August 16, 2000
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. Such statements may be
identified by forward-looking words such as "may", "intend", "expect", "anticipate",
"believe", "will", "should", "project", "estimate", "plan"
or other comparable terminology. All statements, trend analyses and other information relative to the market for
the Company's products and trends in the Company's operations or results are forward-looking statements. Such forward-looking
statements are subject to known and unknown risks and uncertainties, many of which are beyond the Company's control,
that could cause the actual results, performance or achievements of the Company, or industry trends, to differ
materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements
and no assurance can be given that the plans, estimates and expectations reflected in such statements will be achieved.
The Company wishes to caution readers that the following important factors, among others, in some cases have affected,
and in the future could affect, the Company's actual results and could cause the Company's actual consolidated
results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the
Company:
a) Changes in national, international or regional economic conditions that can affect the real estate market, which
is cyclical in nature and highly sensitive to such changes, including, among other factors, levels of employment
and discretionary disposable income, consumer confidence, available financing and interest rates.
b) The imposition of additional compliance costs on the Company as the result of changes in any environmental,
zoning or other laws and regulations that govern the acquisition, subdivision and sale of real estate and various
aspects of the Company's financing operation or the failure of the Company to comply with any law or regulation.
c) Risks associated with a large investment in real estate inventory at any given time (including risks that real
estate inventories will decline in value due to changing market and economic conditions and that the development
and carrying costs of inventories may exceed those anticipated).
d) Risks associated with an inability to locate suitable inventory for acquisition, or with a shortage of available
inventory in the Company's principal markets.
e) Risks associated with delays in bringing the Company's inventories to market due to, among other things, changes
in regulations governing the Company's operations, adverse weather conditions or changes in the availability of
development financing on terms acceptable to the Company.
f) Changes in applicable usury laws or the availability of interest deductions or other provisions of federal or
state tax law.
g) A decreased willingness on the part of banks to extend direct customer lot financing, which could result in
the Company receiving less cash in connection with the sales of real estate and/or lower sales.
h) The inability of the Company to locate external sources of liquidity on favorable terms to support its operations,
acquire, carry and develop land and timeshare inventories and satisfy its debt and other obligations.
i) The inability of the Company to locate sources of capital on favorable terms for the pledge and/or sale of land
and timeshare notes receivable, including the inability to consummate securitization transactions.
j) An increase in prepayment rates, delinquency rates or defaults with respect to Company-originated loans or an
increase in the costs related to reacquiring, carrying and disposing of properties reacquired through foreclosure
or deeds in lieu of foreclosure.
k) Costs to develop inventory for sale and/or selling, general and administrative expenses materially exceed those
anticipated.
l) An increase or decrease in the number of land or resort properties subject to percentage-of-completion accounting
which requires deferral of profit recognition on such projects until development is substantially complete.
m) The failure of the Company to satisfy the covenants contained in the indentures governing certain of its debt
instruments and/or other credit agreements, which, among other things, place certain restrictions on the Company's
ability to incur debt, incur liens, make investments and pay dividends.
n) The risk of the Company incurring an unfavorable judgement in any litigation, and the impact of any related
monetary or equity damages.
o) Risks associated with selling Timeshare Interests in foreign countries including, but not limited to, compliance
with legal regulations, labor relations and vendor relationships.
p) The risk that the Company's sales and marketing techniques are not successful, and the risk that the Company's
Vacation Club is not accepted by consumers or imposes limitations on the Company's operations, or is adversely
impacted by legal or other requirements.
q) The risk that any contemplated transactions currently under negotiation will not close.
The Company does not undertake to update or revise forward-looking statements, even if the Company's situation
may change in the future.
GENERAL
Real estate markets are cyclical in nature and highly sensitive to changes in national, regional and international
economic conditions, including, among other factors, levels of employment and discretionary disposable income,
consumer confidence, available financing and interest rates. A downturn in the economy in general or in the market
for real estate could have a material adverse effect on the Company.
The Company recognizes revenue on residential land and Timeshare Interest sales when a minimum of 10% of the sales
price has been received in cash, the refund or rescission period has expired, collectibility of the receivable
representing the remainder of the sales price is reasonably assured and the Company has completed substantially
all of its obligations with respect to any development relating to the real estate sold. In cases where all development
has not been completed, the Company recognizes income in accordance with the percentage-of-completion method of
accounting. Under this method of income recognition, income is recognized as work progresses. Measures of progress
are based on the relationship of costs incurred to date to expected total costs. The Company has been dedicating
greater resources to more capital-intensive residential land and timeshare projects. As development on more of
these larger projects is begun, and based on the Company's ability and strategy to pre-sell projects when minimal
development has been completed, the amount of income deferred under the percentage-of-completion method of accounting
may increase significantly.
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 inventory and are allocated to cost of real estate
sold as the respective revenues are 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, with the majority of the Company's gross revenues and net earnings historically occurring in the
first and second Quarters of the fiscal year. As the Company's timeshare revenues grow as a percentage of total
revenues, the Company believes that the fluctuations in revenues due to the seasonality may be mitigated in part.
In addition, other material fluctuations in operating results may occur due to the timing of development and the
Company's use of the percentage-of-completion method of accounting. Management expects that the Company will continue
to invest in projects that will require substantial development (with significant capital requirements). There
can be no assurances that historical seasonal trends in Quarterly revenues and earnings will continue or be mitigated
by the Company's efforts.
The Company believes that inflation and changing prices have not had a material impact on its revenues and results
of operations during the three months ended July 4, 1999 or July 2, 2000. Based on the current economic climate,
the Company does not expect that inflation and changing prices will have a material impact on the Company's revenues
or results of operations in the foreseeable future. To the extent inflationary trends affect short-term interest
rates, a portion of the Company's debt service costs may be affected as well as the interest rate the Company charges
on its new receivables from its customers.
The Company's 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.
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, although no assurances can be given, is expected
to continue to be comprised of gains on sales of loans. The gains are recorded in the Company's revenues and retained
interests in the portfolio are recorded on its balance sheet (as investments in securities) at the time of sale.
The amount of gains recorded is based in part on management's estimates of future prepayment, default and loss
severity rates and other considerations in light of then-current conditions. If actual prepayments with respect
to loans occur more quickly than was projected at the time such loans were sold, as can occur when interest rates
decline, interest would be less than expected and earnings would be charged in the future when the retained interests
are realized, except for the effect of reduced interest accretion on the Company's retained interest, which would
be recognized each period the retained interests are held. If actual defaults or other factors discussed above
with respect to loans sold are greater than estimated, charge-offs would exceed previously estimated amounts and
earnings would be charged in the future when the retained interests are realized. There can be no assurances that
the carrying value of the Company's investments in securities will be fully realized or that future loan sales
will result in gains. Declines in the fair value of the retained interests that are determined to be other than
temporary are charged to operations.
RESULTS OF OPERATIONS
(Dollars in Thousands) Residential
Resorts Land and Golf Total
----------------------- ----------------------- ---------------------
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 4,662 14.4 % 719 2.4 % 5,381 8.6 %
Cost of other resort and golf operations (3,993) (12.4)% (909) (3.0)% (4,902) (7.8)%
Field selling, general and administrative
expenses(2) (21,909) (67.9)% (7,978) (26.2)% (29,887) (47.7)%
-------- -------- -------- -------- -------- --------
Field operating profit $ 3,493 10.8 % $ 8,089 26.6 % $ 11,582 18.5 %
======== ======== ======== ======== ======== ========
THREE MONTHS ENDED JULY 2, 2000
Sales $ 34,351 100.0 % $ 27,856 100.0 % $ 62,207 100.0 %
Cost of sales (1) (7,907) (23.0)% (13,976) (50.2)% (21,883) (35.2)%
-------- -------- -------- -------- -------- --------
Gross profit 26,444 77.0 % 13,880 49.8 % 40,324 64.8 %
Other resort and golf operations revenue 7,047 20.5 % 671 2.4 % 7,718 12.4 %
Cost of resort and golf operations (5,798) (16.9)% (796) (2.9)% (6,594) (10.6)%
Field selling, general and administrative
expenses(2) (24,864) (72.4)% (7,740) (27.8)% (32,604) (52.4)%
-------- -------- -------- -------- -------- --------
Field operating profit $ 2,829 8.2 % $ 6,015 21.6 % $ 8,844 14.2 %
======== ======== ======== ======== ======== ========
(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 $4.3 MILLION AND $4.3 MILLION FOR THE THREE MONTHS ENDED
JULY 4, 1999 AND JULY 2, 2000, RESPECTIVELY.
SALES
Consolidated sales decreased 0.8% from $62.7 million for the three-month period ended July 4, 1999 (the "2000
Quarter") to $62.2 million for the three-month period ended July 2, 2000 (the "2001 Quarter"). Decreases
in Residential Land and Golf Division sales during the 2001 Quarter were partially offset by higher Resorts Division
sales. The 2000 Quarter included 14 weeks of operating results as compared to 13 weeks of operating results in
the 2001 Quarter. The additional week of operations in the 2000 Quarter produced total operating revenues of $6.5
million.
As of July 2, 2000, approximately $2.4 million in estimated income on sales of $5.2 million was deferred under
percentage-of-completion accounting. At April 2, 2000, approximately $2.9 million in estimated income on sales
of $7.3 million was deferred. All such amounts are included on the Condensed Consolidated Balance Sheets under
the caption Deferred Income.
RESORTS DIVISION. During the 2000 Quarter and the 2001 Quarter, sales of Timeshare Interests contributed $32.3
million or 51.4% and $34.4 million or 55.2%, respectively, of the Company's total consolidated sales.
The table set forth below outlines the number of Timeshare Interests sold and the average sales price per Timeshare
Interest for the Resorts Division for the periods indicated, BEFORE giving effect to the percentage-of-completion
method of accounting.
THREE MONTHS ENDED
---------------------
JULY 4, JULY 2,
1999 2000
------ --------
Timeshare Interests sold 3,550 3,669
Average sales price per Timeshare Interest $8,929 $9,268
Gross margin 76.6% 77.0%
The increase in the number of Timeshare Interests sold during the 2001 Quarter as compared to the 2000 Quarter
is primarily due to the Company's "Bluegreen Air" offsite sales offices. The "Bluegreen Air"
offsite sales offices (i.e., not located onsite at one of the Company's resorts) serve the Louisville, Kentucky;
Cleveland, Ohio; and Detroit, Michigan markets and provide prospective buyers with a virtual-reality jet airline
experience to present the Company's Vacation Club product. The Company opened the Detroit office during fiscal
2000, generating 363 Timeshare Interest sales during the 2001 Quarter, with no corresponding sales during the 2000
Quarter. The other "Bluegreen Air" sales offices had comparable sales during the 2000 Quarter and 2001
Quarter.
These increases during fiscal 2001 were partially offset by decreased sales at the Company's Aruba sales location.
The Company's La Cabana Beach and Racquet Club in Aruba ("La Cabana") experienced a decrease of 228 in
the number of Timeshare Interests sold (395 and 167 Timeshare Interests sold during the 2000 Quarter and 2001 Quarter,
respectively). A decreased amount of available Timeshare Interests related to summer weeks contributed to decreased
sales during June (as buyers in Aruba tend to want to by Timeshare Interests related to the same period that they
are currently there on vacation). The Company is currently in negotiations to enter into a joint venture with a
third-party which, if successful, would result in the availability of additional summer inventory at La Cabana.
There can be no assurances that the Company will elect to proceed with the negotiations or, if it does, that the
Company's negotiations will be successful. If additional summer inventory is not obtained, the Company expects
that future sales at La Cabana during the summer months will also be below prior levels.
The Resorts Division's gross margin increased from 76.6% during the 2000 Quarter to 77.0% during the 2001 Quarter
primarily due to the increased average sales prices noted above and the approximately 80% gross margin generated
by sales of the Company's Orlando's Sunshine Resort II ("OSR II") inventory.
Other resort service revenues and costs increased 51.2% and 45.2%, respectively, during the 2001 Quarter as compared
to the 2000 Quarter. The increase is primarily due to an increase of $1.6 million in the amount of initial maintenance
fees that are charged to new owners at the time of purchase to cover a portion of the Company's costs to maintain
the applicable resort property during the period that the Timeshare Interest is held in inventory. The Company
retains these fees. During fiscal 2001, the Company began charging new buyers one full year's maintenance fee as
opposed to a pro rata maintenance fee based on the time of year that the sale was made. Also included in the $1.6
million are rentals of Timeshare Interests held in inventory, specifically at the Company's Shore Crest II and
OSR II resorts, construction of which was completed in fiscal 2000. The remaining increase was primarily due to
increased revenues and costs generated by Resort Title Agency, Inc., the Company's wholly owned title company.
Field selling, general and administrative ("FSG&A") expenses increased as a percentage of sales for
the Resorts Division during the 2001 Quarter from the 2000 Quarter to 72.4% from 67.9%, respectively. The increases
are due in part to FSG&A expenses approximating 100% of sales at La Cabana due to costs incurred to sell Timeshare
Interests on behalf of the third-party which the Company may enter a joint venture with and as discussed above.
The Company did not receive any revenues but did incur the selling and marketing costs related to these sales during
the 2001 Quarter.
In addition, as indicated above, the Company opened its fourth off-site sales office serving the Detroit market
in November 1999. The Detroit office generated an additional $2.7 million of FSG&A expenses on sales of $3.8
million, due primarily to achieving a low conversion rate of prospects to sales directly resulting in significantly
higher marketing costs as a percentage of sales.
RESIDENTIAL LAND AND GOLF DIVISION. During the 2000 Quarter and the 2001 Quarter, residential land and golf sales
contributed $30.4 million or 48.5% and $27.9 million or 44.8%, respectively, of the Company's total consolidated
sales.
The table set forth below outlines the number of parcels sold and the average sales price per parcel for the Residential
Land and Golf Division for the periods indicated, BEFORE giving effect to the percentage-of -completion method
of accounting and bulk sales.
Three Months Ended
---------------------
July 4, July 2,
1999 2000
------- -------
Number of parcels sold 534 424
Average sales price per parcel $51,391 $52,735
Gross margin 53.4% 49.8%
The aggregate number of parcels sold decreased during the 2001 Quarter as compared to the 2000 Quarter primarily
due to decreases in available inventories due, in part, to a strategic decision not to replace certain properties
which either sold out in fiscal 2000 or which are approaching sell-out in areas of the country where the Company
has chosen to exit. These areas include Florida, Tennessee, Wisconsin, Colorado, Arizona, and New Mexico. This
factor resulted in 84 fewer lot sales in the 2001 Quarter as compared to the 2000 Quarter. The Company intends
to primarily focus its Residential Land & Golf Division resources on developing new golf communities, continuing
to support its successful regions in Texas and exploring possible expansion into the California market. In addition,
the Company's Winding River Plantation golf community generated 34 fewer lot sales in the 2001 Quarter. Higher
lot sales in the 2000 Quarter resulted from sales events in connection with the grand opening of the third nine
holes at Carolina National Golf Course ("Carolina National").
Gross margins decreased in the 2001 Quarter as compared to the 2000 Quarter. Certain phases of projects which are
approaching sellout in the Company's Texas and North Carolina regions yielded gross margins in the 60% to 65% range
in the 2000 Quarter as compared to the 55% to 60% range in the 2001 Quarter due to a lower number of premium lots
(e.g., waterfront, views, etc.) being available for sale during the 2001 Quarter and price decreases instituted
to promote sellout. In addition, gross margins were adversely impacted in the 2001 Quarter by the impact of percentage
of completion accounting. The gross margin recognized on sales previously deferred under percentage of completion
accounting decreased from 80.9% in the 2000 Quarter to 36.0% in the 2001 Quarter, based on the mix of projects
which were subject to sales deferred in each period.
The Company's Investment Committee approves all property acquisitions. In order to be approved for purchase by
the Investment Committee, all residential land and golf (as well as resort) properties are expected to achieve
certain minimum economics including a minimum gross margin. No assurances can be given that such minimum economics
will be achieved.
Golf operations revenues and related costs decreased 6.7% and 12.4% respectively, during the 2001 Quarter as compared
to the 2000 Quarter. In the 2000 Quarter, the Company opened another nine holes at Carolina National along with
a new clubhouse, featuring food and beverage operations and an expanded pro shop. The initial grand opening and
promotional incentives resulted in higher revenues in the 2000 Quarter.
INTEREST INCOME
Interest income was $3.8 million and $4.3 million for the 2000 Quarter and 2001 Quarter, respectively. The Company's
interest income is earned from its notes receivable, securities retained pursuant to sales of notes receivable
(including REMIC transactions) and cash and cash equivalents. The increase in interest income during the 2001 Quarter
was primarily due to an increase in the average notes receivable balance during the 2001 Quarter, as compared to
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 $34.2 million and $36.9 million
for the 2000 Quarter and 2001 Quarter, respectively. As a percentage of total revenues, S, G & A Expenses were
47.5% and 49.5% for the 2000 Quarter and 2001 Quarter, respectively.
The increase in S, G & A Expenses as a percentage of revenues in the 2001 Quarter was the result of the growth
of the Resorts Division (from 51% to 55% of consolidated sales during the 2000 Quarter and 2001 Quarter, respectively),
where S, G & A Expenses are typically higher than for the Residential Land and Golf Division. See also discussions
of increases in S, G & A expenses for the Company's Resorts Division, above.
INTEREST EXPENSE
Interest expense totaled $3.0 million and $3.6 million for the 2000 Quarter and 2001 Quarter, respectively. The
23.2% increase in interest expense for the 2000 Quarter was primarily due to interest incurred on approximately
$28.0 million of acquisition and development borrowings incurred at the end of the second quarter of fiscal 2000.
PROVISION FOR LOAN LOSSES
The Company recorded a provision for loan losses totaling $788,000 and $1.0 million during the 2000 Quarter and
2001 Quarter, respectively. The increase in the provision was due to an increase in the notes receivable portfolio
during the 2001 Quarter as compared to the 2000 Quarter. The increase in the portfolio is due to an increased amount
of timeshare loans (where historical default rates exceed those for land loans).
The allowance for loan losses by division as of April 2, 2000 and July 2, 2000 was (amounts in thousands):
RESIDENTIAL
RESORTS LAND AND
DIVISION GOLF DIVISION OTHER TOTAL
-------- -------- -------- --------
APRIL 2, 2000
Notes receivable $ 61,520 $ 10,883 $ 735 $ 73,138
Less: allowance for loan losses (2,515) (458) (51) (3,024)
-------- -------- -------- --------
Notes receivable, net $ 59,005 $ 10,425 $ 684 $ 70,114
======== ======== ======== ========
Allowance as a % of gross notes receivable 4.1% 4.2% 6.9% 4.1%
======== ======== ======== ========
JULY 2, 2000
Notes receivable $ 79,618 $ 10,453 $ 686 $ 90,757
Less: allowance for loan losses (2,702) (454) (81) (3,237)
-------- -------- -------- --------
Notes receivable, net $ 76,916 $ 9,999 $ 605 $ 87,520
======== ======== ======== ========
Allowance as a % of gross notes receivable 3.4% 4.3% 11.8% 3.6%
======== ======== ======== ========
The allowance for loan losses as a percentage of the gross notes receivable balance decreased at July 2, 2000,
for the Resorts Division, as the Company did not provide allowance for approximately $19 million of notes receivable
which are expected to be sold during the three months ending October 1, 2000 through a new, non-recourse timeshare
receivable purchase facility currently being negotiated (see "Liquidity and Capital Resources"). There
can be no assurances that such receivables will be sold when expected.
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 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 39.5% to 38.5% during the
2001 Quarter. The decrease was primarily due to state tax savings generated by a restructuring of the Company's
subsidiaries in a state where the Company has significant operations.
SUMMARY
Based on the factors discussed above, the Company's net income decreased from $4.4 million to $3.0 million in the
2000 Quarter and 2001 Quarter, respectively.
CHANGES IN FINANCIAL CONDITION
Consolidated assets of the Company increased $2.8 million from April 2, 2000 to July 2, 2000. This increase is
primarily due to a net $17.4 million increase in notes receivable, primarily due to new notes generated by $34.4
million of timeshare sales during quarter, net of principal payments received. In addition, other assets increased
$10.5 million, primarily due to the $9 million prepaid marketing fees paid to Bass Pro, Inc. (see Note 3 of Notes
to Condensed Consolidated Financial Statements). Also, contracts receivable increased $5.4 million due to increased
sales during the month of June 2000 as compared to the month of March 2000. These increases were partially offset
by a $30.9 million decrease in cash and cash equivalents more fully described on the Condensed Consolidated Statement
of Cash Flows.
Consolidated liabilities decreased $2.9 million from April 2, 2000 to July 2, 2000. The decrease is primarily due
to an aggregate $2.5 million in payments made on the Company's receivable backed notes payable.
Minority interest increased $2.9 million due to the $3.2 million capital contribution made by Big Cedar L.L.C.
("Big Cedar") to the Company's 51%-owned joint venture with Big Cedar more fully described in Note 2
of Notes to Condensed Consolidated Financial Statements. This amount is net of minority interest's share of net
losses in the Company's consolidated joint venture in Aruba.
Total shareholders' equity increased $2.7 million during the 2001 Quarter, primarily due to net income of $3.0
million. This increase was partially offset by the Company's repurchase of $300,000 of common stock (96,000 shares)
to be held in treasury. The Company's book value per common share increased from $5.50 to $5.63 at April 2, 2000
and July 2, 2000, respectively. The debt-to-equity ratio decreased from 1.70:1 to 1.65:1 at April 2, 2000 and July
2, 2000, respectively, primarily due to the debt paydowns and net income 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) net cash generated from other resort services and golf operations, (iv) principal and interest
payments on the purchase money mortgage loans and contracts for deed arising from sales of Timeshare Interests
and residential land lots (collectively "Receivables") and (v) proceeds from the sale of, or borrowings
collateralized by, notes receivable. Historically, external sources of liquidity have included borrowings under
secured lines-of-credit, seller and bank financing of inventory acquisitions and the issuance of debt securities.
The Company's capital resources are used to support the Company's operations, including (i) acquiring and developing
inventory, (ii) providing financing for customer purchases, (iii) meeting operating expenses and (iv) satisfying
the Company's debt, and other obligations. The Company anticipates that it will continue to require external sources
of liquidity to support its operations, satisfy its debt and other obligations and to provide funds for future
strategic acquisitions, primarily for the Resorts Division.
CREDIT FACILITIES FOR TIMESHARE RECEIVABLES AND INVENTORIES
The Company maintains and is currently negotiating various credit facilities with financial institutions that provide
for receivable financing for its timeshare projects.
On August 1, 2000, the Company executed commitment letters and a term sheet for a timeshare receivables purchase
facility (the "Purchase Facility") with two financial institutions, including a commercial paper conduit
(the "Senior Purchaser") and the institution who underwrote the Company's immediately prior timeshare
receivables purchase facility (the "Subordinated Purchaser") (collectively, the "Purchasers").
Pursuant to the term sheet, under the Purchase Facility, a special purpose finance subsidiary of the Company may
receive up to $90 million of cumulative purchase price (as more fully described below) on sales of timeshare receivables
to the Purchasers in securitization transactions. The Purchase Facility will include a $50 million extension, if
the full $90 million capacity is utilized, at the Company's option, subject to the Purchasers' consent. The Purchase
Facility will have detailed requirements with respect to the eligibility of receivables for purchase. Under the
Purchase Facility, a purchase price equal to 95% (subject to adjustment in 0.5% increments down to 87.5% depending
on the difference between the weighted-average interest rate on the notes receivable sold and the returns to the
Purchasers plus the servicing fee, as more fully defined below) of the principal balance of the receivables sold
will be paid at closing in cash. A portion of the purchase price will be deferred until such time as the Purchasers
have received their portion of principal payments (to be defined in the Purchase Facility agreement), a return
on their advances (as more fully described below), all servicing, custodial and similar fees and expenses have
been paid and a cash reserve account has been funded. The 95% purchase price shall be funded 80% by the Senior
Purchaser and 15% by the Subordinated Purchaser. The Senior Purchaser shall earn a return equal to the rate equivalent
of their borrowing cost (based on then applicable commercial paper rates) plus 0.7%. In the event that there is
a disruption in the commercial paper market (to be defined in the Purchase Facility agreement), the Senior Purchaser
shall earn a return equal to the one-month LIBOR plus 1.5% or, in the event of a disruption in the LIBOR market
(to be defined in the Purchase Facility agreement), a return equal to the greater of the Prime lending rate and
the Federal Funds Rate plus 1.0%. The Subordinated Purchaser shall earn a return equal to the one-month LIBOR plus
4.12%. The Company will arrange for an interest rate hedge with another financial institution at a 1.0% strike
to preserve the excess spread for credit enhancement purposes. In addition to other fees, if the Company does not
sell to the Purchasers during the term of the Purchase Facility notes receivable with a cumulative purchase price
of at least $70 million, the Company will pay a minimum usage fee equal to 1.5% of the shortfall in the cumulative
purchase price. The Purchase Facility will have an initial revolving term of 364 days from the date the final agreement
is executed, renewable for an additional 364-day revolving period thereafter subject to the consent of the Purchasers.
Definitive agreements for the Purchase Facility are being negotiated. No assurances can be given that the Purchase
Facility will be entered into or that the final terms of the facility will be as discussed herein.
Receivables will be sold under the Purchase Facility 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 Purchasers' obligation
to purchase under the Purchase Facility will terminate upon the occurrence of specified events. The Company will
act as servicer under the Purchase Facility for a fee, and is required to make advances to the Purchasers to the
extent it believes such advances will be recoverable. The Purchase Facility will include various conditions to
purchase, covenants, events of default and other provisions customary for a transaction of this type.
The Company has a $35 million timeshare receivables warehouse loan facility, which expires on August 28, 2000,
with the Subordinated Purchaser. Loans under the warehouse facility bear interest at LIBOR plus 3.00%. 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 except for eligible notes generated by Bluegreen Properties
N.V., the Company's 50%-owned joint venture in Aruba, for which the borrowing base is 85%. 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 or as the loans are sold through a purchase facility,
but in no event later than August 28, 2000. As of July 2, 2000, the outstanding balance on this facility was $1.4
million. On July 18, 2000, the Company borrowed $20.7 million under the warehouse facility, which is also scheduled
to mature on August 28, 2000. It is anticipated that a portion of this loan will be repaid by selling some of the
underlying receivables through the Purchase Facility, although there can be no assurances. The Company is currently
negotiating an extension of the maturity date on these borrowings. There can be no assurances that such negotiations
will be successful.
In addition, the Subordinated Purchaser has provided the Company with a $28.0 million acquisition and development
facility for its timeshare inventories. The facility includes a two-year draw down period, which expires in October
2000, and matures in January 2006. Principal will be repaid through agreed-upon release prices as Timeshare Interests
are sold at the financed resort, subject to minimum required amortization. The indebtedness under the facility
bears interest at the three-month LIBOR plus 3%. With respect to any inventory financed under the facility, the
Company will be required to have provided equity equal to at least 15% of the approved project costs. On September
14, 1999, the Company borrowed approximately $14.0 million under the acquisition and development facility. The
principal must be repaid by November 1, 2005, through agreed-upon release prices as Timeshare Interests in the
Company's Lodge Alley Inn resort in Charleston, South Carolina are sold, subject to minimum required amortization.
On December 20, 1999, the Company borrowed approximately $13.9 million under the acquisition and development facility.
The principal must be repaid by January 1, 2006, through agreed-upon release prices as Timeshare Interests in the
Company's Shore Crest II resort are sold, subject to minimum required amortization. The outstanding balance under
the acquisition and development facility at July 2, 2000 was $25.2 million. The Company is currently negotiating
an extension and increase of the facility. There can be no assurances that the Company's negotiations will be successful.
CREDIT FACILITIES FOR RESIDENTIAL LAND AND GOLF RECEIVABLES AND INVENTORIES
The Company has a $20.0 million revolving credit facility with a financial institution for the pledge of Residential
Land and Golf Division Receivables. Under the terms of this facility, the Company is entitled to advances secured
by eligible Residential Land and Golf Division receivables up to 90% of the outstanding principal balance. In addition,
up to $8.0 million of the facility can be used for land acquisition and development purposes. The interest rate
charged on outstanding borrowings ranges from prime plus 0.5% to 1.5%. At July 2, 2000, the outstanding principal
balances under the receivables and development portions of this facility were approximately $4.8 million and $309,000,
respectively. All principal and interest payments received on pledged Receivables are applied to principal and
interest due under the facility. The ability to borrow under the facility expires in September 2000. Any outstanding
indebtedness is due in September 2002. The Company is currently negotiating an extension of the facility expiration
date. There can be no assurances that such negotiations will be successful.
The Company has a $35.0 million revolving credit facility, which expires in March 2002, with a financial institution.
The Company uses this facility to finance the acquisition and development of residential land projects and, potentially
to finance land receivables. The facility is secured by the real property (and personal property related thereto)
with respect to which borrowings are made, with the lender to advance up to a specified percentage of the value
of the mortgaged property and eligible pledged receivables, provided that the maximum outstanding amount secured
by pledged receivables may not exceed $20.0 million. The interest charged on outstanding borrowings is prime plus
1.25%. On September 14, 1999, in connection with the acquisition of 1,550 acres adjacent to the Company's Lake
Ridge residential land project in Dallas, Texas ("Lake Ridge II"), the Company borrowed approximately
$12.0 million under the revolving credit facility. Principal payments will be effected through agreed-upon release
prices as lots in Lake Ridge II and in another recently purchased section of Lake Ridge are sold. The principal
must be repaid by September 14, 2004. On October 6, 1999, in connection with the acquisition of 6,966 acres for
the Company's Mystic Shores residential land project in Canyon Lake, Texas, the Company borrowed $11.9 million
under the revolving credit facility. Principal payments will be effected through agreed-upon release prices as
lots in Mystic Shores are sold. The principal must be repaid by October 6, 2004. The outstanding balance on this
facility was $22.6 million at July 2, 2000.
On September 24, 1999, the Company obtained two lines-of-credit with a bank for the purpose of acquiring and developing
a new residential land and golf course community in New Kent County, Virginia, known as Brickshire. The lines-of-credit
have an aggregate borrowing capacity of approximately $15.8 million. On September 27, 1999, the Company borrowed
approximately $2.0 million under one of the lines-of-credit in connection with the acquisition of the Brickshire
property. The outstanding balances under the lines-of-credit bear interest at prime plus 0.5% and interest is due
monthly. Principal payments will be effected through agreed-upon release prices as lots in Brickshire are sold,
subject to minimum required quarterly amortization commencing on April 30, 2002. The principal must be repaid by
January 31, 2004. The loan is secured by the Company's residential land lot inventory in Brickshire. As of July
2, 2000, the outstanding balance on this loan was $1.2 million.
Concurrent with obtaining the Brickshire lines-of-credit discussed above; the Company also obtained from the same
bank a $4.2 million line-of-credit for the purpose of developing a golf course on the Brickshire property (the
"Golf Course Loan"). The outstanding balances under the Golf Course Loan will bear interest at prime
plus 0.5% and interest is due monthly. Principal payments will be payable in equal monthly installments of $35,000
commencing September 1, 2001. The principal must be repaid by October 1, 2005. The loan is secured by the Brickshire
golf course property. As of July 2, 2000, no amounts were outstanding under the Golf Course Loan.
Over the past three years, the Company has received approximately 90% to 99% of its land sales proceeds in cash.
Accordingly, in recent years the Company has reduced the borrowing capacity under credit agreements secured by
land receivables. The Company attributes the significant volume of cash sales to an increased willingness on the
part of certain local banks to extend more direct customer lot financing. No assurances can be given that local
banks will continue to provide such customer financing.
Historically, the Company has funded development for road and utility construction, amenities, surveys and engineering
fees from internal operations and has financed the acquisition of residential land and golf properties through
seller, bank or financial institution loans. Terms for repayment under these loans typically call for interest
to be paid monthly and principal to be repaid through lot releases. The release price is usually defined as a pre-determined
percentage of the gross selling price (typically 25% to 50%) of the parcels in the subdivision. In addition, the
agreements generally call for minimum cumulative annual amortization. When the Company provides financing for its
customers (and therefore the release price is not available in cash at closing to repay the lender), it is required
to pay the creditor with cash derived from other operating activities, principally from cash sales or the pledge
of receivables originated from earlier property sales.
OTHER CREDIT FACILITY
On November 3, 1999, the Company increased the borrowing capacity on its unsecured line-of-credit with a bank from
$5 million to $10 million. Amounts borrowed under the line will bear interest at LIBOR plus 1.75%. Interest is
due monthly and all principal amounts are due on December 31, 2000. Through July 2, 2000, the Company had not borrowed
any amounts under the line.
SUMMARY
The Company intends to continue to pursue a growth-oriented strategy, particularly with respect to its Resorts
Division. In connection with this strategy, the Company may from time to time acquire, among other things, additional
resort properties and completed Timeshare Interests; land upon which additional resorts may be built; management
contracts; loan portfolios of Timeshare Interest mortgages; portfolios which include properties or assets which
may be integrated into the Company's operations; and operating companies providing or possessing management, sales,
marketing, development, administration and/or other expertise with respect to the Company's operations in the timeshare
industry. In addition, the Company intends to continue to focus the Residential Land and Golf Division on larger
more capital intensive projects particularly in those regions where the Company believes the market for its products
is strongest, such as the Southeast, Southwest, Midwest and Western regions of the United States and to replenish
its residential land and golf inventory in such regions as existing projects are sold-out.
The Company estimates that the total cash required to complete preparation for the sale of its residential land
and golf and timeshare property inventory as of July 2, 2000 is approximately $206.2 million (based on current
costs) expected to be incurred over a five-year period. The Company plans to fund these expenditures primarily
with available capacity on existing or proposed credit facilities and cash generated from operations. There can
be no assurances that the Company will be able to obtain the financing necessary to complete the foregoing plans.
The Company believes that its existing cash, anticipated cash generated from operations, anticipated future permitted
borrowings under existing or proposed credit facilities and anticipated future sales of notes receivable under
the proposed timeshare receivables purchase facility (or any replacement facility) will be sufficient to meet the
Company's anticipated working capital, capital expenditure and debt service requirements for the foreseeable future.
Based on outstanding borrowings at July 2, 2000 and the existing credit facilities described above, the Company
has approximately $92.4 million of available credit at its disposal, subject to customary conditions, compliance
with covenants and eligible collateral. The Company will be required to obtain a new timeshare receivables purchase
facility (see discussion of the term sheet for the new facility, above under "Credit Facilities for Timeshare
Receivables and Inventories") and to renew or replace credit facilities scheduled to expire in fiscal 2001.
The Company will, in the future, also require additional credit facilities or issuances of other corporate debt
or equity securities in connection with acquisitions or otherwise. Any debt incurred or issued by the Company may
be secured or unsecured, bear fixed or variable rate interest and may be subject to such terms as the lender may
require and management deems prudent. There can be no assurances that the proposed timeshare purchase facility
will close, credit facilities scheduled to expire in the near term will be renewed or replaced or that sufficient
funds will be available from operations or under existing, proposed or future revolving credit or other borrowing
arrangements or receivables purchase facilities to meet the Company's cash needs, including, without limitation,
its debt service obligations.
The Company's credit facilities, indentures and other outstanding debt instruments include customary conditions
to funding, eligibility requirements for collateral, certain financial and other affirmative and negative covenants,
including, among others, limits on the incurrence of indebtedness, limits on the payment of dividends and other
restricted payments, the incurrence of liens, transactions with affiliates, covenants concerning net worth, fixed
charge coverage requirements, debt-to-equity ratios and events of default. No assurances can be given that such
covenants will not limit the Company's ability to satisfy or refinance its obligations or otherwise adversely affect
the Company's operations. In addition, the Company's future operating performance and ability to meet its financial
obligations will be subject to future economic conditions and to financial, business and other factors, many of
which will be beyond the Company's control.
IMPACT OF YEAR 2000
The Company believes it has resolved the potential impact of the year 2000 ("Y2K") issue on its processing
of date sensitive information in its information technology and operation and control systems. The Company, to
date, has not experienced any negative effects due to the Y2K problem, either internally or with its customers
or vendors. If the Company encounters Y2K problems during the year 2000, and if customers or vendors cannot rectify
Y2K issues, the Company could incur additional costs, which may be substantial, to develop alternative methods
of managing its business and replacing non-compliant equipment, and may experience delays in obtaining goods or
services from and making payment to vendors, and making sales and/or providing service to customers. The Company
has no contingency plans for critical functions in the event of non-compliance by its customers and vendors.
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 April 2, 2000. There has not been a material change
in the Company's exposure to foreign currency and interest rate risks since April 2, 2000.