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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  March 31, 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 May 1, 2008, there were 31,605,956 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 March 31, 2008

 

5

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income – Three months ended March 31, 2007 and 2008

 

6

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2007 and 2008

 

7

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

 

 

Item 2.

 

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

 

22

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

39

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

40

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

40

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

 

 

 

 

 

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

41

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

41

 

 

 

 

 

Signatures

 

43

 

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™,” “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 CrossingTM,” “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

 

March 31,
2008

 

 

 


 


 

 

 

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents (including restricted cash of $19,460 and $21,740 at December 31, 2007 and March 31, 2008, respectively)

 

$

144,973

 

$

97,091

 

Contracts receivable, net

 

 

20,532

 

 

23,270

 

Notes receivable (net of allowance of $17,458 and $15,280 at December 31, 2007 and March 31, 2008, respectively)

 

 

160,665

 

 

151,022

 

Prepaid expenses

 

 

14,824

 

 

18,899

 

Other assets

 

 

23,405

 

 

24,003

 

Inventory, net

 

 

434,968

 

 

459,694

 

Retained interests in notes receivable sold

 

 

141,499

 

 

142,029

 

Property and equipment, net

 

 

94,421

 

 

95,582

 

Goodwill

 

 

4,291

 

 

4,291

 

 

 



 



 

Total assets

 

$

1,039,578

 

$

1,015,881

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

38,901

 

$

38,454

 

Accrued liabilities and other

 

 

60,421

 

 

66,144

 

Deferred income

 

 

36,559

 

 

38,410

 

Deferred income taxes

 

 

98,362

 

 

98,359

 

Receivable-backed notes payable

 

 

54,999

 

 

44,327

 

Lines-of-credit and notes payable

 

 

176,978

 

 

210,163

 

10.50% senior secured notes payable

 

 

55,000

 

 

 

Junior subordinated debentures

 

 

110,827

 

 

110,827

 

 

 



 



 

Total liabilities

 

 

632,047

 

 

606,684

 

 

 

 

 

 

 

 

 

Minority interest

 

 

22,423

 

 

23,261

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 33,964 shares issued at December 31, 2007 and March 31, 2008, respectively

 

 

339

 

 

339

 

Additional paid-in capital

 

 

178,144

 

 

178,975

 

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

 

 

(12,885

)

 

(12,885

)

Accumulated other comprehensive income, net of income taxes

 

 

9,808

 

 

8,409

 

Retained earnings

 

 

209,702

 

 

211,098

 

 

 



 



 

Total shareholders’ equity

 

 

385,108

 

 

385,936

 

 

 



 



 

Total liabilities and shareholders’ equity

 

$

1,039,578

 

$

1,015,881

 

 

 



 



 


 

 

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
March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

Revenues:

 

 

 

 

 

 

 

Gross sales of real estate

 

$

125,244

 

$

119,378

 

Estimated uncollectible VOI notes receivable

 

 

(11,413

)

 

(16,367

)

Gains on sales of VOI notes receivable

 

 

7,967

 

 

8,245

 

 

 



 



 

Sales of real estate

 

 

121,798

 

 

111,256

 

 

 

 

 

 

 

 

 

Other resort and communities operations revenue

 

 

15,018

 

 

17,870

 

Interest income

 

 

9,842

 

 

9,961

 

Other income, net

 

 

 

 

265

 

 

 



 



 

 

 

 

146,658

 

 

139,352

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of real estate sales

 

 

36,732

 

 

30,958

 

Cost of other resort and communities operations

 

 

12,419

 

 

12,687

 

Selling, general and administrative expenses

 

 

81,393

 

 

87,669

 

Interest expense

 

 

5,151

 

 

4,949

 

Other expense, net

 

 

727

 

 

 

 

 



 



 

 

 

 

136,422

 

 

136,263

 

 

 



 



 

 

 

 

 

 

 

 

 

Income before minority interest and provision for income taxes

 

 

10,236

 

 

3,089

 

Minority interest in income of consolidated subsidiary

 

 

1,634

 

 

838

 

 

 



 



 

Income before provision for income taxes

 

 

8,602

 

 

2,251

 

Provision for income taxes

 

 

3,269

 

 

855

 

 

 



 



 

Net income

 

$

5,333

 

$

1,396

 

 

 



 



 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

Basic

 

$

0.17

 

$

0.04

 

 

 



 



 

Diluted

 

$

0.17

 

$

0.04

 

 

 



 



 

 

 

 

 

 

 

 

 

Weighted average number of common and common equivalent shares:

 

 

 

 

 

 

 

Basic

 

 

30,889

 

 

31,241

 

 

 



 



 

Diluted

 

 

31,294

 

 

31,490

 

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

6



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net income

 

$

5,333

 

$

1,396

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

Non-cash stock compensation expense

 

 

613

 

 

807

 

Minority interest in income of consolidated subsidiary

 

 

1,634

 

 

838

 

Depreciation and amortization

 

 

4,448

 

 

3,933

 

Gains on sales of VOI notes receivable

 

 

(7,967

)

 

(8,245

)

Loss on disposal of property and equipment

 

 

525

 

 

3

 

Estimated uncollectible notes receivable

 

 

11,362

 

 

16,409

 

Provision for deferred income taxes

 

 

3,269

 

 

855

 

Interest accretion on retained interests in notes receivable sold

 

 

(4,234

)

 

(2,676

)

Proceeds from sales of notes receivable

 

 

46,026

 

 

56,743

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Contracts receivable

 

 

(985

)

 

(2,738

)

Notes receivable

 

 

(60,992

)

 

(64,369

)

Inventory

 

 

(23,884

)

 

(24,726

)

Prepaid expenses and other assets

 

 

(1,493

)

 

(5,078

)

Accounts payable, accrued liabilities and other

 

 

3,686

 

 

6,923

 

 

 



 



 

Net cash used in operating activities

 

 

(22,659

)

 

(19,925

)

 

 



 



 

Investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(4,019

)

 

(4,319

)

Investment in statutory business trust

 

 

(619

)

 

 

Cash received from retained interests in notes receivable sold

 

 

5,871

 

 

9,513

 

 

 



 



 

Net cash provided by investing activities

 

 

1,233

 

 

5,194

 

 

 



 



 

Financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings collateralized by notes receivable

 

 

 

 

45,126

 

Payments on borrowings collateralized by notes receivable

 

 

(2,631

)

 

(56,096

)

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

 

 

12,500

 

 

53,256

 

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

 

 

(25,448

)

 

(20,331

)

Payments on 10.50% senior secured notes

 

 

 

 

(55,000

)

Proceeds from issuance of junior subordinated debentures

 

 

20,619

 

 

 

Payment of debt issuance costs

 

 

(684

)

 

(130

)

Proceeds from exercise of stock options

 

 

546

 

 

24

 

 

 



 



 

Net cash provided (used) by financing activities

 

 

4,902

 

 

(33,151

)

 

 



 



 

Net decrease in cash and cash equivalents

 

 

(16,524

)

 

(47,882

)

Cash and cash equivalents at beginning of period

 

 

71,148

 

 

144,973

 

 

 



 



 

Cash and cash equivalents at end of period

 

 

54,624

 

 

97,091

 

Restricted cash and cash equivalents at end of period

 

 

(21,967

)

 

(21,740

)

 

 



 



 

Unrestricted cash and cash equivalents at end of period

 

$

32,657

 

$

75,351

 

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

7



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory acquired through financing

 

$

12,600

 

$

 

 

 



 



 

Property and equipment acquired through financing

 

$

629

 

$

243

 

 

 



 



 

Retained interests in notes receivable sold

 

$

5,065

 

$

9,623

 

 

 



 



 

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

 

$

(334

)

$

(2,257

)

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

8



BLUEGREEN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 months ended March 31, 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 first quarter of 2008, our 28 sales offices were marketing and selling VOIs in 22 core resorts located in the United States and Aruba. During the first quarter of 2008, we operated 20 sales offices on-site at our core resorts seven off-site sales offices (one of which was closed during April 2008) and one on the campus of a resort under development. 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 management services, resort title services, resort amenity operations, non-cash sales incentives provided to buyers of VOIs, rental brokerage services, realty operations and daily-fee golf course operations. We also generate significant interest income by providing financing to individual purchasers of VOIs.

Principles of Consolidation

Our 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 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.

9



Use of Estimates

United States generally accepted accounting principles 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 share, but also gives effect to all dilutive stock options and unvested restricted stock using the treasury stock method. During the three months ended March 31, 2008, a total of 7,000 common shares were issued as a result of stock option exercises. There were approximately 0.7 million and 1.3 million stock options not included in diluted earnings per common share during the three months ended March 31, 2007 and 2008, respectively, because the effect would be anti-dilutive.

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

Basic and diluted earnings per share – numerator:

 

 

 

 

 

 

 

Net income

 

$

5,333

 

$

1,396

 

 

 



 



 

Denominator:

 

 

 

 

 

 

 

Denominator for basic earnings per share - weighted-average shares

 

 

30,889

 

 

31,241

 

 

 



 



 

Effect of dilutive securities:

 

 

 

 

 

 

 

Stock options and unvested restricted stock

 

 

405

 

 

249

 

 

 



 



 

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

 

 

31,294

 

 

31,490

 

 

 



 



 

Basic earnings per common share

 

$

0.17

 

$

0.04

 

 

 



 



 

Diluted earnings per common share

 

$

0.17

 

$

0.04

 

 

 



 



 

Retained Interests in Notes Receivable Sold

When we sell our notes receivable either pursuant to our vacation ownership receivables purchase facilities (more fully described in Note 2) or through term securitizations, we evaluate whether or not such transfers should be accounted for as a sale pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS No. 140”) and related interpretations. The evaluation of sale treatment under SFAS No. 140 involves legal assessments of the transactions, which include determining whether the transferred assets have been isolated from us (i.e., put presumptively beyond our reach and 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).

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.

10



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.

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. During the three months ended March 31, 2008, we recorded other-than-temporary decreases in the fair value of three of our VOI receivable transactions totaling approximately $2.7 million. The decrease in the fair value of our retained interest in notes receivable sold, and the resulting other-than-temporary charge, was based on both 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 higher than anticipated defaults in sold notes. These charges have been netted against interest income on our consolidated statements of income. No impairment was recorded during the three months ended March 31, 2007.

Comprehensive Income (Loss)

          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 (loss) for the periods presented (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

 

Net income

 

$

5,333

 

$

1,396

 

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

 

 

(208

)

 

(1,399

)

 

 



 



 

Total comprehensive income (loss)

 

$

5,125

 

$

(3

)

 

 



 



 

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, we adopted SFAS No. 157 on January 1, 2008, at which time it was applied prospectively.

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.

Accounting Pronouncements Not Yet Adopted

In February 2008, the FASB agreed to partially defer the effective date, for one year, of SFAS No. 157, for 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), 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 cost 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.

11



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 is 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. 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 of loans in aggregate principal of timeshare loans that were previously transferred under an existing timeshare loans purchase facility with Branch Banking & Trust Company (“BB&T”) (the “BB&T Purchase Facility”); and (2) $7.2 million of timeshare loans owned by Bluegreen 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 Bluegreen, which will be used for general corporate purposes and debt service. Bluegreen 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 Bluegreen or the Subsidiary except for breaches of certain representations and warranties at the time of sale.

Sales of notes receivable during the three months ended March 31, 2008 and 2007 were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 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

 

 

 





 





 





 





 

12



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 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

 

$

 

8.0

 

$

 

6.2

 

 

 





 





 





 





 

The following assumptions were used to measure the initial fair value of the retained interest in notes receivable sold for each of the periods listed below:

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 


 

 

 

March 31,
2007

 

March 31,
2008

 

 

 


 


 

 

Prepayment rates

 

 

15% - 11%

 

 

31% - 17%

 

Loss severity rates

 

 

38% - 71%

 

 

38%

 

Default rates

 

 

11% - 1%

 

 

7% - 1%

 

Discount rates

 

 

9.0%

 

 

13.4%

 

3. 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 (losses) 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 March 31, 2008:

 

 

Amortized
Cost

 

Unrealized
Gain

 

Fair Value

 


 

 


 


 


 

2002 Term Securitization

 

$

8,597

 

$

 

$

8,597

 

2004 Term Securitization

 

 

10,476

 

 

2,349

 

 

12,825

 

2004 GE Purchase Facility

 

 

4,213

 

 

 

 

4,213

 

2005 Term Securitization

 

 

24,423

 

 

1,622

 

 

26,045

 

2006 GE Purchase Facility

 

 

15,151

 

 

 

 

15,151

 

2006 Term Securitization

 

 

24,025

 

 

654

 

 

24,679

 

2007 Term Securitization

 

 

31,957

 

 

6,898

 

 

38,855

 

2008 Term Securitization

 

 

9,623

 

 

2,041

 

 

11,664

 

 

 



 



 



 

Total

 

$

128,465

 

$

13,564

 

$

142,029

 

 

 



 



 



 

13



The following assumptions were used to measure the fair value of the above retained interests:

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December, 31,
2007

 

March 31,
2008

 

 

 


 


 

 

 

 

 

 

 

 

 

Prepayment rates

 

 

33% - 6%

 

 

34% - 5%

 

Loss severity rates

 

 

18% - 72%

 

 

10% - 38%

 

Default rates

 

 

12% - 0%

 

 

14% - 0%

 

Discount rates

 

 

12.6%

 

 

13.4%

 

During the three months ended March 31, 2008, we recorded other-than-temporary decreases in the fair value of three of our VOI receivable transactions totaling approximately $2.7 million, based on an increase in the discount rates applied to estimated future cash flows on our retained interest to reflect the current market for our notes receivable, and as a result of higher than anticipated defaults in sold notes. These charges have been netted against interest income on our consolidated statement of income for the three months ended March 31, 2008. No impairment occurred during the three months ended March 31, 2007.

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

Lines-of-Credit and Notes Payable

The table below sets forth the balances of our lines-of-credit and notes payable (in thousands). Please refer to our 2007 Annual Repot on Form 10-K and in the “Liquidity and Capital Resources” section included in “Item 2 - Management Discussion and Analysis of Financial Condition and Results of Operations” for specific information related to our debt.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31, 2007

 

March 31, 2008

 

 

 


 


 

 

 

Balance

 

Interest
Rate

 

Balance

 

Interest
Rate

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The GMAC Communities Facility

 

$

66,418

 

 

8.25%

 

$

73,778

 

 

6.25%

 

The GMAC AD&C Facility

 

 

81,662

 

 

9.10%

 

 

98,257

 

 

7.21%

 

Textron AD&C Facility

 

 

9,701

 

 

8.50%

 

 

8,915

 

 

6.50%

 

Wachovia Notes Payable

 

 

16,353

 

 

6.60 – 6.95%

 

 

16,295

 

 

4.71 – 5.06%

 

Wachovia Line-of-Credit

 

 

 

 

 

 

10,000

 

 

4.46%

 

Other

 

 

2,844

 

 

3.29 – 11.03%

 

 

2,918

 

 

5.86 – 11.03%

 

 

 



 

 

 

 



 

 

 

 

Total

 

$

176,978

 

 

 

 

$

210,163

 

 

 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Significant changes during the three months ended March 31, 2008 include:

The GMAC Communities Facility. During the first quarter of 2008, we borrowed $16.5 million for general corporate purposes; these borrowing were offset by repayments of $9.1 million.

The GMAC AD&C Facility. During the first quarter of 2008, we borrowed $15.3 million to fund development activities at our Club 36 resort in Las Vegas, Nevada. We also borrowed an additional $10.4 million in connection with the development at The Fountains resort in Orlando, Florida; these borrowings were partially offset by repayments of $9.2 million.

The Wachovia Line-of-Credit. In March 2008 we borrowed $10.0 million on this line of credit for general corporate purposes. Amounts borrowed under the line bear interest at 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. In addition, an aggregate of $551,000 of irrevocable letters of credit were provided under this line-of-credit. During April 2008, an aggregate of $9.5 million of irrevocable letters of credit were provided under this line-of-credit in connection with regulatory requirements to conduct presales of one of our resorts.

14



Total interest expense capitalized to construction in progress was $3.4 million and $5.0 million for the three months ended March 31, 2007 and 2008, respectively.

Receivable-Backed Notes Payable

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

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31,
2007

 

March 31,
2008

 

 

 


 


 

 

 

 

 

 

 

 

 

2008 BB&T Purchase Facility

 

$

16,967

 

$

9,680

 

GMAC Receivable Facility

 

 

11,400

 

 

10,367

 

GE Bluegreen/Big Cedar Receivables Facility

 

 

24,100

 

 

22,096

 

Textron Facility

 

 

1,482

 

 

1,311

 

Foothill Facility

 

 

1,050

 

 

873

 

 

 



 



 

Total

 

$

54,999

 

$

44,327

 

 

 



 



 

 

 

 

 

 

 

 

 

2008 BB&T Purchase Facility. In March 2008, we extended and expanded an existing receivables purchase facility with BB&T (this facility is described in more detail in the “Liquidity and Capital Resources” section included in “Item 2 - Management Discussion and Analysis of Financial Condition and Results of Operations”) amount to a cumulative purchase price of $150.0 million, on a revolving basis, through May 2010 (the “2008 BB&T Purchase Facility”). Interest on the 2008 BB&T Purchase Facility is equal to the 30-day LIBOR plus 1.75%. During the first quarter of 2008, we transferred $54.4 million of VOI notes receivable to the 2008 BB&T Purchase Facility and received $45.1 million in cash proceeds. In conjunction with the 2008 Term Securitization, we repaid $51.0 million of the outstanding balance and as of March 31, 2008 our remaining availability under this facility was $140.3 million.

5. Senior Secured Notes Payable

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

6. Common Stock and Stock Option Plans

Registration Statement

In February 2008, we announced that we were considering pursuing a rights offering of up to $100 million of our common stock. We currently intend to broaden our consideration of potential sources of capital, and accordingly, plan to file a “shelf” registration statement which would, in the future, give us the flexibility to raise long-term capital through the issuance of common stock, preferred stock, debt and/or convertible debt. If we choose to proceed with an offering, our purpose will be to raise capital in order to further strengthen our balance sheet and to support growth, including growth through acquisitions. We recognize that a common stock offering would be highly dilutive at our current stock price and, as such, we have made a decision not to pursue an offering of our common stock at this time.

Share-Based Compensation Plans

The following table lists our grants of stock options and restricted stock to our employees and our non-employee directors under the 2005 Stock Incentive Plan (in shares).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Option Awards

 

Restricted Stock Awards

 

 

 


 


 

Three Months Ended

 

Employees

 

Directors

 

Employees

 

Directors

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2007

 

 

 

 

 

 

 

 

 

March 31, 2008

 

 

 

 

 

 

406,214

 

 

 

 

 



 



 



 



 

Total

 

 

 

 

 

 

406,214

 

 

 

 

 



 



 



 



 

15



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 compensation costs related to stock-based compensation, for directors and employees, charged against income during the three months ended March 31, 2007 and 2008 was $0.6 million and $0.8 million, respectively. The following table represents certain information related to our unrecognized compensation for our stock based awards as of March 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2008

 

Weighted
Average
Recognition
Period

 

Unrecognized
Compensation

 


 


 


 

 

 

 

(in years)

 

 

(000’s)

 

 

 

 

 

 

 

 

 

Stock Option Awards

 

 

 

2.7

 

 

 

$

6,373

 

 

Restricted Stock Awards

 

 

 

4.7

 

 

 

$

5,771

 

 

A summary of our stock option activity related to our stock option 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

(10

)

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

 





 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2008

 

 

 

 

1,921

 

 

$

11.56

 

 

 

 

765

 

 

 

 





 

 

 

 

 

 

 

 

 

 

 

A summary of the status of the Company’s non-vested restricted stock awards as of March 31, 2008, and activity during the three months ended March 31, 2008, is as follows (in thousands, except per share data):

 

 

 

 

 

 

 

 

Unvested Restricted Stock Awards

 

Number
of Shares

 

Weighted-Average
Grant-Date
Fair Value

 


 


 


 

 

Unvested at December 31, 2007

 

 

207

 

$

11.98       

 

Granted

 

 

406

 

$

9.31       

 

Vested

 

 

(4

)

$

11.98       

 

Forfeited

 

 

(2

)

$

11.98       

 

 

 



 

 

 

 

Unvested at March 31, 2008

 

 

607

 

$

10.19       

 

 

 



 

 

 

 

7. Business Segments

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

16



 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Three Months Ended March 31, 2007

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

86,924

 

$

34,874

 

$

121,798

 

Other resort and communities operations revenue

 

 

12,838

 

 

2,180

 

 

15,018

 

Depreciation expense

 

 

2,117

 

 

426

 

 

2,543

 

Field operating profit

 

 

7,748

 

 

8,808

 

 

16,556

 


 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Three Months Ended March 31, 2008

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

90,347

 

$

20,909

 

$

111,256

 

Other resort and communities operations revenue

 

 

13,962

 

 

3,908

 

 

17,870

 

Depreciation expense

 

 

1,906

 

 

407

 

 

2,313

 

Field operating profit

 

 

5,797

 

 

3,869

 

 

9,666

 


Notes receivable, net, by business segment (in thousands):


 

 

As of

December 31, 2007

 

As of

March 31, 2008

 


 


Bluegreen Resorts

 

$ 155,592

 

$ 146,034

Bluegreen Communities

5,073

 

4,988

 


 


Total

$ 160,665

 

$ 151,022

 


 


 

Inventory, net, by business segment (in thousands):


 

 

As of

December 31, 2007

 

As of

March 31, 2008

 


 


Bluegreen Resorts

 

$ 288,969

 

$ 312,826

Bluegreen Communities

145,999

 

146,868

 


 


Total

$ 434,968

 

$ 459,694

 


 


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 March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

 

 

 

 

 

 

 

 

Field operating profit for reportable segments

 

$

16,556

 

$

9,666

 

Interest income

 

 

9,842

 

 

9,961

 

Other income (expense), net

 

 

(727

)

 

265

 

Corporate general and administrative expenses

 

 

(10,284

)

 

(11,854

)

Interest expense

 

 

(5,151

)

 

(4,949

)

 

 



 



 

Consolidated income before minority interest and
provision for income taxes

 

$

10,236

 

$

3,089

 

 

 



 



 

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

Depreciation expense for reportable segments

 

$

2,543

 

$

2,313

 

Depreciation expense for corporate fixed assets

 

 

1,173

 

 

1,084

 

 

 



 



 

Consolidated depreciation expense

 

$

3,716

 

$

3,397

 

 

 



 



 

Assets for our reportable segments reconciled to our consolidated assets (in thousands):

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31,
2007

 

March 31,
2008

 

 

 


 


 

 

 

 

 

 

 

 

 

Notes receivable for reportable segments

 

$

160,665

 

$

151,022

 

Inventory for reportable segments

 

 

434,968

 

 

459,694

 

Goodwill

 

 

4,291

 

 

4,291

 

Assets not allocated to reportable segments

 

 

439,654

 

 

400,874

 

 

 



 



 

Total assets

 

$

1,039,578

 

$

1,015,881

 

 

 



 



 

17



Geographic Information

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

 

 

 

 

 

 

 

 

United States

 

$

118,915

 

$

109,448

 

Aruba

 

 

2,883

 

 

1,808

 

 

 



 



 

Consolidated totals

 

$

121,798

 

$

111,256

 

 

 



 



 

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

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31,
2007

 

March 31,
2008

 

 

 


 


 

 

 

 

 

 

 

 

 

United States

 

$

431,160

 

$

456,032

 

Aruba

 

 

3,808

 

 

3,662

 

 

 



 



 

Consolidated totals

 

$

434,968

 

$

459,694

 

 

 



 



 

8. Income Taxes

We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. During 2007, the Internal Revenue Service completed its audit of our 2004 and 2005 U.S. federal income tax returns. With certain exceptions, we are no longer subject to state and local, or non-U.S. income tax examinations by tax authorities for years before 2003.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. Based on an evaluation of uncertain tax provisions, we measure tax benefits based on the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The adoption of FIN 48 on January 1, 2007 did not have an impact on our financial position or results of operations.

As of March 31, 2008, we had no amounts recorded for uncertain tax positions.

9. 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 early 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 the Company 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,

18



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 are seeking to recover costs to repair these deficiencies from the defendants. Whether the matter is settled by litigation or by negotiation, it is possible that we may need to participate financially in some way to correct the construction deficiencies and will continue to incur legal and other costs as the matter is pursued. As of March 31, 2008, we had accrued $1.3 million related to this matter.

LeisurePath Vacation Club

In Michelle Alamo, Ernest Alamo, Toniann Quinn and Terrance Quinn v. Vacation Station, LLC, LeisurePath Vacation Club, LeisurePath, Inc., Bluegreen Corporation, Superior Court of New Jersey, Bergen County, Docket No. L-6716-05, Civil Action, Plaintiffs filed a purported “Class Action Complaint” on September 23, 2005. Raising allegations concerning the marketing of the LeisurePath Travel Services Network product to the public, and, in particular, New Jersey residents by Vacation Station, LLC, an independent distributor of travel products. Vacation Station, LLC purchased LeisurePath membership kits from LeisurePath, Inc.’s Master Distributor, Mini Vacations, Inc. and then sold the memberships to consumers. The parties agreed to a settlement pursuant to which persons who purchased a participation in the Network from Vacation Station, LLC’s sales office in Hackensack, New Jersey will be allowed to select either: (1) seven consecutive nights of accommodations in a Bluegreen resort located in either Orlando, Las Vegas, or Myrtle Beach to be used by December 31, 2009; or (2) continued memberships and a waiver of their Network membership fees until 2012. In an effort to resolve any claims of individuals who may allege improper soliciting, but did not purchase a participation in the Network, an agreed upon number of three day/two night vacation certificates (for use at the same properties listed above) will be made available. The first non-purchasers who submit a prepared affidavit swearing to the validity of their claim will receive these certificates. A Fairness Hearing for final approval of the proposed settlement took place on April 18, 2008, at which time the judge gave final approval of the proposed settlement and awarded Plantiff’s counsel $300,000 in attorney’s fees. Incentive payments totaling $13,000 will be made to the six named Plaintiffs in the suit. As of March 31, 2008, we have accrued approximately $413,000 in connection with this matter.

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. 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 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, LP et al. v. Betty Yvon Lesley et al.; in the 11th Court of Appeals, Eastland, Texas. Bluegreen does not believe that it has material exposure to the property owners association based on the cross claim relating to the mineral rights other than the potential claim for legal fees incurred by the property owners association in connection with the matter. As of March 31, 2008, Bluegreen 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

19



currently estimates that the cost of remediating the condition will be approximately $3.0 million, which was accrued during the year ended December 31, 2006. Additional claims may be pursued in the future in connection with these matters, and it is not possible at this time to estimate the likelihood of loss or amount of potential exposure with respect to any such matters.

10. Subsequent Events

In April 2008, a wholly-owned subsidiary of Bluegreen Corporation, entered into a $75.0 million, revolving master acquisition, development and construction facility loan agreement (the “Facility”) with Textron Financial Corporation (“Textron”). The Facility will be used to facilitate the borrowing of funds for resort development activities. Bluegreen Corporation is guaranteeing all sub-loans under the master agreement. The borrowing period for the Facility expires in April 2010 with a maturity date varying on the individual sub-loan agreements under the master facility. Interest on the Facility is equal to the Prime Rate plus 1.50% and is due monthly. Our subsidiary has existing borrowings with Textron in conjunction with our Odyssey Dells and World Golf Village resorts of $7.0 million and $1.9 million, respectively, as of March 31, 2008. These borrowings have been incorporated into the Facility. In addition, certain other obligations to Textron and its affiliates in excess of $25.0 million, including outstanding bonds purchased in Bluegreen Corporation’s term securitization transactions, will also reduce the availability under the Facility at any time by the outstanding balance of such obligations.

In April 2008 we acquired the unsold VOI inventory, certain commercial space, and property management operations of the Royal Suites at Atlantic Palace Resort for $13.5 million. The 293-unit, 31-story Atlantic Palace Resort is located in Atlantic City, New Jersey, and is situated on the Atlantic Ocean and the Atlantic City Boardwalk. We borrowed $9.0 million under the Facility, described above, in connection with the acquisition of this resort.

In April 2008, we transferred $29.3 million in VOI notes receivable to the 2008 BB&T Purchase Facility and received $24.3 million in cash proceeds. Subsequent to this borrowing, we had $117.0 million in remaining availability on this facility.

In April 2008, we purchased a building which will be converted into a new preview center in Myrtle Beach, South Carolina for $4.8 million. In conjunction with this asset purchase we borrowed approximately $3.4 million from Fifth Third Bank. The note payable in conjunction with this acquisition allows for total borrowing of $7.1 million, $3.4 million of which was borrowed at closing and $3.7 million of which remains available to borrow upon completion of refurbishment activities on the building, subject to the terms and conditions of the facility. The interest rate on this borrowing is the one-month LIBOR plus 3% and the maturity date is April 2023.

In April 2008, we borrowed $7.8 million under the GMAC A&D Facility to fund development activities at our Club 36 resort in Las Vegas, Nevada. In addition, we also borrowed $6.2 million in connection with the development at our Fountains resort in Orlando, Florida. Subsequent to these borrowings, net of repayments, we had $39.5 million in remaining availability on this facility, subject to the terms and conditions of the facility.

20



 

 

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 Annual 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 this 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 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.

 

 

 

 

Our continued liquidity and profitability depends on our ability to sell or borrow against our notes receivable.

 

 

 

 

We depend on additional funding to finance our operations.

 

 

 

 

There has been a material deterioration in the sub-prime lending markets which could adversely impact our liquidity and earnings.

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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.

 

 

 

 

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.

 

 

 

 

We may not successfully execute our growth strategy.

 

 

 

 

We may face a variety of risks when we expand our operations.

 

 

 

 

We may face additional risks when and if we expand into new markets.

 

 

 

 

The resale market for VOIs could adversely affect our business.

21



 

 

 

 

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.

 

 

 

 

We could incur costs to comply with laws governing accessibility of facilities by disabled persons.

          In addition to the foregoing, reference is also made to other risks and factors detailed in reports filed by the Company with the Securities and Exchange Commission including our Annual Report on Form 10-K for the year ended December 31, 2007.

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.

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 purchases under GAAP or due to the timing of development and the requirement that we use the percentage-of-completion method of accounting. We expect that we will continue to invest in projects that will require substantial development (with significant capital requirements), and as a consequence, our results of operations may fluctuate significantly between quarterly and annual periods as a result of the required use of the percentage-of-completion method of accounting.

We believe that inflation and changing prices have materially impacted our revenues and results of operations, specifically due to periodic increases in the sales prices of our VOIs and homesites and 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 continue to increase our sales prices or that increased construction costs will not have a material adverse impact on our gross margin. In addition, to the extent that inflation in general or increased prices for our 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, a portion of our debt service costs may increase.

During 2007, our Communities business was adversely impacted by the slow real estate market. Although to date we have not experienced a material reduction in selling prices, in certain markets we experienced a decrease in demand and hence 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.

22



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 reduced sales of VOIs by our estimated losses on originated VOI receivables, excluding any benefit for the value of future recoveries. During the first quarter of 2008, we reduced sales of VOIs by $16.4 million for such provision.

The allowance for loan losses by division as of December 31, 2007 and March 31, 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%

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2008:

 

 

 

 

 

 

 

 

 

 

Notes receivable

 

$

161,047

 

$

5,255

 

$

166,302

 

Allowance for loan losses

 

 

(15,013

)

 

(267

)

 

(15,280

)

 

 



 



 



 

Notes receivable, net

 

$

146,034

 

$

4,988

 

$

151,022

 

 

 



 



 



 

Allowance as a % of gross notes receivable

 

 

9%

 

5%

 

9%

 

 



 



 



 

The table below sets forth the activity in our allowance for uncollectible notes receivable for the quarter ended March 31, 2008 (in thousands):

 

 

 

 

 

Balance, December 31, 2007

 

$

17,458

 

Provision for loan losses (1)

 

 

16,409

 

Less: Allowance on sold receivables

 

 

(10,964

)

Less: Write-offs of uncollectible receivables

 

 

(7,623

)

 

 



 

Balance, March 31, 2008

 

$

15,280

 

 

 



 

 

 

 

 

 

(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
March 31,

 


 


 

 

 

 

 

 

 

Division

 

2007

 

2008

 


 


 


 

Bluegreen Resorts

 

7.3

%

 

7.9

%

 

Bluegreen Communities

 

4.2

%

 

4.3

%

 

23



 

 

 

 

 

 

 

 

Delinquency Rates

 

As of

 


 


 

Division

 

December 31,
2007

 

March 31,
2008

 


 


 


 

Bluegreen Resorts

 

4.5

%

 

3.9

%

 

Bluegreen Communities

 

13.2

%

 

16.6

%

 

We believe that the decrease in delinquencies as of March 31, 2008 compared to December 31, 2007 is consistent with historical seasonal patterns. 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.

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

A significant portion of our revenues historically has been, and is expected to continue to be, comprised of gains on sales of notes receivable. The gains are recorded on our consolidated statement of income and the related retained interests in the notes receivable sold are recorded on our consolidated balance sheet at the time of sale. Deterioration in the credit markets has made it more difficult to consummate term securitization transactions on acceptable terms, if at all. Absent the consummation of appropriately structured off-balance sheet receivable sales transactions, our results of operations in certain quarters could be materially, adversely affected.

Effective January 1, 2006, the portion of the gains on sales of notes receivable related to the reversal of previously recorded allowances for loan losses on the receivables sold is recorded as a component of sales of real estate. Any positive difference between the total gain on sales of notes receivable and the previously recorded allowance for loan loss is recorded as a separate component of revenue. 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 a charge to earnings currently. There is no assurance that the carrying value of our retained interests in notes receivable sold will be fully realized or that future loan sales will be consummated or, if consummated, result in gains. See “VOI Receivables Purchase Facilities – Off Balance Sheet Arrangements,” below.

In addition, we have historically sold VOI notes receivables to financial institutions through warehouse purchase facilities to monetize the receivables while accumulating receivables for a future term securitization transaction. We are currently structuring and intend to structure future warehouse purchase facilities so that sales of VOI receivables through these facilities will be accounted for as on-balance sheet borrowings rather than as off-balance sheet sales. Therefore, we will not recognize a gain on the sales of receivables transferred to the warehouse purchase facilities until such receivables are subsequently included in a properly structured term securitization transaction. If the timing of our term securitizations or securitization-type transactions changes from prior history, it will impact quarterly patterns as compared to comparable prior periods.

During 2007 and the first quarter of 2008, the deteriorating credit market, primarily driven by the sub-prime loan crisis, negatively impacted our operations. Although we have been able to secure financing and securitize VOI

24



notes receivable, such transactions were more difficult to effect and were priced at a higher cost than recent years, and there is no assurance that we will be able to continue to do so on acceptable terms if at all.

Critical Accounting Policies and Estimates

Our discussion and analysis of 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 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 on Form 10-K for the year ended December 31, 2007.

Accounting Pronouncements Not Yet Adopted

In February 2008, the FASB agreed to partially defer the effective date, for one year, of SFAS No. 157, for 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 FAS 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), 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 cost 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.

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:

25



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts

 

Bluegreen Communities

 

Total

 

 

 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

% of Sales

 

Amount

 

% of Sales

 

Amount

 

% of Sales

 

 

 


 


 


 


 


 


 

Three Months Ended March 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

90,370

 

 

 

 

$

34,874

 

 

 

 

$

125,244

 

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(11,413

)

 

 

 

 

 

 

 

 

 

(11,413

)

 

 

 

Gain on sales of notes receivable

 

 

7,967

 

 

 

 

 

 

 

 

 

 

7,967

 

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Sales of real estate

 

 

86,924

 

100

%

 

 

34,874

 

100

%

 

 

121,798

 

100

%

 

Cost of real estate sales

 

 

(18,877

)

(22

)

 

 

(17,855

)

(51

)

 

 

(36,732

)

(30

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Gross profit

 

 

68,047

 

78

 

 

 

17,019

 

49

 

 

 

85,066

 

70

 

 

Other resort and communities operations revenues

 

 

12,838

 

15

 

 

 

2,180

 

6

 

 

 

15,018

 

12

 

 

Cost of other resort and communities operations

 

 

(10,029

)

(12

)

 

 

(2,390

)

(7

)

 

 

(12,419

)

(10

)

 

Selling and marketing expenses

 

 

(55,301

)

(63

)

 

 

(5,068

)

(15

)

 

 

(60,369

)

(49

)

 

Field general and administrative
expenses (1)

 

 

(7,807

)

(9

)

 

 

(2,933

)

(8

)

 

 

(10,740

)

(9

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Field operating profit

 

$

7,748

 

9

%

 

$

8,808

 

25

%

 

$

16,556

 

14

%

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

98,469

 

 

 

 

$

20,909

 

 

 

 

$

119,378

 

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(16,367

)

 

 

 

 

 

 

 

 

 

(16,367

)

 

 

 

Gain on sales of notes receivable

 

 

8,245

 

 

 

 

 

 

 

 

 

 

8,245

 

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Sales of real estate

 

 

90,347

 

100

%

 

 

20,909

 

100

%

 

 

111,256

 

100

%

 

Cost of real estate sales

 

 

(20,714

)

(23

)

 

 

(10,244

)

(49

)

 

 

(30,958

)

(28

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Gross profit

 

 

69,633

 

77

 

 

 

10,665

 

51

 

 

 

80,298

 

72

 

 

Other resort and communities operations revenues

 

 

13,962

 

15

 

 

 

3,908

 

19

 

 

 

17,870

 

16

 

 

Cost of other resort and communities operations

 

 

(9,751

)

(11

)

 

 

(2,936

)

(14

)

 

 

(12,687

)

(11

)

 

Selling and marketing expenses

 

 

(60,669

)

(67

)

 

 

(5,135

)

(25

)

 

 

(65,804

)

(59

)

 

Field general and administrative
expenses (1)

 

 

(7,378

)

(8

)

 

 

(2,633

)

(13

)

 

 

(10,011

)

(9

)

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Field operating profit

 

$

5,797

 

6

%

 

$

3,869

 

19

%

 

$

9,666

 

9

%

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 


 

 

 

 

(1)

General and administrative expenses attributable to corporate overhead have been excluded from the tables. Corporate general and administrative expenses totaled $10.3 million for the three months ended March 31 2007 and $11.9 million for the three months ended March 31, 2008. (See “Corporate General and Administrative Expenses,” below, for further discussion).

Sales and Field Operations. Consolidated sales decreased $10.5 million from $121.8 million during the three months ended March 31, 2007 to $111.3 million during the three months ended March 31, 2008.

26



Bluegreen Resorts

During the three months ended March 31, 2007 and 2008, Bluegreen Resorts generated $86.9 million (71%) and $90.3 million (81%) 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 March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

 

 

 

 

 

 

Number of VOI sales transactions

 

 

9,119

 

 

9,376

 

Average sales price per transaction

 

$

10,566

 

$

10,914

 

Bluegreen Resorts’ gross sales (prior to the impact of estimated uncollectible VOI notes receivable and gain on sale of notes receivable) increased $8.1 million or 9% during the three months ended March 31, 2008, as compared to the three months ended March 31, 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 30% and accounted for approximately 46% of Resort sales during the three months ended March 31, 2008, compared to 38% during the three months ended March 31, 2007. The number of total prospects seen by Bluegreen Resorts increased in the first quarter of 2008 to approximately 69,000 as compared to approximately 62,000 during the same period in 2007. However, our overall sale-to-tour conversion ratio decreased from 15% during the first quarter of 2007 to 14% during the first quarter of 2008. The overall increase in sales reflects an increase in the number of new prospects seen by Bluegreen Resorts from approximately 46,000 during the three months ended March 31, 2007 to approximately 47,100 during the three months ended March 31, 2008. Our sale-to-tour conversion ratio for new prospects (i.e., excluding sales to our existing owners) was approximately 12% and 11% for the three months ended March 31, 2007 and 2008, respectively. The increase in sales also reflects, an increase in same-resort sales at many of our existing sales offices and, to a lesser extent, the opening of a new sales office. Same-resort sales increased by approximately 6% during the three months ended March 31, 2008, as compared to the three months ended March 31, 2007 and were highlighted by increased sales at The Fountains sales office in Orlando, Florida, our Carolina Grande sales office in Myrtle Beach, South Carolina and our preview center in Las Vegas, Nevada. The increase in the average sales price per transaction, primarily due to a system-wide price increase during the first quarter of 2008, also contributed to the overall increase in resort sales.

As required under SFAS No. 152, approximately $8.0 million and $8.2 million of gain on sales of notes receivable in 2007 and 2008, respectively, is reflected as an increase to VOI sales. During the three months ended March 31, 2007 and 2008, we sold $51.2 million and $68.6 million of notes receivable, respectively. The decrease in gain as a percentage of notes receivable sold in 2008 as compared to 2007 was a result of higher discount rates required to value the resulting retained interest in notes receivable sold in connection with the 2008 term securitization compared to the 2007 purchase facility, commensurate with increased interest rates in the securitization market.

The amount of notes receivable sold during a period depends on several factors, including the state of the market generally, the amount of availability, if any, under receivables purchase facilities, the amount of eligible receivables available for sale, our cash requirements, the covenants and other provisions of the relevant VOI receivables purchase facility (as described further below) and management’s discretion. The generally accepted accounting principles governing our sale of receivable transactions are evolving and achieving off-balance sheet accounting treatment is becoming more difficult. Due to the complexity of the accounting rules surrounding such transactions, we have decided to limit the use of off-balance sheet structures. In 2006, we structured a VOI receivables purchase facility that is used to accumulate receivables pending a term securitization transaction in a manner so as to account for sales of receivables under such facilities as on-balance sheet borrowings pursuant to SFAS No. 140. No gains are recognized on the sales of receivables to this facility until the receivables are included in an appropriately structured term securitization transaction. We expect to continue this accounting treatment for similarly structured facilities for the foreseeable future. As a result, we expect that the volatility of our quarterly earnings will increase prospectively, but we do not anticipate that this will materially impact annual earnings, as long as the facilities and term securitizations continue to be available to us. However, as evidenced by the recent disruptions in the credit markets associated with the deterioration in the subprime lending markets and other liquidity issues, there is no assurance that we will continue to have access to the facilities or securitizations on favorable terms or at all.

27



VOI sales were reduced by our estimate of projected loan losses in the amount of $11.4 million and $16.4 million during the three months ended March 31, 2007 and 2008, respectively. The 44% increase in the provision for loan losses during the first quarter of 2008 compared to the first quarter of 2007 was primarily due to increases in Bluegreen Resorts sales and higher estimated defaults.

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 months ended March 31, 2008 was positively impacted by the price increase as well as sales of VOIs located at our Bluegreen Wilderness Traveler at Shenandoah resort, which has a relatively low cost. During the three months ended March 31, 2007, our gross margin was also positively impacted by approximately $1.2 million as a result of adjustments to cost of real estate sales related to our retroactive application of the estimated gross margins based on project lives as required by SFAS No. 152.

Other resort operations revenue increased $1.1 million or 9% during the three months ended March 31, 2008, as compared to the three months ended March 31, 2007. The increase in the 2008 period represents higher resort management and service fees earned by our resort management business. Resort management and service fees increased in the aggregate due to an increase in the number of resorts and VOI owners.

Cost of other resort operations decreased $278,000 or 3% during the three months ended March 31, 2008, as compared to the three months ended March 31, 2007. The decrease during 2008 primarily reflects higher rental proceeds (which are recorded as a reduction to cost), partially off-set by higher maintenance fees on VOIs owned by us and higher developer subsidies incurred relative to our recently completed Resorts.

Selling and marketing expenses for Bluegreen Resorts increased $5.4 million or 10% during the three months ended March 31, 2008, as compared to the three months ended March 31, 2007. As a percentage of gross sales, selling and marketing expenses increased from 61% during the three months ended March 31, 2007 to 62% during the three months ended March 31 2008. The increase in selling and marketing expenses during the first quarter 2008 as compared to the same period in 2007 reflects the overall increase in sales as well as the overall increase in the number of prospects seen. As a percentage of sales, our marketing costs increased primarily as a result of a general increase in marketing costs, the deferral of additional sales for which we cannot defer the majority of selling and marketing costs, and a lower tour-to-sales conversion rate. The increases were partially off-set by increased sales to owners, which generally carry lower marketing costs. We believe that selling and marketing expenses as a percentage of sales is an important indicator of the performance of Bluegreen Resorts and our performance as a whole. No assurance can be given that selling and marketing expenses will not increase as a percentage of sales in future periods.

As of March 31, 2008, approximately $29.7 million and $17.5 million of sales and field operating profit, respectively, were deferred under SFAS No. 152 because the buyers did not make the minimum required initial investment 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 March 31, 2007 and 2008, Bluegreen Communities generated $34.9 million (29%) and $20.9 million (19%) 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:

28



 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended March 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

 

 

 

 

 

 

 

 

Number of homesites sold

 

 

324

 

 

215

 

Average sales price per homesite

 

$

82,532

 

$

83,973

 

Bluegreen Communities’ sales decreased $14.0 million or 40% during the first quarter of 2008 as compared to the same period in 2007 as a result of the deterioration in the real estate market generally, and to a lesser extent, because two of our communities were substantially sold out prior to the first quarter of 2008. Before giving effect to the percentage-of-completion method of accounting, and the legal rescission period, during the first quarter of 2008 we entered into contracts to sell homesites totaling $17.9 million, as compared to $32.8 million during the first quarter of 2007. These sales consisted of real estate sold at the following properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties Sold in Projects Not Substantially
Sold Out at March 31, 2008 (in 000’s)

 

 

 


 

Project

 

2007

 

 

 

2008

 

 

 

Difference

 


 


 

 

 


 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lake Ridge at Joe Pool Lake

 

$

2,698

 

 

 

$

1,844

 

 

 

$

(854

)

Chapel Ridge

 

 

5,016

 

 

 

 

1,582

 

 

 

 

(3,434

)

Havenwood at Hunter’s Crossing

 

 

4,377

 

 

 

 

3,899

 

 

 

 

(478

)

Saddle Creek Forest

 

 

1,489

 

 

 

 

836

 

 

 

 

(653

)

Vintage Oaks at the Vineyard

 

 

4,497

 

 

 

 

4,360

 

 

 

 

(137

)

The Bridges at Preston Crossings

 

 

2,702

 

 

 

 

930

 

 

 

 

(1,772

)

SugarTree on the Brazos

 

 

670

 

 

 

 

210

 

 

 

 

(460

)

King Oaks

 

 

1,906

 

 

 

 

1,699

 

 

 

 

(207

)

 

 



 

 

 



 

 

 



 

Total

 

$

23,355

 

 

 

$

15,360

 

 

 

$

(7,995

)

 

 



 

 

 



 

 

 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties Sold in Projects Substantially
Sold Out at March 31, 2008 (in 000’s)

 

 

 


 

Project

 

2007

 

 

 

2008

 

 

 

Difference

 


 


 

 

 


 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mystic Shores

 

$

7,557

 

 

 

$

2,457