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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 1, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19292
BLUEGREEN(R) CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 912-8000
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange,
Pacific Stock Exchange
8.25% Convertible Subordinated Debentures
due 2012 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference into Part III of this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $33,364,477 based upon the closing sale price of the
Company's Common Stock on the New York Stock Exchange on June 28, 2001 ($2.12
per share). For this purpose, "affiliates" include members of the Board of
Directors of the Company, members of executive management and all persons known
to be the beneficial owners of more than 5% of the Company's outstanding Common
Stock. The market value of voting stock held by non-affiliates excludes any
shares issuable upon conversion of any 8.25% Convertible Subordinated Debentures
which are convertible at a current conversion price of $8.24 per share.
Indicate the number of shares outstanding and approximate number of holders
of each of the registrant's classes of Common Stock, as of the latest
practicable date: 24,190,136 shares of Common Stock, $.01 par value outstanding
and approximately 5,900 record holders as of June 28, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's definitive proxy
statement to be filed for its Annual Meeting of Shareholders to be held on
August 2, 2001 (the "Proxy Statement") are incorporated by reference into Part
III hereof.
BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PAGE
PART I
Item 1. BUSINESS........................................................... 1
Item 2. PROPERTIES......................................................... 18
Item 3. LEGAL PROCEEDINGS.................................................. 18
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 19
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS........................................................ 19
Item 6. SELECTED FINANCIAL DATA............................................ 20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION........................................ 21
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......... 36
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................ 37
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................... 73
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................. 73
Item 11. EXECUTIVE COMPENSATION............................................. 73
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..... 73
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... 73
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.... 73
Signatures................................................................... 75
Exhibit Index................................................................ 76
Note: The term "Bluegreen" is registered in the U.S. Patent and Trademark
office by Bluegreen Corporation.
The term "Big Cedar" is registered in the U.S. Patent and Trademark
office by Big Cedar L.L.C.
PART I
Item 1. BUSINESS.
Summary
Bluegreen Corporation (the "Company") is a leading marketer of vacation and
residential lifestyle choices through its resorts and residential land and golf
businesses. The Company's resorts business (the "Resorts Division") acquires,
develops and markets timeshare interests in resorts generally located in popular
high-volume, "drive-to" vacation destinations. "Timeshare Interests" are of two
types: one which entitles the fixed-week buyer to a fully-furnished vacation
residence for an annual one-week period in perpetuity and the second which
entitles the buyer of the Company's points-based Bluegreen Vacation Club(TM)
product to an annual allotment of "points" in perpetuity (supported by an
underlying deeded fixed timeshare week being held in trust for the buyer).
"Points" may be exchanged by the buyer in various increments for lodging for
varying lengths of time in fully-furnished vacation residences at any of the
Company's participating resorts. A Timeshare Interest also entitles the buyer to
access over 3,500 resorts worldwide through the Company's participation in
timeshare exchange networks. The Company currently develops, markets and sells
Timeshare Interests in 12 resorts located in the United States and the
Caribbean. The Company also markets and sells Timeshare Interests at three
off-site sales locations. Prior to investing in new timeshare projects, the
Company performs market research and testing and, prior to completion of
development, seeks to pre-sell a significant portion of its Timeshare Interests
inventory. The Company's residential land and golf business (the "Residential
Land and Golf Division") acquires, develops and subdivides property and markets
the subdivided residential lots to retail customers seeking to build a home in a
high quality residential setting, in some cases on properties featuring a golf
course and related amenities. The Residential Land and Golf Division's strategy
is to locate its projects near major metropolitan centers outside the perimeter
of intense subdivision development or in popular retirement areas. The Company
has focused the Residential Land and Golf Division's activities in certain core
markets in which the Company has developed substantial marketing expertise and
has a strong track record of success. Prior to acquiring Residential Land and
Golf Division properties, the Company typically utilizes market research,
conducts due diligence and, in the case of new project locations, engages in
pre-marketing techniques to evaluate market response and price acceptance. Once
a parcel of property is acquired, the Company seeks to pre-sell a significant
portion of its planned residential lots on such property prior to extensive
capital investment as a result of the Company's ability to bond its projects to
completion. The Company also generates significant interest income through its
financing of individual purchasers of Timeshare Interests and, to a nominal
extent, land sold by the Residential Land and Golf Division.
For the purposes of this discussion, "estimated remaining life-of-project
sales" assumes sales of the existing, currently under construction or
development, and planned Timeshare Interests or residential lots, as the case
may be, at current retail prices. No assurances can be given that actual sales
will meet expectations.
Market and industry data used throughout this Form 10-K were obtained from
internal company surveys, industry publications, unpublished industry data and
estimates, discussions with industry sources and currently available
information. The sources for this data include, without limitation, the American
Resort Development Association ("ARDA"), a non-profit industry organization.
Industry publications generally state that the information contained therein has
been obtained from sources believed to be reliable, but there can be no
assurance as the accuracy and completeness of such information. The Company has
not independently verified such market data. Similarly, internal Company
surveys, while believed by the Company to be reliable, have not been verified by
any independent sources. Accordingly, no assurance can be given that any such
data are accurate.
The Resorts Division. The Company's Resorts Division was founded in 1994 to
capitalize on the growth of the timeshare industry. According to ARDA and other
industry sources, timeshare industry sales grew at growth rates ranging from 14%
to 17% annually during the period from 1992 through 2000. No assurances can be
given that these industry growth rates will continue. The Company currently
markets and sells Timeshare Interests in twelve resorts located in the Smoky
Mountains of Tennessee; Myrtle Beach and Charleston, South Carolina; Orlando and
Surfside, Florida; Branson and Ridgedale, Missouri; Gordonsville, Virginia;
Wisconsin Dells, Wisconsin and Aruba. In addition, the Company also markets and
sells Timeshare Interests at three off-site sales offices. Through April 1,
2001, the Company has sold approximately 50,952 Timeshare Interests at its
resorts. As of April 1, 2001, the Company had 68,887 completed Timeshare
Interests at its resorts, 1,248 Timeshare Interests under construction or
development and plans to develop approximately 66,607 additional Timeshare
Interests at existing resorts. Based on the foregoing, the Resorts Division's
estimated remaining life-of-project sales were approximately $939 million as of
April 1, 2001, based on retail prices at that date. The Company also manages 20
timeshare resorts (including ten of its own resorts) with an aggregate of
approximately 70,000 members.
1
The Resorts Division uses a variety of techniques to attract prospective
purchasers of Timeshare Interests, including telemarketing mini-vacations,
kiosks in retail and hotel locations, targeted mailings, marketing to current
owners of Timeshare Interests and referrals. To support its marketing and sales
efforts, the Company has developed and continues to enhance its database to
track its timeshare marketing and sales programs. Management believes that, as
the Company's timeshare operations grow, this database will become an
increasingly significant asset, enabling it to take advantage of, among other
things, less costly marketing and referral opportunities.
According to ARDA, the primary reason cited by consumers for purchasing a
Timeshare Interest is the ability to exchange a Timeshare Interest for
accommodations at other resorts through worldwide exchange networks. Each of the
Company's timeshare resorts is affiliated with either Resort Condominium
International, Inc. ("RCI") or Interval International ("II"), the two largest
worldwide timeshare exchange companies. Participation in an exchange network
entitles owners to exchange their annual Timeshare Interests for occupancy at
over 3,500 participating RCI resorts or over 1,900 participating II resorts
worldwide. To further enhance the ability of its Timeshare Interest owners to
customize their vacation experience, the Company has also implemented a
points-based Bluegreen Vacation Club(TM) system which permits its Timeshare
Interest owners to purchase an annual allotment of points which can be redeemed
for occupancy rights at most Company-owned and certain participating managed
resorts. At April 1, 2001, the Company's approximately 38,000 Bluegreen Vacation
Club(TM) members could choose to use their points at 28 resorts in the Bluegreen
system. The Company also has a Vacation Club(TM) Sampler program, which allows
Sampler package purchasers to enjoy substantially the same amenities, activities
and service offered to the Company's regular Vacation Club(TM) members for a
one-year trial period. The Company benefits from the Sampler program by
recapturing some of the costs incurred in initially marketing to prospective
customers through the price of the Sampler package and having the opportunity to
remarket the Company's Timeshare Interests to the Sampler customers when they
use their trial memberships at the Company's resorts.
Prior to acquiring property for resorts, the Resorts Division undertakes a
full property review, including physical and environmental assessments, which is
presented for approval to the Company's Investment Committee, which was
established in 1990 and consists of certain key members of senior management.
During the review process, acquisition specialists analyze market, tourism and
demographic data as well as the quality and diversity of the location's existing
amenities and attractions to determine the potential strength of the timeshare
market in such area and the availability of a variety of recreational
opportunities for prospective Timeshare Interest purchasers.
The Company has historically provided financing to approximately 97% of its
timeshare customers, who are required to make a downpayment of at least 10% of
the Timeshare Interest sales price and who typically finance the balance of the
sales price over a period of seven to ten years. As of April 1, 2001, the
Company had a timeshare receivables portfolio totaling approximately $64.3
million in principal amount, with a weighted-average contractual yield of
approximately 15.7% per annum. During fiscal 2001, the Company maintained a
timeshare receivables warehouse facility and a separate timeshare receivables
purchase facility to accelerate cash flows from the Company's timeshare
receivables. The warehouse and purchase facilities expire in October 2001, and
the Company is currently negotiating replacement facilities. No assurances can
be given that such negotiation will be successful or that the Company will
obtain a new facility on attractive terms if at all. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
("MD&A").
The Residential Land and Golf Division. The Residential Land and Golf
Division is focused primarily on land and golf community projects located in
states in which the Company has developed marketing expertise and has a track
record of success, such as Texas, North Carolina and Virginia. The aggregate
carrying amount of Residential Land and Golf Division inventory at April 1, 2001
was $96.6 million. The Residential Land and Golf Division's estimated remaining
life-of-project sales were approximately $402.7 million at April 1, 2001. The
Company believes no other company in the United States of comparable size or
financial resources markets and sells residential land directly to retail
customers.
The Residential Land and Golf Division targets families seeking a quality
lifestyle improvement, which is generally unavailable in traditional suburban
developments. Based on the Company's experience in marketing and selling
residential lots to its target customers, the Company has been able to develop a
marketing and sales program that generates a significant number of on-site sales
presentations to potential prospects through low-cost, high-yield newspaper
advertising. In addition, STARS, the Residential Land and Golf Division's
customer relationship management computer software system, enables the Company
to compile, process and maintain information concerning future sales prospects
within each of its operating regions and track the effectiveness of its
advertising and marketing programs relative to sales generated. Through the
Company's targeted sales and marketing program, the Company believes that it has
been able to achieve an attractive conversion ratio of sales to prospects
receiving on-site sales presentations.
2
The Residential Land and Golf Division acquires and develops land in two
markets: (i) near major metropolitan centers but outside the perimeter of
intense subdivision development; and (ii) popular retirement areas. Prior to
acquiring undeveloped land, the Company researches market depth and forecasts
market absorption. In new market areas, the Company typically supplements its
research with a structured classified advertisement test marketing system that
evaluates market response and price acceptance. The Company's sales and
marketing efforts begin as soon as practicable after the Company enters into an
agreement to acquire a parcel of land. The Company's ability to bond projects to
completion generally allows it to sell a significant portion of its residential
land inventory on a pre-development basis, thereby reducing the amount of
external capital needed to complete improvements. As is the case with the
Resorts Division, all acquisitions of Residential Land and Golf Division
properties are subject to Investment Committee approval.
In fiscal 1997, the Company began construction of its first daily-fee golf
course as part of its long-term plan to participate in the growing daily-fee
golf market. The Company believes that daily-fee golf courses are an attractive
amenity that will increase the marketability of the Company's adjacent
residential lots in certain projects. The Company's first golf course, the
Carolina National Golf Club ("Carolina National"), is located near Southport,
North Carolina, just 30 miles north of Myrtle Beach, South Carolina, one of the
nation's most popular golf destinations, and was designed by Masters Champion
Fred Couples. The Company opened the first 18 holes of Carolina National for
play in July 1998. In fiscal 2000, the Company opened an additional nine holes
at Carolina National along with a new clubhouse, featuring food and beverage
operations and an expanded pro shop. In fiscal 2000, the Company began
construction at Brickshire, a new residential land and golf course community in
New Kent County, Virginia. The Company expects that Brickshire will open its
18-hole golf course, designed by two-time U.S. Open Champion Curtis Strange, in
Spring 2002. In fiscal 2001, the Company began construction of an 18-hole golf
course designed by P.G.A. Champion Davis Love III adjacent to its residential
land project near Chapel Hill, North Carolina, known as The Preserve at Jordan
Lake. The Company intends to expand its golf course community residential land
offerings into markets with attractive demographics for such properties. There
can be no assurances that the Company's strategy for this expansion will be
successful.
The Company's business involves certain risks and uncertainties (This
Annual Report contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1999. See "MD&A").
The Company's executive offices are located at 4960 Conference Way North,
Suite 100, Boca Raton, Florida 33431. The Company's telephone number at such
address is (561) 912-8000.
See also MD&A and Note 17 of Notes to Consolidated Financial Statements for
additional financial information on the Company's business segments.
Industry Overviews
Resorts Division
The Market. The resort component of the leisure industry is serviced
primarily by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare resorts. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly, weekly
or monthly basis for the duration of the visit or rentals of privately-owned
condominium units or homes. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive, and the space provided to such vacationers by these establishments
relative to the cost is often not economical. In addition, room rates at
commercial lodging establishments are subject to change periodically and
availability is often uncertain. The Company believes that Timeshare Interest
ownership presents an attractive vacation alternative to commercial lodging.
First introduced in Europe in the mid-1960's, Timeshare Interest ownership
has been one of the fastest growing segments of the hospitality industry over
the past two decades. According to ARDA and other industry sources, timeshare
industry sales grew at growth rates ranging from 14% to 17% annually during the
period from 1992 through 2000. Also, the number of timeshare resorts worldwide,
the number of Timeshare Interests owned and the number of timeshare owners grew
by approximately 187%, 550% and 500%, respectively, from 1985 to 1998. No
assurances can be given that such industry growth rates will continue.
The Company believes that, based on ARDA reports and other industry data,
the following factors have contributed to the increased acceptance of the
timeshare concept among the general public and the substantial growth of the
timeshare industry:
3
o Consumer awareness of the value and benefits of Timeshare Interest
ownership, including the cost savings relative to other lodging
alternatives;
o Flexibility of Timeshare Interest ownership due to the growth of
international exchange organizations such as II and RCI and
points-based vacation club systems;
o The quality of the timeshare resorts and their management;
o Consumer confidence resulting from consumer protection regulation of
the timeshare industry and an influx of brand name national lodging
companies to the timeshare industry; and
o Availability of consumer financing for purchasers of Timeshare
Interests.
The timeshare industry traditionally has been highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality. The
Company believes that one of the most significant factors contributing to the
current success of the timeshare industry is the entry into the market of some
of the world's major lodging, hospitality and entertainment companies, such as
Marriott, Disney, Hilton, Hyatt, Four Seasons, Starwood, Carlson and Bass
Hotels. Although timeshare operations currently comprise only a small portion of
these companies' overall operations, the Company believes that their involvement
in the timeshare industry, together with other publicly-traded timeshare
companies, has enhanced the industry's image with the general public.
The Consumer. According to information compiled by ARDA, customers in the
40-49 year age range represented approximately 32% of all Timeshare Interest
owners in the United States in 1998. Historically, the median age of a Timeshare
Interest buyer at the time of purchase was 49. The median annual household
income of Timeshare Interest owners in the United States in 1998 was
approximately $77,000, with approximately 24% of all Timeshare Interest owners
having annual household incomes greater than $100,000. The Company believes
that, despite the industry's growth, Timeshare Interest ownership has achieved
only an approximate 5% market penetration among United States households with
incomes above $50,000 per year.
Timeshare Interest Ownership. The purchase of a Timeshare Interest
typically entitles the buyer to use a fully-furnished vacation residence,
generally for a one-week period each year in perpetuity. Typically, the buyer
acquires an ownership interest in the vacation residence, which is often held as
tenant-in-common with other buyers of interests in the property. Under a
points-based vacation club system, members purchase an annual allotment of
points that can be redeemed for occupancy rights at participating resorts.
Compared to other vacation ownership arrangements, the points-based system
offers members greater flexibility in planning their vacations. The number of
points that are required for a stay at any one resort varies, depending on a
variety of factors, including the resort location, the size of a unit, the
vacation season and the days of the week used. Under this system, members can
select vacations according to their schedules, space needs and available points.
Subject to certain restrictions, members are typically allowed to carry over for
one year any unused points and to "borrow" points from the forthcoming year. In
addition, members are required to pay annual fees for certain maintenance and
management costs associated with the operation of the resorts based on the
number of points to which they are entitled. As of April 1, 2001, all of the
Company's sales offices, with the exception of its La Cabana Beach and Racquet
Club(TM) sales office in Aruba, were selling Timeshare Interests within the
Bluegreen Vacation Club(TM) system.
The owners of Timeshare Interests manage the property through a nonprofit
homeowners' association, which is governed by a board of directors or trustees
consisting of representatives of the developer and owners of Timeshare Interests
at the resort. The board hires a management company to which it delegates many
of the rights and responsibilities of the homeowners' association, including
grounds landscaping, security, housekeeping and operating supplies, garbage
collection, utilities, insurance, laundry and repairs and maintenance. As of
April 1, 2001, the Company's resort property management division managed 20
resorts (including ten of the Company's resorts) and served an owner base of
approximately 70,000.
Each Timeshare Interest owner is required to pay the homeowners'
association a share of all costs of maintaining the property. These charges can
consist of an annual maintenance fee plus applicable real estate taxes and
special assessments, assessed on an as-needed basis. If the Timeshare Interest
owner does not pay such charges, such owner's use rights may be suspended and
the homeowners' association may foreclose on the owner's Timeshare Interest.
Participation in Independent Timeshare Interest Exchange Networks. The
Company believes that its Timeshare Interests are made more attractive by the
Company's affiliation with Timeshare Interest exchange networks operated by RCI
and II, the two largest timeshare exchange companies worldwide. Ten of the
Company's timeshare resorts are affiliated with RCI and have been awarded RCI's
highest designation (Gold Crown), while the La Cabana
4
Beach and Racquet Club(TM) resort in Aruba (the "Aruba Resort") is affiliated
with II. The Company's newest resort on the beach in Surfside, Florida will be
affiliated with RCI when it opens for sales during fiscal 2002 and as a result
has not yet been rated. A Timeshare Interest owner's participation in the RCI or
II exchange network (the fee for which is paid by the Company in the first year
of such owner's participation) allows such owner to exchange his annual
Timeshare Interest for occupancy at over 3,500 participating resorts in the case
of RCI and over 1,900 participating resorts in the case of II, based upon
availability and the payment of a variable exchange fee. A member may exchange
his Timeshare Interest for an occupancy right in another participating resort by
listing his Timeshare Interest as available with the exchange organization and
by requesting occupancy at another participating resort, indicating the
particular resort or geographic area to which the member desires to travel, the
size of the unit desired and the period during which occupancy is desired. The
exchange network assigns ratings to each listed Timeshare Interest, based upon a
number of factors, including the location and size of the unit, the quality of
the resort and the period during which the Timeshare Interest is available, and
attempts to satisfy the exchange request by providing an occupancy right in
another Timeshare Interest with a similar rating. If the exchange network is
unable to meet the member's initial request, it suggests alternative resorts
based on availability. The failure of the Company or any of its resorts to
participate in qualified exchange networks or the failure of such networks to
operate effectively could have a material adverse effect on the Company.
Residential Land and Golf Division
The Residential Land and Golf Division operates within a specialized niche
of the real estate industry which focuses on the sale of residential land to
retail customers who intend to build a home on such land at some point in the
future. The participants in this market are generally individual landowners who
are selling specific parcels of property and small developers who focus
primarily on projects in their region. Although no specific data is available
regarding this market niche, the Company believes that no other company in the
United States of comparable size or financial resources currently markets and
sells residential land directly to retail customers.
Unlike commercial homebuilders who focus on vertical development, the
Residential Land and Golf Division focuses primarily on horizontal development
activities, such as grading, roads and utilities. As a result, the projects
undertaken by the Company are significantly less capital intensive than those
undertaken by the commercial homebuilders, which reduces the Company's risk of
holding a large inventory of property. See "MD&A" for a discussion of these
risks. The Company believes that its market is also the beneficiary of a number
of trends, including the large number of people entering into the 40-55 year age
bracket and the economic and population growth in certain of its primary
markets.
The Residential Land and Golf Division is also focused on the development
of golf courses and related amenities as the center-pieces of certain of the
Company's residential land properties. As of April 1, 2001, the Company was
marketing residential land lots in five projects that include golf courses
developed either by the Company or a third party. The Company intends to acquire
and develop additional golf communities, as management believes that the
demographics and marketability of such properties are consistent with the
Company's overall residential land strategy. Golf communities typically are
larger, multi-phase properties, which require a greater capital commitment than
the Company's single-phase residential land projects. There can be no assurances
that the Company will be able to successfully implement its golf community
strategy.
Company Products
Timeshare Resorts
All of the Company's resorts, with the exception of the Aruba Resort, are
part of the Bluegreen Vacation Club(TM). The Company currently sells consumers
an annual allotment of "points" in perpetuity (supported by an underlying deeded
fixed timeshare week being held in trust for the buyer). "Points" may be
exchanged by the buyer in various increments for lodging for varying lengths of
time in fully-furnished vacation residences at the Company's participating
resorts. In addition to the Company's resorts, Bluegreen Vacation Club(TM)
owners can use their points to stay at 18 additional resorts not owned by the
Company, primarily located in Florida. By selling points in the club, the
Company has the flexibility to deed timeshare interests in its resorts at any of
its sales locations, both on-site (i.e., located on a resort property) and
off-site.
Set forth below is a description of each of the Company's timeshare
resorts. All units at most of the properties have certain standard amenities,
including a full kitchen, at least two televisions, a VCR player and a CD
player. Some units have additional amenities, such as big screen televisions,
fireplaces, Jacuzzi tubs and video game systems. Most properties offer guests a
clubhouse (with an indoor and/or outdoor pool, a game room, exercise facilities
and a lounge) and a hotel-type staff. The Company manages all of its resorts
with the exception of the Aruba Resort.
5
MountainLoft(TM) -- Gatlinburg, Tennessee. The MountainLoft(TM) Resort in
Gatlinburg, Tennessee is located near the Great Smoky Mountains National Park
and is minutes from the family attractions of Pigeon Forge, Tennessee. Units are
located in individual chalets or mid-rise villa buildings. Each unit is fully
furnished with a whirlpool bath and private balconies, and certain units include
gas fireplaces.
Laurel Crest(TM) -- Pigeon Forge, Tennessee. Laurel Crest(TM) is located in
proximity to the Great Smoky Mountains National Park and the Dollywood theme
park. In addition, visitors to Pigeon Forge can enjoy over 200 factory outlet
stores and music shows featuring renowned country music stars as well as partake
in a variety of outdoor activities, such as horseback riding, trout fishing,
boating, golfing and white water rafting.
Shore Crest(TM) Vacation Villas -- Myrtle Beach, South Carolina. Shore
Crest(TM) Vacation Villas is located on the beach in the Windy Hill section of
North Myrtle Beach a mile from the famous Barefoot Landing, with its
restaurants, theaters, shops and outlet stores.
Harbour Lights(TM) -- Myrtle Beach, South Carolina. Harbour Lights(TM)is
located in the Fantasy Harbour Complex in the center of Myrtle Beach. Nearby are
Theater Row, shopping, golf and restaurants. The resort's Activities Center
overlooks the Intracoastal Waterway.
The Falls Village(TM) -- Branson, Missouri. The Falls Village(TM) is
located in the Ozark Mountains. Fishing, boating and swimming are available at
nearby Table Rock Lake and Lake Taneycomo, and area theaters feature shows by
country music stars. Most resort customers come from areas within an eight to
ten hour drive of Branson.
Christmas Mountain Village(TM) -- Wisconsin Dells, Wisconsin. Christmas
Mountain Village(TM) offers a 27-hole golf course and seven ski trails served by
two chair lifts. Other on-site amenities include horseback riding, tennis
courts, a five-acre lake with paddleboats and rowboats and four outdoor swimming
pools. Christmas Mountain Village(TM) attracts customers primarily from the
greater Chicago area and other locations within an eight to ten hour drive of
Wisconsin Dells.
Orlando's Sunshine(TM) -- Orlando, Florida. Orlando's Sunshine(TM) Resort
is located on International Drive, near Wet'n'Wild water park and Universal
Studios. During fiscal 2000, the Company completed construction on Phase II of
the Orlando's Sunshine(TM) Resort, which includes 60 units, an outdoor swimming
pool, hot tub and tennis courts.
La Cabana Beach Resort & Racquet Club(TM) -- Aruba. Bluegreen Properties
N.V. acquired the unsold Timeshare Interest inventory of the Aruba Resort
(approximately 8,000 Timeshare Interests) in December 1997 and additional
Timeshare Interests from time to time thereafter. Established in 1989, the Aruba
Resort is a 449-suite ocean front property, which offers one-, two- and
three-bedroom suites, garden suites and penthouse accommodations. On-site
amenities include tennis, racquetball, squash, a casino, two pools and private
beach cabanas, none of which are owned or managed by the Company.
Shenandoah Crossing(TM) -- Gordonsville, Virginia. Shenandoah Crossing(TM)
features an 18-hole golf course, indoor and outdoor pools, tennis courts,
horseback riding trails and a lake for swimming, fishing and boating.
The Lodge Alley Inn(TM) -- Charleston, South Carolina. Located in
Charleston's historic district, the Lodge Alley Inn(TM) includes one- and
two-bedroom suites, many furnished with an equipped kitchen, living room with
fireplace, dining room, jacuzzi, pine wood floors, and 18th century-style
furniture reproductions. The resort, which features the on-site High Cotton
restaurant, is within walking distance of many of Charleston's historical sites,
open-air markets and art galleries.
The Big Cedar Wilderness Club(TM) -- Ridgedale, Missouri. In 2000,
Bluegreen/Big Cedar Vacations LLC(TM), a joint venture between the Company and
Big Cedar(R) L.L.C., with 51% and 49% ownership respectively, began developing
the Big Cedar Wilderness Club(TM), a 300-unit, wilderness-themed resort adjacent
to the world famous Big Cedar Lodge luxury hotel resort. The Big Cedar Lodge is
owned and operated by Big Cedar L.L.C., an affiliate of Bass Pro Shops, a
privately-held retailer of fishing, marine, hunting, camping and sports gear.
The resort is located on Table Rock Lake, and is near Dogwood Canyon. Guests
staying in the two bedroom cabins or one and two bedroom lodge villas will enjoy
fireplaces, private balconies, full kitchens and internet access. Planned
amenities include indoor and outdoor swimming pools and hot tubs, lazy river,
hiking trails, campfire area, beach and playground. Guests also have access to
certain of the luxury amenities at the Big Cedar Lodge, including the Jack
Nicklaus Signature Top of the Rock Par Three Golf Course, a marina, horseback
riding, tennis and spa.
Surfside, Florida. In June 2001, the Company acquired the unsold Timeshare
Interest inventory (3,033 Timeshare Interests) at an existing vacation ownership
property located in Surfside, Florida, near Miami Beach. This as yet unnamed
resort is located directly on the beach and features one and two bedroom
vacation homes. Sales of this
6
resort are anticipated to commence in September 2001, although there can be no
assurances. The Company intends to renovate the resort's units, common areasand
amenities.Such renovations are anticipated to be completed by February 2002,
although there can be no assurances.
The following table sets forth additional data with respect to each of the
Company's resorts:
Laurel Shore Harbour The Christmas La Cabana
Mountain- Crest(TM) Crest(TM) Lights(TM) Falls Mountain Orlando's Beach &
Loft(TM) Pigeon Myrtle Myrtle Village(TM) Village(TM) Sunshine(TM) Racquet
Gatlinburg, Forge, Beach, Beach, Branson, Wisconsin, Orlando, Club(TM),
Location TN TN SC SC MO Dells, WI FL Aruba
- ----------------------------------------------------------------------------------------------------------------------------
Date sales commenced 7/94 8/95 4/96 6/97 7/97 9/97 12/98 1/98
Number of Timeshare
Interests completed as
of April 1, 2001 (1) 14,248 12,064 12,480 4,992 3,979 3,149 3,120 8,511
Number of Timeshare
Interests under
construction
as of April 1, 2001 (1) -- -- -- -- -- -- -- --
Number of additional
Timeshare Interests
Planned (1)(2) 4,680 8,840 -- 8,736 9,256 12,423 -- --
Average Timeshare
Interests selling price -
Year ended April 1, 2001 $8,641 $9,133 $9,002 $9,272 $9,512 $9,556 $11,244 $8,985
Number of Timeshare
Interests sold through
April 1, 2001 (3) 9,013 7,874 10,530 4,302 3,786 3,476 4,759 4,523
Shenandoah The Big Cedar
Crossing Lodge Wilderness
Farm & Club(TM) Alley Inn(TM) Club(TM)(4)
Gordonsville, Charleston, Ridgedale, Surfside,
Location VA SC MO FL(5)
- ---------------------------------------------------------------------------------------
Date sales commenced 4/98 2/99 11/00 (5)
Number of Timeshare
Interests completed as
of April 1, 2001 (1) 1,144 4,680 520 --
Number of Timeshare
Interests under
construction
as of April 1, 2001 (1) -- -- 1,248 3,033
Number of additional
Timeshare Interests
Planned (1)(2) 9,256 -- 13,416 --
Average Timeshare
Interests selling price -
Year ended April 1, 2001 $9,707 $9,921 $12,947 --
Number of Timeshare
Interests sold through
April 1, 2001 (3) 1,478 1,114 97 --
(1) The number of Timeshare Interests completed, under construction or planned
are intended to be sold in 52 weekly intervals per vacation home for the
Company's Shore Crest(TM), Harbour Lights(TM), Orlando's Sunshine(TM), La
Cabana(TM), Lodge Alley Inn(TM) and Surfside resorts. The amounts for the
remaining resorts include some vacation homes that can be subdivided and
sold as two smaller vacation homes ("lock-out units"), each of which
consists of 104 weekly intervals per vacation home.
(2) There can be no assurances that the Company will have the resources to
complete all such planned Timeshare Interests or that such Timeshare
Interests will be sold at favorable prices.
(3) Includes sales of Timeshare Interests that were sold on a biennial basis
(i.e., sale of one-week periods every other year in perpetuity) as one
Timeshare Interest sold. Therefore, the number of Timeshare Interests sold
may exceed the total number of Timeshare Interests completed, under
construction, and planned.
(4) Bluegreen/Big Cedar LLC(TM), in which the Company owns a 51% interest, is
developing The Big Cedar Wilderness Club(TM).
(5) This resort was acquired by the Company in June 2001. Sales of Timeshare
Interests at this resort are anticipated to commence in September 2001,
although there can be no assurances.
Certain Residential Land and Golf Division Projects
Set forth below is a description of the five largest projects currently
marketed by the Residential Land and Golf Division, which are representative of
the types of projects that the Company has been focusing on since 1993. These
properties represented approximately 80.7% of the Residential Land and Golf
Division's estimated remaining life-of-project sales at April 1, 2001.
Mystic Shores(TM) -- Canyon Lake, Texas. The Company acquired 6,966 acres
located 25 miles north of San Antonio, Texas in October 1999 for $14.9 million.
On May 5, 2000, the Company purchased an additional 435 acres for $2.7 million.
The project includes an estimated 2,400 home sites, ranging in size from one to
twenty acres. Mystic Shores(TM) is situated on Canyon Lake and is in close
proximity to the Guadeloupe River, which is well known for fishing, rafting and
water sports. The property will also feature a junior Olympic swimming pool,
bathhouse, open-air pavilion, picnic area and boat ramps. Aggregate development
costs through April 1, 2001 were $6.2 million, with projected remaining
expenditures to complete development at the project of $32.6 million. The
Company began selling lots in March 2000, with aggregate sales of $17.9 million
through April 1, 2001. Estimated remaining life-of-project sales were
approximately $106.9 million as of April 1, 2001, based on retail selling prices
as of that date.
Lake Ridge at Joe Pool Lake(TM) -- Cedar Hill, Texas. The Company acquired
1,400 acres located approximately 19 miles outside of Dallas, Texas and 30 miles
outside of Fort Worth, Texas in April 1994 for $6.1 million. In fiscal 2000, the
Company acquired an additional 1,766 acres for $14.9 million. The property is
located at Joe Pool Lake and is atop the highest elevation within 100 miles. The
lake has in excess of 7,500 acres of water for
7
boating, fishing, windsurfing and other water activities. Adjacent amenities
(not owned or managed by the Company) include a 154-acre park with baseball,
football and soccer fields, a fishing pool with a pier, camping areas and an
18-hole golf course. The existing acreage will yield approximately 1,600 lots
based on preliminary phase development, with most lots ranging in size from 1/4
to five acres. The Company began selling lots in April 1994 and aggregate sales
through April 1, 2001 were $86.7 million. Aggregate development costs through
April 1, 2001 were $29.9 million and the Company anticipates that the remaining
capital expenditures to complete development at the project will be $26.1
million. The Company anticipates that unsold lots will be sold-out over the next
five years. Estimated remaining life-of-project sales for this project were
approximately $91.7 million as of April 1, 2001, based on retail selling prices
as of that date.
Brickshire(TM) -- New Kent, Virginia. The Company acquired 1,135 acres
located 20 miles from Williamsburg and Richmond, Virginia, in September 1999 for
$4.4 million. The property will consist of approximately 900 residential
parcels, ranging in size from 1/4 to 2.5 acres, and will feature an 18-hole golf
course designed by U.S. Open champion Curtis Strange. The property will also
offer residents a community club and pool, tennis courts and scenic walking
trails. Aggregate development costs through April 1, 2001 were $9.1 million,
with projected remaining expenditures of $21.6 million. The Company began
selling lots in December 1999, with aggregate sales of $9.3 million through
April 1, 2001. Estimated remaining life-of-project sales were approximately
$57.5 million as of April 1, 2001, based on retail selling prices as of that
date.
The Preserve at Jordan Lake(TM) -- Pittsboro, North Carolina. The Company
acquired approximately 600 acres located in Pittsboro, North Carolina (near
Chapel Hill, North Carolina) for $4.2 million in fiscal 2001. The project will
be the site of a championship daily-fee golf course to be designed by PGA
Champion Davis Love III. This 18-hole golf course is expected to be opened for
play in Spring 2002. The project will also include a swimming pool, a fitness
center, a recreation field and tennis courts. The Company anticipates that the
project will consist of a total of approximately 516 lots, which range in size
from approximately 1/3 acre to one acre. The Company began selling lots in
December 2000, and aggregate sales through April 1, 2001 were $9.8 million.
Aggregate development costs (net of costs capitalized separately in the golf
course) through April 1, 2001 were $2.7 million and the Company anticipates that
the aggregate capital expenditures to complete development at the project will
be $12.3 million. The Company anticipates that the remaining lots will be
sold-out over the next 3 years. Estimated remaining life-of-project sales for
this project were approximately $36.5 million as of April 1, 2001, based on
retail selling prices as of that date.
Mountain Lakes Ranch(TM) -- Bluffdale, Texas. The Company acquired 4,100
acres located approximately 45 miles from Fort Worth, Texas in October 1998 for
$3.1 million. The property features rolling terrain with hilltop views, tree
coverage and ample area to create private lakes. The Company anticipates that
the property will yield approximately 1,390 lots ranging in size from one to
five acres, including both lakefront and waterview parcels. The Company began
selling lots in March 2000, with aggregate sales of $6.0 million through April
1, 2001. Aggregate development costs through April 1, 2001 were $5.4 million and
the Company anticipates that future capital expenditures to complete development
at the project will be $9.6 million. Estimated life-of-project sales for
Mountain Lakes Ranch(TM) were $32.6 million as of April 1, 2001, based on retail
prices at that date, with a projected sell-out period of five years.
Acquisition of Timeshare and Residential Land and Golf Inventory
In order to provide centralized and uniform controls on the type, location
and amount of timeshare and residential land and golf inventory that the Company
acquires, all such inventory acquisitions have required the approval of the
Investment Committee since 1990. The Investment Committee currently consists of
George F. Donovan, President and Chief Executive Officer; John F. Chiste, Senior
Vice President, Treasurer and Chief Financial Officer; Patrick E. Rondeau,
Senior Vice President, Director of Legal Affairs; Daniel C. Koscher, Senior Vice
President--President, Residential Land and Golf Division; David D. Philp, Senior
Vice President and Chief Investment Officer and Mark T. Ryall, Senior Vice
President and Chief Information Officer. The Investment Committee reviews each
proposed inventory acquisition to determine whether the property meets certain
criteria, including estimated cash flows and gross profit margins.
Resorts Division
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, lodging companies and financial institutions with which the Company
has established business relationships. Prior to acquiring property for future
resorts, the Resorts Division undertakes a full property review, including an
environmental assessment, which is presented to the Investment Committee for
approval. During the review process, acquisition specialists analyze market,
tourism and demographic data as well as the quality and diversity of the
location's existing amenities and attractions to determine the potential
8
strength of the timeshare market in such area and the availability of a variety
of recreational opportunities for prospective Timeshare Interest purchasers.
Specifically, the Company evaluates the following factors, among others, to
determine the viability of a potential new timeshare resort: (i) anticipated
supply/demand ratio for Timeshare Interests in the relevant market, (ii) the
market's potential growth as a vacation destination, (iii) competitive
accommodation alternatives in the market, (iv) uniqueness of location and demand
for the location by existing Bluegreen Vacation Club(TM) owners and (v) barriers
to entry that would limit competition. The Company anticipates that its
timeshare resorts will generally have a sell-out term of approximately seven
years.
The Company intends to continue to pursue growth by expanding or
supplementing the Company's existing resorts operations through acquisitions in
destinations that will complement such existing operations. Because the
timeshare industry is highly fragmented, the Company believes that significant
opportunities exist to make selected acquisitions at attractive valuations.
Acquisitions the Company may consider include acquiring additional Timeshare
Interest inventory, operating companies, management contracts, Timeshare
Interest mortgage portfolios and properties or other timeshare-related assets
that may be integrated into the Company's operations. In addition, the Company
intends to continue to pursue timeshare resort locations in areas outside the
United States, particularly in the Caribbean, as well as Central and South
America. No assurances can be given that the Company will be successful in its
acquisition strategy.
Residential Land and Golf Division
The Residential Land and Golf Division, through the Company's regional
offices, and subject to Investment Committee review and approval, typically
acquires inventory that (i) is located near a major population center outside
the perimeter of intense subdivision development or in popular retirement areas,
(ii) is suitable for subdivision, (iii) has attractive topographical features,
(iv) for certain projects, could accommodate a golf course and related amenities
and (v) the Company believes will result in an acceptable profit margin and cash
flow to the Company based upon anticipated retail value. Properties are
generally subdivided for resale into parcels typically ranging in size from 1/4
acre to twenty acres. During fiscal 2000, the Company acquired 11,340 acres in
seven separate transactions for a total purchase price of approximately $40.1
million or $3,537 per acre and during fiscal 2001, the Company acquired 4,879
acres in five separate transactions for a total purchase price of $15.2 million,
or $3,114 per acre.
In connection with its review of potential residential land and golf
inventory, the Investment Committee considers such established criteria as the
economic conditions in the area in which the parcel is located, environmental
sensitivity, availability of financing, whether the property is consistent with
the Company's general policies and the anticipated ability of that property to
produce acceptable profit margins and cash flow. As part of its long-term
strategy for the Residential Land and Golf Division, the Company in recent years
has focused on fewer, more capital-intensive projects. The Company intends to
continue to focus the Residential Land and Golf Division on those regions where
the Company believes the market for its products is strongest, such as the
Southeast and Southwest regions of the United States and to replenish its
residential land inventory in such regions as existing projects are sold-out.
The Residential Land and Golf Division has several specialists who assist
regional management in locating inventory for acquisition. The Company has
established contacts with numerous land owners and real estate brokers in many
of its market areas, and because of such contacts and its long history of
acquiring properties, the Company believes that it is generally in a favorable
position to learn of available properties, often before the availability of such
properties is publicly known. In order to ensure such access, the Company
attempts to develop and maintain strong relationships with major property owners
and brokers. Regional offices regularly contact property owners, such as timber
companies, financial institutions and real estate brokers, by a combination of
telephone, mail and personal visits. In addition, prior to acquiring property in
new areas, the Company will conduct test marketing for a prospective project
prior to entering into an acquisition agreement to determine whether sufficient
customer demand exists for the project. To date, the Company's regional offices
generally have been able to locate and acquire adequate quantities of inventory
that meet the criteria established by the Investment Committee to support their
operational activities. In certain cases, however, the Company has experienced
short-term shortages of ready-for-sale inventory due to either difficulties in
acquiring property or delays in the approval and/or development process.
Shortfalls in ready-for-sale inventory may materially adversely affect the
Company's business, operating results and financial position. See "MD&A".
Once a desirable property is identified, the Company completes its initial
due diligence procedures and enters into a purchase agreement with the seller to
acquire the property. It is generally the Company's policy to advance only a
small downpayment of 1%-3% of the purchase price upon signing the purchase
agreement and to limit the liquidated damages associated with such purchase
agreement to the amount of its downpayment and any preliminary development
costs. In most cases, the Company is not required to advance the full purchase
price or enter into a note payable obligation until regulatory approvals for the
subdivision and sale of at least the initial phase of the project have been
obtained. While local approvals are being sought, the Company typically engages
in pre-marketing techniques and, with the consent of the seller and the
knowledge of prospective purchasers, occasionally attempt to pre-sell parcels,
9
subject to closing its purchase of the property. When the necessary regulatory
approvals have been received, the closing on the property occurs and the Company
obtains title to the property. The time between execution of a purchase
agreement and closing on a property has generally been six to 12 months.
Although the Company generally retains the right to cancel purchase agreements
without any loss beyond forfeiture of the downpayment and preliminary
development costs, few purchase agreements have been canceled historically.
By requiring, in most cases, that regulatory approvals be obtained prior to
closing and by making small downpayments upon signing purchase agreements, the
Company is typically able to place a number of properties under contract without
expending significant amounts of cash. This strategy enables the Residential
Land and Golf Division to reduce (i) the time during which it actually owns
specific properties, (ii) the market risk associated with holding such
properties and (iii) the risk of acquiring properties that may not be suitable
for sale. It also provides the Residential Land and Golf Division an additional
source of available properties to meet customer demand. In certain
circumstances, however, the Company has acquired properties and strategically
held such projects until their prime marketing seasons.
Prior to closing on a purchase of residential land, the Company's policy is
to complete its own environmental assessment of the property. The purpose of the
Company's assessment is to evaluate the impact the proposed subdivision will
have on such items as flora and fauna, wetlands, endangered species, open space,
scenic vistas, recreation, transportation and community growth and character. To
obtain this information, the Company's acquisition specialists typically consult
with various groups and agencies including the appropriate county and state
planning agencies, environmental groups, state heritage programs, soil
conservation agencies and forestry groups. If the Company's environmental
assessment indicates that the proposed subdivision meets environmental criteria
and complies with zoning, building, health and other laws, the Company develops
a formal land use plan, which forms a basis for determining an appropriate
acquisition price. The Company attempts, where possible, to accommodate the
existing topographical features of the land, such as streams, hills, wooded
areas, stone walls, farm buildings and roads. Prior to closing on an
acquisition, the Company will typically have the property surveyed by a
professional surveyor and have soil analyses conducted to determine the
suitability of the site for septic systems. At closing, the Company also obtains
title insurance on the property.
Marketing and Sale of Inventory
Resorts Division
The Resorts Division uses a variety of techniques to attract prospective
purchasers of Timeshare Interests, including telemarketing mini-vacations,
kiosks in retail locations, targeted mailings, marketing to current owners of
Timeshare Interests and referrals. The Resorts Division provides hotel
accommodations to prospective purchasers at reduced prices in exchange for their
touring the timeshare resort. To support its marketing and sales efforts, the
Company has developed and continues to enhance its customer relationship
management computer software system to track its timeshare marketing and sales
programs. Management believes that, as the Resort Division's timeshare
operations grow, this database will become an increasingly significant asset,
enabling the Company to focus its marketing and sales efforts to take advantage
of, among other things, less costly marketing and referral opportunities. In
June 2000, the Company entered into an exclusive marketing agreement with Big
Cedar Lodge and Bass Pro Shops of Springfield, Missouri. Under the terms of the
10-year agreement, Bluegreen will market its Vacation Club product to Bass Pro
Shops' estimated 30 million annual retail customers and 34 million catalog
subscribers. Bluegreen now markets its Vacation Club at each of Bass Pro Shops'
national retail locations, using, among other means, interactive kiosks and
other retail promotions. Bluegreen also has an exclusive timeshare marketing
presence on Bass Pro Shops' web site that is linked to the Company web site. The
Company believes that this new marketing agreement will result in more effective
and cost-efficient marketing for the Resorts Division although there can be no
assurances that such effectiveness and efficiency will be achieved.
Timeshare resorts are staffed with sales representatives, sales managers
and an on-site manager who oversees the day-to-day operations, all of whom are
employees of the Company. Sales personnel are generally experienced in resort
sales and undergo ongoing Company-sponsored training. During fiscal 2000, total
advertising expense for the Resorts Division was $37.2 million or 31.8% of the
division's $117.3 million in sales. During fiscal 2001, total advertising
expense for the Resorts Division was $46.0 million or approximately 34% of such
division's $137.4 million in sales. See MD&A for a discussion of the Company's
sales, general and administrative expenses.
The Company requires its sales staff to provide each timeshare customer
with a written disclosure statement regarding the Timeshare Interest to be sold
prior to the time the customer signs a purchase agreement. This disclosure
statement sets forth relevant information regarding timeshare ownership at the
resort and must be signed by every purchaser. The Company believes that this
information statement contains all material and relevant information a customer
requires to make an informed decision as to whether or not to purchase a
Timeshare Interest at one of its resorts.
10
After deciding to purchase a Timeshare Interest, a purchaser enters into a
purchase agreement and is required to pay the Company a deposit of at least 10%
of the purchase price. Purchasers are entitled to cancel purchase agreements
within specified rescission periods after execution in accordance with statutory
requirements. Substantially all timeshare purchasers visit one of the Company's
resorts or one of the Company's off-site sales offices prior to purchasing.
In addition to sales offices located at its resorts, the Company also
operates three off-site sales offices serving the Indianapolis, Indiana;
Cleveland, Ohio; and Detroit, Michigan markets. The Company closed its off-site
sales office serving the Louisville, Kentucky market during fiscal 2001 due to
low operating margins being generated by the site. These off-site sales offices
market and sell Timeshare Interests in the Company's points-based Vacation Club,
and allow the Company to bring its products to markets with favorable
demographics and low competition for prospective buyers. The Cleveland and
Detroit off-sites sell Timeshare Interests using the Company's "Bluegreen Air"
virtual-reality jet airline experience as part of the sales presentation. During
fiscal 2001, the "Bluegreen Air" offices (excluding Louisville, which generated
a $798,000 loss in fiscal 2001) generated $22.3 million and $1.0 million or
16.2% and 10.3% of the Resorts Division's sales and field operating profit,
respectively. The Company intends to evaluate its off-site sales office strategy
during fiscal 2002.
The Company believes that the attractiveness of Timeshare Interest
ownership has been enhanced significantly by the Bluegreen Vacation Club(TM)
program and the availability of exchange networks that allow Timeshare Interest
owners to exchange the occupancy right in their Timeshare Interests in a
particular year, for an occupancy right at another participating network resort
at either the same or a different time. The Aruba Resort is affiliated with the
timeshare exchange network operated by II, while the Company's ten other resorts
currently in sales are affiliated with RCI's timeshare exchange network. If the
Company's resorts cease to qualify for the exchange networks or such networks
cease to operate effectively, the Company's sales of Timeshare Interests and the
performance of its timeshare receivables could be materially adversely affected.
For further information on sales and other financial information (including
segment information) attributable to the Resorts Division, see "MD&A" and the
Company's consolidated financial statements and the related Notes.
Residential Land and Golf Division
In general, as soon as practicable after agreeing to acquire a property and
during the time period that appropriate improvements are being completed, the
Company establishes selling prices for the individual parcels taking into
account such matters as regional economic conditions, quality as a building
site, scenic views, road frontage, golf course views (if applicable) and natural
features such as lakes, mountains, streams, ponds and wooded areas. The Company
also considers recent sales of comparable parcels in the area. Initial decisions
on pricing of parcels in a given area are made by the Company's regional
managers and, in all cases, are subject to approval by the Investment Committee.
Once such selling prices are established the Company commences its marketing
efforts.
The most widely used marketing technique by the Residential Land Division
is advertising in major newspapers in metropolitan areas located within a one to
three hour drive from the property and local newspapers. In addition, the
Company uses its customer relationship management system, which enables the
Company to quickly compile information on the previously identified prospects
most likely to be interested in a particular project. The Residential Land and
Golf Division also conducts direct mail campaigns to market property through the
use of brochures describing available parcels, as well as television and radio
advertising. Through this sales and marketing program, the Company believes that
it has been able to achieve a high conversion ratio of sales to prospects
receiving on-site sales presentations. The Company estimates that the conversion
ratio of sales to prospects receiving on-site sales presentations has
historically been approximately 20%. A sales representative who is knowledgeable
about the property answers each inquiry generated by the Company's marketing
efforts, discusses the property with the prospective purchaser, attempts to
ascertain the purchaser's needs and determines whether the parcel would be
suitable for that person, and arranges an appointment for the purchaser to visit
the property. Substantially all prospective purchasers inspect a property before
purchasing. During fiscal 2000, the Residential Land and Golf Division incurred
$7.1 million in advertising expense, or 7.3% of such division's $97.2 million in
sales. During fiscal 2001, the Residential Land and Golf Division incurred $8.6
million in advertising expense, or approximately 9.6% of such division's $88.9
million in sales.
The success of the Company's marketing efforts depends heavily on the
knowledge and experience of its sales personnel. The Company requires that,
prior to initiating the marketing effort for a property, all sales
representatives walk the property and become knowledgeable about each parcel and
applicable zoning, subdivision and building code requirements. Continued
training programs are conducted, including training with regional office sales
managers, weekly sales meetings and frequent site visits by an executive officer
of the Company. The Company enhances its sales
11
and marketing organization through the Bluegreen Institute, a mandatory training
program, which is designed to instill the Company's marketing and customer
service philosophy in middle and lower-level management. Additionally, the sales
staff is evaluated against performance standards established by the executive
officers of the Company. Substantially all of a sales representative's
compensation is commission-based.
The Company requires its sales staff to provide each prospective purchaser
with a written disclosure statement regarding the property to be sold prior to
the time such purchaser signs a purchase agreement. This information statement,
which is either in the form of a U.S. Department of Housing and Urban
Development ("HUD") lot information statement, where required, or a Company
generated "Vital Information Statement," sets forth relevant information with
respect to, and risks associated with, the property and must be signed by each
purchaser. The Company believes that these information statements contain all
material and relevant information necessary for a prospective purchaser to make
an informed decision as to whether or not to purchase such property, including
the availability and estimated cost of utilities, restrictions regarding
property usage, status of access roads and information regarding rescission
rights.
After deciding to purchase a parcel, a purchaser enters into a purchase
agreement and is required to pay the Company a deposit of at least 10% of the
purchase price. Purchasers are entitled to cancel purchase agreements within
specified periods after execution in accordance with statutory requirements. The
closing of a residential land sale usually occurs two to eight weeks after
payment of the deposit. Upon closing of a residential land sale, the Company
typically delivers a warranty deed and a recent survey of the property to the
purchaser. Title insurance is available at the purchaser's expense.
For further information on sales and other financial information (including
industry segment information) attributable to the Residential Land and Golf
Division, see "MD&A" and the Company's consolidated financial statements and the
related Notes.
Customer Financing
General
During fiscal 1999, 2000 and 2001, the Company financed 40%, 52% and 62%,
respectively, of the aggregate purchase price of its sales of Timeshare
Interests and residential land to customers that closed during these periods and
received cash for the remaining balance of the purchase price. The increase in
the percentage of sales financed by the Company since 1999 is primarily
attributable to an increase in the sales of Timeshare Interests over the same
period. Sales of Timeshare Interests accounted for 46%, 55% and 61% of
consolidated sales during fiscal 1999, 2000 and 2001, respectively.
Approximately 97% of all purchasers of Timeshare Interests finance with the
Company (compared to approximately 2% of residential land purchasers in fiscal
2001). In recent years, the percentage of residential land customers who
utilized the Company's financing has declined materially due to, among other
things, an increased willingness on the part of local banks to extend direct lot
financing to purchasers.
The Company believes that its financing is attractive to purchasers who
find it convenient to handle all facets of the purchase of residential land and
Timeshare Interests through a single source and because the downpayments
required by the Company are similar to those required by banks and mortgage
companies which offer this type of credit.
The Company offers financing of up to 90% of the purchase price of its
Timeshare Interests. The typical financing extended by the Company on a
Timeshare Interest during fiscal 1999, 2000 and 2001, provides for terms of
seven or ten years and a fixed interest rate. Historically, at the closing, the
Company and the purchaser executed a contract for deed agreement. After the
obligation is paid in full, the Company delivers a deed to the purchaser. In
connection with the Company's Timeshare Interest sales within the Bluegreen
Vacation Club(TM) system, the Company delivers the deed on behalf of the
purchasers to the trustee of the Bluegreen Vacation Club(TM) and secures
repayment of the purchaser's obligation by obtaining a mortgage on the
purchaser's Timeshare Interest. The Company does not believe that the transfer
to a note and mortgage system has had or will have a material adverse effect on
its servicing operations or financial results, although no assurances can be
given.
The Company also offers financing of up to 90% of the purchase price of all
parcels sold under the Residential Land and Golf Division to all purchasers who
qualify for such financing. The term of repayment on such financing has
historically ranged from five to 15 years although the Company, by offering
reduced interest rates, has been successful in encouraging customers during
recent years to finance their purchases over shorter terms with increased
downpayments. Management believes such strategy has improved the quality of the
notes receivable generated by its Residential Land and Golf Division in recent
years. An average note receivable underwritten by the Company during
12
fiscal 1999, 2000 and 2001 has a term of ten years. Most notes receivable bear
interest at a fixed interest rate and are secured by a first lien on the land.
The weighted-average interest rate on the Company's notes receivable was
15.0%, 15.1% and 15.2% at March 28, 1999, April 2, 2000 and April 1, 2001,
respectively.
Loan Underwriting
Resorts Division. Consistent with industry practice, Timeshare Interest
financing is not subject to extensive loan underwriting criteria. Customer
financing on sales of Timeshare Interests requires (i) receipt of a minimum
downpayment of 10% of the purchase price and (ii) a contract for deed or note
and mortgage, as applicable, and other closing documents between the Company and
the purchaser. The Company encourages purchasers to make increased downpayments
by offering a lower interest rate. In addition, purchasers who do not elect to
participate in the Company's pre-authorized payment plan are charged interest at
a rate which is one percent greater than the otherwise prevailing rate. As of
April 1, 2001, approximately 70% of the Company's timeshare notes receivable are
serviced through the Company's pre-authorized payment plan. Historically,
timeshare receivables have had a higher default rate than residential land
receivables.
Residential Land and Golf Division. The Company has established loan
underwriting criteria and procedures designed to reduce credit losses on its
residential land loan portfolio. The loan underwriting process undertaken by the
Company's credit department includes reviewing the applicant's credit history,
verifying employment and income as well as calculating certain debt-to-income
ratios. The primary focus of the Company's underwriting review is to determine
the applicant's ability to repay the loan in accordance with its terms. This
assessment is based on a number of factors, including the relationship of the
applicant's required monthly payment to disposable income. The Company also
examines the applicant's credit history through various credit reporting
agencies. In order to verify an applicant's employment status, the Company
generally contacts the applicant's employer. The Company also obtains current
pay stubs, recent tax returns and other tax forms from the applicant, as
applicable.
In order to obtain financing from the Residential Land and Golf Division, a
prospective purchaser must submit a completed and signed credit application,
purchase and sale agreement and pre-authorized checking agreement accompanied by
a voided check, if applicable, to the Company's credit department. All credit
decisions are made at the Company's corporate headquarters. Loan amounts under
$50,000 are approved by designated personnel located in the Company's corporate
headquarters, while loan amounts of $50,000 or more require approval from a
senior executive officer. In addition, rejected applications and any material
exceptions to the underwriting policy are also reviewed by senior management.
Customers are notified of the reasons for credit denial by mail.
The Company encourages customers to increase their downpayment and reduce
the loan term through the structure of its loan programs. Customers receive a
lower rate of interest as their downpayment increases and the loan term
shortens. Additionally, the Company encourages its customers to make timely
payments through a pre-authorized payment arrangement. Customers who do not
choose a pre-authorized payment plan are charged interest at a rate which is one
percent greater than the prevailing rate.
After the credit decision has been made, the credit department categorizes
the file as either approved, pending or declined. Upon receipt of a credit
approval, the regional office schedules the closing with the customer. Closings
are typically conducted at the office of the Company's local attorney or
settlement agent, although in some cases the closing may take place at the sales
site or by mail.
When the original closing documents are received from the closing agent,
the Company verifies that the loan closed under terms approved by the Company's
credit department. A quality control audit is performed to verify that required
documents have been received and that they have been prepared and executed
correctly. If any revisions are required, notification is sent to the regional
office.
A loan file typically includes a copy of the signed security instrument,
the mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and
sale agreement, credit application, local counsel opinion, Vital Information
Statement or purchaser's acknowledgment of receipt of HUD lot information
statement, HUD settlement statement and a copy of the assignment of mortgage and
an original note endorsement from the Company's subsidiary originating the sale
and the loan to the Company (if applicable). After the initial closing documents
are received, the recorded mortgage and assignment and original title insurance
policy are obtained in order to complete the loan file.
13
Collection Policies
Resorts Division. The Company's timeshare receivables have been
historically documented by contracts for deed, which allows the Company to
retain title to the Timeshare Interest until the obligation is paid in full,
thereby eliminating the need to foreclose in the event of a default. Collection
efforts and delinquency information concerning the Resorts Division are managed
at the Company's corporate headquarters. Servicing of the division's receivables
is handled by a staff of experienced collectors, assisted by a mortgage
collection computer system. Unless circumstances otherwise dictate, collection
efforts are generally made by mail and telephone. If a contract for deed becomes
delinquent for ten days, telephone contact commences with the customer. If the
customer fails to bring the account current, a late notice is mailed when the
account is 15 days delinquent. After an account is 30 days delinquent, the
Company typically sends a third letter advising the customer that such customer
has 30 days within which to bring the account current. Under the terms of the
contract for deed, the borrower is in default when the account becomes 60 days
delinquent. At this time a default letter is sent advising the customer that he
or she has 30 days to bring the account current or lose his or her contractual
interest in the timeshare unit. When the account becomes 90 days delinquent, the
Company forwards a final letter informing the customer that the contract for
deed has been terminated. At such time, the Timeshare Interest can be resold to
a new purchaser.
In connection with the implementation of its points-based Bluegreen
Vacation Club(TM) system, the Company has converted to a note and mortgage
system. In addition to the 10, 15 and 30 day collection correspondence outlined
above, at 60 days delinquent, a lock-out letter is sent to the Bluegreen
Vacation Club(TM) customer prohibiting such customer from making a reservation
for lodging at a resort property. If the default continues, at 90 days
delinquent, a Notice of Intent to Cancel Membership is mailed. This informs the
customer that unless the default is cured within 30 days, membership in the
Bluegreen Vacation Club(TM) will be terminated. If the default is not cured, a
Termination Letter is sent, typically at 120 days. At such time, the Timeshare
Interest can be resold to a new purchaser.
Residential Land and Golf Division. Collection efforts and delinquency
information concerning the Residential Land and Golf Division are also managed
at the Company's corporate headquarters. Servicing of the division's receivables
is handled by a staff of experienced collectors, assisted by a mortgage
collection computer system. Unless circumstances otherwise dictate, collection
efforts are generally made by mail and telephone. Collection efforts begin when
an account is ten days past due, at which time the Company contacts the customer
by telephone. Attempts are then made to contact the customer via telephone to
determine the reason for the delinquency and to bring the account current. The
determination of how to handle a delinquent loan is based upon many factors,
including the customer's payment history and the reason for the current
inability to make timely payments. If no agreement is made or the customer does
not abide by the agreement, collection efforts continue until the account is
either brought current or legal action is commenced. If not accelerated sooner,
the Company declares the loan in default when the loan becomes 60 days
delinquent. When the loan is 90 days past due, the accrual of interest is
stopped (unless the loan is considered an in-substance foreclosure loan, in
which case all accrued interest is reversed since the Company's means of
recovery is determined through the resale of the underlying collateral and not
through collection on the note) and the Credit/Collection Manager determines the
action to be taken.
Loan Loss Reserves. The reserve for loan losses as a percentage of
outstanding notes receivable was 3.5%, 4.1% and 4.6% at March 28, 1999, April 2,
2000 and April 1, 2001, respectively. The adequacy of the Company's reserve for
loan losses is determined by management and reviewed on a regular basis
considering, among other factors, historical frequency of default, loss
experience, estimated value of the underlying collateral, present and expected
economic conditions as well as the quality of the receivables. (See "MD&A" for
further discussion of the Company's provision for loan losses.)
Sales of Receivables/Pledging of Receivables
Since 1986, the Company has sold or pledged a significant amount of its
receivables, generally retaining the right and obligation to service such
receivables. In the case of residential land and golf receivables, the Company
historically transferred the receivables to a special purpose finance
subsidiary, which in turn enters into a receivables securitization. The
receivables were typically sold by such subsidiary with limited or no recourse.
In the case of receivables pledged to a financial institution, the Company
generally must maintain a debt to eligible collateral rate (based on outstanding
principal balance of the pledged loans) of 90%. The Company is obligated to
pledge additional eligible receivables or make additional principal payments in
order to maintain this collateralization rate. Repurchases and additional
principal payments have not been material to date.
Private placement REMIC financings have provided substantial capital
resources to the Company, although the Company has not completed a REMIC
financing since December 1996, due to the decrease in land sales financed by the
Company. Under the terms of these transactions, the receivables are sold to a
REMIC trust and the Company has no obligation to repurchase the receivables due
to default by the borrowers. The Company does, however, have the
14
obligation to repurchase the receivables in the event that there is any material
defect in the loan documentation and related representations and warranties as
of the time of sale.
Since fiscal 1999, the Company has maintained timeshare receivables
purchase facilities with financial institutions. Under the current purchase
facility in effect at April 1, 2001 (the "Purchase Facility"), a special purpose
finance subsidiary of the Company sold $77.7 million aggregate principal amount
of timeshare receivables in securitization transactions. Receivables were sold
without recourse to the Company or its special purpose finance subsidiary except
for breaches of representations and warranties made at the time of sale. The
Company acts as servicer under the Purchase Facility for a fee, and is required
to make advances to the financial institution to the extent it believes such
advances will be recoverable. Subject to its terms, the Purchase Facility will
allow the Company to sell up to an additional $17.0 million aggregate principal
amount of timeshare receivables through October 16, 2001. The Company is
currently negotiating new timeshare receivables purchase facilities with two
financial institutions. There can be no assurances that the Company's
negotiations will result in the Company obtaining either or both facilities on
acceptable terms to the Company, if at all. In connection with the Purchase
Facility, the Company also entered into a warehouse facility with the same
institution, pursuant to which the Company has the ability to borrow against
receivables through October 16, 2001. The Company is also currently negotiating
a new warehouse facility with that same institution. There can be no assurances
that such negotiations will be successful. See further discussion of the terms
of the Purchase Facility and the warehouse facility under "MD&A" -- Credit
Facilities for Timeshare Receivables and Inventories".
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and
remitting such funds to the owners, lenders or investors in such receivables,
accounting for receivables principal and interest, making advances when
required, contacting delinquent borrowers, foreclosing, or terminating a
contract for deed or membership in the Bluegreen Vacation Club(TM) in the event
that defaults are not remedied and performing other administrative duties. The
Company's obligation to provide receivables servicing and its rights to collect
fees are set forth in a servicing agreement. The Company has the obligation and
right to service all of the receivables it originates and retains the obligation
and right with respect to substantially all of the receivables it sells through
REMICs and all of the receivables sold under the Purchase Facility. The Company
typically receives an annual servicing fee ranging from approximately .5% to
2.0% of the principal balance.
Regulation
The timeshare and real estate industries are subject to extensive and
complex regulation. The Company is subject to compliance with various federal,
state and local environmental, zoning and other statutes and regulations
regarding the acquisition, subdivision and sale of real estate and Timeshare
Interests and various aspects of its financing operations. On a federal level,
the Federal Trade Commission has taken an active regulatory role through the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or
competition in interstate commerce. In addition to the laws applicable to the
Company's customer financing and other operations discussed below, the Company
is or may be subject to the Fair Housing Act and various other federal statutes
and regulations. The Company is also subject to various foreign laws with
respect to the Aruba Resort. In addition, there can be no assurance that in the
future, Timeshare Interests will not be deemed to be securities subject to
regulation as such, which could have a material adverse effect on the Company.
The Company believes that it is in compliance in all material respects with
applicable regulations. However, no assurance can be given that the cost of
complying with applicable laws and regulations will not be significant or that
the Company is in fact in compliance with applicable law. Any failure to comply
with applicable laws or regulations could have a material adverse effect on the
Company.
The Company's sales and marketing of residential land are subject to
various consumer protection laws and to the Interstate Land Sales Full
Disclosure Act, which establishes strict guidelines with respect to the
marketing and sale of land in interstate commerce. HUD has enforcement powers
with respect to this statute. In some instances, the Company has been exempt
from HUD registration requirements because of the size or number of the
subdivided parcels and the limited nature of its offerings. The Company, at its
discretion, may formally request an exemption advisory opinion from HUD to
confirm the exempt status of any particular offering. Several such exemption
requests have been submitted to, and approved by, HUD. In those cases where the
Company and its legal counsel determine parcels must be registered to be sold,
the Company files registration materials disclosing financial information
concerning the property, evidence of title and a description of the intended
manner of offering and advertising such property. The Company bears the cost of
such registration, which includes legal and filing fees. Many states also have
statutes and regulations governing the sale of real estate. Consequently, the
Company regularly consults with counsel for assistance in complying with
federal, state and local law. The Company must obtain the approval of numerous
governmental authorities for its acquisition and marketing activities and
changes in local circumstances or applicable laws may necessitate the
application for, or the modification of, existing approvals.
15
The Company's timeshare resorts are subject to various regulatory
requirements including state and local approvals. The laws of most states
require the Company to file with a designated state authority for its approval a
detailed offering statement describing the Company and all material aspects of
the project and sale of Timeshare Interests. Laws in each state where the
Company sells Timeshare Interests generally grant the purchaser of a Timeshare
Interest the right to cancel a contract of purchase at any time within a
specified period following the earlier of the date the contract was signed or
the date the purchaser has received the last of the documents required to be
provided by the Company. Most states have other laws which regulate the
Company's activities, such as real estate licensure; seller's of travel
licensure; anti-fraud laws; telemarketing laws; prize, gift and sweepstakes
laws; and labor laws. In addition, certain state and local laws may impose
liability on property developers with respect to construction defects discovered
or repairs made by future owners of such property. Pursuant to such laws, future
owners may recover from the Company amounts in connection with the repairs made
to the developed property. As required by state laws, the Company provides its
timeshare purchasers with a public disclosure statement that contains, among
other items, detailed information about the surrounding vicinity, the resort and
the purchaser's rights and obligations as a Timeshare Interests owner.
Under various federal, state and local laws, ordinances and regulations,
the owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
lease a property or to borrow using such real property as collateral. Other
federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at a property.
The Company's customer financing activities are also subject to extensive
regulation, which may include, the Truth-in-Lending Act and Regulation Z, the
Fair Housing Act, the Fair Debt Collection Practices Act, the Equal Credit
Opportunity Act and Regulation B, the Electronic Funds Transfer Act and
Regulation E, the Home Mortgage Disclosure Act and Regulation C, Unfair or
Deceptive Acts or Practices and Regulation AA and the Right to Financial Privacy
Act.
Management is not aware of any pending regulatory contingencies that are
expected to have a material adverse impact on the Company.
Competition
The real estate industry is highly competitive. In each of its markets, the
Company competes against numerous developers and others in the real estate
business. The Resorts Division competes with various high profile and
well-established operators. Many of the world's most recognized lodging,
hospitality and entertainment companies have begun to develop and sell Timeshare
Interests in resort properties. Major companies that now operate or are
developing or planning to develop timeshare resorts include Marriott, Disney,
Hilton, Hyatt, Four Seasons, Starwood, Carlson, Bass Hotels, Fairfield
Communities and Silverleaf Resorts. The Company also competes with numerous
other smaller owners and operators of timeshare resorts. The Residential Land
and Golf Division competes with builders, developers and others for the
acquisition of property and with local, regional and national developers,
housebuilders and others with respect to the sale of residential lots.
Competition may be generally smaller with respect to the Company's residential
lot sales in the more rural markets in which it operates. The Company believes
that it can compete on the basis of its reputation and the price, location and
quality of the products it offers for sale, as well as on the basis of its
experience in land acquisition, development and sale. Although, as noted above,
the Resorts Division competes with various high profile and well-established
operators, the Company believes that it can compete on the basis of its general
reputation and the price, location and quality of its timeshare resorts. The
development and operation of additional timeshare resorts in the Company's
markets could have a material adverse impact on the demand for the Company's
Timeshare Interests and its results of operations. In its customer financing
activities, the Company competes with banks, mortgage companies, other financial
institutions and government agencies offering financing of real estate. In
recent years, the Company has experienced increased competition with respect to
the financing of Residential Land and Golf Division sales as evidenced by the
low percentage of residential land sales internally financed since 1995. The
Company believes that, based on its interest rates and repayment schedules, the
financing packages it offers are convenient for customers and competitive with
those of other institutions which offer such financing.
16
Personnel
As of April 1, 2001, the Company had 2,372 employees. Of the 2,372
employees, 190 were located at the Company's headquarters in Boca Raton,
Florida, and 2,182 in regional field offices throughout the United States, Aruba
and Canada (the field personnel include 222 field employees supporting the
Company's Residential Land and Golf Division and 1,960 field employees
supporting the Company's Resorts Division). Only the Company's employees in
Aruba are represented by a collective bargaining unit, and the Company believes
that relations with its employees generally are excellent.
Executive Officers of the Company
The following table sets forth certain information regarding the executive
officers of the Company as of May 1, 2001.
Name Age Position
---- --- --------
George F. Donovan 62 President and Chief Executive Officer
John F. Chiste 45 Senior Vice President, Chief Financial Officer and Treasurer
Daniel C. Koscher 43 Senior Vice President - President, Land & Golf Division
David D. Philp 39 Senior Vice President and Chief Investment Officer
Patrick E. Rondeau 54 Senior Vice President, Director of Corporate Legal Affairs and Clerk
Mark T. Ryall 41 Senior Vice President and Chief Information Officer
Allan J. Herz 41 Vice President and Director of Mortgage Operations
Susan J. Milanese 42 Vice President and Director of Human Resources
Anthony M. Puleo 33 Vice President and Chief Accounting Officer
George F. Donovan joined the Company as a Director in 1991 and was appointed
President and Chief Operating Officer in October 1993. He became Chief Executive
Officer in December 1993. Mr. Donovan has served as an officer of a number of
other recreational real estate corporations, including Leisure Management
International, of which he was President from 1991 to 1993, and Fairfield
Communities, Inc., of which he was President from April 1979 to December 1985.
Mr. Donovan holds a B.S. in Electrical Engineering and is a Registered Resort
Professional.
John F. Chiste joined the Company in July 1997 as Treasurer and Chief Financial
Officer. In 1998, Mr. Chiste was also named Senior Vice President. From January
1997 to June 1997, Mr. Chiste was the Chief Financial Officer of Compscript,
Inc., an entity that provides institutional pharmacy services to long-term
health care facilities. From December 1992 to January 1997, he served as the
Chief Financial Officer, Secretary and Treasurer of Computer Integration
Corporation, a publicly-held distribution company that provides information
products and services to corporations nationwide. From 1983 through 1992, Mr.
Chiste held various positions with Ernst & Young LLP, most recently serving as a
Senior Manager. Mr. Chiste holds a B.B.A. in Accounting and is a Certified
Public Accountant.
Daniel C. Koscher joined the Company in 1986. During his tenure, he has served
in various financial management positions including Chief Accounting Officer,
Vice President and Director of Planning/Budgeting. In 1997, he became Senior
Vice President, Residential Land and Golf Division. Prior to his employment with
the Company, Mr. Koscher was employed by the William Carter Company, a
manufacturing company located in Needham, Massachusetts. He has also been
employed by Cipher Data Products, Inc., a computer peripheral manufacturer
located in San Diego, California, as well as the State of Nevada as an audit
agent. Mr. Koscher holds an M.B.A. along with a B.B.A. in Accounting and is a
Registered Resort Professional.
David D. Philp joined the Company in August 1999 as Chief Investment Officer. In
2000, Mr. Philp was also named Senior Vice President. From February 1996 to
August 1999, Mr. Philp was a Vice President and Corporate Officer directly
responsible for new property acquisitions with Sunterra Corporation, a publicly
held timeshare resort developer. From September 1995 to January 1996, he served
as a co-owner of E & O Development, an entity involved in the development of new
restaurant concepts in California. From September 1994 to August 1995, Mr. Philp
was a Regional Director of Development with responsibility for property
acquisitions and hotel management contract negotiations for Doubletree Hotels
Corporation, a national hotel chain. Mr. Philp holds a B.S. in Hotel
Administration.
Patrick E. Rondeau joined the Company in 1990 and was elected Vice President and
Director of Corporate Legal Affairs. He became Clerk in 1993 and Senior Vice
President in 1997. For more than five years prior to his employment with the
Company, Mr. Rondeau was a senior partner of Freedman, DeRosa & Rondeau, located
in North Adams, Massachusetts, which firm serves as legal counsel to the Company
on various matters. Mr. Rondeau holds a B.A. in Political Science along with a
J.D.
17
Mark T. Ryall joined the Company in October 2000 as Chief Information Officer.
In November 2000, Mr. Ryall was also named Senior Vice President. From 1997
through 2000, Mr. Ryall was Vice President and Chief Information Officer at AHL
Services, Inc., a publicly held provider of outsourcing solutions based in
Atlanta, Georgia. From 1990 to 1997, Mr. Ryall served as Group Project Manager,
Management Information Systems, at Ryder System, Inc., a publicly held provider
of logistics, supply chain and transportation management solutions worldwide,
based in Miami, Florida. From 1983 through 1990, Mr. Ryall held various
positions with Andersen Consulting, an international technology consulting firm.
Mr. Ryall holds an M.B.A.
Allan J. Herz joined the Company in 1992 and was named Director of Mortgage
Operations in September 1992. Mr. Herz was also elected Vice President in 1993.
From 1982 to 1992, Mr. Herz worked for AmeriFirst Federal Savings Bank based in
Miami, Florida. During his 10 year tenure with the bank, he held various lending
positions, the most recent being Division Vice President in Consumer Lending.
Mr. Herz holds a B.B.A. and an M.B.A.
Susan J. Milanese joined the Company in 1988. During her tenure, she has held
various management positions in the Company including Assistant to the Chief
Financial Officer, Divisional Controller and Director of Accounting. In 1995,
she was elected Vice President and Director of Human Resources. From 1983 to
1988, Ms. Milanese was employed by General Electric Company in various financial
management positions including the corporate audit staff. Ms. Milanese holds a
B.B.A in Accounting.
Anthony M. Puleo joined the Company in October 1997 as Chief Accounting Officer.
In 1998, Mr. Puleo was also elected Vice President. From December 1990 through
October 1997, Mr. Puleo held various positions with Ernst & Young LLP, most
recently serving as a Senior Manager in the Assurance and Advisory Business
Services group. Mr. Puleo holds a B.B.A. in Accounting and is a Certified Public
Accountant.
The Company's By-Laws provide that, except as otherwise provided by law or
the charter and by-laws of the Company, the President, Treasurer and the Clerk
hold office until the first meeting of the Board of Directors following the next
annual meeting of shareholders and until their respective successors are chosen
and qualified and that all other officers hold office for the same period unless
a shorter time is specified in the vote appointing such officer or officers.
Item 2. PROPERTIES.
The Company's principal executive office is located in Boca Raton, Florida
in approximately 74,000 square feet of leased space. On April 1, 2001, the
Company also maintained regional sales offices in the Northeastern,
Mid-Atlantic, Southeastern, Midwestern, Southwestern and Western regions of the
United States as well as the Province of Ontario, Canada and the island of
Aruba. See further description of the Company's resort and land properties under
"Item 1. Business--Company Products".
Item 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase, subdivision,
sale and/or financing of real estate. Additionally, from time to time, the
Company becomes involved in disputes with existing and former employees. The
Company believes that substantially all of the above are incidental to its
business.
In addition to its other ordinary course litigation, the Company became a
defendant in two proceedings during fiscal 1999. First, an action was filed in
Colorado state court against the Company on December 15, 1998 (the Company has
removed the action to the Federal District Court in Denver). The plaintiff has
asserted that the Company is in breach of its obligations under, and has made
certain misrepresentations in connection with, a contract under which the
Company acted as marketing agent for the sale of undeveloped property owned by
the plaintiff. The plaintiff also alleges fraud, negligence and violation by the
Company of an alleged fiduciary duty owed to plaintiff. Among other things, the
plaintiff alleges that the Company failed to meet certain minimum sales
requirements under the marketing contract and failed to commit sufficient
resources to the sale of the property. The original complaint sought damages in
excess of $18 million and certain other remedies, including punitive damages.
Subsequently, the damages sought were reduced to approximately $15 million by
the court. During fiscal 2001, the court dismissed the plaintiff's claims
related to promissory estoppel, covenant of good faith and fair dealing, breach
of fiduciary duty and negligence. In addition, the court dismissed the claims
alleged by a sister company of the plaintiff. The dismissals discussed above
further reduced the plaintiff's claims for damages to approximately $8 million,
subject to the plaintiff's right of appeal.
Second, an action was filed on July 10, 1998 in the District Court for the
State of Texas in the County of Montgomery against two subsidiaries of the
Company and various other defendants. The Company itself is not
18
named as a defendant. The Company's subsidiaries acquired certain real property
(the "Property"). The Property was acquired subject to certain alleged oil and
gas leasehold interests and rights (the "Interests") held by the plaintiffs in
the action (the "Plaintiffs"). The Company's subsidiaries developed the Property
and have resold parcels to numerous customers. The Plaintiffs allege, among
other things, breach of contract, slander of title and that the Company's
subsidiaries and their purchasers have unlawfully trespassed on easements and
otherwise violated and prevented the Plaintiffs from exploiting the Interests.
The Plaintiffs claim damages in excess of $40 million, as well as punitive or
exemplary damages in an amount of at least $50 million and certain other
remedies. During fiscal 2001, the court advised the parties in open court that
the Company's motion for summary judgment was granted, thus dismissing all of
the Plaintiff's claims for damages, subject to the Plaintiffs' right of appeal.
The parties are awaiting the court's written decision documenting the summary
judgment.
The Company is continuing to evaluate these actions and their potential
impact, if any, on the Company and accordingly cannot predict the outcomes with
any degree of certainty. However, based upon all of the facts presently under
consideration of management, the Company believes that it has substantial
defenses to the allegations in each of the actions and intends to defend each of
these matters vigorously. The Company does not believe that any likely outcome
of either case will have a material adverse effect on the Company's financial
condition or results of operations.
On August 21, 2000, the Company received a Notice of Field Audit Action
(the "Notice") from the State of Wisconsin Department of Revenue (the "DOR")
alleging that two subsidiaries now owned by the Company failed to collect and
remit sales and use taxes to the State of Wisconsin during the period from
January 1, 1994 through September 30, 1997 totaling $1.9 million. The majority
of the assessment is based on the subsidiaries not charging sales tax to
purchasers of Timeshare Interests at the Company's Christmas Mountain
Village(TM) resort. In addition to the assessment, the Notice indicated that
interest would be charged, but no penalties would be assessed. As of April 1,
2001, aggregate interest was approximately $1.1 million. The Company filed a
Petition for Redetermination (the "Petition") on October 19, 2000, and, if the
Petition is unsuccessful, the Company intends to vigorously appeal the
assessment. The Company acquired the subsidiaries that were the subject of the
Notice in connection with the acquisition of RDI Group, Inc. ("RDI") on
September 30, 1997. Under the RDI purchase agreement, the Company has the right
to set off payments owed by the Company to RDI's former stockholders pursuant to
a $1.0 million outstanding note payable balance and to make a claim against such
stockholders for $500,000 previously paid for any breach of representations and
warranties. The Company has notified the former stockholders that it intends to
exercise these rights to mitigate any settlement with the DOR in this matter. In
addition, the Company believes that, if necessary, amounts paid to the State of
Wisconsin pursuant to the Notice, if any, may be further funded through
collections of sales tax from the consumers who effected the assessed timeshare
sales with RDI without paying sales tax on their purchases. Based on
management's assessment of the Company's position in the Petition, the Company's
right of set off with the former RDI stockholders and other factors discussed
above, management does not believe that the possible sales tax pursuant to the
Notice will have a material adverse impact on the Company's results of
operations or financial position, and therefore no amounts have been accrued
related to this matter.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York Stock Exchange
("NYSE") and the Pacific Stock Exchange under the symbol "BXG". The following
table sets forth, for the periods indicated, the high and low closing price of
the common stock as reported on the NYSE:
Price Range Price Range
High Low High Low
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Fiscal 2000 Fiscal 2001
First Quarter $6.50 $4.88 First Quarter $4.06 $2.75
Second Quarter 6.38 4.56 Second Quarter 3.75 2.63
Third Quarter 5.63 4.38 Third Quarter 3.25 1.56
Fourth Quarter 4.94 3.06 Fourth Quarter 2.60 1.53
19
The Company did not pay any cash or stock dividends during fiscal 2000 or
fiscal 2001. The Company does not anticipate paying any dividends in the
foreseeable future, as it currently anticipates that it will retain any future
earnings for use in its business. Restrictions contained in the Indenture
related to the Company's $110 million 10 1/2% Senior Secured Notes due 2008
issued in April 1998, and certain of the Company's credit facilities may, in
certain instances, limit the payment of cash dividends on its Common Stock.
On August 14, 1998, the Company entered into a Securities Purchase
Agreement (the "Stock Agreement") with Morgan Stanley Real Estate Investors III,
L.P., Morgan Stanley Real Estate Fund III, L.P., MSP Real Estate Fund, L.P., and
Morgan Stanley Real Estate Fund III Special Fund, L.P. (collectively, the
"Funds") pursuant to which the Funds purchased 4.1 million and 1.8 million
shares of the Company's Common Stock for an aggregate of $35 million and $15
million during fiscal 1999 and 2000, respectively. Aggregate legal and other
stock issuance costs totaled approximately $774,000.
Shares of Common Stock sold to the Funds were exempt from registration
under the Securities Act of 1933, by virtue of Section 4(2) and Rule 506 of
Regulation D and issued thereunder.
Item 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related notes, and other
financial information appearing elsewhere in this Annual Report.
As of or for the Year Ended,
-------------------------------------------------------------
March 30, March 29, March 28, April 2, April 1,
(dollars in thousands, except per share data) 1997 1998 1999 2000 2001
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STATEMENT OF OPERATIONS DATA:
Sales $109,722 $172,659 $225,