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Bluegreen 10-Q 2008



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 

 

 

(Mark One)

 

 

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended September 30, 2008

 

 

 

or

 

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________________ to _______________________________

 

 

Commission File Number: 001-09292


 

(BLUEGREEN LOGO)

 

Bluegreen Corporation


(Exact name of registrant as specified in its charter)


 

 

 

Massachusetts

 

03-0300793


 


(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

4960 Conference Way North, Suite 100,
Boca Raton, Florida

 

33431


 


(Address of principal executive offices)

 

(Zip Code)

 

 

 

(561) 912-8000


(Registrant’s telephone number, including area code)

 


(Former name, former address and former fiscal year, if changed since last report)

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

          Yes x    No o



          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated files, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large Accelerated filer o

Accelerated filer x

 

 

Non-Accelerated filer o

Smaller reporting company o

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

          Yes o    No x

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 5, 2008, there were 32,497,626 shares of the registrant’s common stock, $0.01 par value, outstanding.

2




BLUEGREEN CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q

PART I - FINANCIAL INFORMATION

 

 

 

Page

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at December 31, 2007 and September 30, 2008

 

5

 

 

 

 

 

Condensed Consolidated Statements of Income – Three months ended September 30, 2007 and 2008

 

6

 

 

 

 

 

Condensed Consolidated Statements of Income – Nine months ended September 30, 2007 and 2008

 

7

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2007 and 2008

 

8

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

10

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

 

 

 

Item 4.

Controls and Procedures

 

48

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

49

 

 

 

 

Item 1A.

Risk Factors

 

50

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

50

 

 

 

 

Item 6.

Exhibits

 

50

 

 

 

 

Signatures

 

 

52

3



TRADEMARKS

The terms “Bluegreen®,” “Bluegreen Communities®,” “Bluegreen Vacation Club®,” “Colorful Places To Live And Play®,” “You’re Going To Like What You See!®,” “Encore Rewards®,” “Outdoor Traveler Logo®,” and the “Bluegreen Logo®” are registered in the U.S. Patent and Trademark Office by Bluegreen Corporation.

The terms “The Hammocks at Marathon™,” “Orlando’s Sunshine Resort™,” “Solara Surfside™,” “Mountain Run at Boyne™,” “The Falls Village™,” “Bluegreen Wilderness Club™,” “The Lodge Alley Inn™,” “Carolina Grande™,” “Harbour Lights™,” “Patrick Henry Square™,” “SeaGlass Tower™,” “Shore Crest Vacation Villas™,” “Laurel Crest™,” “MountainLoft™,” “MountainLoft Resort II™,” “Daytona SeaBreeze™,” “Shenandoah Crossing™,” “Christmas Mountain Village™,” “Bluegreen at Atlantic Palace™,” “Club La Pension™,” “Bluegreen Odyssey Dells II™,” “Traditions of Braselton™,” “Sanctuary Cove at St. Andrews Sound™,” “Sanctuary River Club at St. Andrews Sound™,” “Catawba Falls Preserve™,” “Chapel Ridge™,” “Mountain Lakes Ranch™,” “Silver Lakes Ranch™,” “Mystic Shores™,” “Lake Ridge™,” “Lake Ridge at Joe Pool Lake™,” “Ridge Lake Shores™,” “Quail Springs Ranch™,” “SugarTree at the Brazos™,” “Mountain Springs Ranch™,” “Havenwood at Hunter’s Crossing™,” “Vintage Oaks at the Vineyard™,” “King Oaks™,” “The Bridges at Preston Crossings™,” “Crystal Cove™,” “Fairway Crossings™,” “Woodlake™,” “Saddle Creek Forest™,” “The Settlement at Patriot Ranch™,” “Carolina National™,” “Brickshire™,” “Golf Club at Brickshire™,” “Preserve at Jordan Lake™,” “Encore Dividends™,” “Bluegreen Preferred™,” “BG Pirates Lodge™,” “Bluegreen Traveler Plus™,” “BG Club 36™,” “Bluegreen Wilderness Club at Long Creek Ranch™,” and “Bluegreen Wilderness Traveler at Shenandoah™” are trademarks or service marks of Bluegreen Corporation in the United States.

The terms “Big Cedar®” and “Bass Pro Shops®” are registered in the U.S. Patent and Trademark Office by Bass Pro Trademarks, LP.

The term “World Golf Village®” is registered in the U.S. Patent and Trademark Office by World Golf Foundation, Inc. All other marks are registered marks of their respective owners.

4



PART I - FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements.

BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

December 31,
2007

 

September 30,
2008

 

 

 


 


 

 

 

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents (including restricted cash of $19,460 and $24,689 at December 31, 2007 and September 30, 2008, respectively)

 

$

144,973

 

$

90,239

 

Contracts receivable, net

 

 

20,532

 

 

16,431

 

Notes receivable (net of allowance of $17,458 and $45,370 at December 31, 2007 and September 30, 2008, respectively)

 

 

160,665

 

 

313,737

 

Prepaid expenses

 

 

14,824

 

 

15,557

 

Other assets

 

 

23,405

 

 

28,458

 

Inventory, net

 

 

434,968

 

 

492,273

 

Retained interests in notes receivable sold

 

 

141,499

 

 

120,419

 

Property and equipment, net

 

 

94,421

 

 

113,064

 

Goodwill

 

 

4,291

 

 

8,502

 

 

 



 



 

Total assets

 

$

1,039,578

 

$

1,198,680

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

38,901

 

$

21,765

 

Accrued liabilities and other

 

 

60,421

 

 

67,135

 

Deferred income

 

 

36,559

 

 

36,890

 

Deferred income taxes

 

 

98,362

 

 

102,491

 

Receivable-backed notes payable

 

 

54,999

 

 

199,506

 

Lines-of-credit and notes payable

 

 

176,978

 

 

237,240

 

10.50% senior secured notes payable

 

 

55,000

 

 

 

Junior subordinated debentures

 

 

110,827

 

 

110,827

 

 

 



 



 

Total liabilities

 

 

632,047

 

 

775,854

 

 

 

 

 

 

 

 

 

Minority interest

 

 

22,423

 

 

27,703

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

Preferred stock, $.01 par value, 1,000 shares authorized; none issued

 

 

 

 

 

Common stock, $.01 par value, 90,000 shares authorized; 33,957 and 33,996 shares issued at December 31, 2007 and September 30, 2008, respectively

 

 

339

 

 

339

 

Additional paid-in capital

 

 

178,144

 

 

181,421

 

Treasury stock, 2,756 common shares at both December 31, 2007 and September 30, 2008, at cost

 

 

(12,885

)

 

(12,885

)

Accumulated other comprehensive income, net of income taxes

 

 

9,808

 

 

4,884

 

Retained earnings

 

 

209,702

 

 

221,364

 

 

 



 



 

Total shareholders’ equity

 

 

385,108

 

 

395,123

 

 

 



 



 

Total liabilities and shareholders’ equity

 

$

1,039,578

 

$

1,198,680

 

 

 



 



 


 

 

Note:

The condensed consolidated balance sheet at December 31, 2007 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

See accompanying notes to condensed consolidated financial statements.

5



BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

Revenues:

 

 

 

 

 

 

 

Gross sales of real estate

 

$

176,146

 

$

171,053

 

Estimated uncollectible VOI notes receivable

 

 

(19,504

)

 

(24,146

)

Gains on sales of VOI notes receivable

 

 

20,075

 

 

 

 

 



 



 

Sales of real estate

 

 

176,717

 

 

146,907

 

 

 

 

 

 

 

 

 

Other resort and communities operations revenue

 

 

17,255

 

 

18,009

 

Interest income

 

 

12,341

 

 

14,870

 

 

 



 



 

 

 

 

206,313

 

 

179,786

 

 

 



 



 

Costs and expenses:

 

 

 

 

 

 

 

Cost of real estate sales

 

 

55,560

 

 

38,217

 

Cost of other resort and communities operations

 

 

13,789

 

 

14,307

 

Selling, general and administrative expenses

 

 

104,915

 

 

105,825

 

Interest expense

 

 

7,348

 

 

6,366

 

Other expense, net

 

 

152

 

 

948

 

 

 



 



 

 

 

 

181,764

 

 

165,663

 

 

 



 



 

 

 

 

 

 

 

 

 

Income before minority interest and provision for income taxes

 

 

24,549

 

 

14,123

 

Minority interest in income of consolidated subsidiary

 

 

2,044

 

 

3,122

 

 

 



 



 

Income before provision for income taxes

 

 

22,505

 

 

11,001

 

Provision for income taxes

 

 

8,552

 

 

4,180

 

 

 



 



 

Net income

 

$

13,953

 

$

6,821

 

 

 



 



 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

Basic

 

$

0.45

 

$

0.22

 

 

 



 



 

Diluted

 

$

0.45

 

$

0.21

 

 

 



 



 

 

 

 

 

 

 

 

 

Weighted average number of common and common equivalent shares:

 

 

 

 

 

 

 

Basic

 

 

31,011

 

 

31,250

 

 

 



 



 

Diluted

 

 

31,301

 

 

31,822

 

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

6



BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

Revenues:

 

 

 

 

 

 

 

Gross sales of real estate

 

$

459,845

 

$

429,312

 

Estimated uncollectible VOI notes receivable

 

 

(46,098

)

 

(59,308

)

Gains on sales of VOI notes receivable

 

 

28,042

 

 

8,245

 

 

 



 



 

Sales of real estate

 

 

441,789

 

 

378,249

 

 

 

 

 

 

 

 

 

Other resort and communities operations revenue

 

 

47,863

 

 

53,685

 

Interest income

 

 

34,291

 

 

38,334

 

 

 



 



 

 

 

 

523,943

 

 

470,268

 

 

 



 



 

Costs and expenses:

 

 

 

 

 

 

 

Cost of real estate sales

 

 

138,597

 

 

100,147

 

Cost of other resort and communities operations

 

 

38,063

 

 

38,068

 

Selling, general and administrative expenses

 

 

284,760

 

 

294,133

 

Interest expense

 

 

18,380

 

 

13,356

 

Other expense, net

 

 

1,125

 

 

475

 

 

 



 



 

 

 

 

480,925

 

 

446,179

 

 

 



 



 

 

 

 

 

 

 

 

 

Income before minority interest and provision for income taxes

 

 

43,018

 

 

24,089

 

Minority interest in income of consolidated subsidiary

 

 

5,311

 

 

5,280

 

 

 



 



 

Income before provision for income taxes

 

 

37,707

 

 

18,809

 

Provision for income taxes

 

 

14,329

 

 

7,147

 

 

 



 



 

Net income

 

$

23,378

 

$

11,662

 

 

 



 



 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

Basic

 

$

0.75

 

$

0.37

 

 

 



 



 

Diluted

 

$

0.75

 

$

0.37

 

 

 



 



 

 

 

 

 

 

 

 

 

Weighted average number of common and common equivalent shares:

 

 

 

 

 

 

 

Basic

 

 

30,968

 

 

31,230

 

 

 



 



 

Diluted

 

 

31,315

 

 

31,482

 

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

7



BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net income

 

$

23,378

 

$

11,662

 

Adjustments to reconcile net income to net cash provided (used) in operating activities:

 

 

 

 

 

 

 

Non-cash stock compensation expense

 

 

2,028

 

 

3,145

 

Minority interest in income of consolidated subsidiary

 

 

5,311

 

 

5,280

 

Depreciation and amortization

 

 

13,416

 

 

11,568

 

Gains on sales of VOI notes receivable

 

 

(28,042

)

 

(8,245

)

Loss on disposal of property and equipment

 

 

566

 

 

794

 

Estimated uncollectible notes receivable

 

 

46,120

 

 

59,509

 

Provision for deferred income taxes

 

 

14,329

 

 

7,147

 

Interest accretion on retained interests in notes receivable sold

 

 

(11,803

)

 

(11,652

)

Proceeds from sales of notes receivable

 

 

171,841

 

 

55,705

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Contracts receivable

 

 

(2,656

)

 

4,101

 

Notes receivable

 

 

(231,725

)

 

(270,184

)

Inventory

 

 

(22,575

)

 

(37,270

)

Prepaid expenses and other assets

 

 

3,871

 

 

(2,730

)

Accounts payable, accrued liabilities and other

 

 

20,969

 

 

(9,204

)

 

 



 



 

Net cash provided (used) in operating activities

 

 

5,028

 

 

(180,374

)

 

 



 



 

Investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(15,710

)

 

(19,952

)

Investment in statutory business trust

 

 

(619

)

 

 

Cash used in business acquisitions

 

 

 

 

(6,105

)

Cash received from retained interests in notes receivable sold

 

 

23,173

 

 

34,414

 

 

 



 



 

Net cash provided by investing activities

 

 

6,844

 

 

8,357

 

 

 



 



 

Financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings collateralized by notes receivable

 

 

129,890

 

 

219,927

 

Payments on borrowings collateralized by notes receivable

 

 

(116,251

)

 

(76,387

)

Proceeds from lines-of-credit facilities and other notes payable

 

 

93,571

 

 

104,278

 

Payments under lines-of-credit facilities and other notes payable

 

 

(70,772

)

 

(72,943

)

Payments on 10.50% senior secured notes

 

 

 

 

(55,000

)

Proceeds from issuance of junior subordinated debentures

 

 

20,619

 

 

 

Payment of debt issuance costs

 

 

(1,637

)

 

(2,724

)

Proceeds from exercise of stock options

 

 

561

 

 

132

 

 

 



 



 

Net cash provided by financing activities

 

 

55,981

 

 

117,283

 

 

 



 



 

Net increase (decrease) in cash and cash equivalents

 

 

67,853

 

 

(54,734

)

Cash and cash equivalents at beginning of period

 

 

71,148

 

 

144,973

 

 

 



 



 

Cash and cash equivalents at end of period

 

 

139,001

 

 

90,239

 

Restricted cash and cash equivalents at end of period

 

 

(25,930

)

 

(24,689

)

 

 



 



 

Unrestricted cash and cash equivalents at end of period

 

$

113,071

 

$

65,550

 

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

8



BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(In thousands)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

Supplemental schedule of non-cash operating, investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory acquired through financing

 

$

26,425

 

$

10,132

 

 

 



 



 

Property and equipment acquired through financing

 

$

896

 

$

3,643

 

 

 



 



 

Retained interests in notes receivable sold

 

$

27,860

 

$

9,624

 

 

 



 



 

Net change in unrealized gains in retained interests in notes receivable sold

 

$

(5,400

)

$

(7,942

)

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

9



BLUEGREEN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)

1. Organization and Significant Accounting Policies

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

The financial information furnished herein reflects all adjustments consisting of normal recurring items that, in our opinion, are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. The results of operations for the three and nine months ended September 30, 2008, are not necessarily indicative of the results to be expected for the year ending December 31, 2008. For further information, refer to our audited consolidated financial statements for the year ended December 31, 2007, which are included in our 2007 Annual Report on Form 10-K (“Annual Report”).

Organization

We provide Colorful Places to Live and Play® through our resorts and residential communities businesses. Our resorts business (“Bluegreen Resorts”) acquires, develops, markets, sells and manages real estate-based vacation ownership interests (“VOIs”) in resorts generally located in popular, high-volume, “drive-to” vacation destinations. VOIs in our resorts typically entitle the buyer to use resort accommodations through an annual or biennial allotment of “points” which represent their ownership and beneficial use rights in perpetuity in our Bluegreen Vacation Club (supported by an underlying deeded VOI held in trust for the buyer). Members in our Bluegreen Vacation Club may stay in any of our participating resorts or take advantage of an exchange program offered by a third-party world-wide vacation ownership exchange network of over 3,700 resorts and other vacation experiences such as cruises and hotel stays. During the nine months ended September 30, 2008, we were marketing and selling VOIs in 25 core resorts located in the United States and Aruba. As of September 30, 2008, we operated 23 sales offices on-site at our core resorts and three off-site sales offices. In July 2008, we commenced selling at our newly acquired resort, The Royal Suites at Atlantic Palace in Atlantic City, New Jersey. Also during the first nine months of 2008, we closed underperforming off-site sales offices in Dallas, Atlanta and Chicago. Additionally, Bluegreen Vacation Club members who acquired or upgraded their VOIs on or after July 1, 2006, also have access to 18 Shell Vacation Club (“Shell”) resorts, through our Select Connections joint venture with Shell. Shell is an unaffiliated privately-held resort developer.

Our residential communities business (“Bluegreen Communities”) acquires, develops and subdivides property and markets residential homesites, the majority of which are sold directly to retail customers who seek to build a home generally in the future, in some cases on properties featuring a golf course and other related amenities.

Our other resort and communities operations revenues consist primarily of resort property and homeowners’ association management services, resort title services, resort amenity operations, non-cash sales incentives provided to buyers of VOIs, realty operations and daily-fee golf course operations. We also generate significant interest income by providing financing to individual purchasers of VOIs.

Principles of Consolidation

Our consolidated financial statements include the accounts of all of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest. The only non-wholly owned subsidiary that we consolidate is Bluegreen/Big Cedar Vacations, LLC (the “Bluegreen/Big Cedar Joint Venture”), as we hold a 51% equity interest in the Bluegreen/Big Cedar Joint Venture, have an active role as the day-to-day manager of the Bluegreen/Big Cedar Joint Venture’s activities, and have majority voting control of the Bluegreen/Big Cedar Joint Venture’s management committee. We do not consolidate our statutory business trusts formed to issue trust preferred securities as these entities are each variable interest entities in which we are not the primary beneficiary as defined by Financial

10



Accounting Standards Board (“FASB”) Interpretation No. 46R (“FIN No. 46R”). The statutory business trusts are accounted for under the equity method of accounting. We have eliminated all significant intercompany balances and transactions.

Use of Estimates

United States generally accepted accounting principles (“GAAP”) require us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

We have made certain reclassifications of prior period amounts to conform to the current period presentation.

Earnings Per Common Share

We compute basic earnings per common share by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per common share is computed in the same manner as basic earnings per common share, but gives effect to all dilutive stock options and unvested restricted stock using the treasury stock method. During the nine months ended September 30, 2007 and 2008, a total of 140,313 and 38,500 shares of common stock, respectively, were issued as a result of stock option exercises. There were approximately 1.4 million stock options not included in diluted earnings per common share during the three and nine months ended September 30, 2007 because the effect would be anti-dilutive. There were approximately 1.2 million and 1.3 million stock options not included in diluted earnings per common share during the three and nine months ended September 30, 2008, respectively, because the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 


 


 

 

 

2007

 

2008

 

2007

 

2008

 

 

 


 


 


 


 

Basic and diluted earnings per share – numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

13,953

 

$

6,821

 

$

23,378

 

$

11,662

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share - weighted-average shares

 

 

31,011

 

 

31,250

 

 

30,968

 

 

31,230

 

 

 



 



 



 



 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and unvested restricted stock

 

 

290

 

 

572

 

 

347

 

 

252

 

 

 



 



 



 



 

Denominator for diluted earnings per share - adjusted weighted-average shares

 

 

31,301

 

 

31,822

 

 

31,315

 

 

31,482

 

 

 



 



 



 



 

Basic earnings per common share

 

$

0.45

 

$

0.22

 

$

0.75

 

$

0.37

 

 

 



 



 



 



 

Diluted earnings per common share

 

$

0.45

 

$

0.21

 

$

0.75

 

$

0.37

 

 

 



 



 



 



 

Retained Interests in Notes Receivable Sold

When we sell our notes receivable either pursuant to our vacation ownership receivables purchase facilities (more fully described in Note 3) or through term securitizations, we evaluate whether or not such transfers should be accounted for as a sale pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS No. 140”), and related interpretations. The evaluation of sale treatment under SFAS No. 140 involves legal assessments of the transactions, which include determining whether the transferred assets have been isolated from us (i.e., put presumptively beyond our reach and the reach of our creditors, even in bankruptcy or other receivership), determining whether each transferee has the right to pledge or exchange the assets it received, and ensuring that we do not maintain effective control over the transferred assets through an agreement that either: (1) entitles and obligates us to repurchase or redeem the assets before their maturity; or (2) provides us with the ability to unilaterally cause the holder to return the assets (other than through a cleanup call).

11



In connection with such transactions, we retain subordinated traunches and rights to excess interest spread, which are retained interests in the notes receivable sold. Gain or loss on the sale of the receivables depends in part on the allocation of the previous carrying amount of the financial assets involved in the transfer between the assets sold and the retained interests based on their relative fair value at the date of transfer.

We consider our retained interests in notes receivable sold as available-for-sale investments and, accordingly, carry them at fair value in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. Unrealized gains or losses on our retained interests in notes receivable sold are included in our shareholders’ equity as accumulated other comprehensive income, net of income taxes. Declines in fair value that are determined to be other than temporary are charged to operations and classified as a reduction to interest income.

We measure the fair value of the retained interests in the notes receivable sold initially and on a quarterly basis based on the present value of estimated future expected cash flows using our best estimates of the key assumptions – prepayment rates, loss severity rates, default rates and discount rates commensurate with the risks involved. Interest on the retained interests in notes receivable sold is accreted using the effective yield method.

Comprehensive Income

Accumulated other comprehensive income on our condensed consolidated balance sheets is comprised of net unrealized gains on retained interests in notes receivable sold, which are held as available-for-sale investments. The following table discloses the components of our comprehensive income for the periods presented (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 


 


 

 

 

2007

 

2008

 

2007

 

2008

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

13,953

 

$

6,821

 

$

23,378

 

$

11,662

 

Change in net unrealized gains on retained interests in notes receivable sold, net of income taxes

 

 

(1,602

)

 

(2,026

)

 

(3,358

)

 

(4,924

)

 

 



 



 



 



 

Total comprehensive income

 

$

12,351

 

$

4,795

 

$

20,020

 

$

6,738

 

 

 



 



 



 



 

Recently Adopted Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a methodology for measuring fair value, and expands the required disclosure for fair value measurements. With the exception of its applicability to non-financial assets and liabilities (as discussed below), we adopted SFAS No. 157 on January 1, 2008, at which time it was applied prospectively. The adoption of SFAS No. 157 did not have any impact to our financial condition or results of operations.

SFAS No.157 describes three levels of inputs that may be used to measure fair value:

 

 

 

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

 

 

 

 

 

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

 

 

 

 

 

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value and was adopted by us on January 1, 2008. To date, we have not elected the fair value measurement option for any financial assets or liabilities.

12



In October 2008, the FASB issued FASB Staff Position FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS No. 157 in a market that is not active. It states that determining fair value in a dislocated market is dependent upon the certain facts and may require the use of management’s judgment about whether individual transactions are forced liquidations or distressed sales. Additionally, FSP 157-3 provides guidance as to the potentially necessary estimates and adjustments that may be required in determining fair value based on observable data that may not be indicative of accurate fair value because the volume and level of trading activity in the asset class have significantly declined. We adopted FSP 157-3 on September 30, 2008 as it was effective upon issuance for prior periods which had not yet issued financial statements. The adoption of FSP 157-3 did not have any impact on our financial condition or results of operations.

Accounting Pronouncements Not Yet Adopted

In February 2008, the FASB agreed to partially defer the effective date of SFAS No. 157, with respect to non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. We are currently evaluating the impact that the adoption of the remaining provisions of SFAS No. 157 will have on our financial statements.

On December 4, 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS No. 141(R)”). SFAS No. 141(R) will significantly change the accounting for business combinations. Under SFAS No. 141(R), subject to limited exceptions, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value. Additionally, due diligence and transaction costs incurred to effect an acquisition will be expensed as incurred, as opposed to being capitalized as part of the acquisition purchase price. SFAS No. 141(R) also includes a substantial number of new disclosure requirements. SFAS No. 141(R) must be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. We are currently evaluating the impact that SFAS No. 141(R) will have on our financial statements.

On December 4, 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements-an Amendment of Accounting Research Bulletin (“ARB”) No. 51 (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for a non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements separate from the parent’s equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. SFAS No. 160 will become effective for us beginning with our 2009 fiscal year. We are currently evaluating the impact that SFAS No. 160 will have on our financial statements.

2. Business Combinations

During the nine months ended September 30, 2008, we purchased real estate and operations at two resorts, The Royal Suites at Atlantic Palace in Atlantic City, New Jersey, and Club La Pension in New Orleans, Louisiana. Each of these acquisitions constituted the purchase of a business under SFAS No. 141, Business Combinations, and Emerging Issues Task Force (“EITF”) 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business. The combined purchase price of these acquisitions was $21.8 million, which was allocated as follows: VOI inventory of $9.9 million, property and equipment of $7.7 million, and goodwill of $4.2 million. These acquisitions, individually and in the aggregate, are immaterial to our operations.

3. Sales of Notes Receivable

2008 Term Securitization. On March 31, 2008, the Company completed a private offering and sale of $60.0 million of timeshare loan-backed securities (the “2008 Term Securitization”). The total principal amount of the timeshare loans sold totaled $68.6 million, including: (1) $61.4 million in aggregate principal of timeshare loans that were previously transferred under an existing timeshare loan purchase facility with Branch Banking & Trust Company (“BB&T”) (the “BB&T Purchase Facility”); and (2) $7.2 million of timeshare loans owned by us

13



immediately prior to the 2008 Term Securitization. BB&T Capital Markets acted as the initial purchaser in the 2008 Term Securitization.

The proceeds from the 2008 Term Securitization were used to: (1) repay $51.0 million of the $60.6 million outstanding under the 2008 BB&T Purchase Facility; (2) deposit initial amounts in a required cash reserve account; (3) pay certain transaction fees and expenses, and (4) provide net cash proceeds of $5.8 million to us, which were used for general corporate purposes and debt service. The Company also received a retained interest in the future cash flows from the 2008 Term Securitization. The timeshare loans were sold to BRFC 2008-A LLC, the Company’s wholly-owned, special purpose finance subsidiary (the “Subsidiary”). The Subsidiary then sold the timeshare loans to BXG Receivables Note Trust 2008-A, a Delaware statutory trust (a qualified special purpose entity), without recourse to the Company or the Subsidiary except for breaches of certain representations and warranties at the time of sale.

As we previously announced, we are structuring future sales of our notes receivable so that they are accounted for as on-balance sheet borrowings. Accordingly, we do not expect to recognize future gains on the sale of notes receivable. While we believe the on-balance sheet treatment for the sale of notes receivable will provide more transparent results and a higher quality of earnings, our results of operations will be negatively impacted compared to those periods in which off-balance sheet accounting was used.

There were no off-balance sheet sales of notes receivable during the three months ended September 30, 2008. Sales of notes receivable during the three months ended September 30, 2007 and during the nine months ended September 30, 2007 and 2008 were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

Sale Facility

 

Aggregate
Principal
Balance of
Notes
Receivable

 

Purchase
Price

 

Gain
Recognized

 

Initial Fair
Value of
Retained
Interest

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007 Term Securitization

 

$

151.3

 

$

125.8

 

$

20.1

 

$

28.0

 

 

 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2007

 

 

 

 

 

 

 

 

 

Sale Facility

 

Aggregate
Principal
Balance of
Notes
Receivable

 

Purchase
Price

 

Gain
Recognized

 

Initial Fair
Value of
Retained
Interest

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2006-A GE Purchase Facility

 

$

51.2

 

$

46.0

 

$

7.9

 

$

6.2

 

2007 Term Securitization

 

 

 

151.3

 

 

 

125.8

 

 

 

20.1

 

 

 

28.0

 

 

 



 



 



 



 

Total

 

$

202.5

 

$

171.8

 

$

28.0

 

$

34.2

 

 

 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2008

 

 

 

 

 

 

 

 

 

 

 

 

Sale Facility

 

Aggregate
Principal
Balance of
Notes
Receivable

 

Purchase
Price

 

Gain
Recognized

 

Initial Fair
Value of
Retained
Interest

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008 Term Securitization

 

$

68.6

 

$

60.0

 

$

8.2

 

$

11.7

 

 

 



 



 



 



 

14



The following assumptions were used to measure the initial fair value of the retained interest in notes receivable sold during the nine months ended September 30, 2007 and 2008:

 

 

 

 

 

 

 

For the Nine Months Ended

 

 


 

 

September 30, 2007

 

September 30, 2008

 

 


 


 

 

 

 

 

Prepayment rates

 

29.0% - 11.0%

 

31.0% - 17.0%

Loss severity rates

 

38.0% - 71.3%

 

38.0%

Default rates

 

10.5% - 1.0%

 

7.2% - 1.0%

Discount rates

 

9.0% - 12.6%

 

13.4%

4. Retained Interests in Notes Receivable Sold

Our retained interests in notes receivable sold, which are classified as available-for-sale investments, and their associated unrealized gain (loss) are set forth below (in thousands).

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2007:

 

Amortized
Cost

 

Unrealized
Gain (Loss)

 

Fair Value

 


 



 



 



 

2002 Term Securitization

 

$

8,842

 

$

 

$

8,842

 

2004 Term Securitization

 

 

11,934

 

 

2,797

 

 

14,731

 

2004 GE Purchase Facility

 

 

5,633

 

 

(609

)

 

5,024

 

2005 Term Securitization

 

 

29,268

 

 

2,230

 

 

31,498

 

2006 GE Purchase Facility

 

 

15,481

 

 

953

 

 

16,434

 

2006 Term Securitization

 

 

24,522

 

 

1,529

 

 

26,051

 

2007 Term Securitization

 

 

30,000

 

 

8,919

 

 

38,919

 

 

 



 



 



 

Total

 

$

125,680

 

$

15,819

 

$

141,499

 

 

 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2008:

 

Amortized
Cost

 

Unrealized
Gain (Loss)

 

Fair Value

 


 



 



 



 

2002 Term Securitization

 

$

7,347

 

$

 

$

7,347

 

2004 Term Securitization

 

 

8,913

 

 

859

 

 

9,772

 

2004 GE Purchase Facility

 

 

3,680

 

 

(329

)

 

3,351

 

2005 Term Securitization

 

 

18,559

 

 

704

 

 

19,263

 

2006 GE Purchase Facility

 

 

16,259

 

 

(1,788

)

 

14,471

 

2006 Term Securitization

 

 

15,266

 

 

1,112

 

 

16,378

 

2007 Term Securitization

 

 

31,798

 

 

6,170

 

 

37,968

 

2008 Term Securitization

 

 

10,720

 

 

1,149

 

 

11,869

 

 

 



 



 



 

Total

 

$

112,542

 

$

7,877

 

$

120,419

 

 

 



 



 



 

The following assumptions (which are classified as Level 3 inputs under SFAS No. 157) were used to measure the fair value of the above retained interests:

 

 

 

 

 

 

 

As of

 

 


 

 

December 31,
2007

 

September 30,
2008

 

 


 


 

 

 

 

 

Prepayment rates

 

33% - 6%

 

46% - 5%

Loss severity rates

 

18% - 72%

 

6% - 38%

Default rates

 

12% - 0%

 

12% - 0%

Discount rates

 

12.6%

 

19.5%

15



During the three and nine months ended September 30, 2008, we recorded charges for other-than-temporary decreases in the fair value of certain of our retained interest in notes receivable sold totaling approximately $1.8 million and $4.5 million, respectively, compared to other-than-temporary decreases of approximately $628,000 in the three and nine months ended September 30, 2007. The decrease in the fair value of our retained interest in notes receivable sold, and the resulting other-than-temporary charge, were primarily a result of an increase in the discount rates applied to estimated future cash flows on our retained interests to reflect current interest rates in the securitization market and unfavorable changes in the amount and timing of estimated future cash flows.

5. Lines-of-Credit and Receivable-Backed Notes Payable

Lines-of-Credit and Notes Payable

Please refer to the “Liquidity and Capital Resources” section included in “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report for specific information related to our credit facilities. The table below sets forth the balances of our lines-of-credit and notes payable (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31, 2007

 

September 30, 2008

 

 

 


 


 

 

 

Balance

 

Interest
Rates

 

Balance

 

Interest
Rates

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

The GMAC Communities Facility

 

$

66,418

 

8.25%

 

$

60,676

 

6.00%

 

The GMAC AD&C Facility

 

 

81,662

 

9.10%

 

 

107,105

 

8.22%

 

Textron AD&C Facility

 

 

9,701

 

8.50%

 

 

21,270

 

6.25 –6.50%

 

Wachovia Notes Payable

 

 

16,353

 

6.60 – 6.95%

 

 

32,177

 

5.72 – 6.07%

 

Wachovia Line-of-Credit

 

 

 

 

 

9,949

 

5.47%

 

Fifth Third Bank Note Payable

 

 

 

 

 

3,400

 

6.72%

 

Other

 

 

2,844

 

3.29 – 11.03%

 

 

2,663

 

5.86 – 11.03%

 

 

 



 

 

 



 

 

 

Total

 

$

176,978

 

 

 

$

237,240

 

 

 

 

 



 

 

 



 

 

 

Significant changes during the nine months ended September 30, 2008 include:

The GMAC Communities Facility. During the nine months ended September 30, 2008, we borrowed $16.5 million to fund development expenditures on certain of the secured projects. These borrowings were offset by repayments of $22.2 million. The interest rate on this borrowing is the prime rate plus 1.00%, and the maturity date is September 30, 2009. As of September 30, 2008, our remaining availability under this facility was $14.3 million, subject to eligible collateral and customary terms and conditions.

The GMAC AD&C Facility. During the nine months ended September 30, 2008, we borrowed $36.9 million to fund construction and development at our Club 36 resort in Las Vegas, Nevada, and $30.1 million for construction and development at our Fountains Resort in Orlando, Florida. These borrowings were partially offset by repayments of $41.6 million. The interest rate on this borrowing is the one-month LIBOR plus 4.50%, and matures at various dates based upon the sub-loan agreements. As of September 30, 2008, we had one remaining project commitment with availability through December 2008. At September 30, 2008 this project had a balance of $7.1 million and the project commitment can not exceed $12.7 million.

Textron AD&C Facility. In April 2008, we borrowed $9.0 million in connection with the acquisition of The Royal Suites at Atlantic Palace located in Atlantic City, New Jersey. In May 2008, we also borrowed $8.4 million in connection with the acquisition of additional VOIs at one of our existing resorts in Wisconsin. These borrowings were partially offset by repayments of $3.2 million. The interest rate on these borrowings is the prime rate plus 1.50%, and the maturity date varies based on the sub-loan borrowing agreements; however, the borrowing period ends on April 17, 2010. As of September 30, 2008, our remaining availability under this facility was $36.8 million, subject to eligible collateral and customary terms and conditions.

Wachovia Notes Payable. In June 2008, we entered into a note payable for $6.1 million in connection with the acquisition of Club La Pension located in New Orleans, Louisiana. The note bears interest at the 30-day LIBOR rate

16



plus 2.35% and is due monthly. Principal payments are due on an interval release basis of 37% of the sales price with minimum amounts due every year from now until maturity. This note matures in June 2012.

In August 2008, we entered into a note payable for $11.5 million in connection with our property located in Williamsburg, Virginia. Interest is due monthly and bears a rate of the 1-month LIBOR plus 2.35%. Principal payments are made on an interval release basis with minimum cumulative payments due every semi-annual period with the balance maturing in July 2010.

In addition to the Wachovia Notes Payable described above, we also have another note payable in connection with our property located in Williamsburg, Virginia. This note has a balance of $10.5 million as of September 30, 2008, with the entire balance maturing in June 2009. Interest is due monthly and bears a rate of the 1-month LIBOR plus 2.35%.

Fifth Third Bank. In April 2008, we purchased a building which we plan to convert into a sales center in Myrtle Beach, South Carolina. The purchase price was $4.8 million, of which $3.4 million was financed by a note payable to Fifth Third Bank. The note payable allows for total borrowing of $7.1 million, the remaining $3.7 million which is available to fund refurbishment of the building, subject to the terms and conditions of the note. Interest is payable monthly through the earlier of the construction completion date or October 31, 2009 bears interest at a rate equal to the one-month LIBOR plus 3.00%. Subsequent to the construction completion date or October 31, 2009, interest and principal payments shall be made until maturity. The note payable matures in April 2023.

The Wachovia Line-of-Credit. In March 2008, we borrowed $10.0 million on this $20 million line of credit for general corporate purposes. Amounts borrowed under this line bear interest at the 30-day LIBOR plus 1.75%. Interest is due monthly, and all outstanding amounts are due on July 30, 2009. The line-of-credit agreement contains certain covenants and conditions typical of arrangements of this type. As of September 30, 2008, the remaining availability under this line-of-credit was approximately $10.0 million.

Total interest expense capitalized to construction in progress was $3.7 million and $11.0 million for the three and nine months ended September 30, 2007, respectively, and $2.3 million and $11.0 million for the three and nine months ended September 30, 2008, respectively.

Receivable-Backed Notes Payable

The table below sets forth the balances of our receivable-backed notes payable facilities (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31, 2007

 

September 30, 2008

 

 

 


 


 

 

 

Balance

 

Interest
Rate

 

Balance

 

Interest
Rate

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008 BB&T Purchase Facility

 

$

16,967

 

5.85

%

 

$

135,186

 

5.47

%

 

Liberty Bank Facility

 

 

 

 

 

 

10,163

 

6.22

%

 

GMAC Receivables Facility

 

 

11,400

 

8.60

%

 

 

8,480

 

7.72

%

 

GE Bluegreen/Big Cedar Receivables Facility

 

 

24,100

 

6.35

%

 

 

26,669

 

5.47

%

 

Textron Facility

 

 

1,482

 

8.25

%

 

 

1,124

 

6.00

%

 

Foothill Facility

 

 

1,050

 

7.75

%

 

 

17,884

 

5.50

%

 

 

 



 

 

 

 



 

 

 

 

Total

 

$

54,999

 

 

 

 

$

199,506

 

 

 

 

 

 



 

 

 

 



 

 

 

 

2008 BB&T Purchase Facility. In March 2008, we extended the BB&T Purchase Facility to May 2010 and the facility amount was increased to a cumulative purchase price of $150.0 million, on a revolving basis. The 2008 BB&T Purchase Facility bears interest equal to the 30-day LIBOR plus 1.75%. The 2008 BB&T Purchase Facility is not guaranteed by Bluegreen Corporation and therefore is non-recourse debt. During the first nine months of 2008, we transferred $213.3 million of VOI notes receivable to the 2008 BB&T Purchase Facility and received $177.0 million in cash proceeds. In conjunction with the 2008 Term Securitization, we repaid $51.0 million of the outstanding balance on March 31, 2008. As of September 30, 2008, our remaining availability under this facility was $14.8 million, subject to eligible collateral and customary terms and conditions.

In October 2008, we transferred $13.2 million of VOI notes receivable and received $11.0 million in cash proceeds under the 2008 BB&T Purchase Facility. Subsequent to this borrowing, and based on subsequent principal

17



payments, we had $5.8 million in remaining availability on this facility, subject to eligible collateral and customary terms and conditions.

Liberty Bank Facility. During August 2008, we entered into a $75.0 million revolving timeshare receivables hypothecation facility with a syndicate of lenders led by Liberty Bank and assembled by Wellington Financial. The facility provides for a 90% advance on eligible receivables pledged under the facility during a two-year period ending on August 27, 2010, subject to customary terms and conditions. Amounts borrowed under the facility and interest incurred will be repaid as cash is collected on the pledged receivables, with the remaining balance being due on August 27, 2014. The facility bears interest at the one-month LIBOR plus 2.5%, subject to a floor of 5.75%. During the nine months ended September 30, 2008, we pledged $11.3 million of VOI notes receivable to this facility and received cash proceeds of $10.2 million. As of September 30, 2008, our remaining availability under this facility was $64.8 million.

In October 2008, we pledged $14.8 million of VOI notes receivable and received $13.3 million in cash proceeds under the Liberty Bank Facility. Subsequent to this borrowing, we had $51.5 million in remaining availability on this facility.

GE Bluegreen/Big Cedar Receivables Facility. During April 2007, the Bluegreen/Big Cedar Joint Venture entered into a $45.0 million revolving VOI receivables credit facility (the “GE Bluegreen/Big Cedar Receivables Facility”) with GE. Bluegreen Corporation has guaranteed the full payment and performance of the Bluegreen/Big Cedar Joint Venture in connection with the Facility. Interest on the GE Bluegreen/Big Cedar Receivables Facility is equal to the 30-day LIBOR plus 1.75%. During the first nine months of 2008, we pledged $10.2 million of VOI notes receivable to the GE Bluegreen/Big Cedar Receivables Facility and received $9.9 million in cash proceeds. As of September 30, 2008, our remaining availability under this facility was $18.3 million.

Foothill Facility. During June 2008, we amended the Loan and Security Agreement with Wells Fargo Foothill, Inc. (“Foothill”). This facility is a $30.0 million revolving credit facility secured by the pledge of Bluegreen Communities’ and Bluegreen Resorts’ receivables. The facility, as amended, provides for a borrowing period for advances on eligible receivables through December 31, 2009 with a maturity date of all borrowings of December 31, 2010. In addition, the amended facility provides for up to $25 million (included in the $30 million facility amount) of advances at 90% on certain timeshare notes receivable that were not previously eligible under the facility. Amounts borrowed under the facility and interest incurred will be repaid as cash is collected on the pledged receivables. The facility bears interest at the Prime rate plus either 0.25% or 0.50%, under various circumstances. During the nine months ended September 30, 2008, we pledged $25.4 million of timeshare notes receivable to this facility and received proceeds of $22.8 million, net of facility costs of approximately $0.4 million. During the first nine months we made repayments of $6.4 million. At September 30, 2008, $0.3 million of the outstanding balance was secured by the pledge of Bluegreen Communities’ receivables and $17.6 million was secured by the pledge of Bluegreen Resorts’ receivables. As of September 30, 2008, our remaining availability under this facility was $12.1 million.

In October 2008, we transferred $6.7 million of VOI notes receivable to the Foothill facility and received cash proceeds of $6.1 million. Subsequent to that transaction, our remaining availability under this facility was $6.0 million, subject to eligible collateral and customary terms and conditions.

6. Senior Secured Notes Payable

On April 1, 1998, we consummated a private placement offering of $110.0 million in aggregate principal amount of 10.50% senior secured notes payable due April 1, 2008 (the “Notes”). On June 27, 2005, we repaid $55.0 million in aggregate principal amount of the Notes at a redemption price of 101.75% plus accrued and unpaid interest through June 26, 2005 of $1.4 million. On March 31, 2008, we repaid the remaining $55.0 million of notes plus accrued interest.

7. Common Stock and Stock Option Plans

Common Stock Purchase

In July 2008, we signed a non-binding letter of intent relating to the acquisition of the Company at a price of $15.00 per common share by Diamond Resorts International (Diamond Resorts), which would result in a transaction value

18



of approximately $500 million, exclusive of Bluegreen’s outstanding debt. On September 15, 2008, we extended the due diligence period to November 15, 2008.

On October 17, 2008 we were notified that, to date, Diamond Resorts has not secured financing sources for its proposed purchase of our common stock. Diamond Resorts requested that the exclusivity agreement remain in place pursuant to it previously disclosed terms. Diamond Resorts has indicated that it may propose an alternative transaction but there is no assurance that negotiations will lead to the signing of a definitive agreement, that financing for the transaction will be available, that any proposed transaction will be accepted or approved by the Company’s Board of Directors and shareholders, or that the sale will be completed based on the signing of the non-binding letter of intent or the execution of a definitive agreement, or that Bluegreen will identify any alternative transaction.

Stock Incentive Plans

The following table lists relevant information pertaining to our grants of stock options and restricted stock during the nine months ended September 30, 2008 (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Option Awards

 

Restricted Stock Awards

 

 

 


 


 

 

 

Quantity

 

Grant Date
Fair Value

 

Quantity

 

Grant Date
Fair Value

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

Directors

 

295

 

$

816

 

184

 

$

1,246

 

Employees

 

778

 

 

2,264

 

1,184

 

 

9,208

 

 

 


 



 


 



 

Total

 

1,073

 

$

3,080

 

1,368

 

$

10,454

 

 

 


 



 


 



 

We recognize stock-based compensation expense under the provisions of SFAS No. 123R, Share-Based Payment (revised 2004) (“SFAS No. 123R”). We utilize the Black-Scholes option pricing model for calculating the fair value of each option granted. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, this model requires the input of subjective assumptions, including the expected price volatility of the underlying stock. Projected data related to the expected volatility and expected life of stock options is based upon historical and other information. Changes in these subjective assumptions can materially affect the fair value of the estimate, and therefore, the existing valuation models do not provide a precise measure of the fair value of our employee stock options. Additionally, SFAS No. 123R also requires us to estimate forfeitures in calculating the expense relating to stock-based compensation.

Total stock-based compensation expense for directors and employees during the three and nine months ended September 30, 2007 was $0.9 million and $2.0 million, respectively. Total stock-based compensation expense for directors and employees during the three and nine months ended September 30, 2008 was $1.4 million and $3.1 million, respectively. The following table represents certain information related to our unrecognized compensation for our stock-based awards as of September 30, 2008:

 

 

 

 

 

 

 

 

 

 

As of September 30, 2008

 

Weighted
Average
Remaining
Recognition
Period

 

Unrecognized
Compensation

 


 


 


 

 

 

(in years)

 

(000’s)

 

 

 

 

 

 

 

 

 

 

 

Stock Option Awards

 

3.4

 

 

 

$

7,461

 

 

Restricted Stock Awards

 

4.4

 

 

 

$

11,242

 

 

19



A summary of our stock option activity related to our stock incentive plans is presented below (in thousands, except price per option data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding
Options

 

Weighted
Average
Exercise Price
Per Option

 

Number of
Options
Exercisable

 

 

 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2007

 

1,938

 

$

11.51

 

579

 

 

Granted

 

1,073

 

$

7.60

 

 

 

 

Forfeited

 

(99

)

$

15.07

 

 

 

 

Expired

 

(20

)

$

9.11

 

 

 

 

Exercised

 

(39

)

$

3.48

 

 

 

 

 

 


 

 

 

 

 

 

 

 

Balance at September 30, 2008

 

2,853

 

$

10.04

 

771

 

 

 

 


 

 

 

 

 

 

 

 

A summary of the status of the Company’s unvested restricted stock awards as of September 30, 2008, and activity during the nine months ended September 30, 2008, is as follows (in thousands, except per option data):

 

 

 

 

 

 

 

 

 

 

 

Number
of Shares

 

 

Weighted-Average
Grant-Date
Fair Value per Share

 

 

 


 

 


 

 

 

 

 

 

 

 

 

 

Unvested at December 31, 2007

 

207

 

 

$

 

11.98

 

Granted

 

1,368

 

 

$

 

7.64

 

Vested

 

(10

)

 

$

 

11.98

 

Forfeited

 

(14

)

 

$

 

11.98

 

 

 


 

 

 

 

 

 

Unvested at September 30, 2008

 

1,551

 

 

$

 

8.16

 

 

 


 

 

 

 

 

 

8. Business Segments

We have two reportable business segments – Bluegreen Resorts and Bluegreen Communities. Bluegreen Resorts develops, markets, and sells VOIs in our resorts, through the Bluegreen Vacation Club, and provides resort management services to resort property owners associations. Bluegreen Communities acquires large tracts of real estate, which are subdivided, improved (in some cases to include a golf course on the property and other related amenities) and sold, typically on a retail basis as homesites. Disclosures for our business segments are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Three Months Ended September 30, 2007

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

144,972

*

$

31,745

 

$

176,717

 

Other resort and communities operations revenue

 

 

14,400

 

 

2,855

 

 

17,255

 

Depreciation expense

 

 

2,102

 

 

429

 

 

2,531

 

Field operating profit

 

 

23,908

 

 

4,549

 

 

28,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Three Months Ended September 30, 2008

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

136,203

*

$

10,704

 

$

146,907

 

Other resort and communities operations revenue

 

 

15,839

 

 

2,170

 

 

18,009

 

Depreciation expense

 

 

1,862

 

 

395

 

 

2,257

 

Field operating profit (loss)

 

 

20,756

 

 

(553

)

 

20,203

 

20



 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Nine Months Ended September 30, 2007

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

337,143

*

$

104,646

 

$

441,789

 

Other resort and communities operations revenue

 

 

39,473

 

 

8,390

 

 

47,863

 

Depreciation expense

 

 

6,326

 

 

1,286

 

 

7,612

 

Field operating profit

 

 

39,881

 

 

19,884

 

 

59,765

 


 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Nine Months Ended September 30, 2008

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

333,670

*

$

44,579

 

$

378,249

 

Other resort and communities operations revenue

 

 

44,868

 

 

8,817

 

 

53,685

 

Depreciation expense

 

 

5,622

 

 

1,202

 

 

6,824

 

Field operating profit

 

 

31,926

 

 

4,351

 

 

36,277

 

* For the three months ended September 30, 2007 approximately $20.0 million related to gains on the sales of VOI notes receivable through off-balance sheet transactions. There were no such gains during the three months ended September 30, 2008. For the nine months ended September 30, 2007 and 2008, approximately $28.0 million and $8.2 million related to gains on the sales of VOI notes receivables through off-balance sheet transactions.

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

As of December 31, 2007

 

 

 

 

 

 

 

 

 

 

Notes Receivable

 

$

155,592

 

$

5,073

 

$

160,665

 

Inventory

 

 

288,969

 

 

145,999

 

 

434,968

 

Goodwill

 

 

4,291

 

 

 

 

4,291

 


 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

As of September 30, 2008

 

 

 

 

 

 

 

 

 

 

Notes Receivable

 

$

309,110

 

$

4,627

 

$

313,737

 

Inventory

 

 

333,956

 

 

158,317

 

 

492,273

 

Goodwill

 

 

8,502

 

 

 

 

8,502

 

Reconciliations to Consolidated Amounts:

Field operating profit for our reportable segments reconciled to our consolidated income before minority interest and provision for income taxes is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 


 


 

 

 

2007

 

2008

 

2007

 

2008

 

 

 


 


 


 


 

 

Field operating profit for reportable segments

 

$

28,457

 

$

20,203

 

$

59,765

 

$

36,277

 

Interest income

 

 

12,341

 

 

14,870

 

 

34,291

 

 

38,334

 

Other expense, net

 

 

(152

)

 

(948

)

 

(1,125

)

 

(475

)

Corporate general and administrative expenses

 

 

(8,749

)

 

(13,636

)

 

(31,533

)

 

(36,691

)

Interest expense

 

 

(7,348

)

 

(6,366

)

 

(18,380

)

 

(13,356

)

 

 



 



 



 



 

Consolidated income before minority interest and provision for income taxes

 

$

24,549

 

$

14,123

 

$

43,018

 

$

24,089

 

 

 



 



 



 



 

21



Depreciation expense for our reportable segments reconciled to our consolidated depreciation expense is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 


 


 

 

 

2007

 

2008

 

2007

 

2008

 

 

 


 


 


 


 

Depreciation expense for reportable segments

 

$

2,531

 

$

2,257

 

$

7,612

 

$

6,824

 

Depreciation expense for corporate fixed assets

 

 

1,116

 

 

1,125

 

 

3,435

 

 

3,330

 

 

 



 



 



 



 

Consolidated depreciation expense

 

$

3,647

 

$

3,382

 

$

11,047

 

$

10,154

 

 

 



 



 



 



 

Assets for our reportable segments reconciled to our total consolidated assets are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31,
2007

 

September 30,
2008

 

 

 


 


 

 

 

 

 

 

 

 

 

Notes receivable for reportable segments

 

$

160,665

 

$

313,737

 

Inventory for reportable segments

 

 

434,968

 

 

492,273

 

Goodwill

 

 

4,291

 

 

8,502

 

Assets not allocated to reportable segments

 

 

439,654

 

 

384,168

 

 

 



 



 

Total assets

 

$

1,039,578

 

$

1,198,680

 

 

 



 



 

Geographic Information

Sales of real estate by geographic area are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

 

 


 


 

 

 

 

 

2007

 

2008

 

2007

 

2008

 

 

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

175,148

 

$

145,035

 

$

435,678

 

$

372,962

 

 

 

Aruba

 

 

1,569

 

 

1,872

 

 

6,111

 

 

5,287

 

 

 

 

 



 



 



 



 

 

 

Consolidated totals

 

$

176,717

 

$

146,907

 

$

441,789

 

$

378,249

 

 

 

 

 



 



 



 



 

 

Inventory by geographic area is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

 

 


 

 

 

 

 

December 31,
2007

 

September 30,
2008

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

431,160

 

$

488,337

 

 

 

Aruba

 

 

3,808

 

 

3,936

 

 

 

 

 



 



 

 

 

Consolidated totals

 

$

434,968

 

$

492,273

 

 

 

 

 



 



 

 

9. Income Taxes

We and our subsidiaries file income tax returns at the U.S. federal level as well as in various states and foreign taxing jurisdictions. During 2007, the Internal Revenue Service completed its audit of our 2004 and 2005 U.S. federal income tax returns. With certain exceptions, for years prior to 2003 the statute of limitations has expired for tax returns filed with US state and local and foreign tax authorities. Therefore, these returns are no longer subject to state tax examinations.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 (“FIN 48”). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and is effective for years beginning after December 15, 2006. The adoption of FIN 48 on January 1, 2007 did not have a material effect on our financial position or results of operations.

As of September 30, 2008, we had no material amounts recorded for uncertain tax positions.

22



During the nine months ended September 30, 2008, we made certain operational changes in an effort to optimize the utilization of certain of our state net operating losses. The implementation of these changes had the effect of reducing our deferred interest obligation under Internal Revenue Code (“IRC”) Section 453 by approximately $2.4 million reflected as a reduction of interest expense in the second quarter of 2008. IRC Section 453 requires that certain companies accrue and pay interest on income deferred under the installment method of profit recognition (an acceptable method for tax reporting).

10. Contingencies

Bluegreen Resorts

Tennessee Tax Audit

In 2005, the State of Tennessee Audit Division (the “Division”) audited certain subsidiaries within Bluegreen Resorts for the period from December 1, 2001 through December 31, 2004. On September 23, 2006, the Division issued a notice of assessment for approximately $652,000 of accommodations tax based on the use of Bluegreen Vacation Club accommodations by Bluegreen Vacation Club members who became members through the purchase of non-Tennessee property. We believe the attempt to impose such a tax is contrary to Tennessee law and intend to vigorously oppose such assessment by the Division. An informal conference was held in December 2007 to discuss this matter with representatives of the Division. No formal resolution of the issue was reached during the conference and no further action has to date been initiated yet by the State of Tennessee. While the timeshare industry has been successful in challenging the imposition of sales taxes on the use of accommodations by timeshare owners, there is no assurance that we will be successful in contesting the current assessment.

Shore Crest Claim

We filed suit against the general contractor with regard to alleged construction defects at our Shore Crest Vacation Villas resort in South Carolina, including deficiencies in exterior insulating and finishing systems that have resulted in water intrusion; styled Shore Crest Vacation Villas II Owners Association, Inc., Bluegreen Corporation vs. Welbro Constructors, S.C., Inc. et al. Case No.: 04-CP-26-500 and Shore Crest Vacation Villas Owners Association, Inc., Bluegreen Vacations Unlimited, Inc., as successor to Patten Resorts, Inc. and as successor to Bluegreen Resorts, Inc. vs. Welbro Constructors Inc. et al. Case No. 04-CP-26-499. We sought to recover costs to repair these deficiencies from the defendants. On October 15, 2008 this matter was settled during mediation with the general contractor and other defendants collectively agreeing to pay $4.6 million towards the cost of correcting construction deficiencies. It is expected that this amount will not cover the entire cost of correcting the deficiencies and we will be required to contribute financially towards the final total cost. As of September 30, 2008, we had accrued $1.5 million related to this matter.

Missouri Attorney General Investigation

By letter dated April 3, 2008 the Attorney General (“AG”) of Missouri advised us that, between early 2005 and present, they had received ninety-six consumer complaints and was investigating the practices alleged. In its letter, The Attorney General’s office alleged, among other things, that we violated the Missouri Merchandising Practices Act, Chapter 407 of the Revised Statutes of Missouri (the “Missouri Act”). The Attorney General’s Office offered to resolve the matter by having us enter into an Assurance of Voluntary Compliance wherein we would agree to comply with the Missouri Act, payment or restitution of approximately $728,000 to consumers who purchased from us, and $10,000 to the Attorney General’s Office. Since the date of that original letter, additional consumer complaints have been added bringing the total number to 112. In response to the letter, we have reviewed the complaints and found that we believe many of those consumer complaints have previously been resolved. We are providing this information to the Attorney General’s office and have entered into discussions to resolve this matter. While there is no assurance that any such resolution will not result in regulatory agreements, we do not expect that any such agreements would have a material adverse impact on us or that any such amounts paid in resolution would be material. As of September 30, 2008, we had accrued $350,000 related to this matter.

Kelly Fair Labor Standards Act Lawsuit

On July 28, 2008 two former sales representatives brought a lawsuit in the Western District of Wisconsin on behalf of themselves and putative class members who are or were employed by us as sales associates and compensated on a

23



commission-only basis. Plaintiffs claim that we violated the Fair Labor Standards Act (“FLSA”), and that they and the collective class are or were covered, non-exempt employees under federal wage and hour laws, and are entitled to minimum wage and overtime pay consistent with the FLSA. In the complaint, Plaintiffs seek unpaid compensation (minimum wage and overtime), liquidated damages, interest, costs, attorneys’ fees and other legal and equitable relief as the Court deems just and proper. We have filed a Motion to Transfer Venue from Wisconsin to Florida based on forum nonconveniens. We believe Florida is the more appropriate forum for the case to be heard since most of the witnesses, documents and other evidence are located in Florida. We have not yet received a decision on the request to transfer venue. We anticipate that Plaintiffs will file a motion for class certification in the near future.

Pennsylvania Attorney General Lawsuit

On October 10, 2008, the Commonwealth of Pennsylvania acting through its Attorney General filed a lawsuit against Bluegreen Corporation, Bluegreen Resorts, Bluegreen Vacations Unlimited, Inc. and Great Vacation Destinations, Inc. (a wholly owned subsidiary of Bluegreen Corporation) alleging violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Laws. The lawsuit alleges that we have used, or are using, sales and marketing methods or practices that are unlawful under Pennsylvania law and seeks a permanent injunction preventing us from using such methods and practices in the future. The lawsuit also seeks civil penalties against us and restitution on behalf of Pennsylvania consumers who may have suffered losses as a result of the alleged unlawful sales and marketing methods and practices. The lawsuit does not seek to permanently restrain us or any of our affiliates from doing business in the Commonwealth of Pennsylvania. A preliminary dialogue has been established with the Attorney General’s office to seek an amicable resolution to this situation. Should that course of action not prove successful, we will vigorously defend against the claims.

Bluegreen Communities

Mountain Lakes

Bluegreen Southwest One, L.P., (“Southwest”), a subsidiary of Bluegreen Corporation, is the developer of the Mountain Lakes subdivision in Texas. In Cause No. 28006; styled Betty Yvon Lesley et a1 v. Bluff Dale Development Corporation, Bluegreen Southwest One. L.P. #et al. in the 266th Judicial District Court, Erath County, Texas, the plaintiffs filed a declaratory judgment action against Southwest seeking to develop their reserved mineral interests in, on and under the Mountain Lakes subdivision. The plaintiffs’ claims are based on property law, oil and gas law, contract and tort theories. The property owners association and some of the individual landowners have filed cross actions against Bluegreen, Southwest and individual directors of the property owners association related to the mineral rights and certain amenities in the subdivision as described below. On January 17, 2007, the court ruled that the restrictions placed on the development that prohibited oil and gas production and development were invalid and not enforceable as a matter of law, that such restrictions do not prohibit the development of the plaintiffs’ prior reserved mineral interests and that Southwest breached its duty to lease the minerals to third parties for development. The Court further ruled that Southwest is the sole holder of the right to lease the minerals to third parties. The order granting the plaintiffs’ motion was severed into a new cause styled Cause No. 28769 Betty Yvon Lesley et a1 v. Bluff Dale Development Corporation, Bluegreen Southwest One. L.P. #et al. in the 266th Judicial District Court, Erath County, Texas. Southwest has appealed the trial court’s ruling. The appeal is styled Bluegreen Southwest One, L.P. et al. v. Betty Yvon Lesley et al.; in the 11th Court of Appeals, Eastland, Texas. We do not believe that we have material exposure to the property owners association based on the cross claim relating to the mineral rights other than a potential claim for legal fees incurred by the property owners association in connection with the matter. As of September 30, 2008, we had accrued $1.5 million in connection with the issues raised related to the mineral rights claims.

Separately, one of the amenity lakes in the Mountain Lakes development did not reach the expected water level after construction was completed. Owners of homesites within the Mountain Lakes subdivision and the property owners Association of Mountain Lakes have asserted cross claims against Southwest and Bluegreen regarding such failure as part of the Lesley litigation referenced above as well as in Cause No. 067-223662-07; Property Owners Association of Mountain Lakes Ranch, Inc. v. Bluegreen Southwest One, L.P. et al.; in the 67th Judicial District Court of Tarrant County, Texas. Southwest continues to investigate reasons for the delay of the lake to fill and currently estimates that the cost of remediating the condition will be approximately $3.4 million, which was accrued as of September 30, 2008. Additional claims may be pursued in the future in connection with these matters, and it is

24



not possible at this time to estimate the likelihood of loss or amount of potential exposure with respect to any such matters.

11. Subsequent Events

 

In November 2008, in light of recent uncertainties in the credit markets, we decided, for the time being, to deemphasize our sales operations to conserve cash, while continuing to emphasize our cash generating income streams from our resorts management and finance operations. To this end, we have made the decision to implement strategic initiatives that are expected to materially reduce sales, and conserve availability under our receivables credit facilities. Such initiatives include closing certain sales offices; greatly eliminating what we have identified as lower-efficiency marketing programs; reducing overhead including eliminating a significant number of staff positions across a variety of areas at various locations; limiting sales to borrowers who meet newly applied underwriting standards, and increasing interest rates on new sales transactions. Our goal is to reduce the number of sales, while increasing the ultimate profitability of those sales we do make. In addition, based on the opening or acquisition of new resorts during 2008 and the expected completion of certain projects currently under development, we have made a decision to reduce our inventory spending from $215.0 million over the twelve months ended September 30, 2008 to a projected $45.0 million during 2009. We believe that we have adequate timeshare inventory to satisfy our 2009 projected sales and, based on our reduced sales levels, a number of years thereafter. We intend to continue to provide high quality vacation experiences to our Bluegreen Vacation Club owners and believe that these initiatives will not have any material impact on owner satisfaction with our products and services. We estimate that these actions will result in pre-tax charges ranging from $10.0 million, or $0.20 per share, to $15.0 million, or $0.30 per share, in the fourth quarter of 2008, but we believe that the successful implementation of these initiatives will allow us to preserve the majority of our unrestricted cash position at least through 2009, while satisfying our obligations, with no need for additional receivable financing facilities or term securitization transactions during that same period.

 

 

 

25



 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement Regarding Forward-Looking Statements and Risk Factors

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and are making the following statements to do so. Certain statements in this Quarterly Report and our other filings with the SEC constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. You may identify these statements by forward-looking words such as “may,” “intend,” “expect,” “anticipate,” “believe”, “will,” “should,” “project,” “estimate,” “plan” or other comparable terminology or by other statements that do not relate to historical facts. All statements, trend analyses and other information relative to the market for our products, remaining life-of-project sales, our expected future sales, financial position, operating results, liquidity and capital resources, our business strategy, financial plan and expected capital requirements as well as trends in our operations, receivables performance or results are forward-looking statements. These forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control, including changes in economic conditions, generally, in areas where we operate, or in the travel and tourism industry, availability of financing, increases in interest rates, changes in regulations and other factors discussed throughout our SEC filings, including the Risk Factor section of our Annual Report, all of which could cause our actual results, performance or achievements, or industry trends, to differ materially from any future results, performance, or achievements or trends expressed or implied herein. Given these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements, and no assurance can be given that the plans, estimates and expectations reflected herein will be achieved. Factors that could adversely affect our future results can also be considered general risk factors with respect to our business, whether or not they relate to a forward-looking statement. We wish to caution you that the important factors set forth below and elsewhere in this Quarterly Report in some cases have affected, and in the future could affect, our actual results and could cause our actual consolidated results to differ materially from those expressed in any forward-looking statements.

 

The state of the economy, generally, interest rates and the availability of financing and increased fuel prices could affect our ability to market VOIs and residential homesites.

 

 

We would incur substantial losses if the customers we finance default on their obligations.

 

 

There has been a material deterioration in the sub-prime lending markets which has had and could continue to adversely impact our liquidity and earnings, including the valuation of our retained interests in notes receivable sold.

 

 

Our business plans historically have depended on our ability to sell or borrow against our notes receivable to support our liquidity and profitability.

 

 

Historically we have depended on additional funding to finance our operations.

 

 

Given the deterioration of the credit markets, we are adopting strategic initiatives that will reduce sales and will focus on activities that generate cash and profits without requiring material support from the credit markets; however, these initiatives may not be successful.

 

 

Our results of operations and financial condition could be adversely impacted if our estimates concerning our notes receivable are incorrect.

 

 

Our success depends on our ability to market our products successfully and efficiently.

 

 

We are subject to the risks of the real estate market and the risks associated with real estate development, including the risks and uncertainties relating to the cost and availability of desirable land, labor and construction materials.

 

 

Claims for development-related defects could adversely affect our financial condition and operating results.

 

 

The resale market for VOIs could adversely affect our business.

 

 

We may be adversely affected by extensive federal, state and local laws and regulations and changes in applicable laws and regulations, including with respect to the imposition of additional taxes on operations.

 

 

Environmental liabilities, including claims with respect to mold or hazardous or toxic substances, could have a material adverse impact on our business.

26



In addition to the foregoing, reference is also made to other risks and factors detailed in our reports filed with the SEC including our Annual Report.

 

Executive Overview

 

We operate through two business segments – Bluegreen Resorts and Bluegreen Communities. Bluegreen Resorts develops markets and sells VOIs for inclusion in the Bluegreen Vacation Club, and provides resort management services to resort property owners associations. Bluegreen Communities acquires large tracts of real estate, which it subdivides, improves (in some cases to include a golf course on the property and other related amenities) and sells, typically on a retail basis, as homesites.

 

Our Resorts business consists of sales operations, resort management operations and finance operations. To date, our focus has been on the growth of our sales operations. As we discuss further under “Liquidity and Capital Resources”, our Resorts sales operations are heavily reliant on the availability of liquidity in the credit markets. Historically, we have provided financing to our customers in 95% of Bluegreen Resorts’ sales. Such financing typically involves the consumer making a 10% cash downpayment, with the balance being financed over a ten-year period. As Bluegreen Resorts’ selling, general and administrative expenses typically exceed the cash downpayment, we have to maintain credit facilities to pledge or sell our consumer note receivables. Historically, we have also engaged in private placement term securitization transactions to periodically pay down all or a portion of our note receivable credit facilities.

 

In recent months, there has been unprecedented disruption in the credit markets. The term securitization market has had minimal activity, banks and other financial institutions have reduced lending activity and other lenders have advised us that they are exiting the finance business altogether.

 

In contrast to our sales operations, our resort management operations and finance operations represent recurring, cash-generating sources of income which do not require material liquidity support from the credit markets. During the nine months ended September 30, 2008, our resorts management operations and finance operations earned $6.8 million and $38.6 million of pre-tax profits, respectively.

 

While, as evidenced by Bluegreen Resorts’ results of operations during the three and nine months ended September 30, 2008, we believe that the market for our Resorts product remains relatively strong, the uncertainties in the credit markets are requiring us, for the time being, to deemphasize our sales operations to conserve cash, while continuing to emphasize our cash generating income streams from our resorts management and finance operations. To this end, we have made the decision to implement strategic initiatives that are expected to materially reduce sales, and conserve availability under our receivables credit facilities. Such initiatives include closing certain sales offices; greatly eliminating what we have identified as lower-efficiency marketing programs; reducing overhead including eliminating a significant number of staff positions across a variety of areas at various locations; limiting sales to borrowers who meet newly applied underwriting standards, and increasing interest rates on new sales transactions. Our goal is to reduce the number of sales, while increasing the ultimate profitability of those sales we do make. In addition, based on the opening or acquisition of new resorts during 2008 and the expected completion of certain projects currently under development, we have made a decision to reduce our inventory spending from $215.0 million over the twelve months ended September 30, 2008 to a projected $45.0 million during 2009. We believe that we have adequate timeshare inventory to satisfy our 2009 projected sales and, based on our reduced sales levels, a number of years thereafter. We intend to continue to provide high quality vacation experiences to our Bluegreen Vacation Club owners and believe that these initiatives will not have any material impact on owner satisfaction with our products and services. We estimate that these actions will result in pre-tax charges ranging from $10.0 million, or $0.20 per share, to $15.0 million, or $0.30 per share, in the fourth quarter of 2008, but we believe that the successful implementation of these initiatives will allow us to preserve the majority of our unrestricted cash position at least through 2009, while satisfying our obligations, with no need for additional receivable financing facilities or term securitization transactions during that same period.

 

27



We believe that these actions are appropriate in the current challenging environment, yet will position us to once again grow once the credit markets improve. We continue to actively pursue additional credit facility capacity, capital markets transaction, and alternative financing solutions and we hope that the steps we are taking will best position us to maintain existing, strong credit relationships, as well as attract new sources of capital. Regardless of the state of the credit markets, however, we believe that our resorts management and finance operations will continue to generate cash and profits.

We have historically experienced and expect to continue to experience seasonal fluctuations in our gross revenues and net earnings. This seasonality may cause significant fluctuations in our quarterly operating results, with the majority of our gross revenues and net earnings historically expected to occur in the quarters ending in September and December each year. Although we expect to see more potential customers at our sales offices during the quarters ending in June and September, ultimate recognition of the resulting sales during these periods may be delayed due to complex down payment requirements for real estate sales under GAAP or due to the timing of development and the requirement that we use the percentage-of-completion method of accounting.

We believe that inflation and changing prices have materially impacted our revenues and results of operations, specifically due to periodic increases in the sales prices of our VOIs and homesites and increases in construction and development costs from time to time. We expect the increased construction and development costs over the past few years to result in an increase in our cost of sales for the foreseeable future. There is no assurance that we will be able to increase or maintain the current level of our sales prices or that increased construction costs will not have a material adverse impact on our gross margin. In addition, to the extent that inflation in general or increased prices for our VOIs and homesites would adversely impact consumer sentiment, our results of operations could be adversely impacted. Also, to the extent inflationary trends, tightened credit markets or other factors affect interest rates, our debt service costs may increase.

Our Bluegreen Communities business has been adversely impacted by deterioration in the real estate markets. Although to date we have not experienced a significant reduction in sale prices, we have experienced a material decrease in demand, particularly for higher priced premium homesites, and a decrease in sales volume.

We recognize revenue on homesite and VOI sales when a minimum of 10% of the sales price has been received in cash, the refund or rescission period has expired, collectibility of the receivable representing the remainder of the sales price is reasonably assured and we have completed substantially all of our obligations with respect to any development of the real estate sold. Refund or rescission periods include those required by law and those provided for in our sales contracts. With respect to VOI sales, the revenue recognition rules require that incentives and other similarly treated items, such as customer down payment equity earned through our Sampler Program, be considered in calculating the required down payment for our VOI sales. If, after considering the value of sales incentives provided, the required 10% of sales price down payment threshold is not met, the VOI sale and the related cost of sale and direct selling costs are deferred and not recognized until the buyer’s commitment test is satisfied, generally through the receipt of required mortgage note payments from the buyer. Further, in cases where all development has not been completed, recognition of income is subject to the percentage-of-completion method of accounting.

Costs associated with the acquisition and development of vacation ownership resorts and residential communities, including carrying costs such as interest and taxes, are capitalized as inventory and are allocated to cost of real estate sold as the respective revenues are recognized.

We finance approximately 95% of Bluegreen Resorts sales of VOIs, and accordingly, are subject to the risk of defaults by customers. We reduce sales of VOIs by our estimate of future uncollectible note balances on originated VOI receivables, excluding any benefit for the value of future recoveries. During the first nine months of 2008, we reduced sales of VOIs by $59.3 million for such provision.

28



The allowance for loan losses by segment as of December 31, 2007 and September 30, 2008 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

 

 

 

 

 

 

 

 

December 31, 2007:

 

 

 

 

 

 

 

 

 

 

Notes receivable

 

$

172,787

 

$

5,336

 

$

178,123

 

Allowance for loan losses

 

 

(17,196

)

 

(262

)

 

(17,458

)

 

 



 



 



 

Notes receivable, net

 

$

155,591

 

$

5,074

 

$

160,665

 

 

 



 



 



 

Allowance as a % of gross notes receivable

 

 

10

%

 

5

%

 

10

%

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2008:

 

 

 

 

 

 

 

 

 

 

Notes receivable

 

$

354,215

 

$

4,892

 

$

359,107

 

Allowance for loan losses

 

 

(45,105

)

 

(265

)

 

(45,370

)

 

 



 



 



 

Notes receivable, net

 

$

309,110

 

$

4,627

 

$

313,737

 

 

 



 



 



 

Allowance as a % of gross notes receivable

 

 

13

%

 

5

%

 

13

%

 

 



 



 



 

As we have been solely accounting for our receivable financing activities on-balance sheet since April 2008, a greater portion of our on-balance sheet receivables were originated less than one year ago as of September 30, 2008 than at December 31, 2007. As the expected cumulative default rate decreases during the term of a receivable, we reserve a higher percentage of our receivable balance for loan losses on newer receivables as opposed to more mature receivables, hence the increase in our allowance as a percentage of gross notes receivable at September 30, 2008 than at December 31, 2007.

The table below sets forth the activity in our allowance for uncollectible notes receivable for the nine months ended September 30, 2008 (in thousands):

 

 

 

 

 

Balance, December 31, 2007

 

$

17,458

 

Provision for loan losses(1)

 

 

59,509

 

Less: Allowance on sold receivables

 

 

(10,964

)

Less: Write-offs of uncollectible receivables

 

 

(20,633

)

 

 



 

Balance, September 30, 2008

 

$

45,370

 

 

 



 

 

 

 

 

 

(1)  Includes provision for loan losses on homesite notes receivable

We determine the adequacy of our reserve for loan losses and review it on a regular basis considering, among other factors, historical frequency of default, loss experience, static pool analyses, estimated value of the underlying collateral (communities notes receivable, only), present and expected economic conditions, as well as other factors. For VOI notes receivable, we estimate uncollectibles based on historic uncollectibles for similar VOI notes receivable. The average annual default rates and delinquency rates (31 or more days past due) on Bluegreen Resorts’ and Bluegreen Communities’ receivables owned or serviced by us were as follows:

 

 

 

 

 

 

Average Annual Default Rates

 

Twelve months ended
September 30,

 


 


 

Division

 

2007

 

2008

 


 


 


 

Bluegreen Resorts

 

7.0%

 

8.7%

 

Bluegreen Communities

 

4.4%

 

6.3%

 

29



 

 

 

 

 

 

 

Delinquency Rates*

 

As of

 


 


 

Division

 

December 31,
2007

 

September 30,
2008

 


 


 


 

Bluegreen Resorts

 

4.5%

 

 

4.4%

 

Bluegreen Communities

 

13.2%

 

 

9.9%

 

* The percentage of our serviced VOI notes receivable portfolio that was over 30 days past due as of the dates indicated.

We believe that the increases in our average annual default rates in 2008 as compared to 2007 are a result of the current economic environment. It should be noted that default rates in 2007 represented historical lows, and our 2008 rates approximate rates realized prior to 2007.

We believe that the decrease in delinquencies as of September 30, 2008 compared to December 31, 2007 is consistent with historical seasonal patterns and may not be indicative of delinquency rates at December 31, 2008. Substantially all defaulted VOI notes receivable result in the holder of the note receivable acquiring the related VOI that secured the note receivable. In cases where we have retained or reacquired ownership of the VOI notes receivable, the VOI is acquired and resold in the normal course of business.

A significant portion of our revenues historically has been comprised of gains on sales of notes receivable. The gains are recorded on our consolidated statement of income as a component of sales of real estate and the related retained interests in the notes receivable sold are recorded on our consolidated balance sheet at the time of sale.

The amount of gains recognized and the fair value of the retained interests recorded are based in part on management’s best estimates of future prepayment rates, default rates, loss severity rates, discount rates and other considerations in light of then-current conditions. If actual prepayments with respect to loans occur more quickly than we projected at the time such loans were sold, as can occur when interest rates decline, interest income would be less than expected and may cause a decline in the fair value of the retained interests and a charge to operations. If actual defaults or other factors discussed above with respect to loans sold are greater than estimated, charge-offs would exceed previously estimated amounts and the cash flow from the retained interests in notes receivable sold would decrease. Also, to the extent the portfolio of receivables sold fails to satisfy specified performance criteria (as may occur due to, for example, an increase in default rates or loan loss severity) or certain other events occur, the funds received from obligors must be distributed on an accelerated basis to investors. If the accelerated payment formula were to become applicable, the cash flow to us from the retained interests in notes receivable sold will be reduced until the outside investors were paid or the regular payment formula was resumed. In addition, from time to time, we may agree to defer receiving all or a portion of our deferred payment on certain of our retained interests in notes receivable sold in an accommodation to third party rating agencies. Also, as market conditions change, the discount rates that we use to value our retained interests in notes receivable sold may change. If these situations occur, it could cause a material decline in the fair value of the retained interests and current charges to earnings. There is no assurance that the carrying value of our retained interests in notes receivable sold will be fully realized or that future loan sales will be consummated or, if consummated, result in gains. See “VOI Receivables Purchase Facilities – Off-Balance Sheet Arrangements” below.

The Financial Accounting Standards Board (“FASB”) is currently reviewing the accounting principles relative to the transfer of financial assets, including the sale of notes receivable. In advance of possible new accounting rules, which could be effective as early as 2010, Bluegreen intends to structure future sales of notes receivable so they are treated as on-balance sheet borrowings. This will impact the comparability to prior periods as future transactions will not result in gains on sale of notes receivable.

During 2007 and the first nine months of 2008, the deteriorating credit market, primarily driven by the sub-prime loan crisis, negatively impacted our financing activities. Although we have been able to secure financing and securitize VOI notes receivable, such transactions were more difficult to effect and were priced at a higher cost than in prior periods. In addition, recent economic events have further constricted the financial markets to unprecedented low levels. There can be no assurance that we will be able to continue to secure funding or to convert VOI notes receivable on acceptable terms, if at all.

Critical Accounting Policies and Estimates

The discussion and analysis of our results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting

30



principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of commitments and contingencies. On an ongoing basis, management evaluates its estimates, including those that relate to the recognition of revenue, including revenue recognition under the percentage-of-completion method of accounting; our reserve for loan losses; the valuation of retained interests in notes receivable sold and the related gains on sales of notes receivable; the recovery of the carrying value of real estate inventories, golf courses, intangible assets and other assets; and the estimate of contingent liabilities related to litigation and other claims and assessments. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions and conditions. If actual results significantly differ from management’s estimates, our results of operations and financial condition could be materially, adversely impacted. For a more detailed discussion of these critical accounting policies see “Critical Accounting Policies and Estimates” in our Annual Report.

Accounting Pronouncements Not Yet Adopted

In February 2008, the FASB agreed to partially defer for one year the effective date of SFAS No. 157, with respect to non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. We are currently evaluating the impact that SFAS No. 157 will have on our financial statements.

On December 4, 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS No. 141(R)”). SFAS No. 141(R) will significantly change the accounting for business combinations. Under SFAS No. 141(R), subject to limited exceptions, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Additionally, due diligence and transaction costs incurred to effect an acquisition will be expensed as incurred, as opposed to being capitalized as part of the acquisition purchase price (which is currently our practice). SFAS No. 141(R) also includes a substantial number of new disclosure requirements. SFAS No. 141(R) must be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. We are currently evaluating the impact that SFAS No. 141(R) will have on our financial statements.

On December 4, 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements-an Amendment of Accounting Research Bulletin (“ARB”) No. 51 (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for a non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements separate from the parent’s equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. SFAS No. 160 will become effective for us beginning with our 2009 fiscal year. We are currently evaluating the impact that SFAS No. 160 will have on our financial statements.

Results of Operations

We review financial information, allocate resources and manage our business as two segments, Bluegreen Resorts and Bluegreen Communities. The information reviewed is based on internal reports and excludes an allocation of general and administrative expenses attributable to corporate overhead. The information provided is based on a management approach and is used by us for the purpose of tracking trends and changes in results. It does not reflect the actual economic costs, contributions or results of operations of the segments as stand alone businesses. If a different basis of presentation or allocation were utilized, the relative contributions of the segments might differ but the relative trends, in our view, would likely not be materially impacted. The table below sets forth our financial results by segment:

31



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts

 

Bluegreen Communities

 

Total

 

 

 


 


 


 

 

 

 

 

 

 

 

 

 

 

Amount

 

% of Sales

 

Amount

 

% of Sales

 

Amount

 

% of Sales

 

 

 


 


 


 


 


 


 

Three Months Ended
September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

144,401

 

 

 

 

$

31,745

 

 

 

 

$

176,146

 

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(19,504

)

 

 

 

 

 

 

 

 

 

(19,504

)

 

 

 

Gain on sales of notes receivable

 

 

20,075

 

 

 

 

 

 

 

 

 

 

20,075

 

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Sales of real estate

 

 

144,972

 

100

%

 

 

31,745

 

100

%

 

 

176,717

 

100

%

 

Cost of real estate sales

 

 

(38,416

)

(26

)

 

 

(17,144

)

(54

)

 

 

(55,560

)

(31

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Gross profit

 

 

106,556

 

74

 

 

 

14,601

 

46

 

 

 

121,157

 

69

 

 

Other resort and communities operations revenues

 

 

14,400

 

10

 

 

 

2,855

 

9

 

 

 

17,255

 

10

 

 

Cost of other resort and communities operations

 

 

(10,689

)

(7

)

 

 

(3,100

)

(10

)

 

 

(13,789

)

(8

)

 

Selling and marketing expenses

 

 

(77,521

)

(54

)

 

 

(7,463

)

(24

)

 

 

(84,984

)

(48

)

 

Field general and administrative expenses (1)

 

 

(8,838

)

(6

)

 

 

(2,344

)

(7

)

 

 

(11,182

)

(7

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Field operating profit

 

$

23,908

 

17

%

 

$

4,549

 

14

%

 

$

28,457

 

16

%

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

160,349

 

 

 

 

$

10,704

 

 

 

 

$

171,053

 

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(24,146

)

 

 

 

 

 

 

 

 

 

(24,146

)

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Sales of real estate

 

 

136,203

 

100

%

 

 

10,704

 

100

%

 

 

146,907

 

100

%

 

Cost of real estate sales

 

 

(31,490

)

(23

)

 

 

(6,727

)

(63

)

 

 

(38,217

)

(26

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Gross profit

 

 

104,713

 

77

 

 

 

3,977

 

37

 

 

 

108,690

 

74

 

 

Other resort and communities operations revenues

 

 

15,839

 

12

 

 

 

2,170

 

20

 

 

 

18,009

 

12

 

 

Cost of other resort and communities operations

 

 

(11,734

)

(9

)

 

 

(2,573

)

(24

)

 

 

(14,307

)

(10

)

 

Selling and marketing expenses

 

 

(80,519

)

(59

)

 

 

(2,264

)

(21

)

 

 

(82,783

)

(56

)

 

Field general and administrative expenses (1)

 

 

(7,543

)

(6

)

 

 

(1,863

)

(17

)

 

 

(9,406

)

(6

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Field operating profit

 

$

20,756

 

15

%

 

$

(553

)

(5

)%

 

$

20,203

 

14

%

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

32



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts

 

Bluegreen Communities

 

Total

 

 

 


 


 


 

 

 

 

 

 

 

 

 

 

 

Amount

 

% of Sales

 

Amount

 

% of Sales

 

Amount

 

% of Sales

 

 

 


 


 


 


 


 


 

Nine Months Ended
September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

355,199

 

 

 

 

$

104,646

 

 

 

 

$

459,845

 

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(46,098

)

 

 

 

 

 

 

 

 

 

(46,098

)

 

 

 

Gain on sales of notes receivable

 

 

28,042

 

 

 

 

 

 

 

 

 

 

28,042

 

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Sales of real estate

 

 

337,143

 

100

%

 

 

104,646

 

100

%

 

 

441,789

 

100

%

 

Cost of real estate sales

 

 

(83,927

)

(25

)

 

 

(54,670

)

(52

)

 

 

(138,597

)

(31

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Gross profit

 

 

253,216

 

75

 

 

 

49,976

 

48

 

 

 

303,192

 

69

 

 

Other resort and communities operations revenues

 

 

39,473

 

12

 

 

 

8,390

 

8

 

 

 

47,863

 

11

 

 

Cost of other resort and communities operations

 

 

(29,618

)

(9

)

 

 

(8,445

)

(8

)

 

 

(38,063

)

(9

)

 

Selling and marketing expenses

 

 

(198,933

)

(59

)

 

 

(21,935

)

(21

)

 

 

(220,868

)

(50

)

 

Field general and administrative expenses (1)

 

 

(24,257

)

(7

)

 

 

(8,102

)

(8

)

 

 

(32,359

)

(7

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Field operating profit

 

$

39,881

 

12

%

 

$

19,884

 

19

%

 

$

59,765

 

14

%

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

384,733

 

 

 

 

$

44,579

 

 

 

 

$

429,312

 

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(59,308

)

 

 

 

 

 

 

 

 

 

(59,308

)

 

 

 

Gain on sales of notes receivable

 

 

8,245

 

 

 

 

 

 

 

 

 

 

8,245

 

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Sales of real estate

 

 

333,670

 

100

%

 

 

44,579

 

100

%

 

 

378,249

 

100

%

 

Cost of real estate sales

 

 

(75,594

)

(23

)

 

 

(24,553

)

(55

)

 

 

(100,147

)

(26

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Gross profit

 

 

258,076

 

77

 

 

 

20,026

 

45

 

 

 

278,102

 

74

 

 

Other resort and communities operations revenues

 

 

44,868

 

14

 

 

 

8,817

 

20

 

 

 

53,685

 

14

 

 

Cost of other resort and communities operations

 

 

(30,059

)

(9

)

 

 

(8,009

)

(18

)

 

 

(38,068

)

(10

)

 

Selling and marketing expenses

 

 

(219,640

)

(66

)

 

 

(10,611

)

(24

)

 

 

(230,251

)

(61

)

 

Field general and administrative expenses (1)

 

 

(21,319

)

(6

)

 

 

(5,872

)

(13

)

 

 

(27,191

)

(7

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Field operating profit

 

$

31,926

 

10

%

 

$

4,351

 

10

%

 

$

36,277

 

10

%

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 


 

 

(1)

General and administrative expenses attributable to corporate overhead have been excluded from the tables. Corporate general and administrative expenses totaled $8.7 million and $31.5 million for the three and nine months ended September 30, 2007, respectively. Corporate general and administrative expenses totaled $13.6 million and $36.7 million for the three and nine months ended September 30, 2008, respectively (See “Corporate General and Administrative Expenses” below for further discussion).

 

 

Sales and Field Operations. Consolidated sales decreased $29.8 million from $176.7 million during the three months ended September 30, 2007 to $146.9 million during the three months ended September 30, 2008. Consolidated sales decreased $63.5 million from $441.8 million during the nine months ended September 30, 2007 to $378.2 million during the nine months ended September 30, 2008.

 

 

Bluegreen Resorts

 

 

During the three months ended September 30, 2007 and 2008, Bluegreen Resorts generated $145.0 million (82%) and $136.2 million (93%) of our total consolidated sales of real estate, respectively. During the nine months ended

33



September 30, 2007 and 2008, Bluegreen Resorts generated $337.1 million (76%) and $333.7 million (88%) of our total consolidated sales of real estate, respectively.

The following table sets forth certain information for sales of VOIs for the periods indicated, before giving effect to the percentage-of-completion method of accounting and sales deferred under SFAS No. 152.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 


 


 

 

 

2007

 

2008

 

2007

 

2008

 

 

 


 


 


 


 

Number of VOI sales transactions

 

 

12,327

 

 

13,846

 

 

32,639

 

 

35,546

 

Average sales price per transaction

 

$

11,445

 

$

11,098

 

$

11,170

 

$

11,046

 

Number of total prospects tours

 

 

98,300

 

 

99,800

 

 

249,400

 

 

260,400

 

Sale-to-tour conversion ratio– total prospects

 

 

12.5

%

 

13.9

%

 

13.1

%

 

13.7

%

Number of new prospects tours

 

 

73,000

 

 

72,000

 

 

185,500

 

 

185,800

 

Sale-to-tour conversion ratio– new prospects

 

 

9.0

%

 

8.8

%

 

9.9

%

 

9.5

%

Bluegreen Resorts’ gross sales (prior to the impact of estimated uncollectible VOI notes receivable and gain on sale of notes receivable) increased $15.9 million or 11% during the three months ended September 30, 2008, as compared to the three months ended September 30, 2007. The increase in sales primarily reflects our continued focus on marketing to our growing Bluegreen Vacation Club owner base. Sales to owners increased by 20% and accounted for approximately 49% of Resort sales during the third quarter of 2008, compared to 42% during the third quarter of 2007. The increase in sales also reflects an increase in same-resort sales at many of our existing sales offices, partially offset by the closure of our off-site sales office in Dallas, Texas. In September 2008, we closed our off-site sales offices located in Chicago, Illinois and Atlanta, Georgia.

Bluegreen Resorts’ gross sales (prior to the impact of estimated uncollectible VOI notes receivable and gain on sale of notes receivable) increased $29.5 million or 8% during the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007. The increase in sales primarily reflects our continued focus on marketing to our growing Bluegreen Vacation Club owner base. Sales to owners increased by 21% and accounted for approximately 46% of Resort sales during the nine months ended September 30, 2008, compared to 40% during the nine months ended September 30, 2007. The increase in sales also reflects an increase in same-resort sales at many of our existing sales offices, partially offset by the closure of our off-site sales office in Dallas, Texas. As mentioned above, we also closed off-site sales offices located in Chicago, Illinois and Atlanta, Georgia in September 2008.

As we previously announced we are structuring future sales of our notes receivable so that they are accounted for as on-balance sheet borrowings. Accordingly, we do not expect to recognize future gains on the sale of notes receivable. While we believe the on-balance sheet treatment for the sale of notes receivable will provide more transparent results and a higher quality of earnings, our results of operations will be negatively impacted compared to those periods in which off-balance sheet accounting was used. During the nine months ended September 30, 2007 and 2008, we sold $202.5 million and $68.6 million of notes receivable, respectively, resulting in approximately $28.0 million and $8.2 million of gain on sales of notes receivable in 2007 and 2008, respectively. During the third quarter of 2008, we did not sell any notes receivable through off-balance sheet transactions, as compared to $151.3 million notes sold during the third quarter of 2007, although we did monetize $109.1 million of notes receivable through on-balance sheet credit facilities during the three months ended September 30, 2008. The decrease in gain as a percentage of notes receivable sold in 2008 as compared to 2007 reflects increased interest rates required by investors in the securitization market.

VOI sales were reduced by our estimate of future uncollectible note balances in the amount of $19.5 million and $24.1 million during the three months ended September 30, 2007 and 2008, respectively. During the nine months ended September 30, 2007 and 2008, our estimate of future uncollectible note balances totaled $46.1 million and $59.3 million, respectively. The increase in the provision for loan losses during the three and nine months ended September 30, 2008 compared to the three and nine months ended September 30, 2007 was primarily due to higher Bluegreen Resorts sales and, to a lesser extent, higher default experience.

Bluegreen Resorts’ gross margin percentages vary between periods based on the relative costs of the specific VOIs sold in each respective period. Gross margin during the three and nine months ended September 30, 2008, as compared to the same periods in 2007 was positively impacted by sales of VOIs located at our Bluegreen

34



Wilderness Traveler at Shenandoah resort, which has a relatively low cost, and to a lesser extent, by a system-wide price increase during the first quarter of 2008.

Other resort operations revenue increased $1.4 million or 10% during the three months ended September 30, 2008, as compared to the three months ended September 30, 2007. Other resort operations revenue increased $5.4 million or 14% during the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007. The increases in the 2008 periods represent higher resort management and service fees earned by our resort management business, as well as higher fees earned by our wholly-owned title company. Resort management and service fees increased in the aggregate due to an increase in the number of resorts and owners, while title fees increased due to an increase in the number of VOI sales transactions.

Cost of other resort operations increased $1.0 million or 10% during the three months ended September 30, 2008, as compared to the three months ended September 30, 2007. Cost of other resort operations increased $441,000 or 1% during the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007. The increases during the 2008 periods primarily reflect higher carrying costs of unsold VOIs, which is comprised of maintenance fees on VOIs owned by us and developer subsidies incurred relative to our recently completed resorts, partially offset by higher rental proceeds (which are recorded as a reduction to cost of other operations).

Selling and marketing expenses for Bluegreen Resorts increased $3.0 million or 4% during the three months ended September 30, 2008, as compared to the three months ended September 30, 2007. As a percentage of sales, selling and marketing expenses increased from 54% during the three months ended September 30, 2007 to 59% during the three months ended September 30, 2008. Selling and marketing expenses for Bluegreen Resorts increased $20.7 million or 10% during the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007. As a percentage of sales, selling and marketing expenses increased from 59% during the nine months ended September 30, 2007 to 66% during the nine months ended September 30, 2008. The increase in selling and marketing expenses during 2008 as compared to the same periods in 2007 reflects the overall increase in sales transactions as well as the overall increase in the number of prospects seen. Selling and marketing expenses, as a percentage of sales increased primarily as a result of lower 2008 sales of notes receivable and the deferral of additional sales for which we cannot defer the majority of selling and marketing costs. The increases were partially off-set by increased sales to owners, which generally carry lower marketing costs.

As of September 30, 2008, approximately $33.7 million and $19.5 million of sales and field operating profit, respectively, were deferred under SFAS No. 152 because of the impact sales incentives given on the buyers’ minimum required initial investment as compared to $24.6 million and $14.3 million of sales and field operating profit, respectively, as of December 31, 2007.

Bluegreen Communities

During the three months ended September 30, 2007 and 2008, Bluegreen Communities generated $31.7 million (18%) and $10.7 million (7%) of our total consolidated sales of real estate, respectively. During the nine months ended September 30, 2007 and 2008, Bluegreen Communities generated $104.6 million (24%) and $44.6 million (12%) of our total consolidated sales of real estate, respectively.

The table below sets forth the number of homesites sold by Bluegreen Communities and the average sales price per homesite for the periods indicated, before giving effect to the percentage-of-completion method of accounting and excluding sales of bulk parcels:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
September 30,

 

For the Nine Months Ended
September 30,

 

 

 


 


 

 

 

2007

 

2008

 

2007

 

2008

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of homesites sold

 

 

327

 

 

80

 

 

1,100

 

 

420

 

Average sales price per homesite

 

$

83,423

 

$

79,277

 

$

84,837

 

$

81,137

 

Sales at Bluegreen Communities have been adversely impacted by the deterioration of the real estate markets. Although to date we have not experienced a significant deterioration of our sales prices, we have experienced a

35



decline in sales volume, especially in our higher priced premium homesites. While we have experienced a decline in our average sales price per homesite in 2008 from 2007, it reflects a diversity of communities available with varied price points and the impact of a higher percentage of premium lots sold in 2007 at properties substantially sold out as of September 30, 2008.

Before giving effect to the percentage-of-completion method of accounting and the legal rescission period, we entered into contracts to sell homesites as follows during the three and nine months ended September 30, 2007 and 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties Not Substantially Sold Out at September 30, 2008 (in 000’s)

 

 

 


 

 

 

Sales for the three months
ended September 30,

 

Sales for the nine months
ended September 30,

 

 

 


 


 

Project

 

2007

 

2008

 

Difference

 

2007

 

2008

 

Difference

 


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapel Ridge

 

$

4,290

 

$

421

 

$

(3,869

)

$

14,783

 

$

2,128

 

$

(12,655

)

Lake Ridge at Joe Pool Lake

 

 

914

 

 

452

 

 

(462

)

 

5,445

 

 

2,753

 

 

(2,692

)

Havenwood at Hunter’s Crossing

 

 

3,824

 

 

219

 

 

(3,605

)

 

12,876

 

 

5,288

 

 

(7,588

)

Vintage Oaks at the Vineyard

 

 

2,650

 

 

2,265

 

 

(385

)

 

12,827

 

 

8,366

 

 

(4,461

)

The Bridges at Preston Crossings

 

 

1,156

 

 

589

 

 

(567

)

 

4,421

 

 

2,466

 

 

(1,955

)

SugarTree on the Brazos

 

 

271

 

 

 

 

(271

)

 

1,863

 

 

311

 

 

(1,552

)

Sanctuary Cove

 

 

(135

)

 

532

 

 

667

 

 

2,431

 

 

532

 

 

(1,899

)

King Oaks

 

 

1,581

 

 

272

 

 

(1,309

)

 

4,757

 

 

2,978

 

 

(1,779

)

 

 



 



 



 



 



 



 

Total

 

$

14,551

 

$

4,750

 

$

(9,801

)

$

59,403

 

$

24,822

 

$

(34,581

)

 

 



 



 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties Substantially Sold Out at September 30, 2008 (in 000’s)

 

 

 


 

 

 

Sales for the three months
ended September 30,

 

Sales for the nine months
ended