-----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, KBGYUcse23X8/IXwmNC5j7lv4n6hWlEBFPn+s+WNeZmS+x6MVIV5oSN4CHpmXhmM PFiT6zLR+hz3DRcVrTNZgA== 0000950144-99-010534.txt : 19990819 0000950144-99-010534.hdr.sgml : 19990819 ACCESSION NUMBER: 0000950144-99-010534 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990704 FILED AS OF DATE: 19990818 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-Q SEC ACT: SEC FILE NUMBER: 001-09292 FILM NUMBER: 99695483 BUSINESS ADDRESS: STREET 1: 4960 BLUE LAKE DRIVE CITY: BOCA RATON STATE: FL ZIP: 33431 BUSINESS PHONE: 5619128000 MAIL ADDRESS: STREET 1: 4960 BLUE LAKE DRIVE CITY: BOCA RATON STATE: FL ZIP: 33431 FORMER COMPANY: FORMER CONFORMED NAME: PATTEN CORP DATE OF NAME CHANGE: 19920703 10-Q 1 BLUEGREEN CORP. QRTLY REPORT D/D 07/04/99 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended July 4, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 0-19292 BLUEGREEN CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 03-0300793 - ------------------------------------- -------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4960 Blue Lake Drive, Boca Raton, Florida 33431 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (561) 912-8000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 13, 1999, there were 25,127,756 shares of Common Stock, $.01 par value per share, issued, 1,896,300 treasury shares and 23,231,456 shares outstanding. 2 BLUEGREEN CORPORATION Index to Quarterly Report on Form 10-Q
Page ---- Part I - Financial Information (unaudited) Item 1. Financial Statements Condensed Consolidated Balance Sheets at March 28, 1999 and July 4, 1999 .............................. 3 Condensed Consolidated Statements of Income - Three Months Ended June 28, 1998 and July 4, 1999 ......................... 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended June 28, 1998 and July 4, 1999 ......................... 5 Notes to Condensed Consolidated Financial Statements .............. 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ................ 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk ................................ 24 Part II - Other Information Item 1. Legal Proceedings ................................................. 25 Item 2. Changes in Securities ............................................. 25 Item 3. Defaults Upon Senior Securities ................................... 25 Item 4. Submission of Matters to a Vote of Security Holders ............... 25 Item 5. Other Information ................................................. 25 Item 6. Exhibits and Reports on Form 8-K .................................. 25 Signatures ................................................................ 26
2 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements BLUEGREEN CORPORATION Condensed Consolidated Balance Sheets (amounts in thousands, except per share data)
March 28, July 4, 1999 1999 --------- --------- (Note) (unaudited) ASSETS Cash and cash equivalents (including restricted cash of approximately $15.8 million and $17.5 million at March 28, 1999 and July 4, 1999, respectively) .................... $ 55,557 $ 39,046 Contracts receivable, net ............................................ 20,167 16,743 Notes receivable, net ................................................ 64,380 80,038 Notes receivable from related party .................................. 4,168 4,227 Inventory, net ....................................................... 142,628 146,784 Investment in securities ............................................. 17,106 17,169 Property and equipment, net .......................................... 26,052 28,621 Other assets ......................................................... 19,064 21,575 --------- --------- Total assets ...................................................... $ 349,122 $ 354,203 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accounts payable ..................................................... $ 6,207 $ 6,244 Accrued liabilities and other ........................................ 25,362 20,753 Deferred income ...................................................... 5,792 5,127 Deferred income taxes ................................................ 13,507 16,343 Receivable-backed notes payable ...................................... 9,884 18,473 Lines-of-credit and notes payable .................................... 17,615 16,113 10.50% senior secured notes payable .................................. 110,000 110,000 8.00% convertible subordinated notes payable to related parties .......................................................... 6,000 6,000 8.25% convertible subordinated debentures ............................ 34,371 34,371 --------- --------- Total liabilities ................................................. 228,738 233,424 Minority interest .................................................... 1,035 1,091 Shareholders' Equity Preferred stock, $.01 par value, 1,000 shares authorized; none issued ....................................................... -- -- Common stock, $.01 par value, 90,000 shares authorized; 25,063 and 25,117 shares issued at March 28, 1999 and July 4, 1999, respectively ....................................... 251 251 Additional paid-in capital ........................................... 107,206 107,373 Treasury stock, 968 and 1,809 common shares at cost at March 28, 1999 and July 4, 1999, respectively .................... (4,545) (8,797) Net unrealized gains on investments available-for-sale, net of income taxes ................................................... 560 560 Retained earnings .................................................... 15,877 20,301 --------- --------- Total shareholders' equity ........................................ 119,349 119,688 --------- --------- Total liabilities and shareholders' equity ........................ $ 349,122 $ 354,203 ========= =========
Note: The condensed consolidated balance sheet at March 28, 1999 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes to condensed consolidated financial statements. 3 4 BLUEGREEN CORPORATION Condensed Consolidated Statements of Income (amounts in thousands, except per share data) (unaudited)
Three Months Ended --------------------- June 28, July 4, 1998 1999 -------- ------- Revenues: Sales ............................................................ $ 55,658 $62,714 Other resort and golf operations revenue ......................... 2,476 4,386 Interest income .................................................. 3,763 3,792 Gain on sale of notes receivable ................................. 2,053 -- Other income ..................................................... 372 59 -------- ------- 64,322 70,951 Costs and expenses: Cost of sales .................................................... 20,868 21,724 Cost of other resort and golf operations ......................... 2,251 3,749 Selling, general and administrative expenses ..................... 27,568 34,329 Interest expense ................................................. 3,745 2,955 Provision for loan losses ........................................ 293 788 -------- ------- 54,725 63,545 -------- ------- Income before income taxes .......................................... 9,597 7,406 Provision for income taxes ......................................... 3,839 2,926 Minority interest in income of consolidated subsidiary .............. 18 56 -------- ------- Income before extraordinary item .................................... 5,740 4,424 Extraordinary loss on early extinguishment of debt, net of income taxes ................................................. (1,682) -- -------- ------- Net income .......................................................... $ 4,058 $ 4,424 ======== ======= Earnings per common share: Basic: Income before extraordinary item ................................ $ 0.28 $ 0.19 Extraordinary loss on early extinguishment of debt, net of income taxes ......................................... (0.08) -- -------- ------- Net income ...................................................... $ 0.20 $ 0.19 ======== ======= Diluted: Income before extraordinary item ................................ $ 0.23 $ 0.17 Extraordinary loss on early extinguishment of debt, net of income taxes ......................................... (0.06) -- -------- ------- Net income ...................................................... $ 0.17 $ 0.17 ======== ======= Weighted average number of common and common equivalent shares: Basic ............................................................... 20,349 23,425 ======== ======= Diluted ............................................................. 27,508 29,837 ======== =======
See accompanying notes to condensed consolidated financial statements. 4 5 BLUEGREEN CORPORATION Condensed Consolidated Statements of Cash Flows (amounts in thousands) (unaudited)
Three Months Ended ----------------------- June 28, July 4, 1998 1999 --------- -------- Operating activities: Net income ........................................................... $ 4,058 $ 4,424 Adjustments to reconcile net income to net cash flow provided (used) by operating activities: Extraordinary loss on early extinguishment of debt, net of taxes ................................................ 1,682 -- Minority interest in income of consolidated subsidiary .......... 18 56 Depreciation and amortization ................................... 553 940 Gain on sale of notes receivable ................................ (2,053) -- (Gain) loss on sale of property and equipment ................... (267) 63 Provision for loan losses ....................................... 293 788 Provision for deferred income taxes ............................. 3,839 2,926 Interest accretion on investment in securities .................. (383) (645) Proceeds from sale of notes receivable .......................... 31,305 -- Proceeds from borrowings collateralized by notes receivable .................................................. 1,742 9,973 Payments on borrowings collateralized by notes receivable ....... (574) (853) Change in operating assets and liabilities: Contracts receivable ............................................... (2,475) 3,423 Notes receivable ................................................... (10,665) (18,565) Inventory .......................................................... 303 (2,569) Other assets ....................................................... 554 (1,853) Accounts payable, accrued liabilities and other .................... (523) (5,213) --------- -------- Net cash provided (used) by operating activities ........................ 27,407 (7,105) --------- -------- Investing activities: Purchases of property and equipment .................................. (3,349) (3,940) Sales of property and equipment ...................................... 872 619 Cash received from investment in securities .......................... 395 582 Loan to related party ................................................ -- (251) Principal payments received on loans to related party ................ -- 192 Other assets ......................................................... -- (388) --------- -------- Net cash used by investing activities ................................... (2,082) (3,186) --------- -------- Financing activities: Proceeds from issuance of 10.5% senior secured notes payable ......... 110,000 -- Payment under short-term borrowings from underwriters ................ (22,149) -- Payments under line-of-credit facilities and other notes payable ..... (69,676) (1,526) Payment of debt issuance costs ....................................... (4,885) (519) Payments for treasury stock .......................................... -- (4,252) Proceeds from exercise of employee and director stock options ........ 273 77 --------- -------- Net cash provided (used) by financing activities ........................ 13,563 (6,220) --------- -------- Net increase (decrease) in cash and cash equivalents .................... 38,888 (16,511) Cash and cash equivalents at beginning of period ........................ 31,065 55,557 --------- -------- Cash and cash equivalents at end of period .............................. 69,953 39,046 Restricted cash and cash equivalents at end of period ................... (11,036) (17,457) --------- -------- Unrestricted cash and cash equivalents at end of period ................. $ 58,917 $ 21,589 ========= ========
See accompanying notes to condensed consolidated financial statements. 5 6 BLUEGREEN CORPORATION Condensed Consolidated Statements of Cash Flows -- continued (amounts in thousands) (unaudited)
Three Months Ended ------------------- June 28, July 4, 1998 1999 ------- ------- Supplemental schedule of non-cash operating, investing and financing activities Inventory acquired through financing ...................... $ 500 $ -- ====== ====== Inventory acquired through foreclosure or deedback in lieu of foreclosure .......................... $2,134 $1,587 ====== ====== Conversion of 8.25% convertible subordinated debentures into common stock ............................ $ 368 $ -- ====== ====== Sale of notes receivable in exchange for investment in securities ........................................... $3,160 $ -- ====== ======
See accompanying notes to condensed consolidated financial statements. 6 7 BLUEGREEN CORPORATION Notes to Condensed Consolidated Financial Statements July 4, 1999 (unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information furnished herein reflects all adjustments consisting of normal recurring accruals that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. The results of operations for the three-month period ended July 4, 1999 are not necessarily indicative of the results to be expected for the fiscal year ending April 2, 2000. For further information, refer to the consolidated financial statements and notes thereto included in Bluegreen Corporation's (the "Company's") Annual Report to Shareholders for the fiscal year ended March 28, 1999. ORGANIZATION The Company is a leading marketer of vacation and residential lifestyle choices through its resort and residential land and golf businesses which are located predominantly in the Southeastern, Southwestern and Midwestern United States. The Company's resort business (the "Resorts Division") strategically acquires, develops and markets Timeshare Interests in resorts generally located in popular, high-volume, "drive-to" vacation destinations. Timeshare Interests typically entitle the buyer to a fully-furnished vacation residence for an annual one-week period in perpetuity ("Timeshare Interests"). The Company currently develops, markets and sells Timeshare Interests in ten resorts located in the United States and Aruba. The Company also markets and sells Timeshare Interests at three off-site sales locations. The Company's residential land and golf business (the "Residential Land and Golf Division") strategically acquires, develops and subdivides property and markets the subdivided residential lots to retail customers seeking to build a home in a high quality residential setting, in some cases on properties featuring a golf course and related amenities. During the three months ended July 4, 1999, sales generated by the Company's Resorts Division and Residential Land and Golf Division comprised approximately 51% and 49%, respectively, of the Company's total sales. The Company also generates significant interest income by providing financing to individual purchasers of Timeshare Interests sold by the Resorts Division and, to a lesser extent, land sold by the Residential Land and Golf Division. PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements include the accounts of the Company, all of its wholly-owned subsidiaries and entities in which the Company holds a controlling financial interest. All significant intercompany balances and transactions are eliminated. USE OF ESTIMATES The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. FISCAL YEAR The Company's fiscal year consists of 52 or 53 weeks, ending on the Sunday nearest the last day of March in each year. Therefore, fiscal year 2000 will be 53 weeks long. The fiscal quarters ended June 28, 1998 and July 4, 1999 consisted of 13 weeks and 14 weeks, respectively. EARNINGS PER COMMON SHARE Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share is computed in the same manner as basic earnings per share, 7 8 but also gives effect to all dilutive stock options using the treasury stock method and includes an adjustment, if dilutive, to both net income and shares outstanding as if the Company's 8.00% convertible subordinated notes payable and 8.25% convertible subordinated debentures were converted into common stock on March 30, 1998. On August 14, 1998, the Company entered into a Securities Purchase Agreement (the "Stock Agreement") by and among the Company, Morgan Stanley Real Estate Investors III, L.P., Morgan Stanley Real Estate Fund III, L.P., ("MSREF"), MSP Real Estate Fund, L.P., and MSREF III Special Fund, L.P., (collectively, the "Funds") pursuant to which the Funds purchased an aggregate 4.1 million shares of the Company's Common Stock through July 4, 1999. Pursuant to the Stock Agreement, as amended, subject to certain conditions thereto, the Company has the right to require the Funds, during the 18-month period commencing on August 14, 1998 (the "Commitment Period"), to purchase from the Company up to an additional 1.8 million shares of Common Stock (the "Remaining Shares") at a purchase price equal to $8.50 per share. If, on or prior to the expiration of the Commitment Period, the Company has not offered to sell to the Funds all of the Remaining Shares and the Company has achieved certain earnings levels for the 12-month period ended January 2, 2000, or if a Change of Control (as defined in the Stock Agreement) of the Company occurs during the Commitment Period, the Funds will have the right to purchase any or all of the Remaining Shares not previously sold to the Funds at a purchase price equal to $8.50 per share. Therefore, as the Company has not as yet achieved the necessary earnings levels for the Funds to exercise their right to purchase the remaining 1.8 million shares, these shares have not been included in the Company's weighted-average shares outstanding for the purpose of computing diluted earnings per share for the three months ended July 4, 1999. The following table sets forth the computation of basic and diluted earnings per share: (in thousands, except per share data)
Three Months Ended --------------------- June 28, July 4, 1998 1999 --------- ------- Basic earnings per share - numerators: Income before extraordinary item ........................ $ 5,740 $ 4,424 Extraordinary loss on early extinguishment of debt, net of income taxes ................................. (1,682) -- -------- ------- Net income .............................................. $ 4,058 $ 4,424 ======== ======= Diluted earnings per share - numerators: Income before extraordinary item - basic ................ $ 5,740 $ 4,424 Effect of dilutive securities (net of tax effects) ...... 501 528 -------- ------- Income before extraordinary item - diluted .............. 6,241 4,952 Extraordinary loss on early extinguishment of debt, net of income taxes ................................. (1,682) -- -------- ------- Net income - diluted .................................... $ 4,559 $ 4,952 ======== ======= Denominator: Denominator for basic earnings per share - weighted average shares ...................................... 20,349 23,425 Effect of dilutive securities: Stock options ........................................ 1,423 710 Convertible securities ............................... 5,736 5,702 -------- ------- Dilutive potential common shares ........................ 7,159 6,412 -------- ------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions ........ 27,508 29,837 ======== ======= Basic earnings per common share: Income before extraordinary item ........................ $ 0.28 $ 0.19 Extraordinary loss on early extinguishment of debt, net of income taxes ................................. (0.08) -- -------- ------- Net income .............................................. $ 0.20 $ 0.19 ======== ======= Diluted earnings per common share: Income before extraordinary item ........................ $ 0.23 $ 0.17 Extraordinary loss on early extinguishment of debt, net of income taxes ................................. (0.06) -- -------- ------- Net income .............................................. $ 0.17 $ 0.17 ======== =======
8 9 START-UP COSTS In April, 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, REPORTING THE COSTS OF START-UP ACTIVITIES. The SOP is effective for the Company's fiscal 2000, and requires that start-up costs capitalized prior to January 1, 1999 be written-off and any future start-up costs to be expensed as incurred. The adoption of this SOP had no significant impact on the Company's results of operations for the three months ended July 4, 1999. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation. 2. Sale of Notes Receivable On June 26, 1998, the Company sold approximately $32.4 million aggregate principal amount of timeshare notes receivable (the "Receivables") to Bluegreen Receivables Finance Corporation III, a wholly-owned special purpose subsidiary of the Company ("BRFC"). Concurrently, BRFC sold the Receivables to an unaffiliated financial institution (the "Purchaser") pursuant to an Asset Purchase Agreement dated as of June 26, 1998 (the "Purchase Agreement"). In connection with the sale, the Company recognized a $2.1 million gain on sale of notes receivable which is included in the condensed consolidated statement of income for the three months ended June 28, 1998. Under the Purchase Agreement, BRFC will be entitled to sell up to $100 million aggregate principal amount of timeshare receivables to the Purchaser, of which $54.8 million in aggregate principal amount has been sold as of July 4, 1999. The purchase facility has detailed requirements with respect to the eligibility of receivables for purchase and a two-year term. The Purchaser's obligation to purchase under the purchase facility will terminate upon the occurrence of specified trigger events. The purchase facility includes various conditions to purchase and other provisions customary for securitizations of this type. 3. Line-of-Credit On August 1, 1999, the Company renewed its unused $5 million, unsecured line-of-credit with a bank. Amounts borrowed under the line will bear interest at LIBOR plus 1.5%. Interest is due monthly, with all principal amounts due on December 31, 2000. 4. Treasury Stock During the three months ended July 4, 1999, the Company repurchased 841,000 shares of Common Stock at an aggregate cost of $4.3 million. 5. Contingencies In addition to its other ordinary course litigation, the Company became a defendant in two proceedings during fiscal 1999. First, an action was filed against the Company on December 15, 1998. The plaintiff has asserted that the Company is in breach of its obligations under, and has made certain misrepresentations in connection with, a contract under which the Company acted as marketing agent for the sale of undeveloped property owned by the plaintiff. The plaintiff also alleges fraud, negligence and violation by the Company of an alleged fiduciary duty owed to plaintiff. Among other things, the plaintiff alleges that the Company failed to meet certain minimum sales requirements under the marketing contract and failed to commit sufficient resources to the sale of the property. The complaint seeks damages in excess of $18 million and certain other remedies, including punitive damages. Second, an action was filed on July 10, 1998 against two subsidiaries of the Company and various other defendants. The Company itself is not named as a defendant. The Company's subsidiaries acquired certain real property (the "Property"). The Property was acquired subject to certain alleged oil and gas leasehold interests and rights (the "Interests") held by the plaintiffs in the action (the "Plaintiffs"). The Company's subsidiaries developed the Property and have resold parcels to numerous customers. The Plaintiffs allege, among other things, breach of contract, slander of title and that the Company's subsidiaries and their purchasers have unlawfully trespassed on easements and otherwise violated and prevented the Plaintiffs from exploiting the Interests. The Plaintiffs claim damages in excess of $40 million, as well as punitive or exemplary damages in an amount of at least $50 million and certain other remedies. 9 10 The Company is in the early stages of evaluating these actions and their potential impact, if any, on the Company and accordingly cannot predict the outcomes with any degree of certainty. However, based upon all of the facts presently under consideration of management, the Company believes that it has substantial defenses to the allegations in each of the actions and intends to defend each of these matters vigorously. The Company does not believe that any likely outcome of either case will have a material adverse effect on the Company's financial condition or results of operations. 6. Supplemental Guarantor Financial Information On April 1, 1998, the Company consummated a private placement offering (the "Offering") of $110 million in aggregate principal amount of 10.5% senior secured notes due April 1, 2008 (the "Notes"). None of the assets of Bluegreen Corporation secure its obligations under the Notes, and the Notes are effectively subordinated to secured indebtedness of the Company to any third party to the extent of assets serving as security therefor. The Notes are unconditionally guaranteed, jointly and severally, by each of the Company's subsidiaries (the "Subsidiary Guarantors"), with the exception of Bluegreen Properties N.V., Resort Title Agency, Inc., any special purpose finance subsidiary, any subsidiary which is formed and continues to operate for the limited purpose of holding a real estate license and acting as a broker, and certain other subsidiaries which have individually less then $50,000 of assets (collectively, "Non-Guarantor Subsidiaries"). Supplemental financial information for Bluegreen Corporation, its combined Non-Guarantor Subsidiaries and its combined Subsidiary Guarantors is presented below: CONDENSED CONSOLIDATING BALANCE SHEET AT JULY 4, 1999 (IN THOUSANDS) (UNAUDITED)
COMBINED COMBINED BLUEGREEN NON-GUARANTOR SUBSIDIARY CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED ----------- ------------ ---------- ------------ ------------ ASSETS Cash and cash equivalents ....................... $ 21,223 $ 8,041 $ 9,782 $ -- $ 39,046 Contracts receivable, net ....................... 246 192 16,305 -- 16,743 Intercompany receivable ......................... 113,965 -- -- (113,965) -- Notes receivable, net ........................... 577 6,982 76,706 -- 84,265 Inventory, net .................................. 19,303 14,110 113,371 -- 146,784 Investment in securities ........................ -- 17,169 -- -- 17,169 Investments in subsidiaries ..................... 7,980 -- -- (7,980) -- Other assets .................................... 8,950 3,192 12,433 (3,000) 21,575 Property and equipment, net ..................... 7,297 183 21,141 -- 28,621 --------- ------- -------- --------- --------- Total assets ................................. $ 179,541 $49,869 $249,738 $(124,945) $ 354,203 ========= ======= ======== ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable, accrued liabilities and other.. $ 7,950 $11,017 $ 13,157 $ -- $ 32,124 Intercompany payable ............................ -- 16,325 97,640 (113,965) -- Lines-of-credit and notes payable ............... 111,361 14,874 21,351 (3,000) 144,586 Deferred income taxes ........................... 2,951 1,844 11,548 -- 16,343 8.00% convertible subordinated notes payable to related parties .................. 6,000 -- -- -- 6,000 8.25% convertible subordinated debentures ....... 34,371 -- -- -- 34,371 --------- ------- -------- --------- --------- Total liabilities ............................ 162,633 44,060 143,696 (116,965) 233,424 ========= ======= ======== ========= ========= Minority interest ............................... -- -- -- 1,091 1,091 SHAREHOLDERS' EQUITY Common stock .................................... 251 7 2 (9) 251 Additional paid-in capital ...................... 107,371 494 8,004 (8,496) 107,373 Treasury stock .................................. (8,797) -- -- -- (8,797) Net unrealized gains ............................ -- 560 -- -- 560 Retained earnings (accumulated deficit) ......... (81,917) 4,748 98,036 (566) 20,301 --------- ------- -------- --------- --------- TOTAL SHAREHOLDERS' EQUITY ................... 16,908 5,809 106,042 (9,071) 119,688 --------- ------- -------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .... $ 179,541 $49,869 $249,738 $(124,945) $ 354,203 ========= ======= ======== ========= =========
10 11 CONDENSED CONSOLIDATING STATEMENTS OF INCOME (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED JUNE 28, 1998 ---------------------------------------------------------------- COMBINED COMBINED BLUEGREEN NON-GUARANTOR SUBSIDIARY CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED ----------- ------------ ---------- ------------ ------------ REVENUES Sales ............................... $ 8,347 $ 3,285 $ 44,026 $ -- $ 55,658 Management fee revenue .............. 5,318 -- -- (5,318) -- Other resort services revenue ....... -- 267 2,209 -- 2,476 Interest income ..................... 369 558 2,836 -- 3,763 Gain on sale of notes receivable .... -- 2,053 -- -- 2,053 Other income ........................ 278 -- 94 -- 372 ------- ------- -------- -------- -------- 14,312 6,163 49,165 (5,318) 64,322 COST AND EXPENSES Cost of sales ....................... 2,564 959 17,345 -- 20,868 Cost of other resort services ....... -- 309 1,942 -- 2,251 Management fees ..................... -- 411 4,907 (5,318) -- Selling, general and administrative expenses............................ 7,445 1,717 18,406 -- 27,568 Interest expense .................... 3,033 508 204 -- 3,745 Provision for loan losses............ -- 115 178 -- 293 ------- ------- -------- -------- -------- 13,042 4,019 42,982 (5,318) 54,725 ------- ------- -------- -------- -------- Income before income taxes .......... 1,270 2,144 6,183 -- 9,597 Provision for income taxes .......... 508 857 2,474 -- 3,839 Minority interest in income of consolidated subsidiary .......... -- -- -- 18 18 ------- ------- -------- -------- -------- Income before extraordinary item..... 762 1,287 3,709 (18) 5,740 Extraordinary loss on early extinguishment of debt, net ...... -- -- (1,682) -- (1,682) ------- ------- -------- -------- -------- Net income ......................... $ 762 $ 1,287 $ 2,027 $ (18) $ 4,058 ======= ======= ======== ======== ========
THREE MONTHS ENDED JUlY 4, 1999 ---------------------------------------------------------------- COMBINED COMBINED BLUEGREEN NON-GUARANTOR SUBSIDIARY CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED ----------- ------------ ---------- ------------ ------------ REVENUES Sales ....................................... $ 7,206 $ 3,270 $ 52,238 $ -- $62,714 Management fee revenue ...................... 6,340 -- -- (6,340) -- Other resort and golf operations revenue .... -- 456 3,930 -- 4,386 Interest income ............................. 292 920 2,580 -- 3,792 Other income ................................ 5 14 40 -- 59 -------- -------- -------- -------- ------- 13,843 4,660 58,788 (6,340) 70,951 COST AND EXPENSES Cost of sales ............................... 2,413 859 18,452 -- 21,724 Cost of other resort and golf operations .... -- 283 3,466 -- 3,749 Management fees ............................. -- 465 5,875 (6,340) -- Selling, general and administrative expenses .............................. 10,164 2,039 22,126 -- 34,329 Interest expense ............................ 2,360 444 151 -- 2,955 Provision for loan losses ................... -- (37) 825 -- 788 -------- -------- -------- -------- ------- 14,937 4,053 50,895 (6,340) 63,545 -------- -------- -------- -------- ------- Income (loss) before income taxes ........... (1,094) 607 7,893 -- 7,406 Provision (benefit) for income taxes ........ (432) 240 3,118 -- 2,926 Minority interest in income of consolidated subsidiary ................. -- -- -- 56 56 -------- -------- -------- -------- ------- Net income (loss) ........................... $ (662) $ 367 $ 4,775 $ (56) $ 4,424 ======== ======== ======== ======== =======
11 12 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED JUNE 28, 1998 ----------------------------------------------------- COMBINED COMBINED BLUEGREEN NON-GUARANTOR SUBSIDIARY CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED ---------- ------------ ---------- ------------ Operating activities: Net cash provided (used) by operating activities ......... $ (36,955) $ 2,404 $ 61,958 $ 27,407 --------- ------- -------- --------- Investing activities: Purchases of property and equipment ...................... (2,279) (44) (1,026) (3,349) Sales of property and equipment .......................... 864 -- 8 872 Cash received from investment in securities .............. -- 395 -- 395 --------- ------- -------- --------- Net cash provided (used) by investing activities ............ (1,415) 351 (1,018) (2,082) --------- ------- -------- --------- Financing activities: Proceeds from issuance of 10.5% senior secured notes payable ................................. 110,000 -- -- 110,000 Payments on short term borrowings from underwriters .......................................... (22,149) -- -- (22,149) Payments under line-of-credit facilities and other notes payable ............................... (6,688) (3,565) (59,423) (69,676) Payment of debt issuance costs ........................... (4,541) (311) (33) (4,885) Proceeds from exercise of employee and director stock options ................................ 273 -- -- 273 --------- ------- -------- --------- Net cash provided (used) by financing activities ............ 76,895 (3,876) (59,456) 13,563 --------- ------- -------- --------- Net increase (decrease) in cash and cash equivalents ........ 38,525 (1,121) 1,484 38,888 Cash and cash equivalents at beginning of period ............ 16,100 5,186 9,779 31,065 --------- ------- -------- --------- Cash and cash equivalents at end of period .................. 54,625 4,065 11,263 69,953 Restricted cash and cash equivalents at end of period ................................................ (2,048) (1,427) (7,561) (11,036) --------- ------- -------- --------- Urestricted cash and cash equivalents at end of period ............................................ $ 52,577 $ 2,638 $ 3,702 $ 58,917 ========= ======= ======== =========
THREE MONTHS ENDED JULY 4, 1999 ------------------------------------------------------ COMBINED COMBINED BLUEGREEN NON-GUARANTOR SUBSIDIARY CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED ----------- ------------ ----------- ------------- Operating activities: Net cash provided (used) by operating activities .... $(10,213) $ (387) $ 3,495 $ (7,105) -------- ------- -------- -------- Investing activities: Purchases of property and equipment ................. (617) (6) (3,317) (3,940) Sales of property and equipment ..................... -- -- 619 619 Cash received from investment in securities ......... -- 582 -- 582 Loan to related party ............................... -- -- (251) (251) Principal payments received on loan to related party ........................................... -- -- 192 192 Other assets ........................................ (388) -- -- (388) -------- ------- -------- -------- Net cash provided (used) by investing activities ....... (1,005) 576 (2,757) (3,186) -------- ------- -------- -------- Financing activities: Payments under line-of-credit facilities and other notes payable .......................... (31) (797) (698) (1,526) Payment of debt issuance costs ...................... (63) (41) (415) (519) Payments for treasury stock ......................... (4,252) -- -- (4,252) Proceeds from the exercise of employee and director stock options ....................... 77 -- -- 77 -------- ------- -------- -------- Net cash used by financing activities .................. (4,269) (838) (1,113) (6,220) -------- ------- -------- -------- Net decrease in cash and cash equivalents .............. (15,487) (649) (375) (16,511) Cash and cash equivalents at beginning of period ....... 36,710 8,690 10,157 55,557 -------- ------- -------- -------- Cash and cash equivalents at end of period ............. 21,223 8,041 9,782 39,046 Restricted cash and cash equivalents at end of period ........................................... (4,993) (8,041) (4,423) (17,457) -------- ------- -------- -------- Unrestricted cash and cash equivalents at end of period ....................................... $ 16,230 $ -- $ 5,359 $ 21,589 ======== ======= ======== ========
12 13 7. Business Segments The Company has two reportable business segments. The Resorts Division manages the Company's timeshare operations and the Residential Land and Golf Division acquires large tracts of real estate which are subdivided, improved (in some cases to include a golf course and related amenities on the property) and sold, typically on a retail basis. The results of operations from sales of remaining factory-built manufactured home/lot packages and undeveloped lots previously managed under the Communities Division have been combined with the results of operations of its Residential Land and Golf Division in the current and prior periods, due to immateriality. Required disclosures for the Company's business segments are as follows (in thousands): As of and for the three months ended June 28, 1998
Residential Resorts Land and Golf Totals --------- ------------- -------- Sales $23,962 $31,696 $ 55,658 Other resort service revenues 2,476 -- 2,476 Depreciation expense 143 82 225 Field operating profit 3,233 8,264 11,497 Inventory 61,460 48,070 109,530
As of and for the three months ended July 4, 1999
Residential Resorts Land and Golf Totals --------- ------------- -------- Sales $ 32,279 $30,435 $ 62,714 Other resort and golf operations revenues 3,667 719 4,386 Depreciation expense 250 191 441 Field operating profit 3,493 8,089 11,582 Inventory 100,248 46,536 146,784
Field operating profit for reportable segments reconciled to consolidated income before income taxes (in thousands):
Three Months Ended ------------------------- June 28, July 4, 1998 1999 -------- -------- Field operating profit for reportable segments $ 11,497 $ 11,582 Interest income 3,763 3,792 Gain on sale of notes receivable 2,053 -- Other income 372 59 Corporate general and administrative expenses (4,050) (4,284) Interest expense (3,745) (2,955) Provision for loan losses (293) (788) -------- -------- Consolidated income before income taxes $ 9,597 $ 7,406 ======== ========
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Reform Act of 1995 (the "Act") and is making the following statements pursuant to the Act in order to do so. Certain statements herein and elsewhere in this report and the Company's other filings with the Securities and Exchange Commission constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. You may identify these statements by forward-looking words such as "may", "intend", "expect", "anticipate", "believe", "estimate", "plan" or other comparable terminology. Such forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's control, that could cause the actual results, performance or achievements of the Company, or industry trends, to differ materially from any future results, performance, achievements or trends expressed or implied by such 13 14 forward-looking statements. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements and no assurance can be given that the plans, estimates and expectations reflected in such statements will be achieved. The Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause the Company's actual consolidated results to differ materially from those expressed in any forward-looking statements made by, or on behalf of the Company: a) Changes in national, international or regional economic conditions that can affect the real estate market, which is cyclical in nature and highly sensitive to such changes, including, among other factors, levels of employment and discretionary disposable income, consumer confidence, available financing and interest rates. b) The imposition of additional compliance costs on the Company as the result of changes in any environmental, zoning or other laws and regulations that govern the acquisition, subdivision and sale of real estate and various aspects of the Company's financing operation or the failure of the Company to comply with any law or regulation. c) Risks associated with a large investment in real estate inventory at any given time (including risks that real estate inventories will decline in value due to changing market and economic conditions and that the development and carrying costs of inventories may exceed those anticipated). d) Risks associated with an inability to locate suitable inventory for acquisition. e) Risks associated with delays in bringing the Company's inventories to market due to, among other things, changes in regulations governing the Company's operations, adverse weather conditions or changes in the availability of development financing on terms acceptable to the Company. f) Changes in applicable usury laws or the availability of interest deductions or other provisions of federal or state tax law. g) A decreased willingness on the part of banks to extend direct customer lot financing, which could result in the Company receiving less cash in connection with the sales and/or lower sales. h) The inability of the Company to find external sources of liquidity on favorable terms to support its operations, acquire, carry and develop land and timeshare inventories and satisfy its debt and other obligations. i) The inability of the Company to find sources of capital on favorable terms for the pledge and/or sale of land and timeshare notes receivable. j) An increase in prepayment rates, delinquency rates or defaults with respect to Company-originated loans or an increase in the costs related to reacquiring, carrying and disposing of properties reacquired through foreclosure or deeds in lieu of foreclosure. k) Costs to develop inventory for sale and/or selling, general and administrative expenses exceed those anticipated. l) An increase or decrease in the number of land or resort properties subject to percentage-of-completion accounting which requires deferral of profit recognition on such projects to the extent that development is not substantially complete. m) The failure of the Company to satisfy the covenants contained in the indentures governing certain of its debt instruments and other credit agreements which, among other things, place certain restrictions on the Company's ability to incur debt, incur liens and pay dividends. n) The risk of the Company incurring an unfavorable judgement in any litigation, and the impact of any related monetary or equity damages. 14 15 The Company does not undertake to update forward-looking statements, even if the Company's situation may change in the future. GENERAL Real estate markets are cyclical in nature and highly sensitive to changes in national, regional and international economic conditions, including, among other factors, levels of employment and discretionary disposable income, consumer confidence, available financing and interest rates. A downturn in the economy in general or in the market for real estate could have a material adverse effect on the Company. The Company recognizes revenue on residential land and Timeshare Interest sales when a minimum of 10% of the sales price has been received in cash, the refund or rescission period has expired, collectibility of the receivable representing the remainder of the sales price is reasonably assured and the Company has completed substantially all of its obligations with respect to any development relating to the real estate sold. In cases where all development has not been completed, the Company recognizes income in accordance with the percentage-of-completion method of accounting. Under this method of income recognition, income is recognized as work progresses. Measures of progress are based on the relationship of costs incurred to date to expected total costs. The Company has been dedicating greater resources to more capital-intensive residential land and timeshare projects. As development on more of these larger projects is begun, and based on the Company's ability and strategy to pre-sell projects when minimal development has been completed, the amount of income deferred under the percentage-of-completion method of accounting may increase significantly. Costs associated with the acquisition and development of timeshare resorts and residential land properties, including carrying costs such as interest and taxes, are capitalized as real estate and development costs and are allocated to cost of real estate sold as the respective revenue is recognized. The Company has historically experienced and expects to continue to experience seasonal fluctuations in its gross revenues and net earnings. This seasonality may cause significant fluctuations in the quarterly operating results of the Company. As the Company's timeshare revenues grow as a percentage of total revenues, the Company believes that the fluctuations in revenues due to seasonality may be mitigated. In addition, other material fluctuations in operating results may occur due to the timing of development and the Company's use of the percentage-of-completion method of accounting. Management expects that the Company will continue to invest in projects that will require substantial development (with significant capital requirements). No assurances can be given that the amount of revenue deferred under the percentage-of-completion accounting method will not increase. The Company believes that inflation and changing prices have not had a material impact on its revenues and results of operations during the three months ended June 28, 1998 or July 4, 1999. Based on the current economic climate, the Company does not expect that inflation and changing prices will have a material impact on the Company's revenues or results of operations in the foreseeable future. To the extent inflationary trends affect short-term interest rates, a portion of the Company's debt service costs may be affected as well as the interest rate the Company charges on its new receivables from its customers. The Company's real estate operations are managed under two divisions. The Resorts Division manages the Company's timeshare operations and the Residential Land and Golf Division acquires large tracts of real estate which are subdivided, improved (in some cases to include a golf course on the property) and sold, typically on a retail basis. The results of operations from sales of remaining factory-built manufactured home/lot packages and undeveloped lots, previously managed under the Company's Communities Division, have been combined with the results of operations of the Residential Land and Golf Division in the current and prior periods, due to immateriality. Inventory is carried at the lower of cost, including costs of improvements and amenities, incurred subsequent to acquisition, or fair value, net of costs to dispose. A portion of the Company's revenues historically has been and is expected to continue to be comprised of gains on sales of loans. The gains are recorded in the Company's revenues and retained interests in the portfolio are recorded on its balance sheet (as investments in securities) at the time of sale. The amount of gains recorded is based in part on management's estimates of future prepayment and default rates and other considerations in light of then-current conditions. If actual prepayments with respect to loans occur more quickly than was projected at the time such loans were sold, as can occur when interest rates decline, interest would be less than expected and earnings would be charged in the future when the retained interests are realized, except for the effect of reduced interest accretion on the 15 16 Company's retained interest, which would be recognized each period the retained interests are held. If actual defaults with respect to loans sold are greater than estimated, charge-offs would exceed previously estimated amounts and earnings would be charged in the future when the retained interests are realized. There can be no assurances that the carrying value of the Company's investment in securities will be fully realized or that future loan sales will result in gains. Results of Operations
(Dollars in Thousands) Residential Resorts Land and Golf Total --------------------- ----------------------- --------------------- Three Months Ended June 28, 1998 Sales $ 23,962 100.0% $ 31,696 100.0% $ 55,658 100.0% Cost of sales (1) (6,217) (25.9) (14,651) (46.2) (20,868) (37.5) -------- ----- -------- ----- -------- ----- Gross profit 17,745 74.1 17,045 53.8 34,790 62.5 Other resort operations revenue 2,476 10.3 -- -- 2,476 4.4 Cost of other resort operations (2,251) (9.4) -- -- (2,251) (4.0) Field selling, general and administrative expenses (2) (14,737) (61.5) (8,781) (27.7) (23,518) (42.3) -------- ----- -------- ----- -------- ----- Field operating profit (3) $ 3,233 13.5% $ 8,264 26.1% $ 11,497 20.6% ======== ===== ======== ===== ======== ===== Three Months Ended July 4, 1999 Sales $ 32,279 100.0% $ 30,435 100.0% $ 62,714 100.0% Cost of sales (1) (7,546) (23.4) (14,178) (46.6) (21,724) (34.6) -------- ----- -------- ----- -------- ----- Gross profit 24,733 76.6 16,257 53.4 40,990 65.4 Other resort and golf operations revenue 3,667 11.4 719 2.4 4,386 7.0 Cost of resort and golf operations (2,840) (8.8) (909) (3.0) (3,749) (6.0) Field selling, general and administrative expenses (2) (22,067) (68.4) (7,978) (26.2) (30,045) (47.9) -------- ----- -------- ----- -------- ----- Field operating profit (3) $ 3,493 10.8% $ 8,089 26.6% $ 11,582 18.5% ======== ===== ======== ===== ======== =====
(1) Cost of sales represents the cost of inventory including the cost of improvements, amenities and in certain cases previously capitalized interest and real estate taxes. (2) General and administrative expenses attributable to corporate overhead have been excluded from the tables. Corporate general and administrative expenses totaled $4.1 million and $4.3 million for the three months ended June 28, 1998 and July 4, 1999, respectively. (3) The tables presented above outline selected financial data. Accordingly, interest income, interest expense, provisions for losses, other income and income taxes have been excluded. Sales Consolidated sales increased 12.7% from $55.7 million for the three-month period ended June 28, 1998 (the "1999 Quarter") to $62.7 million for the three-month period ended July 4, 1999 (the "2000 Quarter"). Increases in Resorts Division sales during the 2000 Quarter were partially offset by lower Residential Land and Golf Division sales. As of July 4, 1999, approximately $4.0 million in estimated income on sales of $9.3 million was deferred under percentage-of-completion accounting. At March 28, 1999, approximately $5.0 million in estimated income on sales of $11.4 million was deferred and is included on the Condensed Consolidated Balance Sheet under the caption Deferred Income. Resorts Division. During the 1999 and 2000 Quarters, sales of Timeshare Interests contributed $24.0 million or 43.1% and $32.3 million or 51.4%, respectively, of the Company's total consolidated sales. The following tables set forth information for sales of Timeshare Interests associated with the Company's Resorts Division for the periods indicated, before giving effect to the percentage-of-completion method of accounting. Three Months Ended, -------------------- June 28, July 4, 1998 1999 ------- ------- Number of Timeshare Interests sold 2,794 3,550 Average sales price per Timeshare Interest $8,479 $8,929 Gross margin 74.1% 76.6% 16 17 The increase in the number of Timeshare Interests sold during the 2000 Quarter was due in part to sales of 496 Timeshare Interests at the new phase of the Company's Orlando's Sunshine Resort in Orlando, Florida ("OSR II") during the 2000 Quarter with no corresponding sales during the 1999 Quarter. Once construction is completed, OSR II will consist of 60 two-bedroom vacation homes and will feature an outdoor pool, jacuzzi, lighted tennis courts and a clubhouse. OSR II is estimated to be sold out by the end of fiscal 2000, which is estimated to generate an additional $33.5 million in sales after the 2000 Quarter. There can be no assurances that such sell-out of OSR II will occur or that such estimated sales will be realized during fiscal 2000. In addition, the Company sold 316 Timeshare Interests at Phase II of the Company's Shore Crest resort in Myrtle Beach, South Carolina ("Shore Crest II") during the 2000 Quarter with no corresponding sales during the 1999 Quarter. Shore Crest II consists of 114 two-bedroom vacation homes featuring balconies overlooking the creeks and marshes of the North Myrtle Beach area, an outdoor pool and "lazy river" amenity and is across the street from the Company's ocean front Shore Crest Vacation Villas. As of July 4, 1999, estimated remaining life-of-project sales (aggregate sales of the existing, currently under construction and planned Timeshare Interests at current retail prices) of Shore Crest II were $70.1 million. Sales at the Company's Lodge Alley Inn resort in Charleston, South Carolina, which was acquired in September 1998, consisted of 63 Timeshare Interests during the 2000 Quarter. The Lodge Alley Inn is an 89-room resort in the historic district of Charleston and represents the Company's first "urban" timeshare product. During the sell-out period, the Lodge Alley Inn is operated as a hotel. The hotel generated pre-tax income of approximately $300,000 during the 2000 Quarter, which is reflected in other resort revenues and related costs on the statement of income. Sales of the Company's existing resorts, other than Shore Crest II, OSR II and Lodge Alley Inn, decreased by 119 intervals during the 2000 Quarter as compared to the 1999 Quarter, due primarily to the Company's focus on selling its OSR II Timeshare Interest inventory at various sales sites throughout the Resorts Division. Average sales price per Timeshare Interest increased during the 2000 Quarter primarily due to an increase in the average sales price at the Company's Falls Village resort from $8,812 during the 1999 Quarter to $10,631 during the 2000 Quarter. This increase is due to increased sales prices of the Company's Falls Village Timeshare Interest inventory in connection with the introduction of the Company's points-based vacation club concept during fiscal 1999. Not all of the Company's sales prices per interval increased as a result of the conversion of interval sales prices to sales prices per vacation club point. The Resorts Division's gross margin increased during the 2000 Quarter primarily due to the increased average sales prices at the Falls Village resort discussed above and the approximately 80% gross margin generated by sales of the Company's OSR II inventory. In addition, the Company recognized approximately $300,000 of fees charged to existing timeshare owners to convert their fixed-weeks into points-based Timeshare Interests in the Company's vacation club program ("Conversions"). The costs of Conversions to the Company are minimal. Also, Bluegreen Properties N.V. ("BPNV"), the Company's 50%-owned joint venture in Aruba, recognized approximately $230,000 in revenue with no corresponding costs of sales during the 2000 Quarter, pursuant to a sales and marketing agreement whereby BPNV sells Timeshare Interests on behalf of a third party in Aruba. Other resort revenues and related costs increased 48.1% and 26.2%, respectively, during the 2000 Quarter, primarily due to the results of the hotel operations at the Company's Lodge Alley Inn resort, as previously discussed. Field selling, general and administrative ("SG&A") expenses increased as a percentage of sales for the Resorts Division during the 2000 Quarter due to $1.4 million of expenses incurred in connection with the winding down of operations at the Company's Orlando, Florida sales office as compared to approximately $600,000 of sales generated. In July 1999, the Company decided to sell its OSR II Timeshare Interest inventory exclusively through certain of its other vacation club sales offices in less competitive markets than Orlando. Marketing costs in Orlando were also significantly higher than in other markets where the Company operates. In addition, the Company began a more aggressive marketing program at its Charleston sales office, the start-up of which generated $728,000 of SG&A expenses as compared to $870,000 in sales generated. High operating expenses continued at the Company's recently opened Jeffersonville, Indiana off-site sales office (serving the Louisville, Kentucky market) which increased the overall percentage of field SG&A in relation to total resort sales as compared to the 1999 Quarter. The Jeffersonville office, however, generated a field operating profit for the first time in the 2000 Quarter. 17 18 RESIDENTIAL LAND AND GOLF DIVISION. During the 1999 and 2000 Quarters, residential land and golf sales contributed $31.7 million or 56.9% and $30.4 million or 48.6%, respectively, of the Company's total consolidated sales. The table set forth below outlines the number of parcels sold and the average sales price per parcel for the Residential Land and Golf Division for the periods indicated, before giving effect to the percentage of completion method of accounting. Three Months Ended -------------------- June 28, July 4, 1998 1999 ------- ------- Number of parcels sold 645 534 Average sales price per parcel $49,495 $51,391 Gross margin 53.8% 53.4% The aggregate number of parcels sold decreased from the 1999 Quarter to the 2000 Quarter primarily due to the following: o One of the primary reasons for the decrease in the number of parcels sold during the 2000 Quarter represented a positive event. The sale of inventory in areas of the country which are no longer part of the Company's focused residential land and golf business decreased from 67 sales to 20 sales in the 1999 Quarter and 2000 Quarter, respectively, due to fewer parcels of such inventory being available for sale during the 2000 Quarter as compared to the 1999 Quarter. This reduction in the sales of such inventory parcels had a positive impact on average sales price as these lots are typically sold at reduced prices to liquidate the inventory. o Lot sales at The Landing at Southport, located in Southport, North Carolina decreased from 47 parcels sold to 22 parcels sold during the 1999 Quarter and 2000 Quarter, respectively. The property held its grand opening in the 1999 Quarter, resulting in high initial sales volume. As the property approached its sell-out phase in the 2000 Quarter, the number of parcels available for sale declined. o Combined sales at the Company's two Tennessee land properties, Crystal Cove and Woodlake, decreased from 60 parcels sold in the 1999 Quarter to 29 parcels sold in the 2000 Quarter. Sales at Crystal Cove have been temporarily paused due to a delay in the recording of a revised plat on a section of the property. Sales at Woodlake decreased as the property is approaching the sell-out phase and less inventory is available. The average sales price per parcel increased by $1,896 during the 2000 Quarter as compared to the 1999 Quarter, due in part to fewer sales of inventory in areas where the Company's business is no longer focused, as discussed above. In addition, average sales price per parcel at The Landing at Southport increased from $47,806 in the 1999 Quarter to $70,986 in the 2000 Quarter. The 2000 Quarter included sales of larger acreage, waterfront parcels, compared to lower-priced interior lot sales in the 1999 Quarter. Average sales prices at Winding River Plantation in North Carolina and properties located in Dallas, Texas increased approximately $9,000 per parcel. This is primarily the result of the opening of new higher-priced phases of existing properties, some of which feature water-access parcels. There were no golf operations revenues and related costs in the 1999 Quarter as the first 18 holes of the Company's Carolina National Golf Club did not open for play until July 1998. GAIN ON SALE OF NOTES RECEIVABLE During the 1999 Quarter, the Company recognized a $2.1 million gain on sale of notes receivable under a timeshare receivables purchase facility more fully described under "Liquidity and Capital Resources - Credit Facilities for Timeshare Receivables and Inventories". There were no such sales during the 2000 Quarter. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S, G & A EXPENSES") The Company's S, G & A Expenses consist primarily of marketing costs, advertising expenses, sales commissions and field and corporate administrative overhead. S, G & A Expenses totaled $27.6 million and $34.3 million for the three months ended June 28, 1998 and July 4, 1999, respectively. As a percentage of total revenues, S, G & A Expenses were 42.9% and 48.4% for the 1999 Quarter and 2000 Quarter, respectively. 18 19 The increase in S, G & A Expenses as a percentage of revenues in the 2000 Quarter was the result of the growth of the Resorts Division (from 43% of sales to 51% of consolidated sales during the 1999 Quarter and 2000 Quarter, respectively), where S, G & A Expenses are typically higher than for the Residential Land and Golf Division, and due to unusually higher S, G & A Expenses for the Resorts Division (due to reasons previously discussed under "Resorts Division"). INTEREST EXPENSE Interest expense totaled $3.7 million and $3.0 million for the 1999 Quarter and 2000 Quarter, respectively. The 21.2% decrease in interest expense for the 2000 Quarter was primarily due to an increase in the amount of interest capitalized to inventory for the Company's resort and residential land and golf projects under development. Capitalized interest totaled approximately $924,000 and $1.7 million during the 1999 Quarter and 2000 Quarter, respectively. The increase in interest capitalized was commensurate with the increase in the average inventory balance during these periods. PROVISION FOR LOAN LOSSES The Company recorded a provision for loan losses totaling $293,000 and $788,000 during the 1999 Quarter and 2000 Quarter, respectively. The increase in the provision was due to an increase in the notes receivable portfolio during the 2000 Quarter as compared to the 1999 Quarter. The increase in the portfolio is due to increased timeshare loans (where historical default rates exceed those for land loans), and therefore higher provisions were recorded. The allowance for loan losses by division as of March 28, 1999 and July 4, 1999 was (amounts in thousands):
Residential Resorts Land and Golf Division Division Other Total -------- -------------- ------ -------- March 28, 1999 Notes receivable $ 54,384 $ 11,105 $1,209 $ 66,698 Less: allowance for loan losses (1,983) (335) -- (2,318) -------- -------- ------ -------- Notes receivable, net $ 52,401 $ 10,770 $1,209 $ 64,380 ======== ======== ====== ======== Allowance as a % of gross notes receivable 3.6% 3.0% -% 3.5% ======== ======== ====== ======== July 4, 1999 Notes receivable $ 70,978 $ 10,316 $1,060 $ 82,354 Less: allowance for loan losses (1,983) (333) -- (2,316) -------- -------- ------ -------- Notes receivable, net $ 68,995 $ 9,983 $1,060 $ 80,038 ======== ======== ====== ======== Allowance as a % of gross notes receivable 2.8% 3.2% -% 2.8% ======== ======== ====== ========
The allowance for loan losses as a percentage of the gross notes receivable balance decreased at July 4, 1999, for the Resorts Division, as the Company did not provide an allowance for approximately $12.5 million of notes receivable which are expected to be sold during the three months ended October 3, 1999, through the Company's non-recourse timeshare receivable purchase facility (see "Liquidity and Capital Resources"). Other notes receivable primarily include secured promissory notes receivable from commercial enterprises upon their purchase of bulk parcels from the Company's Residential Land and Golf Division. The Company monitors the collectibility of these notes and has deemed them to be collectible based on various factors, including the value of the underlying collateral. PROVISION FOR INCOME TAXES The provision for income taxes decreased as a percentage of income before taxes from 40.0% to 39.5% during the 1999 Quarter and 2000 Quarter, respectively. The decrease was primarily due to continued state tax savings generated by a legal restructuring of the Company's subsidiaries in a state where the Company has significant operations. EXTRAORDINARY ITEM The Company recognized a $1.7 million extraordinary loss on early extinguishment of debt, net of taxes, during the 1999 Quarter in connection with the Offering of the Notes described in Note 6 of Notes to Condensed Consolidated Financial Statements, contained elsewhere herein. 19 20 Summary Based on the factors discussed above, the Company's net income increased from $4.1 million to $4.4 million in the 1999 Quarter and 2000 Quarter, respectively. CHANGES IN FINANCIAL CONDITION Consolidated assets of the Company increased $5.1 million from March 28, 1999 to July 4, 1999. This increase is primarily due to a net $4.2 million increase in inventory, primarily due to the capitalization of $1.7 million of interest expense to inventory and $21.4 million of development spending on the Company's resort and residential land properties partially offset by inventory sold during the period. The remaining increase in total assets is due to development spending on the Company's Carolina National Golf Club (included in property and equipment) and is partially offset by the decrease in contracts receivable on the Company's residential land and golf sales due to increased volume of lot closings on sales recognized in the fourth quarter of fiscal 1999 and lower new sales volume during the 2000 Quarter. Another significant increase was the $15.7 million increase in the net notes receivable balance, primarily due to new notes receivable generated from the sale of timeshare interests during the 2000 Quarter. The Company did not sell any notes receivable pursuant to its timeshare receivable purchase facility (see "Liquidity and Capital Resources") during the 2000 Quarter. Consolidated liabilities increased $4.7 million from March 28, 1999 to July 4, 1999. The increase is due to an $8.9 million hypothecation of timeshare notes receivable and $1.1 million hypothecation of Residential Land and Golf Division notes receivable under existing receivable financing facilities (see "Liquidity and Capital Resources"). This increase was partially offset by the recognition of $937,000 of income previously deferred due to the percentage-of-completion method of accounting, a $3.3 million decrease in accrued interest expense and a $1.3 million decrease in the liability for funds held on behalf of third parties for whom the Company services notes receivable. Total stockholders' equity increased $338,000 during the 2000 Quarter, primarily due to net income of $4.4 million and $167,000 of proceeds and related income tax benefits from the exercise of stock options. These increases were partially offset by the Company's repurchase of $4.3 million of Common Stock (841,000 shares) to be held in treasury pursuant to a stock repurchase program authorized up to 2.0 million shares. The Company's book value per common share increased from $4.76 to $4.77 at March 28, 1999 and July 4, 1999, respectively. The debt-to-equity ratio increased from 1.49:1 to 1.54:1 at March 28, 1999 and July 4, 1999, respectively, primarily due to the treasury stock purchases discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's capital resources are provided from both internal and external sources. The Company's primary capital resources from internal operations are: (i) cash sales, (ii) down payments on lot and timeshare sales which are financed, (iii) principal and interest payments on the purchase money mortgage loans and contracts for deed arising from sales of Timeshare Interests and residential land lots (collectively "Receivables") and (iv) proceeds from the sale of, or borrowings collateralized by, notes receivable. Historically, external sources of liquidity have included borrowings under secured lines-of-credit, seller and bank financing of inventory acquisitions and the issuance of debt securities. The Company's capital resources are used to support the Company's operations, including (i) acquiring and developing inventory, (ii) providing financing for customer purchases, (iii) meeting operating expenses and (iv) satisfying the Company's debt, and other obligations. The Company anticipates that it will continue to require external sources of liquidity to support its operations and satisfy its debt and other obligations and to provide funds for future strategic acquisitions, primarily for the Resorts Division. CREDIT FACILITIES FOR TIMESHARE RECEIVABLES AND INVENTORIES The Company maintains various credit facilities with financial institutions that provide for receivable financing for its timeshare projects. On June 26, 1998, the Company executed a timeshare receivables purchase facility with a financial institution. Under the purchase facility (the "Purchase Facility"), a special purpose finance subsidiary of the Company may sell up to $100 million aggregate principal amount of timeshare receivables to the financial institution in securitization transactions. The Purchase Facility has detailed requirements with respect to the eligibility of receivables for purchase. Under the 20 21 Purchase Facility, a purchase price equal to approximately 97% (subject to adjustment in certain circumstances) of the principal balance of the receivables sold is paid at closing in cash, with a portion deferred until such time as the purchaser has received a return equal to the weighted-average term treasury rate plus 1.4%, all servicing, custodial and similar fees and expenses have been paid and a cash reserve account has been funded. If the Company does not sell to such financial institution during the term of the Purchase Facility notes receivable with cumulative principal amount of at least $99 million, the return to the purchaser will increase by .05% for each $10 million shortfall, to a maximum applicable margin of 1.60%. The Company's special purpose finance subsidiary is required to maintain a specified overcollaterlization level and a cash reserve account. Receivables are sold without recourse to the Company or its special purpose finance subsidiary except for breaches of representations and warranties made at the time of sale. The financial institution's obligation to purchase under the Purchase Facility will terminate upon the occurrence of specified events. The Company acts as servicer under the Purchase Facility for a fee, and is required to make advances to the financial institution to the extent it believes such advances will be recoverable. The Purchase Facility includes various conditions to purchase and other provisions customary for a transaction of this type. The Purchase Facility has a term of two years. During fiscal 1999, the Company sold approximately $54.8 million in aggregate principal amount of timeshare receivables under the Purchase Facility for a purchase price equal to 97% of the principal balance. There were no such sales during the 2000 Quarter. The Company has a two-year, $35 million timeshare receivables warehouse loan facility, which expires in June 2000, with the same financial institution. Loans under the warehouse facility will bear interest at LIBOR plus 2.75%. The warehouse facility has detailed requirements with respect to the eligibility of receivables for inclusion and other conditions to funding. The borrowing base under the warehouse facility is 95% of the outstanding principal balance of eligible notes arising from the sale of Timeshare Interests. The warehouse facility includes affirmative, negative and financial covenants and events of default. On June 30, 1999, the Company borrowed $8.9 million under the warehouse facility, which will be repaid as principal and interest payments are collected on the timeshare notes receivable which collateralize the loan, but in no event later than June 26, 2000. The Company is currently negotiating an extension of the maturity date on this recent borrowing. There can be no assurances that such negotiations will be successful. In addition, the same financial institution referred to in the preceding paragraphs has provided the Company with a $25 million acquisition and development facility for its timeshare inventories. The facility includes a two-year draw down period, which expires in October 2000, and has a term of seven years, maturing in October 2005. Principal will be repaid through agreed-upon release prices as Timeshare Interests are sold at the financed resort, subject to minimum required amortization. The indebtedness under the facility bears interest at the three-month LIBOR plus 3.0%. With respect to any inventory financed under the facility, the Company will be required to have provided equity equal to at least 15% of the approved project costs. In connection with the facility, the Company will also be required to pay certain fees and expenses to the financial institution. As of July 4, 1999, the Company has not incurred any debt under the acquisition and development facility. CREDIT FACILITIES FOR RESIDENTIAL LAND AND GOLF RECEIVABLES AND INVENTORIES The Company has a $20.0 million revolving credit facility with a financial institution for the pledge of Residential Land and Golf Division Receivables. The Company has historically used the facility as a warehouse until it accumulates a sufficient quantity of residential land and golf receivables to sell under a private placement REMIC transaction not registered under the Securities Act. There can be no assurances that the Company will accumulate a sufficient quantity of receivables to make a REMIC transaction viable. Under the terms of this facility, the Company is entitled to advances secured by eligible Residential Land and Golf Division receivables up to 90% of the outstanding principal balance. In addition, up to $8.0 million of the facility can be used for land acquisition and development purposes. The interest rate charged on outstanding borrowings ranges from prime plus 0.5% to 1.5%. At July 4, 1999, the outstanding principal balances under the receivables and development portions of this facility were approximately $6.0 million and $700,000, respectively. All principal and interest payments received on pledged Receivables are applied to principal and interest due under the facility. The ability to borrow under the facility expires in September 2000. Any outstanding indebtedness is due in September 2002. The Company has a $35 million revolving credit facility, which expires in April 2000, with a financial institution. The Company expects to use this facility to finance the acquisition and development of residential land projects and, potentially to finance land receivables. The facility, when drawn upon, will be secured by the real property (and personal property related thereto) with respect to which borrowings are made, with the lender to advance up to a specified percentage of the value of the mortgaged property and eligible pledged receivables, provided that the maximum outstanding amount secured by pledged receivables may not exceed $20.0 million. The interest charged on 21 22 outstanding borrowings is prime plus 1.5%. As of July 4, 1999, the Company has not incurred any debt under the revolving credit facility. Over the past three years, the Company has received 80% to 90% of its land sales proceeds in cash. Accordingly, in recent years the Company has reduced the borrowing capacity under credit agreements secured by land receivables. The Company attributes the significant volume of cash sales to an increased willingness on the part of certain local banks to extend more direct customer lot financing. No assurances can be given that local banks will continue to provide such customer financing. Historically, the Company has funded development for road and utility construction, amenities, surveys and engineering fees from internal operations and has financed the acquisition of residential land and golf properties through seller, bank or financial institution loans. Terms for repayment under these loans typically call for interest to be paid monthly and principal to be repaid through lot releases. The release price is usually defined as a pre-determined percentage of the gross selling price (typically 25% to 50%) of the parcels in the subdivision. In addition, the agreements generally call for minimum cumulative annual amortization. When the Company provides financing for its customers (and therefore the release price is not available in cash at closing to repay the lender), it is required to pay the creditor with cash derived from other operating activities, principally from cash sales or the pledge of receivables originated from earlier property sales. OTHER CREDIT FACILITY On August 1, 1999, the Company renewed its $5 million, unsecured line-of-credit with a bank. Amounts borrowed under the line will bear interest at LIBOR plus 1.5%. Interest is due monthly and all principal amounts are due on December 31, 2000. Through July 4, 1999, the Company has not borrowed any amounts under the line. SUMMARY The Company intends to continue to pursue a growth-oriented strategy, particularly with respect to its Resorts Division. In connection with this strategy, the Company may from time to time acquire, among other things, additional resort properties and completed Timeshare Interests; land upon which additional resorts may be built; management contracts; loan portfolios of Timeshare Interest mortgages; portfolios which include properties or assets which may be integrated into the Company's operations; and operating companies providing or possessing management, sales, marketing, development, administration and/or other expertise with respect to the Company's operations in the timeshare industry. In addition, the Company intends to continue to focus the Residential Land and Golf Division on larger more capital intensive projects particularly in those regions where the Company believes the market for its products is strongest, such as the Southeast, Southwest, Rocky Mountains and Western regions of the United States and to replenish its residential land and golf inventory in such regions as existing projects are sold-out. The Company estimates that the total cash required to complete preparation for the sale of its residential land and golf and timeshare property inventory as of July 4, 1999 is approximately $175.4 million (based on current costs), expected to be incurred over a five-year period. The Company plans to fund these expenditures primarily with available capacity on existing or proposed credit facilities and cash generated from operations. There can be no assurances that the Company will be able to obtain the financing necessary to complete the foregoing plans. The Company believes that its existing cash, anticipated cash generated from operations, anticipated future permitted borrowings under existing or proposed credit facilities and anticipated future sales of notes receivable under the Purchase Facility will be sufficient to meet the Company's working capital, capital expenditures and debt service requirements for the foreseeable future. Based on outstanding borrowings at July 4, 1999, and the credit facilities described above, the Company has approximately $104.5 million of available credit at its disposal, subject to customary conditions, compliance with covenants and eligible collateral. This amount does not include the remaining $45.2 million of unused capacity under the Purchase Facility or the $15.0 million of gross proceeds to the Company upon the sale of the remaining 1.8 million shares of Common Stock to the Funds under the Stock Agreement. The Company may, in the future, require additional credit facilities or issuances of other corporate debt or equity securities in connection with acquisitions or otherwise. Any debt incurred or issued by the Company may be secured or unsecured, bear fixed or variable rate interest and may be subject to such terms as the lender may require and management deems prudent. There can be no assurance that sufficient funds will be available from operations or under existing, proposed or future revolving credit or other borrowing arrangements or receivables purchase facilities to meet the Company's cash needs, including, without limitation, its debt service obligations. 22 23 The Company's credit facilities and other outstanding debt include customary conditions to funding, eligibility requirements for collateral, certain financial and other affirmative and negative covenants, including, among others, limits on the incurrence of indebtedness, limits on the payment of dividends and other restricted payments, the incurrence of liens, transactions with affiliates, covenants concerning net worth, fixed charge coverage requirements, debt-to-equity ratios and events of default. No assurances can be given that such covenants will not limit the Company's ability to satisfy or refinance its obligations or otherwise adversely affect the Company's operations. In addition, the Company's future operating performance and ability to meet its financial obligations will be subject to future economic conditions and to financial, business and other factors, many of which will be beyond the Company's control. IMPACT OF YEAR 2000 The Company is devoting resources to minimize the risk of potential disruption from the "year 2000 (`Y2K') problem". This problem results from computer programs having been written using two digits (rather than four) to store date information. Information technology ("IT") systems that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations and system failures. The problem also extends to "non-IT" (operation and control) systems that rely on embedded microchips that may be date sensitive. In addition, like other business enterprises, the Company has a risk from Y2K failures on the part of its major business counterparts, including financial institutions, suppliers, contractors and service providers, as well as potential failures in public and private infrastructure services, including electricity, water, gas, transportation and communications. STATE OF READINESS The Company's plan to resolve the Y2K issue involves the following three phases: Assessment, Remediation, and Testing. The Assessment phase includes identifying all IT and non-IT systems currently being used by the Company and determining whether the systems are Y2K compliant (based on vendor representations or system documentation) and if not, identifying the tasks necessary to address the related issues. The Assessment phase also includes obtaining information regarding the Y2K state of readiness of third parties that the Company depends on to provide materials or services, whether or not the Company's computer systems interface with those of the third party. The Company has completed its assessment of its IT and non-IT systems. The Company is still in the process of assessing the Y2K readiness of several identified third parties that, if their own systems are not Y2K compliant, could cause an interruption in the Company's business. Information about third parties is being obtained by direct written correspondence or by reviewing the Y2K disclosures of third parties in public filings with the Securities and Exchange Commission, as applicable. The Company anticipates completing its assessment of the third parties identified as "critical" by August 31, 1999. There can be no assurances as to the accuracy of the representations made to the Company by third parties regarding the Y2K issue and whether interruptions to the Company's operations caused by the Y2K issue's impact on a third party's operations would have a material adverse effect on the Company. The Remediation phase involves executing the tasks identified during the Assessment phase as necessary to make the Company's systems Y2K compliant. The Company has developed a detail project plan, which includes each system identified during the Assessment phase, a description of the tasks necessary to achieve Y2K compliance, a projected timetable for completion and an assignment of responsibility for completing the work. As several of the Company's critical systems are already Y2K compliant and will require no reprogramming, management estimates that the Company is approximately 90% complete with the Remediation phase. Remaining tasks are anticipated to be completed by October 31, 1999, and primarily include installing vendor-supplied software upgrades. The Remediation phase also includes identifying alternative vendors to replace any third parties who, based on information about Y2K readiness obtained during the Assessment phase, are estimated to cause a critical interruption to the Company's business based on the third party's inability to address the Y2K issue by January 1, 2000. The Company intends to address this portion of the Remediation phase as soon as practicable after the completion of the Assessment phase for third parties. There can be no assurances that alternative third parties will be available or that the Company will be able to modify its existing business relationships to new vendors in a timely manner or at costs that are not materially higher than current expenses for these vendors. The Testing phase involves establishing a test environment, performing system testing and evaluating the results. The Company intends to test all of its critical systems, including its sales and marketing systems, financial accounting systems, customer service systems and payroll systems to ensure that vendor representations as to Y2K compliance are accurate and that there are no issues relative to system interfaces. No testing has occurred as of 23 24 July 4, 1999. The Company will be commencing the testing process in August 1999, with all critical systems anticipated to be tested by October 31, 1999. There can be no assurances that vendor representations regarding the Y2K compliance of a critical system may not prove to be inaccurate or that new Y2K issues may not be discovered during the Testing phase. COST The Company will utilize both internal and external resources to remediate and test its systems regarding the Y2K issue. The total cost of the Y2K project is estimated to be $460,000 and is being funded through operating cash flows. Through July 4, 1999, the Company has incurred $142,000, of which $114,000 has been capitalized and $28,000 has been expensed. Of the total remaining project costs, approximately $283,000 is attributable to the purchase of new software and equipment, which will be capitalized. The remaining $35,000 relates to external costs of repairing existing software and hardware and testing systems. All internal payroll costs relating to the assessment, remediation and testing phases of the Y2K project are expensed as incurred and are excluded from the above amounts. RISK Management of the Company believes it has an effective program in place to resolve the Y2K issue in a timely manner. As noted above the Company has not yet completed all necessary phases of the Y2K project. The most reasonably likely worst case scenario, in the event that the Company does not complete certain critical phases or that the testing phase uncovers previously unforeseen Y2K issues would be an inability (other than by manual means) to write sales contracts, collect payments, make cash disbursements to employees or vendors or make reservations for customers. Also, potential disruptions in the areas in which the Company must rely on third parties whose systems may not work properly after January 1, 2000 could affect important operations of the Company, either directly or indirectly, in a significant manner, and have a material adverse effect on its results of operations and financial condition. In addition, as is the case for most companies involved in Y2K system modifications, disruptions in the general economy resulting from Y2K issues could also materially adversely affect the Company's ability to market and sell its products. The Company could also be subject to litigation for computer system failure, equipment shutdown at its resort facilities or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. CONTINGENCY PLAN The Company currently has no contingency plans in place in the event it does not complete all phases of its Y2K program. The Company plans to evaluate the status of completion in September 1999 and, if necessary, develop contingency plans for any systems and/or third party relationships that are not expected to be Y2K compliant by January 1, 2000. The preceding Y2K discussion contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, including without limitation, anticipated costs and the dates by which the Company expects to complete certain actions, are based on management's best current estimates, which were derived utilizing numerous assumptions about future events, including the continued availability of certain resources, representations received from third parties and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the ability to identify and remediate all relevant information technology and non-information technology systems, results of Y2K testing, adequate resolution of Y2K issues by businesses and other third parties who are service providers, suppliers or customers of the Company, unanticipated system costs, the adequacy of and ability to develop and implement contingency plans and similar uncertainties. The "forward-looking statements" made in the foregoing Y2K discussion speak only as of the date on which such statement is made and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a complete description of the Company's foreign currency and interest rate related market risks, see the discussion in the Company's Annual Report on Form 10-K for the year ended March 28, 1999. There has not been a material change in the Company's exposure to foreign currency and interest rate risks since March 28, 1999. 24 25 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the ordinary course of its business, the Company from time to time becomes subject to claims or proceedings relating to the purchase, subdivision, sale and/or financing of real estate. Additionally, from time to time, the Company becomes involved in disputes with existing and former employees. The Company believes that substantially all of the above are incidental to its business. Certain other litigation involving the Company is described in the Company's Annual Report on Form 10-K for the year ended March 28, 1999. Subsequent to the filing of such Form 10-K, no material developments have occurred with respect to such litigation. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders held on July 28, 1999, the shareholders voted on the matters listed below and in the proxy materials dated June 28, 1999. The results of voting were as follows:
Shares Voted ------------------------------------------------ For Against Abstain Total ---------- ------- ------- ---------- Elect each of the following persons as directors of the Company for a three year term: Joseph C. Abeles 23,275,242 128,676 -- 23,403,918 Ralph A. Foote 23,275,968 127,950 -- 23,403,918 Joseph M. Zuber 23,277,179 126,739 -- 23,403,918 Ratify the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending April 2, 2000 23,384,386 7,702 11,830 23,403,918 The Company has a classified Board of Directors
Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.151 - Modification No. 1 to the Loan Agreement and Renewal Promissory Note dated August 1, 1999 by and among the Registrant, certain subsidiaries of the Registrant and First Union National Bank, for the $5 million, unsecured revolving line-of-credit due December 31, 2000. (b) None. 25 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BLUEGREEN CORPORATION (Registrant) Date: August 17, 1999 By: /s/ George F. Donovan ------------------------------------- George F. Donovan President and Chief Executive Officer Date: August 17, 1999 By: /s/ John F. Chiste ------------------------------------- John F. Chiste Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) Date: August 17, 1999 By: /s/ Anthony M. Puleo ------------------------------------- Anthony M. Puleo Vice President and Chief Accounting Officer (Principal Accounting Officer) 26 EX-10.151 2 MODIFICATION TO LOAN AGREEMENT 1 EXHIBIT 10.151 -------------- MODIFICATION NUMBER ONE TO THE LOAN AGREEMENT First Union National Bank 214 North Hogan Street - FL0070 Jacksonville, Florida 32202 (Hereinafter referred to as the "Bank") Bluegreen Corporation 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Resorts Management, Inc. f/k/a RDI Resort Services Corporation 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Resorts, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Holding Corporation (Texas) 4960 Blue Lake Drive Boca Raton, Florida 33431 Properties of the Southwest One, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Properties of the Southwest, L.P. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Asset Management Corporation 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Carolina Land, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Corporation of Montana 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Corporation of Tennessee 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Corporation of the Rockies 4960 Blue Lake Drive Boca Raton, Florida 33431 2 Bluegreen Properties of Virginia, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Communities, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Resorts International, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Carolina National Golf Club, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Leisure Capital Corporation 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Properties of the West, Inc. f/k/a Properties of the West, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 BG/RDI Acquisition Corp. 4960 Blue Lake Drive Boca Raton, Florida 33431 RDI Group, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Dellona Enterprises, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Resorts of Florida, Inc. f/k/a Resort Development International, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Vacations Unlimited, Inc. f/k/a RDI Resources, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 (INDIVIDUALLY AND COLLECTIVELY "BORROWER") THIS AGREEMENT is entered into as of August 1, 1999 by and between Bank and Borrower. 3 RECITALS Bank is the holder of a Promissory Note executed and delivered by Borrower, dated September 23, 1998, in the original principal amount of $5,000,000.00 (the "Note"); and certain other Loan Documents, including a Loan Agreement, dated September 23, 1998 (the "Loan Agreement"); and Borrower and Bank have agreed to modify the terms of the Loan Agreement. In consideration of Bank's continued extension of credit and the agreements contained herein, the parties agree as follows: AGREEMENT OUTSTANDING BALANCE. The total outstanding unpaid principal balance under the Note as of August 1, 1999 is $0.00. MODIFICATIONS. Borrower has applied to Bank for an extension of the loan or loans (individually and collectively, the "Loan") evidenced by one or more promissory notes (whether one or more, the "Note") as follows: Line of Credit - in the principal amount of $5,000,000.00 which is evidenced by a Renewal Promissory Note dated as of August 1, 1999 ("Line of Credit Note"), under which Borrower may borrow, repay, and reborrow, from time to time, so long as the total indebtedness outstanding at any one time does not exceed the principal amount minus the sum of (i) the amount available to be drawn plus (ii) the amount of unreimbursed drawings under all letters of credit issued by Bank for the account of Borrower. The Loan proceeds are to be used by Borrower solely for working capital and to issue letters of credit from time to time. The total amount of letters of credit to be issued under the Line of Credit Note shall not exceed $1,000,000.00 at any time nor have maturities greater than December 31, 2000. Bank's obligation to advance or readvance under the Line of Credit Note shall terminate if Borrower is in Default under the Line of Credit Note. ACKNOWLEDGMENTS. Borrower acknowledges and represents that the Note and other Loan Documents, as amended hereby, are in full force and effect without any defense, counterclaim, right or claim of set-off; that, after giving effect to this Agreement, no default or event that with the passage of time or giving of notice would constitute a default under the Loan Documents has occurred; that all representations and warranties contained in the Loan Documents are true and correct as of this date; that Borrower has taken all necessary action to authorize the execution and delivery of this Agreement; and that this Agreement is a modification of an existing obligation and is not a novation. MISCELLANEOUS. This Agreement shall be construed in accordance with and governed by the laws of the applicable state as originally provided in the Loan Documents, without reference to that state's conflicts of laws principles. This Agreement and the other Loan Documents constitute the sole agreement of the parties with respect to the subject matter thereof and supersede all oral negotiations and prior writings with respect to the subject matter thereof. No amendment of this Agreement, and no waiver of any one or more of the provisions hereof shall be effective unless set forth in writing and signed by the parties hereto. The illegality, unenforceability or inconsistency of any provision of this Agreement shall not in any way affect or impair the legality, enforceability or consistency of the remaining provisions of this Agreement or the other Loan Documents. This Agreement and the other Loan Documents are intended to be consistent. However, in the event of any inconsistencies among this Agreement and any of the Loan Documents, the terms of this Agreement, and then the Note, shall control. This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts. Each such counterpart shall be deemed an original, but all such counterparts shall together constitute one and the same agreement. Terms used in this Agreement which are capitalized and not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Documents. 4 IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement the day and year first above written. Bluegreen Corporation Taxpayer Identification Number: 03-0300793 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, Senior Vice President Bluegreen Resorts Management, Inc. Taxpayer Identification Number: 65-0520217 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Bluegreen Resorts, Inc. Taxpayer Identification Number: 65-0520212 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Bluegreen Holding Corporation (Texas) Taxpayer Identification Number: 65-0796382 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Properties of the Southwest One, Inc. Taxpayer Identification Number: 03-0315835 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, Executive Vice President Properties of the Southwest, L.P. By: Properties of the Southwest One, Inc., its: General Partner Taxpayer Identification Number: 65-0796380 5 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, Executive Vice President Bluegreen Asset Management Corporation Taxpayer Identification Number: 03-0325365 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Bluegreen Carolina Land, Inc. Taxpayer Identification Number: 03-0317601 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Bluegreen Corporation of Montana Taxpayer Identification Number: 81-0400702 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Bluegreen Corporation of Tennessee Taxpayer Identification Number: 03-0316460 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Bluegreen Corporation of the Rockies Taxpayer Identification Number: 65-0349373 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Bluegreen Corporation of Virginia, Inc. Taxpayer Identification Number: 52-1752664 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President 6 Bluegreen Communities, Inc. Taxpayer Identification Number: 65-0484313 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Bluegreen Resorts International, Inc. Taxpayer Identification Number: 65-0803615 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Carolina National Golf Club, Inc. Taxpayer Identification Number: 62-1667685 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Leisure Capital Corporation Taxpayer Identification Number: 03-0327285 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President Bluegreen Properties of the West, Inc. Taxpayer Identification Number: 59-3300205 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President BG/RDI Acquisition Corp. Taxpayer Identification Number: 65-0776572 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President 7 RDI Group, Inc. Taxpayer Identification Number: 59-2504187 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, Secretary Dellona Enterprises, Inc. Taxpayer Identification Number: 39-1130446 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, Secretary Bluegreen Resorts of Florida, Inc. Taxpayer Identification Number: 59-2151678 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, Secretary Bluegreen Vacations Unlimited, Inc. Taxpayer Identification Number: 65-0433722 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------- Patrick E. Rondeau, President First Union National Bank CORPORATE By: /s/ JACQUELINE LEDEA SEAL ------------------------------------------- Jacqueline Ledea, Vice President 8 (FIRST UNION LOGO) RENEWAL PROMISSORY NOTE $5,000,000.00 August 1, 1999 Bluegreen Corporation 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Resorts Management, Inc. f/k/a RDI Resort Services Corporation 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Resorts, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Holding Corporation (Texas) 4960 Blue Lake Drive Boca Raton, Florida 33431 Properties of the Southwest One, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Properties of the Southwest, L.P. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Asset Management Corporation 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Carolina Land, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Corporation of Montana 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Corporation of Tennessee 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Corporation of the Rockies 4960 Blue Lake Drive Boca Raton, Florida 33431 9 Bluegreen Properties of Virginia, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Communities, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Resorts International, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Carolina National Golf Club, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Leisure Capital Corporation 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Properties of the West, Inc. f/k/a Properties of the West, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 BG/RDI Acquisition Corp. 4960 Blue Lake Drive Boca Raton, Florida 33431 RDI Group, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Dellona Enterprises, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Resorts of Florida, Inc. f/k/a Resort Development International, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 Bluegreen Vacations Unlimited, Inc. f/k/a RDI Resources, Inc. 4960 Blue Lake Drive Boca Raton, Florida 33431 (INDIVIDUALLY AND COLLECTIVELY "BORROWER") First Union National Bank 214 North Hogan Street - FL0070 Jacksonville, Florida 32202 (HEREINAFTER REFERRED TO AS THE "BANK") 10 RENEWAL/MODIFICATION. This Promissory Note renews, extends and/or modifies that certain Promissory Note dated September 23, 1998, evidencing an original principal indebtedness of $5,000,000.00 of which $0 is currently outstanding. This Promissory Note is not a novation. Borrower promises to pay to the order of Bank, in lawful money of the United States of America, at its office indicated above or wherever else Bank may specify, the sum of Five Million and No/100 Dollars ($5,000,000.00) or such sum as may be advanced and outstanding from time to time with interest on the unpaid principal balance at the rate and on the terms provided in this Promissory Note (including all renewals, extensions or modifications hereof, this "Note"). INTEREST RATE. Interest shall accrue on the unpaid principal balance of this Note from the date hereof at the LIBOR Market Index Rate plus 1.5% as that rate may change from day to day in accordance with changes in the LIBOR Market Index Rate ("Interest Rate"). "LIBOR Market Index Rate", for any day, is the rate for 1 month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London time, on such day, or if such day is not a London business day, then the immediately preceding London business day (or if not so reported, then as determined by Bank from another recognized source or interbank quotation). DEFAULT RATE. In addition to all other rights contained in this Note, if a Default (defined herein) occurs and as long as a Default continues, all outstanding Obligations shall bear interest at the Interest Rate plus 3% ("Default Rate"). The Default Rate shall also apply from acceleration until the Obligations or any judgment thereon is paid in full. INTEREST AND FEE(S) COMPUTATION. (ACTUAL/360). Interest and fees, if any, shall be computed on the basis of a 360-day year for the actual number of days in the applicable period ("Actual/360 Computation"). The Actual/360 Computation determines the annual effective yield by taking the stated (nominal) rate for a year's period and then dividing said rate by 360 to determine the daily periodic rate to be applied for each day in the applicable period. Application of the Actual/360 Computation produces an annualized effective rate exceeding that of the nominal rate. REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly payments of accrued interest only commencing on August 23, 1998, and on the same day of each month thereafter until fully paid. In any event, all principal and accrued interest shall be due and payable on December 31, 2000. APPLICATION OF PAYMENTS. Monies received by Bank from any source for application toward payment of the Obligations shall be applied to accrued interest and then to principal. If a Default occurs, monies may be applied to the Obligations in any manner or order deemed appropriate by Bank. If any payment received by Bank under this Note or other Loan Documents is rescinded, avoided or for any reason returned by Bank because of any adverse claim or threatened action, the returned payment shall remain payable as an obligation of all persons liable under this Note or other Loan Documents as though such payment had not been made. DEFINITIONS. LOAN DOCUMENTS. The term "Loan Documents" used in this Note and other Loan Documents refers to all documents executed in connection with the loan evidenced by this Note and any prior notes which evidence all or any portion of the loan evidenced by this Note, and may include, without limitation, a commitment letter that survives closing, a loan agreement, this Note, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, any renewals or modifications, whenever any of the foregoing are executed, but does not include swap agreements (as defined in 11 U.S.C. Section 101). OBLIGATIONs. The term "Obligations" used in this Note refers to any and all indebtedness and other obligations under this Note, all other obligations under any other Loan Document(s), and all obligations under any swap agreements as defined in 11 U.S.C. Section 101 between Borrower and Bank whenever executed. CERTAIN OTHER TERMs. All terms that are used but not otherwise 11 defined in any of the Loan Documents shall have the definitions provided in the Uniform Commercial Code. LATE CHARGE. If any payments are not timely made, Borrower shall also pay to Bank a late charge equal to 5% of each payment past due for 10 or more days. Acceptance by Bank of any late payment without an accompanying late charge shall not be deemed a waiver of Bank's right to collect such late charge or to collect a late charge for any subsequent late payment received. If this Note is secured by owner-occupied residential real property located outside the state in which the office of Bank first shown above is located, the late charge laws of the state where the real property is located shall apply to this Note and the late charge shall be the highest amount allowable under such laws. If no amount is stated thereunder, the late charge shall be 5% of each payment past due for 10 or more days. ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's reasonable expenses incurred to enforce or collect any of the Obligations, including, without limitation, reasonable arbitration, paralegals', attorneys' and experts' fees and expenses, whether incurred without the commencement of a suit, in any trial, arbitration, or administrative proceeding, or in any appellate or bankruptcy proceeding. USURY. If at any time the effective interest rate under this Note would, but for this paragraph, exceed the maximum lawful rate, the effective interest rate under this Note shall be the maximum lawful rate, and any amount received by Bank in excess of such rate shall be applied to principal and then to fees and expenses, or, if no such amounts are owing, returned to Borrower. DEFAULT. If any of the following occurs, a default ("Default") under this Note shall exist: NONPAYMENT; NONPERFORMANCE. The failure of timely payment or performance of the Obligations or Default under this Note or any other Loan Documents. FALSE WARRANTY. A warranty or representation made or deemed made in the Loan Documents or furnished Bank in connection with the loan evidenced by this Note proves materially false, or if of a continuing nature, becomes materially false. CROSS DEFAULT. At Bank's option, any default in payment or performance of any obligation under any other loans, contracts or agreements of Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the holder(s) of the majority ownership interests of Borrower with Bank or its affiliates ("Affiliate" shall have the meaning as defined in 11 U.S.C. Section 101, except that the term "debtor" therein shall be substituted by the term "Borrower" herein; "Subsidiary" shall mean any business in which Borrower holds, directly or indirectly, a controlling interest). CESSATION; BANKRUPTCY. The death of, appointment of guardian for, dissolution of, termination of existence of, loss of good standing status by, appointment of a receiver for, assignment for the benefit of creditors of, or commencement of any bankruptcy or insolvency proceeding by or against the Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or the holder(s) of the majority ownership interests of Borrower, or any party to the Loan Documents. MATERIAL CAPITAL STRUCTURE OR BUSINESS ALTERATION. Without prior written consent of Bank, (i) a material alteration in the kind or type of Borrower's business or that of Borrower's Subsidiaries or Affiliates, if any; (ii) the sale of substantially all of the business or assets of Borrower, any of Borrower's Subsidiaries or Affiliates or guarantor or a material portion (10% or more) of such business or assets if such a sale is outside the ordinary course of business of Borrower, or any of Borrower's Subsidiaries or Affiliates or any guarantor or more than 50% of the outstanding stock or voting power of or in any such entity in a single transaction or a series of transactions; (iii) the acquisition of substantially all of the business or assets or more than 50% of the outstanding stock or voting power of any other entity; or (iv) should any Borrower, or any of Borrower's Subsidiaries or Affiliates or any guarantor enter into any merger or consolidation. 12 REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan Documents, Bank may at any time thereafter, take the following actions: BANK LIEN. Foreclose its security interest or lien against Borrower's accounts without notice. ACCELERATION UPON DEFAULT. Accelerate the maturity of this Note and all other Obligations, and all of the Obligations shall be immediately due and payable. CUMULATIVE. Exercise any rights and remedies as provided under the Note and other Loan Documents, or as provided by law or equity. FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information as Bank may reasonably request from time to time, including without limitation, financial statements and information pertaining to Borrower's financial condition. Such information shall be true, complete, and accurate. YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to ensure that Borrower's computer based systems are able to operate and effectively process data including dates on and after January 1, 2000. At the request of Bank, Borrower shall provide Bank assurance acceptable to Bank of Borrower's Year 2000 compatibility. LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank may advance and readvance under this Note respectively from time to time until the maturity hereof (each an "Advance" and together the "Advances"), so long as the total indebtedness outstanding under this Note at any one time does not exceed the principal amount stated on the face of this Note minus the sum of (i) the amount available to be drawn plus (ii) the amount of unreimbursed drawings under all letters of credit issued by Bank for the account of Borrower. The total amount of letters of credit to be issued under the Line of Credit Note shall not exceed $1,000,000.00 at any time. Bank's obligation to make Advances under this Note shall terminate if Borrower is in Default or a representation in any of the Loan Documents is false or has become false. As of the date of each proposed Advance, Borrower shall be deemed to represent that each representation made in the Loan Documents is true as of such date. 45-DAY PAYOUT. During the term of the Note, Borrower agrees to pay down the outstanding balance to a maximum of $100.00 for 45 consecutive days annually. If Borrower subscribes to Bank's cash management services and such services are applicable to this line of credit, the terms of such service shall control the manner in which funds are transferred between the applicable demand deposit account and the line of credit for credit or debit to the line of credit. WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and other Loan Documents shall be valid unless in writing and signed by an officer of Bank. No waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion. Neither the failure nor any delay on the part of Bank in exercising any right, power, or remedy under this Note and other Loan Documents shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Each Borrower or any person liable under this Note waives presentment, protest, notice of dishonor, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other notices of any kind. Further, each agrees that Bank may extend, modify or renew this Note or make a novation of the loan evidenced by this Note for any period and grant any releases, compromises or indulgences with respect to any collateral securing this Note, or with respect to any other Borrower or any other person liable under this Note or other Loan Documents, all without notice to or consent of each Borrower or each person who may be liable under this Note or other Loan Documents and without affecting the liability of Borrower or any person who may be liable under this Note or other Loan Documents. MISCELLANEOUS PROVISIONS. ASSIGNMENT. This Note and other Loan Documents shall inure to the benefit of and be binding upon the parties and their respective heirs, legal representatives, successors and assigns. Bank's interests in and rights under this Note and other Loan Documents are freely assignable, in whole or in part, by Bank. In addition, nothing in this Note or any of the Loan Documents 13 shall prohibit Bank from pledging or assigning this Note or any of the Loan Documents or any interest therein to any Federal Reserve Bank. Borrower shall not assign its rights and interest hereunder without the prior written consent of Bank, and any attempt by Borrower to assign without Bank's prior written consent is null and void. Any assignment shall not release Borrower from the Obligations. APPLICABLE LAW; CONFLICT BETWEEN DOCUMENTS. This Note and other Loan Documents shall be governed by and construed under the laws of the state named in Bank's address shown above without regard to that state's conflict of laws principles. If the terms of this Note should conflict with the terms of the loan agreement or any commitment letter that survives closing, the terms of this Note shall control. BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank a security interest in all of Borrower's accounts with Bank and any of its affiliates. JURISDICTION. Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state named in Bank's address shown above. SEVERABILITY. If any provision of this Note or of the other Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note or other such document. NOTICES. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower's address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Bank's office address shown above or such other address as Bank may specify in writing from time to time. In the event that Borrower changes Borrower's address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. PLURAL; CAPTIONS. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term "person" shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. BINDING CONTRACT. Borrower by execution of and Bank by acceptance of this Note agree that each party is bound to all terms and provisions of this Note. ADVANCES. Bank in its sole discretion may make other Advances under this Note pursuant hereto. POSTING OF PAYMENTS. All payments received during normal banking hours after 2:00 p.m. local time at the office of Bank first shown above shall be deemed received at the opening of the next banking day. JOINT AND SEVERAL OBLIGATIONS. Each Borrower is jointly and severally obligated under this Note. FEES AND TAXES. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time. ARBITRATION. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any claim or controversy arising out of or relating to the Loan Documents between parties hereto (a "Dispute") shall be resolved by binding arbitration conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes may include, without limitation, tort claims, counterclaims, a dispute as to whether a matter is subject to arbitration, claims brought as class actions, or claims arising from documents executed in the future. A judgment upon the award may be entered in any court having jurisdiction. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. SPECIAL RULES. All arbitration hearings shall be conducted in the city named in the address of Bank first stated above. A hearing shall begin within 90 days of demand for arbitration and all hearings shall conclude within 120 days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then for no more than a total of 60 days. The expedited procedures set forth in Rule 51 ET SEQ. of the Arbitration Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed attorneys selected from the Commercial Financial Dispute Arbitration Panel of the AAA. The parties do not waive applicable Federal or state substantive law except as provided herein. PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding arbitration provisions, the parties agree to preserve, without diminution, certain remedies that any party may exercise before or after an arbitration proceeding is brought. The parties shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale or under applicable law by judicial foreclosure including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful 14 occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Any claim or controversy with regard to any party's entitlement to such remedies is a Dispute. WAIVER OF EXEMPLARY DAMAGES. The parties agree that they shall not have a remedy of punitive or exemplary damages against other parties in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute whether the Dispute is resolved by arbitration or judicially. WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE. IN WITNESS WHEREOF, Borrower, on the day and year first above written, has caused this Note to be executed under seal. Bluegreen Corporation Taxpayer Identification Number: 03-0300793 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, Senior Vice President Bluegreen Resorts Management, Inc. Taxpayer Identification Number: 65-0520217 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Bluegreen Resorts, Inc. Taxpayer Identification Number: 65-0520212 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Bluegreen Holding Corporation (Texas) Taxpayer Identification Number: 65-0796382 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President 15 Properties of the Southwest One, Inc. Taxpayer Identification Number: 03-0315835 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, Executive Vice President Properties of the Southwest, L.P. By: Properties of the Southwest One, Inc., its: General Partner Taxpayer Identification Number: 65-0796380 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, Executive Vice President Bluegreen Asset Management Corporation Taxpayer Identification Number: 03-0325365 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Bluegreen Carolina Land, Inc. Taxpayer Identification Number: 03-0317601 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Bluegreen Corporation of Montana Taxpayer Identification Number: 81-0400702 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Bluegreen Corporation of Tennessee Taxpayer Identification Number: 03-0316460 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President 16 Bluegreen Corporation of the Rockies Taxpayer Identification Number: 65-0349373 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Bluegreen Corporation of Virginia, Inc. Taxpayer Identification Number: 52-1752664 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Bluegreen Communities, Inc. Taxpayer Identification Number: 65-0484313 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Bluegreen Resorts International, Inc. Taxpayer Identification Number: 65-0803615 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Carolina National Golf Club, Inc. Taxpayer Identification Number: 62-1667685 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President Leisure Capital Corporation Taxpayer Identification Number: 03-0327285 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President 17 Bluegreen Properties of the West, Inc. Taxpayer Identification Number: 59-3300205 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President BG/RDI Acquisition Corp. Taxpayer Identification Number: 65-0776572 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President RDI Group, Inc. Taxpayer Identification Number: 59-2504187 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, Secretary Dellona Enterprises, Inc. Taxpayer Identification Number: 39-1130446 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, Secretary Bluegreen Resorts of Florida, Inc. Taxpayer Identification Number: 59-2151678 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, Secretary Bluegreen Vacations Unlimited, Inc. Taxpayer Identification Number: 65-0433722 CORPORATE By: /s/ PATRICK E. RONDEAU SEAL ------------------------------------------ Patrick E. Rondeau, President EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS APR-02-2000 MAR-29-1999 JUL-04-1999 39,046 17,169 103,949 2,941 146,784 0 35,325 6,704 354,203 0 184,957 0 0 251 119,437 354,203 62,714 70,951 21,724 25,473 0 788 2,955 7,406 2,926 4,424 0 0 0 4,424 0.19 0.17 THE COMPANY HAS AN UNCLASSIFIED BALANCE SHEET.
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