a percent of sales in 1997 was largely the result of higher S,G&A expenses for the Resorts Division as well as higher corporate general and administrative expenses. The Company has invested in human resources and other infrastructure to support the anticipated long-term growth of its Resorts Division during 1997. Furthermore, marketing expense tends to be higher during the early years of a resort project and decreases as the property reaches some maturity. Although no assurances can be given, management expects S,G&A expenses as a percent of sales to decline in fiscal 1998. The tables to follow sets forth comparative S,G&A expense information for the periods indicated.
(Dollars in Thousands) Year Ended March 30, 1997 Land Resorts Communities Total Sales of real estate....... $72,621 100.0% $27,425 100.0% $9,675 100.0% $109,721 100.0% Field selling, general and administrative expense (1).... 23,297 32.1% 17,806 64.9% 820 8.5% 41,923 38.2%
(Dollars in Thousands) Year Ended March 31, 1996 Land Resorts Communities Total Sales of real estate......... $84,859 100.0% $13,825 100.0% $14,739 100.0% $113,422 100.0% Field selling, general and administrative expense (1).... 24,649 29.0% 8,591 62.1% 2,727 18.5% 35,967 31.7%
(Dollars in Thousands) Year Ended April 2, 1995 Land Resorts Communities Total Sales of real estate......... $72,621 100.0% $5,886 100.0% $13,415 100.0% $91,922 100.0% Field selling, general and administrative expense (1)... 22,647 31.2% 3,523 59.9% 1,863 13.9% 28,033 30.5%
(1) General and administrative expenses attributable to corporate overhead have been excluded from the tables. Corporate general and administrative expenses totaled $9.5 million, $7.8 million and $8.5 million for 1997, 1996 and 1995, respectively. Interest Expense Interest expense totaled $5.5 million, $6.3 million and $6.7 million for 1997, 1996 and 1995, respectively. The 13% decrease in interest expense for 1997 was primarily attributable to an increase in the amount of interest capitalized to inventory. The Company capitalized interest totaling $1.9 million during 1996, compared to $3.0 million for 1997. The increase in capitalized interest is the direct result of the Company acquiring certain inventory which requires significant development with longer sell-out periods (and therefore qualifying for interest capitalization). The effective cost of borrowing (when adding back capitalized interest) was 10.2%, 11.1% and 10.5% for 1997, 1996 and 1995, respectively. The table set forth below outlines the components of interest expense for the periods indicated. March 30, March 31, April 2, 1997 1996 1995 Interest expense on: Receivable-backed notes payable............$1,821,359 $1,903,293 $1,982,603 Lines-of-credit and notes payable.......... 2,796,513 2,150,937 1,583,193 8.25% convertible subordinated debentures.. 2,865,967 2,865,967 2,865,967 Other financing costs...................... 945,449 1,259,718 732,792 Capitalization of interest.................(2,970,369) (1,903,728) (426,868) Totals.....................................$5,458,919 $6,276,187 $6,737,687 The table to follow sets forth the average indebtedness for the periods indicated. March 30, March 31, April 2, 1997 1996 1995 Average indebtedness Receivable-backed notes payable............$17,761,443 $17,093,771 $17,701,813 Lines-of-credit and notes payable.......... 29,806,556 21,648,296 15,959,607 8.25% convertible subordinated debentures.. 34,739,000 34,739,000 34,739,000 Totals.....................................$82,306,999 $73,481,067 $68,400,420 Provisions for losses During the first quarter of 1997, management changed its focus for marketing certain of its inventories in conjunction with a plan to accelerate the sale of properties managed under the Communities Division and certain properties managed under the Land Division. These inventories are being liquidated through a combination of bulk sales and retail sales at substantially reduced prices. Because of the strategy to accelerate sales, management determined that inventories with a carrying value of $23.2 million should be written-down by $8.2 million. The $8.2 million in provisions included $4.8 million for certain Communities Division inventories and $3.4 million for certain Land Division inventories. The Company's Communities Division primarily consists of three North Carolina properties acquired in 1988. The Company began marketing home/lot packages in 1995 to accelerate sales at the properties. However, the projects had been slow-moving and yielded low gross profits and little to no operating profits. A majority of the Land Division parcels subject to write-down were scattered lots acquired through foreclosure or deedback in lieu of foreclosure, odd lots from former projects or properties located in parts of the country where the Company has no plans for expansion. Because the Company is focused on growth in its Resort Division and certain locations under the Land Division where capital requirements to develop these properties are significant, management adopted a plan to aggressively pursue opportunities for the bulk sale of a portion of the written-down assets and has reduced retail selling prices on others to increase sales activity. As of March 30, 1997 approximately 50% of the inventories subject to write-down had been sold (as measured by both number of properties and cost basis). Although no assurances can be given, the remaining inventories which were the subject of write-down are expected to be fully liquidated in 12 - 18 months. The Company recorded provisions for loan losses (or related advanced real estate taxes for delinquent customers) totaling $1.3 million, $612,000 and $792,000 during 1997, 1996 and 1995, respectively. Because a greater percentage of the 1997 note portfolio consists of timeshare loans (where historical default rates exceed those for land loans), higher provisions were recorded. See related discussion of notes receivable under "Uses of Capital". Summary Income (loss) from consolidated operations was $(7.6) million, $10.8 million and $10.0 million for 1997, 1996 and 1995, respectively. The reduction from 1996 to 1997 was primarily the result of higher S,G&A expenses and increased provisions for losses (particularly for the $8.2 million write-down of certain inventories). The improvement from 1995 to 1996 was primarily the result of increased sales of real estate and higher net interest spread (representing the difference between interest income and interest expense) partially offset by a lower average consolidated gross margin. Gains and losses from sources other than normal operating activities of the Company are reported separately as other income (expense). Other income for 1997, 1996 and 1995 was not material to the Company's results of operations. The Company recorded a tax benefit of 41% for 1997. The Company recorded a tax provision of 41% of pre-tax income for 1996 and 1995. Net loss was $4.4 million for 1997. Net income was $6.5 million and $6.1 million for 1996 and 1995, respectively. The reduction from 1996 to 1997 was primarily the result of higher S,G&A expenses and increased provisions for losses (particularly for the $8.2 million write-down of certain inventories). The improvement from 1995 to 1996 was primarily the result of increased sales of real estate and higher net interest spread (representing the difference between interest income and interest expense) partially offset by a lower average consolidated gross margin. Report of Management We have prepared the consolidated financial statements and other sections of this annual report and are responsible for all information and representations contained therein. Such consolidated financial information was prepared in accordance with generally accepted accounting principles appropriate in the circumstances, based on our best estimates and judgments. The Company maintains accounting and internal control systems which were designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and to produce records adequate for preparation of financial information. The systems are established and monitored in accordance with written policies which set forth management's responsibility for proper internal accounting controls. The internal accounting control system is augmented by written guidelines and careful selection and training of qualified personnel. The consolidated financial statements have been audited by Ernst & Young LLP, independent certified public accountants, in accordance with generally accepted auditing standards. In connection with their audit, Ernst & Young LLP has developed an understanding of our accounting and financial controls and conducted such tests and related procedures as they consider necessary to render their opinion on our consolidated financial statements. The financial data contained in this annual report was subject to review by the Audit Committee of the Board of Directors. The Audit Committee, composed of three directors who are not employees, meets periodically during the year with Ernst & Young LLP and with management to review accounting, auditing, internal control and financial reporting matters. Management also recognizes its responsibility for fostering a strong ethical climate so that the Company's affairs are conducted according to the highest standards of personal and corporate conduct. We believe that our policies and procedures provide reasonable assurance that operations are conducted in conformity with applicable laws and with our commitment to a high standard of business conduct. George F. Donovan President and Chief Executive Officer Mary Jo Wiegand Vice President and Controller May 2, 1997 Report of Independent Certified Public Accountants The Board of Directors and Shareholders Bluegreen Corporation We have audited the accompanying consolidated balance sheets of Bluegreen Corporation as of March 30, 1997 and March 31, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bluegreen Corporation at March 30, 1997 and March 31, 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 30, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP West Palm Beach, Florida May 2, 1997
BLUEGREEN CORPORATION Consolidated Balance Sheets March 30, March 31, Assets 1997 1996 Cash and cash equivalents (including restricted cash of approximately $8.0 million and $7.7 million at March 30, 1997 and March 31, 1996, respectively)....... $ 11,597,147 $ 11,389,141 Contracts receivable, net................................. 14,308,424 12,451,207 Notes receivable, net..................................... 34,619,325 37,013,802 Investment in securities.................................. 11,066,693 9,699,435 Inventory, net............................................ 86,660,559 73,595,014 Property and equipment, net............................... 4,948,554 5,239,100 Debt issuance costs, net.................................. 1,063,755 1,288,933 Other assets.............................................. 5,362,572 4,286,401 Total assets........................................... $169,627,029 $154,963,033 Liabilities and Shareholders' Equity Accounts payable.......................................... $ 1,917,907 $ 2,557,797 Deferred revenue.......................................... 3,791,924 746,955 Accrued liabilities and other............................. 10,118,268 9,142,108 Lines-of-credit and notes payable......................... 35,905,552 17,287,767 Deferred income taxes..................................... 2,855,946 6,067,814 Receivable-backed notes payable........................... 21,055,002 19,723,466 8.25% convertible subordinated debentures................. 34,739,000 34,739,000 Total liabilities...................................... 110,383,599 90,264,907 Commitments and contingencies............................. Shareholders' Equity Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued................................ --- --- Common stock, $.01 par value, 90,000,000 shares authorized; 20,601,871 and 20,533,410 shares outstanding at March 30, 1997 and March 31, 1996, respectively........................................... 206,019 205,334 Capital-in-excess of par value............................ 71,410,755 71,296,158 Accumulated deficit....................................... (11,162,923) (6,803,366) Treasury stock, 443,000 common shares at March 30, 1997 at cost................................ ( 1,369,772) --- Net unrealized gains on investments available-for-sale, net of income taxes........................................... 159,351 --- Total shareholders' equity................................ 59,243,430 64,698,126 Total liabilities and shareholders' equity............. $169,627,029 $154,963,033
See accompanying notes to consolidated financial statements.
BLUEGREEN CORPORATION Consolidated Statements of Operations Years Ended ----------------- ------------------ -------------- March 30, March 31, April 2, 1997 1996 1995 Revenues: Sales of real estate................................ $ 109,721,561 $113,422,228 $91,921,990 Interest income and other........................... 6,158,909 7,388,095 7,263,759 115,880,470 120,810,323 99,185,749 Cost and expenses: Cost of real estate sold............................ 57,090,546 59,393,392 45,105,841 Selling, general and administrative expenses........ 51,441,301 43,734,724 36,520,817 Interest expense.................................... 5,458,919 6,276,187 6,737,687 Provisions for losses............................... 9,539,081 611,979 792,000 123,529,847 110,016,282 89,156,345 (Loss) income from operations.......................... ( 7,649,377) 10,794,041 10,029,404 Other income........................................... 260,299 121,884 372,443 (Loss) income before income taxes...................... ( 7,389,078) 10,915,925 10,401,847 (Benefit) provision for income taxes................... ( 3,029,521) 4,449,069 4,264,758 Net (loss) income...................................... $( 4,359,557) $ 6,466,856 $ 6,137,089 (Loss) income per common share: Net (loss) income...................................... $ (.21) $ .30 $ .29 Weighted average number of common and common equivalent shares ............................ 20,799,908 21,775,291 21,476,638
See accompanying notes to consolidated financial statements. BLUEGREEN CORPORATION Consolidated Statements of Shareholders' Equity Years Ended March 30, 1997, March 31, 1996 and April 2, 1995
Net Unrealized Gains on Investments Common Common Stock Capital in Treasury Available-for-Sale, Shares $.01 Par Excess of Accumulated Stock at Net of Income Issued Value Par Value Deficit Cost Taxes Total Balance at March 27, 1994.....17,795,974 $177,960 $61,099,625 $(9,423,926) $ --- $ --- $ 51,853,659 4% stock dividend............. 711,076 7,111 2,570,540 (2,577,651) --- --- --- 5% stock dividend............. 925,751 9,257 3,115,152 --- --- --- --- Cash payment for dividends in lieu of fractional shares.. --- --- --- ( 5,432) --- --- ( 5,432) stock options.............. 37,933 379 54,282 --- --- --- 54,661 Net income.................... --- --- --- 6,137,089 --- --- 6,137,089 Balance at April 2, 1995......19,470,734 194,707 66,839,599 (8,994,329) --- --- 58,039,977 5% stock dividend............. 976,418 9,764 4,262,236 (4,272,000) --- --- --- Cash payment for dividends in lieu of fractional shares.. --- --- --- ( 3,893) --- --- ( 3,893) Shares issued to employees upon exercise of qualified stock options.............. 86,258 863 194,323 --- --- --- 195,186 Net income.................... --- --- --- 6,466,856 --- --- 6,466,856 Balance at March 31, 1996.....20,533,410 205,334 71,296,158 (6,803,366) --- --- --- Net unrealized gains on investments available-for-sale, net of income taxes............... --- --- --- --- --- 159,351 159,351 Shares issued to employees upon exercise of qualified stock options.............. 68,461 685 114,597 --- --- --- 115,282 Shares repurchased............ --- --- --- --- (1,369,772) --- (1,369,772) Balance at March 30, 1997.....20,601,871 $ 206,019 $71,410,755 $(11,162,923) $(1,369,772) $ 159,351 $59,243,430
See accompanying notes to consolidated financial statements. BLUEGREEN CORPORATION Consolidated Statements of Cash Flows
Years Ended --------------------------------------------------------------- March 30, March 31, April 2, 1997 1996 1995 Operating activities: Cash received from customers including net cash collected as servicer of notes receivable to be remitted to investors............................ $ 88,471,780 $ 94,939,565 $ 78,667,484 Interest received....................................... 5,247,636 6,220,829 5,409,259 Cash paid for land acquisitions and real estate development............................................ ( 64,860,397) ( 61,236,096) ( 48,374,125) Cash paid to suppliers, employees and sales representatives........................................ ( 48,688,033) ( 44,567,809) ( 33,337,031) Interest paid, net of capitalized interest.............. ( 4,964,170) ( 5,918,887) ( 6,287,133) Income taxes paid, net of refunds ...................... ( 1,677,762) ( 3,316,235) ( 3,097,292) Proceeds from borrowings collateralized by notes receivable............................................. 18,157,349 19,438,016 8,587,550 Payments on borrowings collateralized by notes receivable............................................. ( 16,825,813) ( 19,229,268) ( 14,845,131) Net proceeds from REMIC transactions.................... 16,934,571 28,688,041 22,706,101 Net cash (used) provided by operating activities........... ( 8,204,839) 15,018,156 9,429,682 Investing activities: Purchases of property and equipment..................... ( 1,041,769) ( 1,895,510) ( 1,769,077) Sales of property and equipment......................... 843,445 789,433 452,822 Cash received from investment in securities............ 1,699,032 275,816 --- Additions to other long-term assets..................... ( 180,505) ( 410,814) ( 259,109) Net cash flow provided (used) by investing activities...... 1,320,203 ( 1,241,075) ( 1,575,364) Financing activities: Borrowings under line-of-credit facilities.............. 16,887,870 5,795,604 3,916,436 Borrowings under secured credit facility............... 3,800,000 --- --- Payments under line-of-credit facilities................ ( 5,484,517) ( 4,053,615) --- Payments on other long-term debt........................ ( 6,856,221) ( 11,909,697) ( 13,539,555) Proceeds from exercise of employee stock options........ 115,282 195,186 54,661 Cash paid for repurchase of common shares............... ( 1,369,772) --- --- Payment for stock dividends in lieu of fractional shares. --- ( 3,893) ( 5,432) Net cash flow provided (used) by financing activities...... 7,092,642 ( 9,976,415) ( 9,573,890) Net increase (decrease) in cash and cash equivalents....... 208,006 3,800,666 ( 1,719,572) Cash and cash equivalents at beginning of year............. 11,389,141 7,588,475 9,308,047 Cash and cash equivalents at end of year................... 11,597,147 11,389,141 7,588,475 Restricted cash and cash equivalents end of year........... ( 7,978,256) ( 7,683,901) ( 5,164,650) Unrestricted cash and cash equivalents at end of year...... $ 3,618,891 $ 3,705,240 $ 2,423,825
See accompanying notes to consolidated financial statements. BLUEGREEN CORPORATION Consolidated Statements of Cash Flows (continued)
Years Ending --------------------------------------------------------- March 30, March 31, April 2, 1997 1996 1995 Reconciliation of net (loss) income to net cash flow (used) provided by operating activities: Net (loss) income ........................................ $ ( 4,359,557) $ 6,466,856 $ 6,137,089 Adjustments to reconcile net (loss) income to net cash flow (used) provided by operating activities: Depreciation and amortization......................... 1,065,794 1,636,933 1,301,125 Loss (gain) on REMIC transactions..................... 96,211 ( 1,119,572) 411,000 (Gain) loss on sale of property and equipment......... ( 82,310) 48,561 ( 54,519) Provisions for losses................................. 9,539,081 611,979 792,000 Interest accretion on investment in securities........ ( 996,531) ( 1,170,367) ( 2,222,724) Proceeds from borrowings collateralized by notes receivable.................................. 18,157,349 19,438,016 8,587,550 Payments on borrowings collateralized by notes receivable.................................. ( 16,825,813) (19,229,268) (14,845,131) (Benefit) provision for deferred income taxes......... ( 3,419,109) 998,095 1,326,791 (Increase) decrease in operating assets: Contracts receivable.................................... ( 1,857,217) 600,047 ( 3,122,652) Inventory............................................... ( 9,125,901) ( 2,003,195) ( 4,452,058) Other assets............................................ ( 1,076,176) 274,414 1,264,688 Notes receivable and investment in securities........... ( 2,798,395) 10,446,396 11,864,101 Increase (decrease) in operating liabilities: Accounts payable, accrued liabilities and other......... 3,477,735 ( 1,980,739) 2,442,422 Net cash flow (used) provided by operating activities......... $ ( 8,204,839) $ 15,018,156 $ 9,429,682 Supplemental schedule of non-cash operating and financing activities Inventory acquired through financing transactions....... $ 10,030,647 $ 6,595,450 $ 17,680,680 Inventory acquired through foreclosure or deedback in lieu of foreclosure........................ $ 1,957,916 $ 1,609,697 $ 1,139,993 Investment in securities retained in connection with REMIC transactions.................... $ 1,774,319 $ 2,044,029 $ 2,674,370
See accompanying notes to consolidated financial statements. BLUEGREEN CORPORATION Notes to Consolidated Financial Statements 1. Significant Accounting Policies Organization Bluegreen Corporation (the "Company") is a national leisure product company operating predominantly in the Southeastern, Southwestern and Midwestern United States. The Company's primary business is (i) the acquisition, development and sale of residential land and (ii) the acquisition and development of timeshare properties which are sold in weekly intervals. The Company offers financing to its land and timeshare purchasers. Land and timeshare products are typically located in scenic areas or popular vacation destinations throughout the United States. The Company's products are primarily sold to middle-class individuals with ages ranging from forty to fifty-five. The Company changed its name, effective March 8, 1996, from Patten Corporation. Principles of Consolidation The financial statements include the accounts of Bluegreen Corporation and all wholly owned subsidiaries. All significant intercompany transactions are eliminated. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents The Company invests cash in excess of immediate operating requirements in short-term time deposits and money market instruments generally with original maturities of three months or less. The Company maintains cash and cash equivalents with various financial institutions. These financial institutions are located throughout the country and Company policy is designed to limit exposure to any one institution. However, a significant portion of the Company's unrestricted cash is maintained with a single bank and, accordingly, the Company is subject to credit risk. Periodic evaluations of the relative credit standing of financial institutions maintaining Company deposits are performed to evaluate and mitigate, if necessary, credit risk. Restricted cash consists of funds collected as servicer under receivable-backed note agreements, along with customer deposits on real estate maintained in escrow accounts. Contracts Receivable and Revenue Recognition In accordance with the requirements of Statement of Financial Accounting Standard ("SFAS") No. 66, the Company recognizes revenue on retail land sales and timeshare sales when a minimum of 10% of the sales price has been received in cash, the refund period has expired, collectibility of the receivable representing the remainder of the sales price is reasonably assured and the Company has completed substantially all of its obligations with respect to any development related to the real estate sold. In cases where all development has not been completed, the Company recognizes revenue in accordance with the percentage of completion method of accounting. Sales which do not meet the criteria for revenue recognition described above are deferred using the deposit method. Under the deposit method, cash received from customers is classified as a refundable deposit in the liability section of the Consolidated Balance Sheet and profit recognition is deferred until the requirements of SFAS No. 66 are met. Contracts receivable is net of an allowance for cancellations amounting to $451,000 and $112,000 at March 30, 1997 and March 31, 1996, respectively. Notes Receivable Notes receivable are carried at amortized cost. Interest income is suspended on all notes receivable when principal or interest payments are more than three months contractually past due and not resumed until such loans become contractually current. Impact of Recently Issued Accounting Standards From time to time certain receivables have been securitized and sold to investors through Real Estate Mortgage Investment Conduits (REMICs). See Note 3. To date, the servicing rights to securitized receivables have been retained by the Company. SFAS No. 122, "Accounting for Mortgage Servicing Rights", requires that a separate asset be recognized for rights to service mortgage loans for others. Servicing rights retained by the Company have not been material to date. SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" establishes new criteria for determining whether a transfer of financial assets occurring after December 31, 1997 in exchange for cash or other consideration should be accounted for as a sale or as a pledge of collateral in a secured borrowing. It also establishes new accounting requirements for pledged collateral and new criteria for the extinguishment of liabilities. The Company does not believe the adoption of SFAS No. 125 in 1998 will have a material affect on the Company's operations or financial condition. Investment in Securities The Company's investment in securities are considered available-for-sale and are carried at fair value in accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities". Accordingly, unrealized holding gains or losses on available-for-sale investments are recorded as adjustments to common shareholders' equity, net of income taxes. Declines in fair value deemed other than temporary are charged to operations. Interest on the Company's securities is accreted at effective yield rates which reflect interest at pass-through rates, the arbitrage resulting from rate differentials between the notes in the REMIC pool and pass-through rates, along with the effect of estimated prepayments and foreclosure losses. See Note 3. Inventory Inventory consists of real estate acquired for sale and is carried at the lower of cost, including costs of improvements and amenities incurred subsequent to acquisition or estimated fair value, net of costs to dispose. Real estate reacquired through foreclosure or deedback in lieu of foreclosure is recorded at the lower of fair value, net of costs to dispose, or the carrying value of the loan. The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" in April, 1996. The initial adoption of this Statement did not have a material impact on the Company's financial condition or results of operations. Property and Equipment Property and equipment are stated at cost. Depreciation is computed on the straight-line method based on the estimated useful lives of the related assets. Debt Issuance Costs Costs associated with obtaining financing have been capitalized and are amortized under an accelerated method (which approximates the interest method) over the terms of the related debt. Treasury Stock The Company accounts for repurchases of common stock using the cost method with common stock in treasury classified in the balance sheets as a reduction of common shareholders' equity. Advertising Expense The Company expenses advertising costs the first time the advertising takes place, which is within one year, except for direct-response advertising, which is capitalized and amortized over its expected period of future benefit. The Company uses direct-response advertising for its timeshare products and the advertising consists of direct mail with a response card confirming the prospective customer's pre-determined site-visit. At March 30, 1997, $517,000 of advertising was reported in other assets. Comparable amounts were not material at March 31, 1996. Advertising expense was $13.9 million, $10.0 million and $7.1 million for the years ended March 30, 1997, March 31, 1996 and April 2, 1995, respectively. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. Income taxes have been provided using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes". Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company has elected to account for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees", and, accordingly, recognizes no compensation expense in connection with stock option grants. See Note 11 for pro forma information regarding net earnings and earnings per share as required by SFAS 123 when adopted. (Loss) Income Per Common Share (Loss) income per common share is determined by dividing net income by the weighted average number of common shares outstanding after giving effect to all dilutive common equivalent shares outstanding during each period. The common equivalent shares reflect the dilutive impact of shares reserved for outstanding stock options using the treasury stock method. In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share". The Company does not believe that this accounting standard will have a material impact on reported earnings per share. Reclassifications Certain reclassifications of prior period amounts have been made to conform to the current year presentation. 2. Notes Receivable The weighted average interest rate on notes receivable was 13.3% and 12.4% at March 30, 1997 and March 31, 1996, respectively. The table below sets forth additional information relating to the Company's notes receivable. March 30, 1997 March 31, 1996 Notes receivable secured by land ................ $ 12,334,283 $ 26,243,222 Notes receivable secured by timeshare intervals.. 23,501,163 11,667,049 Notes receivable, gross ......................... 35,835,446 37,910,271 Reserve for loan losses.......................... ( 1,216,121) ( 896,469) Notes receivable, net............................ $ 34,619,325 $ 37,013,802 Approximately 69% of the Company's notes receivable secured by land bear interest at variable rates, while approximately 31% bear interest at fixed rates. The average interest rate charged on loans secured by land was 12.0% at March 30, 1997. All of the Company's timeshare loans bear interest at fixed rates. The average interest rate charged on loans secured by timeshare intervals was 15.7% at March 30, 1997. The Company's timeshare receivables are secured by property located in Tennessee and South Carolina. No concentrations of credit exist for the Company's notes receivable secured by land. The table below sets forth activity in the reserve for estimated loan losses. Reserve for loan losses, April 2, 1995................. $1,089,652 Provision for losses................................... 344,718 Charge-offs............................................ (537,901) Reserve for loan losses, March 31, 1996................ 896,469 Provision for losses................................... 1,008,271 Charge-offs............................................ (688,619) Reserve for loan losses, March 30, 1997................ $1,216,121 Installments due on notes receivable held by the Company during each of the five fiscal years subsequent to 1997, and thereafter, are set forth below. 1998................................................... $4,626,469 1999................................................... 4,456,082 2000................................................... 5,167,790 2001................................................... 5,424,765 2002................................................... 5,440,360 Thereafter............................................. 10,719,980 Total.................................................. $35,835,446 3. Investment in Securities The Company's investment in securities and associated unrealized gains and losses are set forth below. Gross Gross Unrealized Unrealized Fair Available-for-Sale Security Cost Gain Loss Value 1994 REMIC debt securities $ 3,892,575 --- $22,659 $ 3,869,916 1995 REMIC debt securities 4,999,733 198,705 --- 5,198,438 1996 REMIC debt securities 1,904,299 94,040 --- 1,998,339 Total $10,796,607 $292,745 $22,659 $11,066,693 Contractual maturities and yield of investments are set forth below. See also Note 13. Available-for-Sale Securities Fair Value Effective Yield After one year but within five $ 3,869,916 11.91% After five years but within ten 7,196,777 7.44% Total $11,066,693 4. Inventory The Company's net inventory holdings as of March 30, 1997 and March 31, 1996, summarized by division, are set forth below. Interest capitalized during fiscal 1997 and fiscal 1996 totaled $3.0 million and $1.9 million, respectively. Interest expense in the Consolidated Statements of Operations is net of capitalized interest.
March 30, 1997 ----------------------------------------------------------------------- Geographic Region Land Resorts(1) Communities(2) Total Southeast............ $ 7,997,611 $15,028,592 $ 5,685,074 $28,711,277 Midwest.............. 8,050,969 12,495,034 --- 20,546,003 Southwest............ 19,959,473 --- --- 19,959,473 Rocky Mountains ..... 7,533,939 --- --- 7,533,939 West ................ 5,511,879 --- --- 5,511,879 Mid-Atlantic......... 4,015,647 --- --- 4,015,647 Northeast............ 382,341 --- --- 382,341 Totals............... $53,451,859 $27,523,626 $ 5,685,074 $86,660,559
March 31, 1996 ------------------------------------------------------------------------ Geographic Region Land Resorts(1) Communities(2) Total Southeast............ $ 2,252,239 $ 5,189,815 $ 13,983,521 $21,425,575 Midwest.............. 6,293,008 10,839,389 --- 17,132,397 Southwest............ 15,118,191 --- 142,790 15,260,981 Rocky Mountains ..... 9,299,344 --- 50,800 9,350,144 West ................ 5,923,972 --- --- 5,923,972 Mid-Atlantic......... 2,490,025 --- --- 2,490,025 Northeast............ 1,982,895 --- --- 1,982,895 Canada............... 29,025 --- --- 29,025 Totals............... $43,388,699 $16,029,204 $ 14,177,111 $73,595,014
(1) Resorts Division inventory as of March 30, 1997, consists of land inventory of 5.4 million and $22.1 million of unit construction-in-progress. Resorts Division inventory as of March 31, 1996, consists of land inventory of $6.1 million and $9.9 million of unit construction-in-progress. (2) Communities Division inventory as of March 30, 1997, consists of land inventory of $1.5 million and $4.2 million of housing unit construction-in-progress. Communities Division inventory as of March 31, 1996, consists of land inventory of $10.5 million and $3.7 million of housing unit construction-in-progress. During the first quarter of fiscal 1997, management changed its focus for marketing certain of its inventories in an effort to expedite sales absorption, and use the proceeds from such sales for its more profitable land and timeshare projects. Based on the Company's exit-plans, management determined that inventories with a carrying value of $23.2 million should be written-down by $8.2 million to reflect their estimated fair value, less costs to sell. A substantial portion of the write-down ($4.8 million) related to inventories managed under the Communities Division. Home-building and other efforts under the Communities Division will cease upon sell-out of the existing inventories. The other inventories that were subject to write-down are managed under the Land Division and are located in areas of the country where the Company does not plan to continue operations beyond liquidating the existing properties. All such inventories are being liquidated through a combination of bulk sales and retail sales at reduced prices. Approximately 50% of the properties subject to write-down had been sold by March 30, 1997. No substantial gains or losses were recognized in connection with the sale of these inventories. Although no assurances can be given, the remaining inventories subject to write-down are expected to be fully liquidated in 12 - 18 months. 5. Property and Equipment The table below sets forth the property and equipment held by the Company at the period end indicated. Useful March 30, March 31, Life 1997 1996 Land, buildings and building improvements. 30 years $ 3,161,601 $ 3,837,382 Office equipment, furniture and fixtures.. 3-5 years 4,126,990 4,466,821 Aircraft.................................. 3-5 years 1,153,968 1,375,001 Vehicles and equipment.................... 3-5 years 435,274 451,202 8,877,833 10,130,406 Accumulated depreciation.................. (3,929,279) (4,891,306) Total..................................... $ 4,948,554 $ 5,239,100 Depreciation expense included in the Consolidated Statements of Operations totaled $811,000, $1.0 million and $1.1 million for fiscal 1997, 1996 and 1995, respectively. 6. Lines-of-Credit and Notes Payable The Company has outstanding borrowings with various financial institutions and other lenders which have been used to finance the acquisition and development of inventory and to fund operations. Significant financial data related to the Company's borrowing facilities is set forth below. March 30, March 31, 1997 1996 Lines-of-credit secured by land and timeshare inventory with interest rates ranging from 10.25% to 10.75% at March 30, 1997 and 10.50% to 10.75% at March 31, 1996. Maturities range from 1997 to 1999................... $ 17,797,600 $ 6,394,245 Notes and mortgage notes secured by certain inventory and property and equipment with interest rates ranging from 7.5% to 11.25% at March 30, 1997 and 6.2% to 11.0% at March 31, 1996. Maturities range from 1997 to 2019................... 17,960,558 10,700,245 Lease obligations with a weighted average interest rate of 11% at March 30, 1997. Maturities range from 1998 to 2001................... 147,394 193,277 Total................................................. $35,905,552 $17,287,767 At March 30, 1997, $5.0 million remained available under lines-of-credit. The table below sets forth the contractual minimum principal payments required on the Company's lines-of-credit and notes payable for each of the five fiscal years subsequent to 1997, and thereafter. Such minimum contractual payments may differ from actual payments due to the effect of principal payments required on a lot or timeshare interval release basis for certain of the above obligations. 1998................................................... $21,020,491 1999................................................... 5,702,848 2000................................................... 5,974,495 2001................................................... 590,039 2002................................................... 235,052 Thereafter............................................. 2,382,627 Total.................................................. $35,905,552 The Company is required to comply with certain covenants under several of its debt agreements discussed above, including, without limitation, requirements to (i) maintain net worth of at least $42.0 million, (ii) maintain certain minimum leverage ratios, (iii) limit S,G&A expenses to 50% of revenues, and (iv) comply with various other restrictive covenants. The Company was in compliance with such covenants at March 30, 1997, and for each reporting period during fiscal 1996 and 1995. 7. Convertible Subordinated Debentures The Company has $34.7 million of its 8.25% Convertible Subordinated Debentures (the "Debentures") outstanding at March 30, 1997 and March 31, 1996. The Debentures are convertible at any time prior to maturity (2012), unless previously redeemed, into common stock of the Company at a current conversion price of $8.24 per share, subject to adjustment under certain conditions. The Debentures are redeemable at any time, at the Company's option, in whole or in part. On May 15, 1997, the redemption price was 100% of the face amount. The Company is obligated to redeem annually 10% of the principal amount of the Debentures originally issued, commencing May 15, 2003. Such redemptions are calculated to retire 90% of the principal amount of the Debentures prior to maturity. The Debentures are unsecured and subordinated to all senior indebtedness of the Company. Interest is payable semi-annually on May 15 and November 15. Under financial covenants of the Indenture pursuant to which the Debentures were issued, the Company is required to maintain net worth of not less than $29.0 million. Should net worth fall below $29.0 million for two consecutive quarters, the Company is required to make an offer to purchase 20% of the outstanding Debentures at par, plus accrued interest. 8. Receivable-Backed Notes Payable The Company has various credit facilities for the pledge of land and timeshare receivables. The interest rate charged under one agreement is the three-month London Interbank Offered Rate plus 4.25%, while the other agreements call for interest at prime plus 2%. At March 30, 1997, the $21.1 million in receivable-backed notes payable was collateralized by $27.1 million in receivables. At March 31, 1996, the $19.7 million in receivable-backed notes payable was secured by $27.0 million in receivables. Payments received on the receivables are applied to reduce principal and pay interest monthly. At March 30, 1997, $27.2 million remained available under credit facilities. Installments due on receivable-backed notes payable based upon principal payments due on receivables in each of the four fiscal years subsequent to 1997 is set forth below. 1998................................................... $4,890,941 1999................................................... 5,363,014 2000................................................... 5,954,346 2001................................................... 4,846,701 Total.................................................. $21,055,002 9. Income Taxes The (benefit) provision for income taxes consists of the following: Years Ended March 30, March 31, April 2, 1997 1996 1995 Federal: Current................. $ 269,960 $ 2,590,910 $ 2,307,313 Deferred................ (3,192,841) 1,207,941 380,195 (2,922,881) 3,798,851 2,687,508 State: Current................. 119,628 860,064 630,654 Deferred................ ( 226,268) ( 209,846) 946,596 ( 106,640) 650,218 1,577,250 Total..................... $( 3,029,521) $ 4,449,069 $ 4,264,758 (Loss) income before income taxes (excluding Canadian operations) was $(7.4) million in fiscal 1997, $10.9 million in fiscal 1996 and $10.4 million in fiscal 1995. The reasons for the difference between the provision for income taxes and the amount which results from applying the federal statutory tax rate in fiscal 1997, 1996 and 1995 to income before income taxes are as follows: Years Ended March 30, March 31, April 2, 1997 1996 1995 Income tax (benefit) expense at statutory rate.................................... $( 2,512,286) $3,720,573 $3,536,628 Effect of state taxes, net of federal tax benefit............................. ( 517,235) 728,496 728,130 $( 3,029,521) $4,449,069 $4,264,758 At March 30, 1997 and March 31, 1996, deferred income taxes consist of the following components: March 30, March 31, 1997 1996 Deferred federal and state tax (assets) liabilities: Installment sales treatment of notes............... $ 8,931,920 $ 8,473,340 Deferred foreign tax liability due to installment sale treatment of notes......................... --- 185,000 Deferred federal and state loss carryforwards/AMT credits....................... ( 5,125,584) ( 1,990,365) Other.............................................. ( 950,390) ( 600,161) Deferred income taxes..............................$ 2,855,946 $ 6,067,814 As of March 30, 1997, the Company had $2.1 million of AMT credit carryforwards which have no expiration period and approximately $7.5 million of federal net operating loss ("NOL") that may be offset against future taxable income through 2012. 10. Commitments and Contingencies At March 30, 1997, estimated cost to complete development work in subdivisions from which lots have been sold totaled $48.9 million. Development is estimated to be completed within the next five years as follows: 1998 - $24.0 million; 1999 - $11.8 million; 2000 - $4.4 million; 2001 - $4.4 million and 2002 - $4.3 million. The Company is party to certain ordinary course litigation. Although no assurances can be given, the potential outcome is not expected to have a materially adverse effect on the operations or financial condition of the Company. 11. Stock Option Plans and Employee Retirement Savings Plan The Employee's Stock Option Plan expired in September, 1995. The Company received shareholder approval for a new employee stock option plan (the 1995 Stock Incentive Plan) at a meeting held on July 20, 1995. As of March 30, 1997, there were 453 individuals eligible to participate in the 1995 Stock Incentive Plan. Options under each plan expire ten years from the date of grant. A summary of stock option activity for each plan is presented below. Employee Stock Option Plan Number of Number Shares Option Price of Shares Reserved Options Per Share Exercisable Balance at April 2, 1995..... 1,839,317 962,422 $1.25 - $12.26 286,529 Granted...................... --- 250,000 $4.51 Forfeited.................... --- ( 96,550) $1.25 - $12.26 Exercised.................... ( 82,258) ( 82,258) $1.25 - $3.28 Expiration of plan........... ( 723,445) --- Stock dividends.............. 52,268 52,268 Balance at March 31, 1996.... 1,085,882 1,085,882 $1.25 - $11.64 381,528 Forfeited.................... ( 97,551) ( 97,551) $1.25 - $11.64 Exercised.................... ( 44,612) ( 44,612) $1.25 - $4.16 Balance at March 30, 1997.... 943,719 943,719 1.25 - $11.64 566,388 1995 Stock Incentive Plan Number of Number Shares Option Price of Shares Reserved Options Per Share Exercisable Balance at March 31, 1996....... 1,000,000 --- --- --- Granted......................... --- 75,000 $4.25 --- Balance at March 30, 1997....... 1,000,000 75,000 $4.25 --- Outside Directors Plan In fiscal 1988, the Company's shareholders adopted a stock option plan covering the Company's non-employee Directors (the "Director Plan"). The Director Plan provided for the grant to the Company's non-employee directors (the "Outside Directors") of non-qualified stock options to purchase up to an aggregate of 150,000 shares of common stock at a price not less than the fair market value at the date of grant. The Director Plan was amended in September, 1991, to increase the number of issuable shares from 150,000 to 300,000 and again in July, 1995, to increase the number of issuable shares by an additional 200,000. Options expire ten years from the date of grant. A summary of stock option activity related to the Company's Director Plan is presented below. Number Number of Shares Option Price of Shares Reserved Options Per Share Exercisable Balance at April 2, 1995......... 340,704 337,335 $.83 - $4.78 186,474 Additional shares issuable....... 200,000 --- Granted......................... --- 75,000 $3.80 Stock dividends.................. 17,035 20,617 Balance at March 31, 1996........ 557,739 432,952 $.83 - $4.78 276,134 Granted.......................... --- 75,000 $3.13 Exercised........................ --- (23,849) $.83 - $1.46 Balance at March 30, 1997........ 557,739 484,103 $.83 - $4.78 328,227 Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for fiscal 1995, 1996 and 1997: risk free investment rates of 5%, dividend yields of 1%, a volatility factor of the expected market price of the Company's common stock of .369; and a weighted average life of the options of 10 years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows. 1997 1996 1995 Pro forma net (loss) income $(4,562,126) $ 6,338,928 $ 6,087,609 Pro forma (loss) earnings per share: Primary and fully diluted $( .22) $ .29 $ .28 Employee Retirement Savings Plan The Company's Employee Retirement Plan is a code section 401(k) Retirement Savings Plan (the "Plan"). All employees at least 21 years of age with one year of employment with the Company are eligible to participate in the Plan. Employer contributions to the Plan are at the sole discretion of the Company and were not material to the operations of the Company for fiscal 1997, 1996 and 1995. 12. Quarterly Financial Information (Unaudited) Summarized quarterly financial information for the years ended March 30, 1997 and March 31, 1996 is presented below (in 000's except for per share information). Three Months Ended June 30, September 29, December 29, March 30, 1996 1996 1996 1997 Sales of real estate............ $ 28,782 $ 26,451 $ 26,478 $ 28,010 Interest income and other....... 1,444 1,550 1,583 1,581 Provision for losses............ 8,469 280 352 438 Net (loss) income............... (4,124) 576 20 ( 832) (Loss) income per common share.. ( .20) .03 .00 .04) Three Months Ended July 2, October 1, December 31, March 31, 1995 1995 1995 1996 Sales of real estate............ $ 24,641 $ 33,258 $ 23,935 $ 31,588 Interest income and other....... 2,187 2,177 1,483 1,541 Provision for losses............ 155 225 120 112 Net income...................... 1,588 2,319 985 1,575 Income per common share......... .07 .11 .05 .07 13. Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments: Cash and cash equivalents: The amounts reported in the balance sheets for cash and cash equivalents approximates fair value. Contracts receivable: The amounts reported in the balance sheets for contracts receivable approximates fair value. Contracts receivable are non-interest bearing and generally convert into cash or an interest bearing mortgage note receivable within thirty days. Notes receivable: The carrying amounts reported in the balance sheets for notes receivable approximates fair value based on (i) prices established by loan pricing services and (ii) discounted future cash flows using current rates at which similar loans with similar maturities would be made to borrowers with similar credit risk. Investment in securities: Investment in securities are carried at fair value based on estimates from dealers. Lines-of-credit, notes payable and receivable-backed notes payable: The carrying amounts reported in the balance sheets approximate their fair value based upon short-term maturities of the indebtedness which provide for variable interest rates. 8.25% convertible subordinated debentures: The fair value of the Company's 8.25% convertible subordinated debentures is based on the quoted market price as reported on the New York Stock Exchange. March 30, 1997 March 31, 1996 ------------------------ ----------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------------------------ ----------------------- Cash and cash equivalents......$11,597,147 $11,597,147 $11,389,141 $11,389,141 Contracts receivable........... 14,308,424 14,308,424 12,451,207 12,451,207 Notes receivable............... 34,619,325 34,619,325 37,013,802 37,013,802 Investment in securities....... 11,066,693 11,066,693 9,699,435 9,699,435 Lines-of-credit, notes payable and receivable-backed notes payable....................... 56,960,554 56,960,554 37,011,233 37,011,233 8.25% convertible subordinated debentures.................... 34,739,000 29,832,116 34,739,000 30,570,320 EX-23 6 CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Bluegreen Corporation of our reported dated May 2, 1997, included in the 1997 Annual Report to Shareholders of Bluegreen Corporation. We also consent to the incorporation by reference in (i) the Registration Statement (Form S-8 No. 33-48075) pertaining to the Registrant's Retirement Savings Plan and in the related Prospectus and (ii) the Registration Statement (Form S-8 No. 33-61687) pertaining to the Amended 1988 Outside Directors Stock Option Plan and the 1995 Stock Incentive Plan of the Registrant and in the related Prospectus of our report dated May 2, 1997, with respect to the consolidated financial statements of Bluegreen Corporation incorporated herein by reference for the year ended March 30, 1997. Ernst & Young LLP West Palm Beach, Florida June 24, 1997 EX-27.1 7 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1 U.S. Dollars 12-MOS MAR-30-1997 APR-01-1996 MAR-30-1997 11,597,147 11,066,693 50,594,870 1,667,121 86,660,559 60,532,040 8,877,833 3,929,279 169,627,029 41,739,531 34,739,000 0 0 206,109 59,037,411 169,627,029 109,721,561 115,880,470 57,090,546 57,090,546 51,441,301 9,539,081 5,458,919 (7,389,078) (3,029,521) (4,359,557) 0 0 0 (4,359,557) (.21) (.21)
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