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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 March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 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:
Title of each class Name of each exchange 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: $50,195,971 based upon the closing sale price of the
Company's Common Stock on the New York Stock Exchange on June 24, 2002 ($3.52
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 of each of the registrant's
classes of common stock, as of the latest practicable date: As of June 24, 2002,
there were 24,385,807 shares of the registrant's common stock, $.01 par value,
outstanding.
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 22, 2002 (the "Proxy Statement") are incorporated by reference into Part
III hereof.
BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I PAGE
Item 1. BUSINESS.......................................................... 1
Item 2. PROPERTIES........................................................ 21
Item 3. LEGAL PROCEEDINGS................................................. 21
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 22
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS......................................................... 22
Item 6. SELECTED FINANCIAL DATA........................................... 24
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION......................................... 24
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........ 41
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 43
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................ 80
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 80
Item 11. EXECUTIVE COMPENSATION............................................ 80
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 80
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 80
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K... 80
Signatures.................................................................. 82
Exhibit Index .............................................................. 83
Note: The term "Bluegreen(R)" is registered in the U.S. Patent and Trademark
office by Bluegreen Corporation.
The term "Big Cedar(R)" 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 3,700 resorts worldwide through the Company's participation in
timeshare exchange networks. The Company currently develops, markets and sells
Timeshare Interests in 11 resorts located in the United States and one resort
located in the Caribbean. The Company also markets and sells Timeshare Interests
at two off-site sales locations serving the Indianapolis, Indiana and Detroit,
Michigan markets. 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 (hereinafter referred to as "home sites") 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 (i) near major
metropolitan centers but outside the perimeter of intense subdivision
development or (ii) 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 home sites 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, home sites 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 home sites, 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 2001. 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 (two resorts); Myrtle Beach (two resorts) 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 two off-site sales
offices. Through March 31, 2002, the Company has generated approximately 67,000
Timeshare Interests sales transactions at its resorts. As of March 31, 2002, the
Company had 69,509 completed Timeshare Interests at its resorts, 8,913 Timeshare
Interests under construction or development and plans to develop approximately
78,196 additional Timeshare Interests at existing resorts. Based on the
foregoing, the Resorts Division's estimated remaining life-of-project sales were
approximately $914 million as of March 31, 2002, 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 87,000 members.
1
The Resorts Division uses a variety of techniques to attract prospective
purchasers of Timeshare Interests, including telemarketing mini-vacations,
marketing 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 3,700 participating RCI resorts or over 1,900 participating II resorts
located in over 100 countries worldwide. To further enhance the ability of its
Timeshare Interest owners to customize their vacation experience, the Company
has also implemented the points-based Bluegreen Vacation Club 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 March 31, 2002, the Company's approximately
51,000 Bluegreen Vacation Club members could choose to use their points at 32
resorts in the Bluegreen system. The Company also has implemented the Bluegreen
Vacation Club Sampler program, which allows Sampler package purchasers to enjoy
substantially the same amenities, activities and services offered to the regular
Bluegreen 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 geographic
areas in which the Company currently intends to pursue the acquisition of real
estate or interests in real estate for the Resorts Division are the areas in
which the Resorts Division currently operates (as noted above), the northeastern
and western United States and the Caribbean, although the Company may pursue
acquisitions in other areas. No assurances can be given that the Company will be
able to acquire property in its current target areas or be successful in its
acquisitions strategy.
The Company has historically provided financing to approximately 99% 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 March 31, 2002, the
Company had a timeshare receivables portfolio totaling approximately $50.9
million in principal amount, with a weighted-average contractual yield of
approximately 15.4% per annum. During fiscal 2002, 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 facility expired in April 2002, and the Company is
currently negotiating a new combined warehouse and purchase facility. No
assurances can be given that such negotiation will be successful or that the
Company will obtain a new facility on favorable terms if at all. See "Liquidity
and Capital Resources" for further discussion of the Company's timeshare
receivable facilities and certain risks relating to such facilities.
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 March 31,
2002 was $101.4 million. The Residential Land and Golf Division's estimated
remaining life-of-project sales were approximately $357.6 million at March 31,
2002, based on retail prices at that date. The Company believes no other company
in the United States of comparable size or financial resources markets and sells
residential home sites directly to retail customers.
The Residential Land and Golf Division targets families seeking a quality
lifestyle improvement, which is generally unavailable in traditional, intensely
subdivided suburban developments. Based on the Company's experience in marketing
and selling home sites 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
2
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.
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 increase the marketability of the Company's adjacent home sites in
certain projects. The Company's first golf course, the Carolina National(TM)
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(TM), a new residential land and golf course community in New Kent
County, Virginia. Brickshire opened its 18-hole golf course, designed by
two-time U.S. Open Champion Curtis Strange, in fiscal 2002. In fiscal 2001, the
Company began construction of an 18-hole golf course designed by PGA Champion
Davis Love III adjacent to its residential land project near Chapel Hill, North
Carolina, known as The Preserve at Jordan Lake(TM). The Company expects that the
golf course at The Preserve at Jordan Lake will open for play in August 2002.
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 and this
Annual Report contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1999. Please see Item 7
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" ("MD&A") for further discussion of these risks and uncertainties and
factors that could cause the Company's actual results to differ materially from
those suggested in the forward-looking statements.
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. The Company's web site address is
www.bluegreenonline.com.
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 2001. Also, the number of timeshare resorts worldwide
and the number of timeshare owners grew by approximately 9% and 17%,
respectively, from 2000 to 2001. No assurances can be given that such industry
growth rates will continue.
3
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:
o Consumer awareness of the value and benefits of Timeshare Interest
ownership, including the cost savings relative to certain other
lodging alternatives;
o Flexibility of Timeshare Interest ownership due to the growth of
international exchange organizations such as RCI and II 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 portion of these
companies' overall operations, the Company believes that their involvement in
the timeshare industry has enhanced the industry's image with the general
public.
Since the September 11th terrorist attacks, the leisure and travel
industries, including the timeshare industry, have been adversely impacted by a
reduction in air travel by Americans. The Company believes that it has been
somewhat less affected by this adverse economic impact due to the 11 "drive-to"
resort destinations in its portfolio of 12 timeshare properties. The Company
believes that, in general, Americans still desire to take family vacations and
that the Bluegreen Vacation Club, which consists entirely of "drive-to" resorts,
is positioned to satisfy consumer demand for family vacations in the
post-September 11th environment. There can be no assurances that the Company
will not experience a material adverse economic effect from the current or
future reductions in air and other forms of leisure travel.
The Consumer. According to information compiled by industry sources,
customers in the 40-49 year age range represented approximately 25% of all
Timeshare Interest owners in the United States in 2000. Historically, the median
age of a Timeshare Interest buyer at the time of purchase was 48. The median
annual household income of Timeshare Interest owners in the United States in
2000 was approximately $79,000, with approximately 29% 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 next 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 March 31, 2002, all of the
Company's sales offices, with the exception of its La Cabana Beach and Racquet
Club(TM) ("La Cabana") sales office in Aruba, were only selling Timeshare
Interests within the Bluegreen Vacation Club 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
4
responsibilities of the homeowners' association, including grounds landscaping,
security, housekeeping and operating supplies, garbage collection, utilities,
insurance, laundry and repairs and maintenance. As of March 31, 2002, the
Company managed 20 resorts (including ten of the Company's resorts) and served
an owner base of approximately 87,000.
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. Eleven of the
Company's timeshare resorts are affiliated with RCI and have been awarded RCI's
highest designation (Gold Crown), while La Cabana is affiliated with II. A
Timeshare Interest owner's participation in the RCI or II exchange network
allows such owner to exchange their annual Timeshare Interest for occupancy at
over 3,700 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. RCI and II's participating resorts are located throughout the
world in over 100 countries. A member may exchange their 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. No assurances
can be given that the Company's resorts will continue to qualify for
participation in RCI or II, or that the Company's customers will continue to be
satisfied with these networks. 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 home sites
to retail customers who intend to build a home on such home sites 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, such as
the construction of single and multi-family housing structures, 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. See "MD&A" for a discussion of risks the Company
has as a result of holding real estate inventory. 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 centerpieces of certain of the
Company's residential land properties. As of March 31, 2002, the Company was
marketing home sites in six 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 La Cabana, are part of
the Bluegreen Vacation Club. Buyers of timeshare interests in the Bluegreen
Vacation Club receive an annual allotment of "points" in perpetuity
5
(supported by an underlying deeded fixed timeshare week 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 11 of the Company's resorts (all
except La Cabana), Bluegreen Vacation Club owners can use their points to stay
at 21 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.
Buyers of timeshare interests in La Cabana receive an ownership interest in
La Cabana, which provides them the use of a vacation residence at La Cabana for
a one-week period each year in perpetuity. Ownership of a timeshare interest in
La Cabana is not interchangeable with ownership of a timeshare interest at one
of the Company's other resorts which are part of the Bluegreen Vacation Club, or
vice versa.
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 La Cabana and the Big Cedar Wilderness Club(TM). La Cabana
is managed by Optima Hotel Exploitatiemaatschappij N.V., an unaffiliated third
party which managed the resort prior to the Company's acquisition of La Cabana's
unsold Timeshare Inventory in 1997. The Big Cedar Wilderness Club resort is
managed by Big Cedar(R), L.L.C., the minority owner of the Company's 51%-owned
Bluegreen/Big Cedar Vacations, LLC(TM), the developer of the Big Cedar
Wilderness Club.
Please see page 8 below for additional disclosure about the individual
resorts, including the number of Timeshare Interests completed, under
construction and sold at each of the Company's resorts.
MountainLoft(TM) --Gatlinburg, Tennessee. The MountainLoft 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 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--North Myrtle Beach, South Carolina. Shore
Crest 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 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 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 renowned
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 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 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 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 Resort, which includes 60 units, an outdoor swimming
pool, hot tub and tennis courts.
La Cabana Beach Resort & Racquet Club --Aruba. Bluegreen Properties N.V.
acquired the unsold Timeshare Interest inventory of La Cabana (approximately
8,000 Timeshare Interests) in December 1997 and additional Timeshare Interests
from time to time thereafter. Established in 1989, La Cabana is a 449-suite
ocean front property, which offers
6
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
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 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 --Ridgedale, Missouri. In fiscal 2001,
Bluegreen/Big Cedar Vacations LLC, a joint venture between a wholly-owned
subsidiary of the Company and Big Cedar, L.L.C., with 51% and 49% ownership,
respectively, began developing the Big Cedar Wilderness Club, 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 Big Cedar Wilderness Club 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.
Solara Surfside(TM) --Surfside, Florida. In June 2001, the Company acquired
the unsold Timeshare Interest inventory (approximately 6,001 Timeshare
Interests, as further described in the table below) at an existing vacation
ownership property located in Surfside, Florida, near Miami Beach. Solara
Surfside is located directly on the beach and features one and two bedroom
vacation homes. Sales of Timeshare Interests in this resort commenced in May
2002. The Company is in the process of renovating the resort's units, common
areas and amenities. Such renovations are anticipated to be completed by October
2002, although there can be no assurances.
7
The following table sets forth additional data with respect to each of the
Company's resorts:
Laurel Shore Harbour The Christmas La Cabana Shenandoah
Mountain- Crest Crest Lights Falls Mountain Beach & Crossing Orlando's
Loft Pigeon Myrtle Myrtle Village Village Racquet Farm & Club Sunshine
Gatlinburg, Forge, Beach, Beach, Branson, Wisconsin, Club , Gordonsville, Orlando,
Location TN TN SC SC MO Dells, WI Aruba VA FL
- -----------------------------------------------------------------------------------------------------------------------------------
Date sales commenced 7/94 8/95 4/96 6/97 7/97 9/97 1/98 4/98 12/98
Number of Timeshare
Interests completed as
of March 31, 2002 (1) 14,248 12,064 12,480 4,992 3,979 2,792 8,511 2,123 3,120
Number of Timeshare
Interests under
Construction as of
March 31, 2002 (1) (2) -- -- -- -- -- 416 -- -- --
Number of additional
Timeshare Interests
Planned (1) (2) 4,680 8,840 -- 8,736 9,256 12,364 -- 10,400 --
Number of Timeshare
Interests in inventory at
March 31, 2002 (3) 890 781 4,004 927 276 696 3,874 402 531
Average sales price
Per transaction (4) (5) $7,979 $7,959 $8,588 $9,423 $10,005 $6,291 $8,001 $9,189 $7,140
Number of Timeshare
Sales transactions (5)
Through March 31, 2002 12,656 9,889 12,402 5,778 4,767 4,162 5,819 1,991 4,968
The Big Cedar
Lodge Wilderness Solara
Alley Inn Club (6) Surfside
Charleston, Ridgedale, Surfside,
Location SC MO FL
- -----------------------------------------------------------------
Date sales commenced 2/99 11/00 5/02
Number of Timeshare
Interests completed as
of March 31, 2002 (1) 4,680 520 --
Number of Timeshare
Interests under
Construction as of
March 31, 2002 (1) (2) -- 2,496 6,001
Number of additional
Timeshare Interests
Planned (1) (2) -- 23,920 --
Number of Timeshare
Interests in inventory at
March 31, 2002 (3) 1,868 1,617 6,001
Average sales price
Per transaction (4) (5) $9,596 $13,196 --
Number of Timeshare
Sales transactions (5)
Through March 31, 2002 3,405 929 --
(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, Harbour Lights, Orlando's Sunshine, La Cabana and
Lodge Alley Inn resorts. The amounts for the remaining resorts include some
vacation homes that can be subdivided and sold either as two smaller
vacation homes ("lock-out units") or, as in the case of the Solara Surfside
resort, as two timeshare interests per week (Monday through Thursday and
Friday through Sunday), each of which consists of 104 timeshare interests
per vacation home.
(2) There can be no assurances that the Company will have the resource, or will
decide, to complete all such planned Timeshare Interests or that such
Timeshare Interests will be sold at favorable prices.
(3) The number of Timeshare Interests in inventory at March 31, 2002 reflects
the number of Timeshare Interests completed or under construction that are
currently available for sale. In addition to full Timeshare Interests, as
defined elsewhere herein, the Company also sells biennial Timeshare
Interests, which entitle the buyer of points in the Bluegreen Vacation Club
with the use of those points every other year. Biennial Timeshare Interests
held in the Company's inventory are counted as 1/2 of a Timeshare Interest
for the purposes of this disclosure.
(4) The average sales price per transaction is for sales during the year ended
March 31, 2002.
(5) The Company reacquires previously-sold Timeshare Interests in its resorts
in various transactions including foreclosures, deedback in lieu of
foreclosure and equity trade-ins of one Timeshare Interest towards the
purchase of a higher priced Timeshare Interest, subject to the Company's
policies and applicable laws and regulations. The Company sells reacquired
Timeshare Interests through its sales outlets at then-current retail
prices. For the purposes of this disclosure, each sale, including the sale
of a reacquired or a biennial Timeshare Interest, is counted as one
timeshare sales transaction. Also, the sales price on a transaction with an
equity trade-in is accounted for net of the equity trade-in allowance
granted the customer.
(6) Bluegreen/Big Cedar LLC, in which the Company owns a 51% interest, is
developing The Big Cedar Wilderness Club.
The Company believes that each of its resorts is adequately covered by
property and casualty insurance, in the case of the Company's completed resorts,
and builder's risk insurance, in the case of resorts that are under
construction. In addition, the Company, or general contractors hired by the
Company, as applicable, purchase performance bonds if required by the local
jurisdictions in which the Company develops its resorts.
Certain Residential Land and Golf Division Projects
Set forth below is a description of the six 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 78.8% of the Residential Land and Golf
Division's estimated remaining life-of-project sales at March 31, 2002.
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 approximately 2,400 home sites, ranging in size from one to
twenty acres. Mystic Shores 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. General improvements
on home sites at Mystic Shores performed by the Company include, in most cases,
water and lot clearing, while some sections of the project also include
underground electric and telephone utilities. Aggregate development costs
through March 31, 2002 were
8
$17.6 million, with projected remaining expenditures to complete development at
the project of $25.6 million. The Company began selling home sites in March
2000, with aggregate sales of $33.1 million through March 31, 2002. Estimated
remaining life-of-project sales were approximately $95.1 million as of March 31,
2002, based on retail selling prices as of that date. As of March 31, 2002, the
Company had sold 474 home sites at this project and had a total of 1,899 home
sites remaining available for sale.
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 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 2,800 home sites, with most home sites ranging in size
from 1/4 to five acres. General improvements on the home sites at Lake Ridge
performed by the Company include, in most cases, water, sewer, electric,
telephone and cable television utilities as well as lot clearing. The Company
began selling home sites in April 1994 and aggregate sales through March 31,
2002 were $98.2 million. Aggregate development costs through March 31, 2002 were
$30.0 million and the Company anticipates that the remaining capital
expenditures to complete development at the project will be $21.0 million.
Estimated remaining life-of-project sales for this project were approximately
$80.2 million as of March 31, 2002, based on retail selling prices as of that
date. As of March 31, 2002, the Company had sold 1,469 home sites at this
project and had a total of 1,342 home sites remaining available for sale.
Brickshire -- 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 1,135 home sites, ranging in
size from 1/4 to 2.5 acres, and features 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. General improvements on
the home sites at Brickshire performed by the Company include, in most cases,
water and sewer utilities. Aggregate development costs through March 31, 2002
were $16.1 million, with projected remaining expenditures of $14.0 million. The
Company began selling home sites in December 1999, with aggregate sales of $19.8
million through March 31, 2002. Estimated remaining life-of-project sales were
approximately $47.5 million as of March 31, 2002, based on retail selling prices
as of that date. As of March 31, 2002, the Company had sold 335 home sites at
this project and had a total of 800 home sites remaining available for sale.
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 1,290 home sites ranging in size from one
to five acres, including both lakefront and waterview parcels. General
improvements on the home sites at Mountain Lakes Ranch performed by the Company
include, in most cases, water, electric and telephone utilities. The Company
began selling home sites in March 2000, with aggregate sales of $15.9 million
through March 31, 2002. Aggregate development costs through March 31, 2002 were
$18.0 million and the Company anticipates that future capital expenditures to
complete development at the project will be $3.8 million. Estimated
life-of-project sales for Mountain Lakes Ranch were $23.3 million as of March
31, 2002, based on retail prices at that date. As of March 31, 2002, the Company
had sold 483 home sites at this project and had a total of 806 home sites
remaining available for sale.
Ridge Lake Shores(TM) -- Magnolia, Texas. In February 2001, the Company
acquired 1,152 acres located approximately 25 minutes drive from Houston, Texas
for $3.2 million. This property is anticipated to include approximately 700 home
sites, ranging in size from one to four acres, and will feature two private
fishing lakes, boat ramps, open-air pavilions, bathhouses, playgrounds and a
beach area. General improvements to the home sites in Ridge Lake Shores
performed by the Company include, in most cases, water and lot clearing, while
some sections of the project have electric, cable, telephone and/or gas
utilities. The Company began selling home sites in May 2001, with aggregate
sales of $5.1 million through March 31, 2002. Aggregate development costs
through March 31, 2002 were $3.7 million and the Company anticipates that future
capital expenditures to complete development at the project will be $7.1
million. Estimated life-of-project sales for Ridge Lake Shores were $20.4
million as of March 31, 2002, based on retail prices at that date. As of March
31, 2002, the Company had sold 154 home sites at this project and had a total of
548 home sites remaining available for sale.
The Preserve at Jordan Lake - 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 which has been designed by
PGA Champion Davis Love III. The project will also include a swimming pool, a
fitness center, a recreation field and tennis courts. The Company anticipates
9
that the project will consist of a total of approximately 516 home sites, which
range in size from approximately 1/3 acre to one acre. The Company began selling
home sites in December 2000, and aggregate sales through March 31, 2002 were
$32.6 million. Aggregate development costs (net of costs capitalized separately
in the golf course) through March 31, 2002 were $12.1 million and the Company
anticipates that the aggregate capital expenditures to complete development at
the project will be $4.4 million. Estimated remaining life-of-project sales for
this project were approximately $15.2 million as of March 31, 2002, based on
retail selling prices as of that date. As of March 31, 2002, the Company had
sold 351 home sites at this project and had a total of 165 home sites remaining
available for sale.
The Company believes that each of its residential land and golf projects is
adequately covered by builder's risk insurance during the construction period
and property and casualty insurance for home sites that are held in the
Company's inventory prior to sale to consumers. Once a home site is sold, the
consumer assumes the risk of loss on such home site. In addition, the applicable
property owners' association bears the risk of loss on any common amenities at
each project.
The Company also purchases performance bonds on each of its projects, to
provide assurance to home site buyers that construction of the project will be
completed. The Company believes that its ability to obtain such performance
bonds assist the Company in its pre-construction sales efforts.
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; Daniel C. Koscher, Senior
Vice President--President, Residential Land and Golf Division; Mark T. Ryall,
Senior Vice President and Chief Information Officer and Randi S. Tompkins, Vice
President, Director of Corporate Legal Affairs. The Investment Committee reviews
each proposed inventory acquisition to determine whether the property meets
certain criteria, including estimated cash flows and anticipated gross profit
margins.
Please see "Liquidity and Capital Resources", below, for discussion of the
Company's methods and available resources for financing acquisition and
development efforts for its timeshare and land projects.
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
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 owners and (v) barriers to
entry that would limit competition.
The Company intends to continue to pursue growth by expanding or
supplementing the Company's existing resorts operations through acquisitions in
destinations that the Company believes will complement such existing operations.
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. The geographic areas in
which the Company currently intends to pursue the acquisition of real estate or
interests in real estate for the Resorts Division are the areas in which the
Resorts Division currently operates (as noted above), the northeastern and
western United States and the Caribbean, although the Company may pursue
acquisitions in other areas. 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 but
outside the perimeter of intense subdivision development or in popular
retirement areas, (ii) is suitable for subdivision,
10
(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 2002, the Company acquired 1,280 acres in one transaction for a total
purchase price of approximately $1.2 million or $938 per acre. 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. 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.
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, sometimes 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 attempts to pre-sell parcels,
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 helps 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. In
certain circumstances, however, the Company has acquired properties and
strategically held such projects until their prime marketing seasons. Please see
"MD&A" and the discussion of risks related to holding real estate inventory.
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
11
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,
placing marketing kiosks in retail locations, acquiring the right to market to
prospective purchasers from third-party vendors, marketing to current owners of
Timeshare Interests and encouraging referrals. The Resorts Division provides
hotel accommodations to prospective purchasers at reduced rates in exchange for
their touring one of the Company's timeshare resorts. 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, Inc. ("Bass Pro") of Springfield,
Missouri. Under the terms of the 10-year agreement, which expires in June 2010,
the Company will market the Bluegreen Vacation Club product to Bass Pro's
estimated 30 million annual retail customers and 34 million catalog subscribers.
The Company now markets discounted three-day, two-night mini-vacation packages
at most of Bass Pro's national retail locations. Each mini-vacation package
requires the buyer to participate in a sales presentation at either a Bluegreen
Vacation Club sales office or the Big Cedar Wilderness Club sales office.
Bluegreen also has an exclusive timeshare marketing presence on Bass Pro's web
site, which is linked to the Company's web site. The Company believes that this
arrangement 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. Pursuant to the marketing agreement with Bass
Pro, the Company has the right to market its Timeshare Interests at each of Bass
Pro's national retail locations (currently fourteen stores), in Bass Pro's
catalogs and on its web site. The Company also has access to Bass Pro's customer
mailing lists. In exchange for these services, the Company agreed to pay Bass
Pro a commission of either 3.5% or 7.0%, depending on certain circumstances, on
each sale of a Timeshare Interest, net of cancellations and defaults, that is
made as a result of one of the Bass Pro marketing channels described above (the
"Commission"). The amount of the Commission is dependent on the level of
additional marketing efforts required by the Company to convert the prospect
into a sale and a defined time frame for such marketing efforts. There is no
Commission paid to Bass Pro on sales made by the Big Cedar Wilderness Club sales
office, as this sales office is part of a joint venture between an affiliate of
Bass Pro, Big Cedar L.L.C., and the Company (the "Joint Venture").
On June 16, 2000, the Company prepaid $9 million to Bass Pro (the
"Prepayment") in connection with the aforementioned marketing agreement. The
Prepayment is amortized from future Commissions earned by Bass Pro and future
member distributions otherwise payable to Big Cedar from the earnings of the
Joint Venture as a member thereof. No additional Commissions or member
distributions will be paid in cash to Bass Pro or Big Cedar, respectively, until
the Prepayment has been fully utilized.
The marketing agreement expires on the earlier of: (i) June 16, 2010 or
(ii) such time as ninety percent (90%) of the Joint Venture's proposed Timeshare
Interests have been sold and conveyed.
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 2002, total
advertising expense for the Resorts Division was $42.6 million or 29.6% of the
division's $144.2 million in sales. During fiscal 2001, total advertising
expense for the Resorts Division was $46.0 million or approximately 32.7% of the
division's $141.0 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
12
customer requires to make an informed decision as to whether or not to purchase
a Timeshare Interest at one of its resorts.
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 two off-site sales offices serving the Indianapolis, Indiana and
Detroit, Michigan markets. The Company closed its off-site sales offices serving
the Cleveland, Ohio and Louisville, Kentucky markets during fiscal 2002 and
2001, respectively, due to low operating margins being generated by the sites.
These off-site sales offices market and sell Timeshare Interests in the
Bluegreen Vacation Club, and allow the Company to bring its products to markets
with favorable demographics and low competition for prospective buyers. During
fiscal 2002, the Indianapolis and Detroit sales offices generated an aggregate
$16.7 million and $2.9 million in sales and field operating profit,
respectively. The Company continues to evaluate its ongoing utilization of
off-site sales operations and may elect to open new locations and/or close
existing locations in the future.
The Company believes that the attractiveness of Timeshare Interest
ownership has been enhanced significantly by the Bluegreen Vacation Club 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. La Cabana is affiliated with the timeshare
exchange network operated by II, while the Company's eleven other resorts 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
who the Company believes are 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 2002,
the Residential Land and Golf Division incurred $8.0 million in advertising
expense, or 8.3% of such division's $96.4 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
13
sales meetings and frequent site visits by an executive officer of the Company.
The Company enhances its sales 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, please see "MD&A" and the Company's consolidated financial statements
and the related Notes.
Customer Financing
General
During fiscal 2002, fiscal 2001 and fiscal 2000, the Company financed 62%,
62% and 52%, 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 fiscal 2000 is
primarily attributable to an increase in the sales of Timeshare Interests over
the same period. Sales of Timeshare Interests accounted for 60%, 61% and 55% of
consolidated sales during fiscal 2002, fiscal 2001 and fiscal 2000,
respectively. Approximately 99% of all purchasers of Timeshare Interests finance
with the Company (compared to approximately 2% of residential land purchasers in
fiscal 2002). 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 2002, fiscal 2001 and fiscal 2000, provided for
terms of seven or ten years and a fixed interest rate. In connection with the
Company's Timeshare Interest sales within the Bluegreen Vacation Club system,
the Company delivers the deed on behalf of the purchasers to the trustee of the
Bluegreen Vacation Club and secures repayment of the purchaser's obligation by
obtaining a mortgage on the purchaser's Timeshare Interest. Prior to the Company
converting its sales operations to sell the Bluegreen Vacation Club, the Company
and the purchaser of a fixed-week Timeshare Interest executed a contract for
deed agreement. After the contract for deed obligation is paid in full, the
Company delivers a deed to the purchaser. 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. An average note receivable underwritten by the Company during
fiscal 2002, fiscal 2001 and fiscal 2000 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.
14
The weighted-average interest rate on the Company's notes receivable by
division was as follows:
As of
---------------------------------------
Division March 31, 2002 April 1, 2001
-------- -------------- -------------
Resorts 15.4% 15.7%
Residential Land & Golf 11.1% 12.1%
Consolidated 14.7% 15.2%
Please see `Sale of Receivables/Pledging of Receivables', below, for
information regarding the Company's receivable financing activities.
Loan Underwriting
Resorts Division. Consistent with industry practice, the Company's
Timeshare Interest financing is not subject to extensive loan underwriting
criteria. Currently, customer financing on sales of Timeshare Interests requires
(i) receipt of a minimum downpayment of 10% of the purchase price, (ii) a note
and mortgage and (iii) 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. During
fiscal 2002, 68% of the Company's timeshare notes receivable generated were
being serviced through the Company's pre-authorized payment plan.
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 one or more 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
15
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.
Collection Policies
Resorts Division. Prior to fiscal 1999, the Company's timeshare receivables
were 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 its points-based Bluegreen Vacation Club system, in
fiscal 1999 the Company converted to a note and mortgage arrangement. 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
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 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 reached 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 typically 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 approximately 7% and 5% at March 31, 2002 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.) During the years ended March 31, 2002,
April 1, 2001 and April 2, 2000, the annual default rates on resorts and
residential land receivables owned or serviced by the Company were as follows:
Year Ended
-------------------------------------------
March 31, April 1, April 2,
Division 2002 2001 2000
-------- ---- ---- ----
Resorts 8.1% 7.1% 7.4%
Residential Land 2.0% 2.6% 2.4%
16
Sales of Receivables/Pledging of Receivables
During the years ended March 31, 2002, April 1, 2001 and April 2, 2000, all
of the Company's notes receivable sold and the majority of the Company's notes
receivable pledged consisted of notes receivable generated by the Resorts
Division.
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, once a sufficient pool of receivables was generated, and the
subsidiary in turn entered 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.
Although private placement REMIC financings of land receivables provided
substantial capital resources to the Company during the early to mid-1990's, 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 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 (the "Purchase Facility") and through June 24, 2002, a special purpose
finance subsidiary of the Company had sold $83.2 million aggregate principal
amount of timeshare receivables in securitization transactions to Credit Suisse
First Boston ("CSFB") and $26.0 million to ING Capital, LLC ("ING"), an
affiliate of ING Bank NV. ING acquired the Purchase Facility from CSFB in April
2002. Receivables are sold under the Purchase Facility without recourse to the
Company or its special purpose finance subsidiary except for breaches of
representations and warranties made at the time of sale. The Company acts as
servicer under the Purchase Facility for a fee. Subject to its terms, the
Purchase Facility will allow the Company to sell up to an additional $41.2
million aggregate principal amount of timeshare receivables, on a revolving
basis, through April 2003. See "Liquidity and Capital Resources" for further
discussion of the Purchase Facility. The Company is currently negotiating a new
timeshare receivables purchase facility with another financial institution.
There can be no assurances that the Company's negotiations will result in the
Company obtaining the new facility on acceptable terms to the Company, if at
all. The Company's liquidity and financial condition could be materially
adversely affected if it were not able to sell a material portion of the
receivables it generates under its current or one or more future facilities. In
obtaining such facilities, the Company is subject to factors impacting the
securitization markets generally and to factors affecting the sale of timeshare
receivables in particular, including the performance of the Company's
receivables.
For a further discussion of the terms of the Purchase Facility and the
Company's existing receivables warehouse and hypothecation facilities please see
"Liquidity and Capital Resources" under Item 7, below.
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 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 for a given pool of receivables 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 any of the Company's timeshare receivable purchase facilities to date,
although in certain circumstances the purchasers may elect to appoint a new
servicer. The Company typically receives an annual servicing fee ranging from
approximately .5% to 2.0% of the principal balance of the loans serviced. During
the years ended March 31, 2002, April 1, 2001 and April 2, 2000, the Company
recognized aggregate servicing fee income of $2.7 million, $1.9 million and $1.1
million, respectively.
17
Regulation
The timeshare and real estate industries are subject to extensive and
complex regulation. The Company is subject to compliance with various federal,
state, local and foreign environmental, zoning, consumer protection 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 La Cabana. 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, including those
discussed below in this section. Any failure to comply with current or future
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.
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.
18
During the years ended March 31, 2002 and April 1, 2001, approximately 17%
and 22%, respectively, of the Company's timeshare sales were generated by
marketing to prospective purchasers obtained through internal and affiliated
telemarketing efforts. In addition, approximately 21% and 15% of the Company's
timeshare sales during the years ended March 31, 2002 and April 1, 2001,
respectively, were generated by marketing to prospective purchasers obtained
from third-party timeshare prospect vendors, many of whom use telemarketing
operations to generate these prospects. In recent years, state regulators have
increased legislation and enforcement regarding telemarketing operations
including requiring the adherence to state "do not call" lists. In addition, it
is anticipated that the Federal Trade Commission will implement national "do not
call" legislation in the near future. The Company believes that its exposure to
adverse impacts from this heightened telemarketing legislation and enforcement
has been and will continue to be mitigated in some instances by the use of
"permission marketing" techniques, whereby prospective purchasers have directly
or indirectly granted the Company permission to contact them in the future, and
through its exclusive marketing agreement with Bass Pro. The Company has
implemented procedures which it believes will help ensure that individuals who
have formally requested to their state regulators that they be placed on a "do
not call" list are not contacted through one of its inhouse or third-party
contracted telemarketing operations, although there can be no assurances that
such procedures are 100% effective in ensuring regulatory compliance. Through
March 31, 2002, the Company has not been subject to any material fines or
penalties as a result of its telemarketing operations. There can be no
assurances that the Company will be able to efficiently or effectively market to
prospective purchasers through telemarketing operations in the future or that
the Company will be able to develop alternative sources of prospective
purchasers of its timeshare products at acceptable costs.
Other than as described above, 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 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 and Cendant Corporation. The
Company also competes with numerous other smaller owners and operators of
timeshare resorts. In addition to competing for sales leads and prospects, the
Company competes with other timeshare developers for sales personnel. The
Company believes that each of its timeshare resorts face the same general
competitive conditions. 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.
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 each of its residential land and golf projects faces the
same general competitive conditions. 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.
The Company's golf courses face competition for business from other
operators of daily fee and, to a lesser extent, private golf courses within the
local markets that the Company operates. Competition in these markets affects
the rates that the Company charges per round of golf, the level of maintenance
on the golf courses and the types of additional amenities available to golfers,
such as food and beverage operations. The Company does not believe that such
competitive factors have a material adverse impact on its results of operations
or financial position.
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.
19
Personnel
As of March 31, 2002, the Company had 2,266 employees. Of the 2,266
employees, 284 were located at the Company's headquarters in Boca Raton,
Florida, and 1,982 in regional field offices throughout the United States, Aruba
and Canada (the field personnel include 278 field employees supporting the
Company's Residential Land and Golf Division and 1,704 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 June 1, 2002.
Name Age Position
George F. Donovan 63 President and Chief Executive Officer
John F. Chiste 46 Senior Vice President, Chief Financial Officer and Treasurer
Daniel C. Koscher 44 Senior Vice President - President, Land & Golf Division
John M. Maloney, Jr. 40 Senior Vice President - President, Resorts Division
Mark T. Ryall 42 Senior Vice President and Chief Information Officer
Allan J. Herz 42 Vice President and Director of Mortgage Operations
Susan J. Milanese 43 Vice President and Director of Human Resources
Anthony M. Puleo 34 Vice President and Chief Accounting Officer
Randi S. Tompkins 41 Vice President, Director of Corporate Legal Affairs and Clerk
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 and
Vice President and Director of Planning/Budgeting. In 1997, he became Senior
Vice President - 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.
John M. Maloney, Jr. joined the Company in May 2001 as Senior Vice President,
Resorts Division, Operations and Business Development. In May 2002, Mr. Maloney
was named Senior Vice President of the Company and President of the Resorts
Division. From 1997 to 2000 Mr. Maloney served in various positions with
ClubCorp, most recently as the Senior Vice President of Sales and Marketing for
the Owners Club by ClubCorp. From 1994 to 1997, Mr. Maloney held various
positions with Hilton Grand Vacations Company, most recently as the Director of
Sales Marketing for the South Florida area. Mr. Maloney holds a bachelors degree
in Economics.
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
now known as Accenture. Mr. Ryall holds a B.S.B.A. in Financial Management and
an M.B.A.
20
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.
Randi S. Tompkins joined the Company in 1998 as Assistant Director of Legal
Affairs and was elected Vice President and Director of Corporate Legal Affairs
and Clerk in 2002. From March 1995 to October 1998, Ms. Tompkins was a sole
practitioner attorney, specializing in commercial transactions and commercial
and residential real estate matters. Concurrent with her law practice, Ms.
Tompkins owned and operated a real estate title