SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
For the year ended December 31, 2004
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, Archipelago 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. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No |_|
State the aggregate market value of the voting common equity held by
non-affiliates of the registrant: $228,746,137 based upon the closing sale price
of the Company's Common Stock on the New York Stock Exchange on June 30, 2004
($13.80 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.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of March 11,
2005, there were 30,317,296 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 2005 Annual Meeting of Shareholders (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.................................................... 27
Item 3. LEGAL PROCEEDINGS............................................. 27
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 27
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.......... 27
Item 6. SELECTED FINANCIAL DATA....................................... 28
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 30
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 60
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 62
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................... 102
Item 9A. CONTROLS AND PROCEDURES....................................... 102
Item 9B. OTHER INFORMATION............................................. 103
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 103
Item 11. EXECUTIVE COMPENSATION........................................ 103
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS................. 103
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 103
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES........................ 103
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.................... 103
Signatures............................................................... 105
Exhibit Index............................................................ 107
TRADEMARKS
The terms "Bluegreen(R)," "Bluegreen Communities(R)," and "Bluegreen
Vacation Club(R)" are registered in the U.S. Patent and Trademark Office by
Bluegreen Corporation.
The terms "La Cabana Beach and Racquet Club(TM)," "The Hammocks at Marathon
Resort(TM)," "Casa Del Mar Beach Resort(TM)," "Orlando's Sunshine Resort(TM),"
"Solara Surfside Resort(TM)," "Mountain Run at Boyne(TM)," "The Falls Village
Resort(TM)," "Big Cedar(R) Wilderness Club(TM)," "The Lodge Alley Inn(TM),"
"Harbour Lights Resort(TM)," "Shore Crest Vacation Villas(TM)," "Laurel Crest
Resort(TM)," "MountainLoft Resort(TM)," "Shenandoah Crossing Resort(TM),"
"Christmas Mountain Village(TM)," "Traditions of Braselton(TM)," "Sanctuary Cove
at St. Andrews Sound(TM)," "Catawba Falls Preserve(TM)," "Mountain Lakes
Ranch(TM)," "Silver Lakes Ranch(TM)," "Mystic Shores(TM)," "Lake Ridge at Joe
Pool Lake(TM)," "Ridge Lake Shores(TM)," "Mountain Springs Ranch(TM)," "Carolina
National(TM)," "Brickshire(TM)," "Golf Club at Brickshire(TM)," and "Preserve at
Jordan Lake(TM)" are trademarks or service marks of Bluegreen Corporation in the
United States.
The term "Big Cedar(R)" is registered in the U.S. Patent and Trademark
Office by Big Cedar, L.L.C.
The term "Bass Pro Shops(R)" is registered in the U.S. Patent and Trademark
Office by Bass Pro, Inc.
The term "World Golf Village(R)" is registered in the U.S. Patent and
Trademark Office by World Golf Foundation, Inc.
All other marks are registered marks of their respective owners.
MARKET AND INDUSTRY DATA
Market and industry data used throughout this Annual Report were obtained from
our internal 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"). 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 to the accuracy and
completeness of such information. We have not independently verified such market
data. Similarly, our internal surveys, while believed by us to be reliable, have
not been verified by any independent sources. Accordingly, no assurance can be
given that any such data will prove to be accurate.
PART I
Item 1. BUSINESS.
Introduction
We are a leading provider of vacation and residential lifestyle choices through
our resorts and residential community businesses. We are organized into two
divisions: Bluegreen Resorts and Bluegreen Communities. Bluegreen Resorts
acquires, develops and markets vacation ownership interests ("VOIs") in resorts
generally located in popular high-volume, "drive-to" vacation destinations.
Bluegreen Communities acquires, develops and subdivides property and markets
residential land homesites, the majority of which are sold directly to retail
customers who seek to build a home in a high quality residential setting, in
some cases on properties featuring a golf course and related amenities. We also
generate significant interest income through our financing of individual
purchasers of VOIs and, to a nominal extent, homesites sold by Bluegreen
Communities.
Bluegreen Resorts
Bluegreen Resorts was founded in 1994 to capitalize on the growth of the
vacation ownership industry. As of December 31, 2004, we had approximately
134,000 VOI owners, including approximately 95,000 members in the Bluegreen
Vacation Club, which was established in 1997. We sell VOIs in the Bluegreen
Vacation Club through sales offices at all of our owned resorts and at our four
off-site sales offices in Indiana, Michigan, Minnesota, and Texas. A VOI in any
of our resorts entitles the buyer to an annual allotment of "points" in
perpetuity in our Bluegreen Vacation Club. Club members may use their points to
stay in one of 18 Bluegreen-owned resorts and 18 other resorts or for other
vacation options, including cruises and stays at approximately 3,700 resorts
offered by our affiliated worldwide vacation ownership exchange network, Resorts
Condominium International ("RCI"). The following table sets forth the Bluegreen
Vacation Club resorts:
Bluegreen-Owned Resorts(1) Location
- --------------------------------------- ----------------------------------
The Hammocks at Marathon (3) Marathon, Florida
The Fountains (3) Orlando, Florida
Orlando's Sunshine Resort (3) Orlando, Florida
Casa Del Mar Beach Resort Ormond Beach, Florida
Grande Villas at World Golf Village (3) St. Augustine, Florida
Solara Surfside Resort (3) Surfside, Florida
Mountain Run at Boyne (3) Boyne Falls, Michigan
The Falls Village Resort (3) Branson, Missouri
Big Cedar Wilderness Club (3)(4) Ridgedale, Missouri
The Suites at Hershey (2)(3) Hershey, Pennsylvania
The Lodge Alley Inn (3) Charleston, South Carolina
Harbour Lights (3) Myrtle Beach, South Carolina
Shore Crest Vacation Villas (3) North Myrtle Beach, South Carolina
MountainLoft (3) Gatlinburg, Tennessee
Laurel Crest (3) Pigeon Forge, Tennessee
Shenandoah Crossing (3) Gordonsville, Virginia
Christmas Mountain Village (3) Wisconsin Dells, Wisconsin
La Cabana Beach and Racquet Club Oranjestad, Aruba
1
Other Resorts (5) Location
- --------------------------------------- -----------------------------
Paradise Isle Resort Gulf Shores, Alabama
Shoreline Towers Resort Gulf Shores, Alabama
Via Roma Resort (3) Bradenton Beach, Florida
Dolphin Beach Club (3) Daytona Beach Shores, Florida
Fantasy Island Resort II (3) Daytona Beach, Florida
Mariner's Boathouse Resort Fort Myers Beach, Florida
Tropical Sands Resort Fort Myers Beach, Florida
Windward Passage Resort Fort Myers Beach, Florida
Gulfstream Manor (3) Gulfstream, Florida
Resort Sixty-Six (3) Holmes Beach, Florida
Outrigger Beach Club (3) Ormond Beach, Florida
Landmark Holiday Beach Resort Panama City Beach, Florida
Ocean Towers Beach Club Panama City Beach, Florida
Panama City Resort & Beach Club Panama City Beach, Florida
Petit Crest Villas Marble Hill, Georgia
Pono Kai Resort (3) Kauai, Hawaii
Lake Condominiums at Big Sky Big Sky, Montana
Players Club (3) Hilton Head, South Carolina
- ----------
(1) Throughout this Annual Report on Form 10-K, any reference to resorts that
we "own" refers to resorts where we acquired or developed a significant
number of the VOIs associated with the resorts, even if substantially all
of the VOIs in the property have been sold to consumers.
(2) We acquired this resort in 2004. We will begin selling VOIs in this resort
through the Bluegreen Vacation Club in 2005.
(3) These resorts are managed by Bluegreen Resorts Management, Inc., one of our
wholly-owned subsidiaries.
(4) This resort is being developed, marketed and sold by Bluegreen/Big Cedar
Vacations, LLC, a joint venture with Big Cedar, L.L.C. We own a 51%
interest in this joint venture and the joint venture's results of
operations, cash flows and financial position are included in our
consolidated financial statements. See Note 1 of the Notes to Consolidated
Financial Statements.
(5) A portion of the VOIs in these resorts were marketed and sold by us or RDI
Group, Inc., which was purchased by us in 1997.
Throughout this report, "estimated remaining life-of-project sales" assumes
sales of the existing, currently under construction or development, and planned
VOIs or homesites, as the case may be, at current retail prices. "Field
Operating Profit" means the operating profit of one of our business segments
prior to the allocation of corporate overhead, interest income, gain on sales of
notes receivable, other income, provision for loan losses, interest expense,
income taxes, minority interest and cumulative effect of change in accounting
principle. See Note 19 of the Notes to Consolidated Financial Statements for
further information and a reconciliation of Field Operating Profit for our
business segments to consolidated income before income taxes.
Since our inception, we have generated over 140,000 VOI sales transactions.
Bluegreen Resorts' estimated remaining life-of-project sales were approximately
$2.0 billion at December 31, 2004. For the year ended December 31, 2004,
Bluegreen Resorts had sales and Field Operating Profit of $310.6 million and
$52.6 million, respectively.
2
Bluegreen Resorts uses a variety of techniques to attract prospective purchasers
of VOIs, including telemarketing of mini-vacations, marketing kiosks in retail
and hotel locations, targeted mailings, marketing to current owners of VOIs and
referrals. To support our marketing and sales efforts, we have developed and
continue to enhance our database to track our vacation ownership marketing and
sales programs. We believe that as our vacation ownership operations grow, this
database will enable us to take advantage of, among other things, less costly
marketing and referral opportunities.
While historical growth rates may not continue, based on ARDA and other industry
data, we believe that vacation ownership has been one of the fastest growing
segments of the hospitality industry with 10.6% compound annual growth for sales
volume and 10.7% compound annual growth for number of VOI owners during the
period from 1990 to 2002. According to ARDA, the primary reason cited by
consumers for purchasing a VOI is the ability to exchange a VOI for
accommodations at other resorts through worldwide exchange networks.
Our affiliation with RCI, the largest worldwide vacation ownership exchange
company, entitles members of the Bluegreen Vacation Club to stay at
approximately 3,700 participating RCI resorts located in 100 countries
worldwide. To further enhance the ability of our VOI owners to customize their
vacation experience, we also have implemented our Bluegreen Vacation Club
system, which permits our VOI owners to purchase an annual allotment of points
which can be redeemed for occupancy rights at most Bluegreen-owned and certain
other participating resorts. We also have implemented the Sampler program, which
allows Sampler package purchasers to enjoy substantially the same amenities,
activities and services offered to the regular Bluegreen Vacation Club members
for a one-year trial period. We benefit from the Sampler program as it gives us
the opportunity to market our VOIs to customers when they use their trial
memberships at our resorts and to recapture some of the cost incurred relative
to the initial marketing of prospective customers.
Prior to acquiring property for resorts, Bluegreen Resorts undertakes a property
review, which includes physical and environmental assessments. This review is
presented for approval to our Management Investment Committee, which was
established in 1990 and consists of certain key members of senior management.
Once so approved, the acquisition is submitted to the Investment Committee of
our Board of Directors for final approval. During the review process, we
consider 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 vacation ownership market in the area and the
availability of a variety of recreational opportunities for prospective VOI
purchasers. Another important consideration when Bluegreen Resorts is reviewing
a resort location for potential acquisition is the demand for resorts in
specific geographic areas by existing Bluegreen Vacation Club members. We
periodically monitor this demand through surveys and other means. We intend to
pursue the acquisition of real estate or interests in real estate for Bluegreen
Resorts in the geographic areas in which Bluegreen Resorts currently operates,
with possible expansion into the western United States, although we may pursue
acquisitions in other areas. No assurance can be given that we will be able to
acquire property in our current target areas or be successful in our acquisition
strategy.
We have historically provided financing to approximately 95% to 99% of our
vacation ownership customers. Customers are required to make a downpayment of at
least 10% of the VOI sales price and typically finance the balance of the sales
price over a period of ten years. As of December 31, 2004, our vacation
ownership receivables portfolio totaled approximately $121.3 million in
principal amount, with a weighted-average contractual yield of approximately
14.7% per annum. During the year ended December 31, 2004, we maintained vacation
ownership receivables warehouse facilities and separate vacation ownership
receivables purchase facilities to maintain liquidity associated with our
vacation ownership receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for a further discussion of our vacation ownership receivables
facilities and certain risks relating to such facilities.
3
Bluegreen Communities
Bluegreen Communities focuses on developing residential homesites located near
major metropolitan centers or popular retirement areas. We believe that a
majority of our customers seek a quality lifestyle improvement that is generally
unavailable in traditional, intensely subdivided suburban developments. As of
December 31, 2004, Bluegreen Communities was actively developing and selling
homesites directly to retail consumers in communities primarily located in
Texas, Georgia and North Carolina. We had $77.1 million of inventory for
Bluegreen Communities on our balance sheet as of December 31, 2004 and Bluegreen
Communities' estimated remaining life-of-project sales were approximately $362.0
million. For the year ended December 31, 2004 we had sales and Field Operating
Profit in our Bluegreen Communities division of $191.8 million and $37.7
million, respectively.
We have developed a marketing and sales program that generates a significant
number of on-site sales presentations to potential prospects through a
combination of newspaper, direct mail, television, billboard, Internet and radio
advertising. In addition, we believe Bluegreen Communities' customer
relationship management computer software system enables us to compile, process
and maintain information concerning future sales prospects within each of our
operating regions with the goal of tracking the effectiveness of advertising and
marketing programs relative to sales generated. Through our targeted sales and
marketing programs, we believe that we have been able to achieve an attractive
conversion ratio of sales to prospects receiving on-site sales presentations.
Bluegreen Communities 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, we consider market depth and attempt to forecast market absorption. In new
market areas, we typically engage a third-party to perform a market study in the
area to evaluate market response and price acceptance. Our sales and marketing
efforts begin as soon as practicable after we enter into an agreement to acquire
a parcel of land. Our ability to bond projects to completion generally allows us
to sell a portion of our residential land inventory on a pre-development basis,
thereby reducing the amount of external capital needed to complete improvements.
As is the case with Bluegreen Resorts, all acquisitions of properties by
Bluegreen Communities are subject to the approval of both our Management
Investment Committee and the Investment Committee of our Board of Directors.
In fiscal 1997, we began construction of our first daily-fee golf course. We
believe that daily-fee golf courses are an attractive amenity that increases the
marketability of adjacent homesites. We currently intend to expand our golf
course community residential land offerings into markets with attractive
demographics for such properties. There can be no assurance that our strategy
for this expansion will be successful.
Industry Overview
Bluegreen Resorts
The Market. The resorts component of the leisure industry is serviced primarily
by two separate alternatives for overnight accommodations: commercial lodging
establishments and vacation ownership 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. We believe that vacation ownership presents an
attractive vacation alternative to commercial lodging.
First introduced in Europe in the mid-1960's, vacation ownership has been one of
the fastest growing segments of the hospitality industry over the past two
decades. We believe that, based on ARDA reports and other industry data, the
following factors have contributed to the increased acceptance of the vacation
ownership concept among the general public and the substantial growth of the
vacation ownership industry:
4
o growing consumer awareness of the potential value and benefits of
vacation ownership, including the cost savings relative to certain
other lodging alternatives;
o increasing flexibility of vacation ownership due to the growth of
international exchange organizations such as RCI and Interval
International, and points-based vacation club systems;
o the improving quality of the vacation ownership resorts and their
management; and
o growing consumer confidence resulting from enhanced consumer
protection regulation of the vacation ownership industry and the entry
of brand name national lodging companies to the vacation ownership
industry.
Historically, the vacation ownership industry was 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. We
believe that one of the most significant factors contributing to the current
success of the vacation ownership industry has been the entry into the market of
some of the world's major lodging, hospitality and entertainment companies, such
as Marriott International, Inc., the Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Starwood Hotels
and Resorts Worldwide, Inc. and Cendant Corporation. Although vacation ownership
operations currently comprise only a portion of these companies' overall
operations, we believe that their involvement in the vacation ownership industry
has enhanced the industry's image with the general public.
We believe that the ongoing hostilities in the Middle East and other world
events that have decreased the amount of vacation air travel by Americans have
not, to date, had a material adverse impact on our sales in our domestic sales
offices. We believe that this is due to the "drive-to" resort destinations in
the Bluegreen Vacation Club. In addition, we believe that, in general, Americans
still desire to take family vacations and that our vacation club is positioned
to benefit from consumer demand for family vacations. However, international
hostilities, economic conditions and the rising cost of gasoline may have an
adverse effect on our operations in the future.
The Consumer. According to information compiled by industry sources, customers
in the 40-59 year old age range represented approximately 60% of all VOI owners
in the United States in 2002. Historically, the median age of a VOI buyer at the
time of purchase was 51. The median annual household income of VOI owners in the
United States in 2002 was approximately $85,000, with approximately 35% of all
VOI owners having annual household incomes greater than $100,000. Despite the
industry's growth, VOI ownership has achieved only an approximate 5% market
penetration among United States households with incomes above $50,000 per year.
VOI Ownership. The purchase of a fixed-week VOI 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 system, such as our Bluegreen Vacation Club, 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 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. Members' unused points are typically automatically saved for
one year beyond the year they were allotted, subject to certain usage
restrictions. Members also typically may "borrow" points from the next year,
subject to certain restrictions. Owners of VOIs in the Bluegreen Vacation Club
have an underlying deeded real estate interest in a specific VOI resort that is
held in trust on the owner's behalf. As of December 31, 2004, all of our sales
offices were only selling VOIs within our Bluegreen Vacation Club system.
5
The owners of VOIs manage the property through a nonprofit homeowners'
association, which is governed by a board of directors or trustees consisting of
representatives of the developer (as long as the developer owns VOIs in the
resort) and owners of VOIs at the resort. The board hires a management company
to which it delegates many of the rights and responsibilities of the homeowners'
association, including grounds landscaping, security, housekeeping and operating
supplies, garbage collection, utilities, insurance, laundry and repairs and
maintenance. As of December 31, 2004, we managed 24 resorts.
Each VOI owner is required to pay the vacation club homeowners' association a
share of all costs of maintaining the properties in the Bluegreen Vacation Club
system. 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 VOI owner does not pay such charges, such owner's use rights may be
suspended and the homeowners' association may foreclose on the owner's VOI.
Participation in Independent VOI Exchange Networks. We believe that our VOIs are
made more attractive by our affiliation with an international VOI exchange
network such as RCI. All of our VOI resorts are currently affiliated with RCI,
and most of our VOI resorts have been awarded RCI's highest designation (Gold
Crown). A VOI owner's participation in the RCI exchange network allows such
owner to exchange his annual VOI for occupancy at approximately 3,700
participating resorts, based upon availability and the payment of a variable
exchange fee. RCI's participating resorts are located throughout the world in
100 countries. A Bluegreen Vacation Club owner may make a reservation for
occupancy in a club VOI and then may attempt to exchange this occupancy right
for one in another participating RCI resort. The owner lists his occupancy right
as available with RCI and requests occupancy at another participating resort,
indicating the particular resort or geographic area to which the owner 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 VOI, 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 VOI is available, and attempts to
satisfy the exchange request by providing an occupancy right in another VOI 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 assurance can
be given that our resorts will continue to qualify for participation in
international exchange networks, or that our customers will continue to be
satisfied with these networks. Our failure or the failure of any of our resorts
to participate in qualified exchange networks or the failure of such networks to
operate effectively could have a material adverse effect on us.
Bluegreen Communities
Bluegreen Communities operates within a specialized niche of the real estate
industry, which focuses on the sale of residential homesites to retail customers
who typically intend to build a home on such homesites 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. Unlike commercial homebuilders who focus
on vertical development, such as the construction of single and multi-family
housing structures, Bluegreen Communities focuses primarily on horizontal
development activities, such as grading, roads and utilities. As a result, the
projects undertaken by us are significantly less capital intensive than those
generally undertaken by commercial homebuilders. We believe that our market is
also the beneficiary of a number of trends, including the large number of people
entering into the 40-59 year age bracket and the economic and population growth
in certain of our primary markets.
Bluegreen Communities also focuses on the development of daily-fee golf courses
and related amenities as the centerpieces of certain of our residential land
properties. As of December 31, 2004, we were marketing homesites in seven
projects that include golf courses developed either by us or third parties. We
currently intend to acquire and develop additional golf communities, as we
believe that the demographics and marketability of such properties are
consistent with our overall residential land strategy. Golf communities
typically are larger, multi-phase properties that require a greater capital
commitment than our single-phase residential land projects. There can be no
assurance that we will be able to successfully implement our golf community
strategy.
6
Bluegreen Communities also undertakes the development of large lakes in certain
of our projects as the centerpiece amenity. We believe that while these
development activities require a greater capital commitment than certain other
amenities that Bluegreen Communities may provide in our projects, we benefit
from the anticipated increased marketability and pricing of lakefront homesites.
Company Products
Bluegreen Resorts
Set forth below is a description of each of our owned vacation ownership
resorts. We consider resorts "owned" if we acquired or developed a significant
number of the VOIs associated with the resorts, even if we no longer own
substantial VOIs in the resorts. Units at most of the properties have certain
standard amenities, including a full kitchen, at least two televisions, a VCR
and a CD player. Some units have additional amenities, such as big screen
televisions, DVD players, fireplaces, whirlpool tubs and video game systems.
Most properties offer guests a clubhouse (with an indoor or outdoor pool, a game
room, exercise facilities and a lounge) and a hotel-type staff. We manage all of
our owned resorts with the exception of the La Cabana Beach and Racquet Club
("La Cabana") and Casa del Mar Beach Resort. La Cabana is managed by Optima
Hotel Exploitatiemaatschappij N.V., an unaffiliated third party that managed the
resort prior to our acquisition of La Cabana's unsold VOI inventory in 1997. The
Casa del Mar Beach Resort is managed by The Amber Group, Inc., an unaffiliated
third party that managed the resort prior to our acquisition of Casa Del Mar's
unsold VOI inventory in 2003.
Florida
The Hammocks at Marathon -- Marathon, Florida. Acquired in December 2003, The
Hammocks at Marathon is located in the Florida Keys within easy reach of both
Miami and Key West, Florida. This beachfront resort offers such amenities as a
pool, boat slips, an outside tiki bar and a variety of water sport recreational
vehicle rentals.
The Fountains-- Orlando, Florida. In September 2003, we acquired The Fountains
(f/k/a The Oasis Lakes Resort), an existing vacation ownership resort in
Orlando, Florida. The acquisition included certain unsold VOIs, land that can
accommodate the construction of approximately 576 additional vacation
residences, a 20,000 square-foot sales center, a clubhouse and pool complex, an
additional parcel of land zoned for commercial use and certain notes receivable.
This 54-acre resort is located on Lake Eve and is minutes away from Central
Florida's family attractions, including Walt Disney World(R), SeaWorld(R) and
Universal Studios(R). Amenities include a clubhouse with a heated indoor/outdoor
swimming pool, a pool bar, a massage room, steam and sauna rooms, a family
activity room and tennis and basketball courts.
Orlando's Sunshine Resort-- Orlando, Florida. Orlando's Sunshine Resort is
located on International Drive, near Wet'n'Wild(R) water park and Universal
Studios Florida(R). This property features an outdoor swimming pool, hot tub and
tennis courts.
Casa del Mar Beach Resort-- Ormond Beach, Florida. In January 2003, we acquired
the unsold VOI inventory (approximately 2,340 VOIs) of an existing vacation
ownership resort located in Ormond Beach, Florida. Casa del Mar is located
directly on the ocean and includes such amenities as an outdoor pool and
miniature golf.
Grande Villas at World Golf Village-- St. Augustine, Florida. In August 2003, we
acquired the unsold VOI inventory (approximately 4,000 VOIs) and undeveloped
land that can accommodate the construction of approximately 125 new "vacation
homes" (as defined below)at a vacation ownership resort located in St.
Augustine, Florida. The resort, which is minutes away from the Atlantic Ocean
and next to the World Golf Hall of Fame(R), features an extensive array of
amenities, including, among others, a golf course, outdoor and indoor pools, a
hot tub, a sauna and a playground.
7
Solara Surfside Resort-- Surfside, Florida. This oceanfront resort is located in
Surfside, Florida, near Miami Beach. Solara Surfside captures the art deco style
of its surrounding area and features one and two bedroom vacation homes, a
swimming pool, sun deck and hot tub.
Michigan
Mountain Run at Boyne-- Boyne Falls, Michigan. In October 2002, we acquired
approximately 11 acres of land to build and develop 64 vacation homes at Boyne
Mountain in northern Michigan. In connection with this acquisition, we also
acquired an option to purchase land contiguous to the 11 acres on which we
could, at our discretion, build approximately 100 additional vacation homes.
Boyne Mountain is known for skiing, snowboarding and tubing on 62 runs with
convenient lift and trail systems. In the summer, Boyne Mountain offers 162
holes of golf on world-class courses designed by some of the game's masters,
including Robert Trent Jones, Arthur Hills, Donald Ross and, soon, Pete Dye.
Missouri
The Falls Village Resort-- 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 guests come from areas within an eight to ten
hour drive of Branson.
The Big CedarWilderness Club-- Ridgedale, Missouri. The Big Cedar Wilderness
Club is a 312-unit, wilderness-themed resort adjacent to the world famous Big
Cedar Lodge luxury hotel resort. This vacation ownership resort is being
developed, marketed and sold by Bluegreen/Big Cedar Vacations LLC, a joint
venture between Big Cedar, L.L.C. and us, in which we own a 51% interest. 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 enjoy fireplaces, private balconies, full kitchens and Internet access.
Amenities include, or are expected to include indoor and outdoor swimming pools
and hot tubs, a lazy river, hiking trails, a campfire area, a 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 courts and a spa.
Pennsylvania
The Suites at Hershey-- Hershey, Pennsylvania. In May 2004, we acquired The
Suites at Hershey Resort (f/k/a The Vacation Club and Resort of Hershey), an
existing vacation ownership resort. The acquisition included approximately 700
unsold VOIs in the existing buildings and land that can accommodate the
construction of 54 additional vacation residences. This 3.2-acre resort is
located near HersheyPark(R) and Hershey's(R) Chocolate World. Amenities include
an outdoor swimming pool, hot tub, playground, a picnic area with barbeque
grills, a game room, fitness center and indoor basketball courts.
South Carolina
The Lodge Alley Inn-- 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, a living room with fireplace, a dining room,
a whirlpool bath, 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.
Harbour Lights-- 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 courses and restaurants. The resort's activities center overlooks
the Intracoastal Waterway.
8
Shore Crest 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.
Tennessee
MountainLoft-- 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-- 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.
Virginia
Shenandoah Crossing-- Gordonsville, Virginia. Shenandoah Crossing features an
18-hole golf course (which is owned and operated by an unaffiliated third
party), indoor and outdoor swimming pools, tennis courts, horseback riding
trails and a lake for fishing and boating.
Wisconsin
Christmas Mountain Village-- 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.
Aruba
La Cabana Beach Resort & Racquet Club-- Aruba. Bluegreen Properties N.V.
acquired the unsold VOI inventory of La Cabana (approximately 8,000 VOIs) in
December 1997 and additional VOIs from time to time thereafter. Established in
1989, La Cabana is a 449-suite ocean front resortthat offers one, two and
three-bedroom suites, garden suites and penthouse accommodations. On-site
amenities includeracquetball, squash, a casino, two pools and private beach
cabanas, none of which are owned or managed by us.
The following table describes the relative size, stage of development and amount
of remaining inventory at each of our owned resorts. Although all inventory is
sold as VOIs, we disclose the size and inventory information in terms of number
of vacation homes for ease of comparability between our resorts and those of
other companies in the industry. "Vacation homes" are individual lodging units
(e.g., condominium-style apartments, town homes, cabins, etc.).
9
The Orlando's Casa Del Grande Villas
Hammocks Sunshine Mar Beach at World Golf
Resort At Marathon The Fountains Resort Resort Village
- ------ ----------- ------------- --------- ---------- --------------
Marathon, Orlando, Orlando, Ormond St. Augustine,
Location FL FL FL Beach, FL FL
----------- ------------- --------- ---------- --------------
Year acquired (1) 2003 2003 1997 2003 2003
Number of vacation homes
completed 58 216 90 43 102
Number of vacation homes
under construction -- 156 -- -- --
Number of future vacation
homes (2) -- 350 -- -- 125
Total current and future
vacation homes 58 722 90 43 227
Percentage of total current
and future vacation homes
sold (3) 42% 20% 95% 88% 40%
Estimated remaining
life-of-project sales (in
millions) (4) $36.0 $608.5 $4.3 $3.3 $104.3
The Falls Big
Solara Mountain Run Village CedarWilder The Suites at
Resort Surfside Resort at Boyne Resort ness Club Hershey
- ------ --------------- ------------ --------- ----------- -------------
Surfside, Boyne Falls, Branson, Ridgedale, Hershey,
Location FL MI MO MO PA
--------------- ------------ --------- ----------- -------------
Year acquired (1) 2001 2002 1997 2000 2004
Number of vacation homes
completed 58 56 123 142 24
Number of vacation homes
under construction -- 48 12 64 54
Number of future vacation
homes (2) -- -- 111 106 --
Total current and future
vacation homes 58 104 246 312 78
Percentage of total current
and future vacation homes
sold (3) 88% 42% 44% 27% 14%
Estimated remaining
life-of-project sales (in
millions) (4) $7.1 $25.7 $100.6 $215.7 $42.0
10
The Lodge Harbour Shore Crest
Resort Alley Inn Lights Vacation Villas MountainLoft Laurel Crest
- ------ ----------- --------- --------------- ------------ ------------
Charleston, Myrtle North Myrtle Gatlinburg, Pigeon
Location SC Beach, SC Beach, SC TN Forge, TN
----------- --------- --------------- ------------ ------------
Year acquired (1) 1998 1997 1996 1994 1995
Number of vacation homes
completed 90 228 240 164 152
Number of vacation homes
under construction -- -- -- -- --
Number of future vacation
homes (2) -- 36 -- 25 50
Total current and future
vacation homes 90 264 240 189 202
Percentage of total current
and future vacation homes
sold (3) 97% 78% 96% 81% 66%
Estimated remaining
life-of-project sales (in
millions) (4) $2.4 $39.8 $8.5 $40.1 $57.5
Christmas La Cabana
Shenandoah Mountain Beach and
Resort Crossing Village Racquet Club
- ------ ------------- --------- ------------
Gordonsville, Wisconsin Oranjestad,
Location VA Dells, WI Aruba
------------- --------- ------------
Year acquired (1) 1997 1997 1997
Number of vacation homes
completed 162 309 449
Number of vacation homes
under construction -- -- --
Number of future vacation
homes (2) 100 130 --
Total current and future
vacation homes 262 439 449
Percentage of total current
and future vacation homes
sold (3) 59% 65% 91%
Estimated remaining
life-of-project sales (in
millions) (4) $91.3 $172.2 $28.0
(1) Year that we first acquired the land to develop each resort or the year we
first acquired existing VOIs at each resort, as applicable.
(2) Number of vacation homes that can be developed at each resort in the
future. We cannot provide any assurance that we will have the resources, or
will decide to commence or complete the development of any of these future
vacation homes or that the resulting VOIs will be sold at favorable prices.
(3) This is the portion of each resort that has been sold through December 31,
2004, including sales made by prior owners of the resorts, if applicable.
The unsold portion includes vacation homes that are either completed, under
construction or subject to future development.
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(4) Estimated remaining life-of-project sales as of December 31, 2004. This
table excludes VOI inventory that we own at several non-owned resorts
("Miscellaneous Inventory"). The aggregate estimated remaining
life-of-project sales for our Miscellaneous Inventory as of December 31,
2004 was $6.0 million or less than 1% of Bluegreen Resorts' estimated
remaining life-of-project sales.
The table also excludes planned VOI inventory to be developed on two
parcels of land in Eastern Tennessee (the "Future Tennessee Inventory") and
one parcel in Big Sky, Montana (the "Future Montana Inventory"), all of
which was acquired in 2004. The aggregate estimated life-of-project sales
for the Future Tennessee Inventory and the Future Montana Inventory as of
December 31, 2004 was $580.2 million and $85.9 million, respectively.
We believe that each of our resorts is adequately covered by property and
casualty insurance, in the case of our completed resorts, or builder's risk
insurance, in the case of resorts that are under construction. In addition, we,
or general contractors hired by us, purchase performance bonds if required by
the local jurisdictions in which we develop our resorts.
Bluegreen Communities
Described below are the communities with the most significant estimated
remaining life-of-project sales marketed by Bluegreen Communities as of December
31, 2004.
Georgia
Traditions of Braselton-- Braselton, Georgia. In March 2003, we acquired 1,142
acres of land in Braselton, Georgia for $12.3 million. This property is a golf
course community offering an 18-hole golf course and other amenities, such as a
clubhouse, swimming pool, tennis courts, nature trails and a children's
recreation area. The golf course and clubhouse will be owned by us and operated
on a daily-fee basis. General improvements relative to the homesites at
Traditions of Braselton being performed by us include, in most cases, water,
sewer, electric, telephone and cable television utilities as well as selective
homesite clearing. We began selling homesites at Traditions of Braselton in
April 2003.
Sanctuary Cove at St. Andrew's Sound-- Waverly, Georgia. In November 2003, we
acquired 564 acres of land near St. Simons Island in Brunswick County, Georgia
for $11.3 million. Amenities at this golf community will include an 18-hole Fred
Couples Signature Golf Course to be designed by Love Golf Design, clubhouse and
swimming and tennis facilities. The golf course and clubhouse will be owned by
us and operated on a daily-fee basis. Sanctuary Cove adjoins approximately 1,000
acres of preserved saltwater marshes and coastal wetlands. General improvements
relative to the homesites at Sanctuary Cove being performed by us include, in
most cases, water, sewer, electric, telephone and cable television utilities as
well as selective homesite clearing. We began selling homesites at Sanctuary
Cove in December 2003.
North Carolina
Catawba Falls Preserve-- Black Mountain, North Carolina. We acquired
approximately 785 acres located in Black Mountain, North Carolina (approximately
18 miles from Asheville, North Carolina) for $2.6 million in June 2002. The
project is expected to include horse and hiking trails, a swimming hole, picnic
area, playground area and trail access to Pisgah National Forest and Catawba
Falls. We anticipate that the project will consist of a total of approximately
238 homesites, which range in size from approximately 1 acre to 16 acres.
General improvements on the homesites at Catawba Falls Preserve being performed
by us include, in most cases, selective homesite clearing. We began selling
homesites at Catawba Falls Preserve in January 2003.
Chapel Ridge--- Chatham County, North Carolina. In July 2004, we acquired
approximately 800 acres of land centrally located between Chapel Hill/Durham,
Cary/Apex, Sanford/Siler City and the Triad areas in Chatham County, North
Carolina for $5.5 million. Amenities at this golf community will include an
18-hole Fred Couples Signature Golf Course, a clubhouse and conservation areas.
The golf course and
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clubhouse will be owned by us and operated on a daily-fee basis. General
improvements relative to the homesites at Chapel Ridge being performed by us
include in most cases, water, sewer, electric, telephone and cable television
utilities as well as selective homesite clearing. We began selling homesites at
Chapel Ridge in July 2004.
Texas
Mystic Shores-- Canyon Lake, Texas. We acquired 6,966 acres located 25 miles
north of San Antonio, Texas in October 1999 for $14.9 million. On May 5, 2000,
we purchased an additional 435 acres for $2.7 million. The project includes
approximately 2,400 homesites, 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
also features a junior Olympic swimming pool, bathhouse, open-air pavilion
andpicnic area. General improvements on homesites at Mystic Shores performed by
us include, in most cases, water and selective homesite clearing, while some
sections of the project also include electric and telephone utilities. We began
selling homesites at Mystic Shores in March 2000.
Lake Ridge at Joe Pool Lake-- Cedar Hill, Texas. We 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, we 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 by us, include a 154-acre park with
baseball, football and soccer fields, camping areas and an 18-hole golf course.
The existing acreage will yield approximately 2,530 homesites, with most
homesites ranging in size from 1/4 to five acres. General improvements on the
homesites at Lake Ridge performed by us include, in most cases, water, sewer,
electric, telephone and cable television utilities as well as selective homesite
clearing. We began selling homesites at this project in April 1994.
SugarTree on the Brazos-- Parker County, Texas. In November 2004, we acquired
approximately 429 acres of land located near Fort Worth, Texas in Parker County,
Texas for $4.3 million. SugarTree is surrounded by a championship golf course
and is nestled along the shores of the Brazos River. Amenities at this community
will include a swimming center and clubhouse. General improvements on the
homesites at SugarTree being performed by us include, in most cases, water and
sewer utilities and selective homesite clearing. We began sales of homesites at
SugarTree in March 2005.
Mountain Springs Ranch-- Smithson Valley, Texas. In April 2003, we acquired
1,125 acres located approximately 15 miles north of San Antonio, Texas for $4.8
million. This master planned community offers wooded and acreage homesites with
views of the scenic Texas Hill Country. General improvements to the homesites in
Mountain Springs Ranch performed by us include, in most cases, water, selective
homesite clearing, electric and telephone. We began selling homesites at this
project in December 2003.
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The following table shows certain information about the significant Bluegreen
Communities projects listed above:
Sanctuary
Cove at St.
Traditions of Andrews Catawba Chapel
Community Braselton Sound Falls Preserve Ridge
- --------- ------------- ----------- -------------- ----------
Braselton, Waverly, Black Chatham
Location GA GA Mountain, NC County, NC
------------- ----------- -------------- ----------
Year acquired (1) 2003 2003 2002 2004
Total acreage 1,142 500 785 800
Number of homesites
anticipated (2) 1,550 700 238 698
Percentage of anticipated
homesites sold (3) 66% 43% 58% 56%
Estimated remaining
life-of-project sales (in
millions) (4) $ 27.6 $50.6 $13.2 $49.9
Lake Ridge Mountain
Mystic at Joe Pool SugarTree on Springs
Community Shores Lake the Brazos Ranch
- --------- ------------ ----------- -------------- ----------
Canyon Lake, Cedar Hill, Parker County, Smithson
Location TX TX TX Valley, TX
------------ ----------- -------------- ----------
Year acquired (1) 1999 1994 2004 2003
Total acreage 7,401 3,166 429 1,125
Number of homesites
anticipated (2) 2,400 2,530 463 625
Percentage of anticipated
homesites sold (3) 54% 72% 0% 20%
Estimated remaining
life-of-project sales (in
millions) (4) $ 66.7 $ 63.3 $21.6 $ 25.8
(1) Year that we first acquired the land to commence development of each
community. Certain communities were acquired in phases.
(2) Number of homesites anticipated within each community. We cannot provide
any assurance that we will have the resources, or will decide, to develop
such homesites at each community, that required platting and other
approvals will be obtained to develop such homesites or that such homesites
will be sold at favorable prices.
(3) This is the percentage of anticipated homesites sold through December 31,
2004.
(4) Estimated remaining life-of-project sales as of December 31, 2004. This
table excludes certain projects currently being marketed by Bluegreen
Communities with an aggregate estimated remaining life-of-project sales as
of December 31, 2004 of $43.3 million, or approximately 12% of Bluegreen
Communities total estimated remaining life-of-project sales.
We believe that each of our Bluegreen Communities projects is adequately covered
by builder's risk insurance during the construction period or property and
casualty insurance for homesites that are held in our inventory prior to sale to
consumers, as well as our owned golf course amenities. Once a homesite is sold,
the consumer assumes the risk of loss on such homesite. In addition, the
applicable property owners' association bears the risk of loss on any common
amenities at each project.
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We also purchase performance bonds on most of our projects, to provide assurance
to homesite buyers that construction of the project will be completed. We
believe that our ability to obtain such performance bonds assists us in our
pre-construction sales efforts.
Acquisition of Bluegreen Resorts and Bluegreen Communities Inventory
Bluegreen Resorts
We intend to continue to pursue growth by expanding or supplementing our
existing resorts operations through acquisitions in destinations that we believe
will complement such operations. We may consider acquiring additional VOI
inventory, operating companies, management contracts, VOI mortgage portfolios
and properties or other vacation ownership-related assets that may be integrated
into our operations. We currently intend to pursue the acquisition of real
estate or interests in real estate for Bluegreen Resorts in the areas in which
Bluegreen Resorts currently operates, with a possible expansion into the western
United States, although we may pursue acquisitions in other areas. No assurances
can be given that we will be successful in our acquisition strategy.
We obtain information with respect to resort acquisition opportunities through
interaction by our management team with resort operators, lodging companies and
financial institutions with which we have established business relationships. We
evaluate the following factors, among others, to determine the viability of a
potential new vacation ownership resort:
o anticipated supply/demand ratio for VOIs in the relevant market;
o the market's potential growth as a vacation destination;
o competitive accommodation alternatives in the market;
o the uniqueness of location and demand for the location by existing
Bluegreen Vacation Club members; and
o barriers to entry that would limit competition.
Bluegreen Communities
Bluegreen Communities seeks to acquire property that:
o is located near a major population center but outside the perimeter of
intense subdivision development or in popular retirement areas;
o is suitable for subdivision;
o has attractive topographical features;
o for certain projects, could accommodate a golf course and related
amenities; and
o we believe will result in an acceptable profit margin and cash flow to
us based upon anticipated retail value.
Properties are generally subdivided for sale into homesites typically ranging in
size from 1/4 acre to 5 acres.
In connection with our review of potential Bluegreen Communities inventory, we
consider economic conditions in the area in which the parcel is located,
environmental sensitivity, availability of financing, whether the property is
consistent with our general policies and the anticipated ability of that
property to
15
produce acceptable profit margins and cash flow. As part of our long-term
strategy for Bluegreen Communities, in recent years we have focused on fewer,
more capital-intensive projects. We intend to continue to focus Bluegreen
Communities on those regions where we believe the market for our products is
strongest, such as the southeast and southwest regions of the United States and
to replenish and increase our residential land inventory in such regions as
existing projects are sold-out.
Bluegreen Communities has established contacts with numerous land owners and
real estate brokers in many of our market areas, and because of such contacts
and our long history of acquiring properties, we believe that we are 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, we attempt to develop and maintain strong relationships with major
property owners and brokers in our markets.
Prior to acquiring property in new areas, we will generally conduct test
marketing for a prospective project to determine whether sufficient customer
demand exists for the project.
By requiring, in most cases, that regulatory approvals be obtained prior to
closing and by limiting the amount of the downpayment upon signing a purchase
agreement, we are typically able to place a number of properties under contract
without expending significant amounts of cash. This strategy helps Bluegreen
Communities to reduce:
o the time during which it actually owns specific properties between
initial acquisition and the ultimate sale;
o the market risk associated with holding such properties; and
o the risk of acquiring properties that may not be suitable for sale.
Marketing and Sale of Inventory
Bluegreen Resorts
Bluegreen Resorts uses a variety of methods to attract prospective purchasers of
VOIs, including selling discount mini-vacations through telemarketing methods or
at Bass Pro Shop locations (see further discussion of our relationship with Bass
Pro Shops, below), placing marketing kiosks in retail locations and acquiring
the right to market to prospective purchasers from third-party vendors. In
addition to attracting new customers, we seek additional sales to existing VOI
owners, such sales being called "upgrades", and referrals of prospective
purchasers from existing VOI owners and others. Upgrades and referral sales
require relatively less marketing expense and typically result in relative
higher operating margins than sales through other marketing channels. Bluegreen
Resorts sometimes provides hotel accommodations to prospective purchasers at
reduced rates in exchange for their touring one of our resorts. To support our
marketing and sales efforts, we have developed and work to continue to enhance
our customer relationship management methods, techniques and computer software
tools to track our VOI marketing and sales programs. We believe that as
Bluegreen Resorts' operations grow, this database will become an increasingly
significant asset, enabling us to focus our marketing and sales efforts to take
advantage of, among other things, less costly marketing and referral
opportunities.
In recent years, we have been focusing on increasing Bluegreen Resorts use of
"permission" marketing and branding programs. "Permission" marketing methods
involve obtaining the prospective purchasers' permission, directly or
indirectly, to contact them in the future regarding an offer to purchase a
product or service. Branding involves forming alliances with third-party
entities that possess what we believe to be a nationally or regionally known
brand name, a good reputation and a customer base with similar demographic
characteristics to our target market.
In June 2000, we entered into an exclusive marketing agreement with Bass Pro,
Inc. and Big Cedar, L.L.C., a Bass Pro affiliate. Under the terms of the
ten-year agreement,we have the right to market our VOIs at
16
each of Bass Pro's retail locations, in Bass Pro's catalogs and on Bass Pro's
website. We also have access to Bass Pro's customer mailing lists. We believe
that the branding aspects of this alliance are consistent with our overall
marketing strategy for Bluegreen Resorts. In exchange for these services, we
agreed to pay Bass Pro a commission of either 7.0% or 3.5%, depending on certain
circumstances, on each sale of a VOI that is made through one of the Bass Pro
marketing channels described above. The amount of the commission is dependent on
the level of additional marketing efforts required by us 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 Big Cedar,
L.L.C. and us. We currently market discounted three-day, two-night mini-vacation
packages at most of Bass Pro's national retail locations. Most of these
mini-vacation packages require the buyer to participate in a sales presentation
at either a Bluegreen Vacation Club sales office or the Big Cedar Wilderness
Club sales office, which is one of our "permission" marketing techniques. We
also have an exclusive VOI marketing presence on Bass Pro's website, which is
linked to our website. We believe that this arrangement results in effective and
cost-efficient marketing for Bluegreen Resorts.
On June 16, 2000, we prepaid $9.0 million to Bass Pro in connection with the
above marketing agreement. The prepayment is amortized from commissions earned
by Bass Pro and member distributions otherwise payable to Big Cedar, L.L.C. from
the earnings of the joint venture. No additional commissions or member
distributions will be paid in cash to Bass Pro or Big Cedar, L.L.C.,
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 90%
of the joint venture's proposed VOIs have been sold and conveyed. As of December
31, 2004, the unamortized balance of the prepayment to Bass Pro was
approximately $2.9 million.
On October 2, 2002, through our wholly-owned subsidiary, Great Vacation
Destinations, Inc. ("GVD"), we acquired substantially all of the assets and
assumed certain liabilities of TakeMeOnVacation, LLC and certain of its
affiliates ("TMOV"). Utilizing the assets acquired from TMOV, GVD generates
"permission" marketing sales leads for VOI sales utilizing various marketing
strategies. Through the application of a proprietary, computer software system,
these leads are then contacted and given the opportunity to purchase discount
mini-vacation packages. These packages sometimes combine hotel stays, cruises
and gift premiums. Buyers of these mini-vacation packages are then usually
required to participate in a VOI sales presentation. GVD seeks to generate sales
prospects for our VOI sales business and for sales prospects that will be sold
to other VOI developers. We believe that GVD's "permission" marketing lead
generation programs and the potential benefits of tracking and controlling the
subsequent marketing efforts are consistent with Bluegreen Resorts' overall
marketing strategy.
Also in October 2002, in connection with the acquisition of land and completed
VOIs from Boyne USA Resorts ("Boyne"), we obtained the right to market the
Bluegreen Vacation Club at two of Boyne's resort properties: Boyne Mountain and
Boyne Highlands. In addition, Bluegreen Resorts entered into an exclusive
marketing arrangement with an affiliate of Boyne, Boyne Country Sports ("BCS").
BCS owns and operates six ski, snowboard and golf equipment retail stores
throughout Michigan. Bluegreen Resorts markets our vacation club through a
variety of programs directed to BCS's customer base, including lead generation
operations in four of BCS's locations and tour generation operations in two of
BCS's locations. We believe that these arrangements will allow Bluegreen Resorts
to benefit from marketing to customers that it believes are within our target
demographic through an affiliation with a known regional brand.
VOI resorts are staffed with sales representatives, sales managers and an
on-site manager who oversees the day-to-day operations, all of whom are our
employees. We sponsor ongoing training for our personnel. During the year ended
December 31, 2004, total selling and marketing expense for Bluegreen Resorts was
$165.2 million or 53% of the division's $310.6 million in sales.
We require our sales staff to provide each VOI customer with a written
disclosure statement regarding the VOI to be sold prior to the time the customer
signs a purchase agreement. This disclosure statement explains relevant
information regarding VOI ownership at the resort and must be signed by every
purchaser. After deciding to purchase a VOI, a purchaser enters into a purchase
agreement and is required to pay us a deposit of at least 10% of the purchase
price. Purchasers are entitled to cancel purchase agreements within required
legal rescission periods after execution in accordance with statutory
17
requirements. Substantially all VOI purchasers visit one of our resorts or one
of our off-site sales offices prior to purchasing.
In addition to sales offices located at our resorts, we also operate four
off-site sales offices serving the Indianapolis, Indiana; Detroit, Michigan;
Minneapolis, Minnesota; and Dallas, Texas markets. We are also in the process of
opening a new off-site sales office in King of Prussia, Pennsylvania, serving
the greater Philadelphia market. Our off-site sales offices market and sell VOIs
in the Bluegreen Vacation Club, and allow us to bring our products to markets
with favorable demographics and low competition for prospective buyers. We
continue to evaluate our ongoing utilization of off-site sales operations and
may elect to open new locations or close existing locations in the future.
Bluegreen Communities
In general, as soon as practicable after agreeing to acquire a property and
during the time period that improvements are being completed, we establish
selling prices for the individual homesites. We take 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. We also consider recent sales of
comparable parcels in the area. Once selling prices are established, we commence
our marketing efforts.
The marketing method most widely used by Bluegreen Communities is advertising in
local newspapers and in major newspapers in metropolitan areas located within a
one to three hour drive from the property. In addition, we use our customer
relationship management system, which we believe enables us to identify
prospects who are most likely to be interested in a particular project.
Bluegreen Communities also conducts direct mail campaigns to market property
through the use of brochures describing available homesites, as well as
television, billboard, Internet and radio advertising. Through our sales and
marketing programs, we believe that we have been able to achieve a high
conversion ratio of sales to prospects receiving on-site sales presentations. A
sales representative who is knowledgeable about the property answers inquiries
generated by our marketing efforts, discusses the property with the prospective
purchaser, attempts to ascertain the purchaser's needs and arranges an
appointment for the purchaser to visit the property. Substantially all
prospective purchasers inspect a property before purchasing.
The success of our marketing efforts depends heavily on the knowledge and
experience of our sales personnel. We require that, prior to initiating the
marketing effort for a property, all sales representatives walk the property and
become knowledgeable about each parcel and applicable zoning, subdivision and
building code requirements. Continued training programs are conducted, including
training with regional office sales managers, weekly sales meetings and frequent
site visits by our executive officers. We enhance our sales and marketing
organization through the Bluegreen Institute, a mandatory training program that
is designed to instill our marketing and customer service philosophy in middle
and lower-level management. Additionally, the sales staff is evaluated against
performance standards established by our executive officers. Substantially all
of a sales representative's compensation is commission-based.
We require our sales staff to provide each prospective homesite 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 "Vital Information Statement"
that we generate states relevant information with respect to, and risks
associated with, the property and must be signed by each purchaser.
After deciding to purchase a homesite, a purchaser enters into a purchase
agreement and is required to pay us a deposit of at least 10% of the purchase
price. Purchasers may cancel purchase agreements within specified periods after
execution in accordance with statutory requirements. The closing of a homesite
sale usually occurs two to eight weeks after payment of the deposit. Upon
closing of a homesite sale, we typically deliver a warranty deed and a recent
survey of the property to the purchaser. Title insurance is available at the
purchaser's expense.
18
Customer Financing
General
Approximately 99% of our VOI customers utilized our financing during the year
ended December 31, 2004. Sales of VOIs accounted for 62% of consolidated sales
during the year ended December 31, 2004. In recent years, the percentage of
Bluegreen Communities customers who utilized our financing has been less than 2%
of all homesite purchasers due to, among other things, an increased willingness
on the part of banks to extend direct lot financing to purchasers.
We offer financing of up to 90% of the purchase price of our VOIs. The typical
financing extended by us on a VOI during the year ended December 31, 2004,
provided for a term of ten years and a fixed interest rate. In connection with
our VOI sales within our vacation club system, we deliver the deed on behalf of
the purchasers to the trustee of our vacation club and secure repayment of the
purchaser's obligation by obtaining a mortgage on the purchaser's VOI.
The weighted-average interest rate on our notes receivable by division was as
follows:
As of
---------------------------
December 31, December 31,
Division 2003 2004
- ------------------------ ------------ ------------
Bluegreen Resorts....... 14.9% 14.7%
Bluegreen Communities... 9.1% 9.2%
Consolidated............ 14.3% 14.2%
See "Sale of Receivables/Pledging of Receivables," below, for information
regarding our receivable financing activities.
Loan Underwriting
Bluegreen Resorts
Consistent with accepted industry practice, our VOI financing is not subject to
any significant loan underwriting criteria. Currently, customer financing on
sales of VOIs typically 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 purchaser and ourselves. We encourage purchasers to make higher
downpayments by offering a lower interest rate. In addition, purchasers who do
not elect to participate in our pre-authorized payment plan are charged interest
at a rate which is 1% greater than the otherwise prevailing rate. As of December
31, 2004, approximately 77% of our VOI notes receivable serviced were on our
pre-authorized payment plan.
Bluegreen Communities
At Bluegreen Communities, we have established loan underwriting criteria and
procedures designed to reduce credit losses. The loan underwriting process
undertaken by our credit department may includereviewing the applicant's credit
history, verifying employment and income as well as calculating certain
debt-to-income ratios. The primary focus of our underwriting review is to
determine the applicant's ability to repay the loan in accordance with our
terms.
Collection Policies
Bluegreen Resorts
Collection efforts and delinquency information concerning Bluegreen Resorts'
notes receivable are managed at our corporate headquarters. A staff of
experienced collectors, assisted by a mortgage collection computer system,
handles servicing of the division's receivables. We generally make collection
efforts by
19
mail and telephone. Our vacation ownership receivables originated prior to
fiscal 1999 were documented by contracts for deed, which allows us to retain
title to the VOI until the obligation is paid in full, thereby eliminating the
need to foreclose in the event of a default. If a contract for deed becomes
delinquent for sixteen days, telephone contact commences with the customer.
After an account is 30 days delinquent, we typically send a 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, we send a default
letter advising the customer that he or she has 30 days to bring the account
current or lose his or her contractual interest in the VOI. When the account
becomes 90 days delinquent, we forward a final letter informing the customer
that the contract for deed has been terminated. We can then resell the VOI to a
new purchaser.
In fiscal 1999, in connection with the implementation of the Bluegreen Vacation
Club, we converted to a note and mortgage arrangement. In addition to telephone
contact commencing at sixteen days past due, a 30-day collection letter is sent.
At sixty days delinquent, we send a lockout letter to the customer advising them
that they cannot make any future reservations for lodging at a Resort. At ninety
days past due, we stop the accrual of interest on the note receivable and mail a
Notice of Intent to Cancel Membership, which informs the customer that unless
the delinquency is cured within 30 days, we will terminate the customer's VOI
ownership. At this point the account is reviewed by the Collection Manager to
determine if, in certain limited circumstances, additional correspondence should
be sent offering repayment options. At approximately 120 days delinquent, we
send a Termination Letter, return receipt requested. The VOI is placed back into
our inventory generally by the calendar month following the return of the
delivery receipt. We can then resell the VOI to a new purchaser.
Bluegreen Communities
Collection efforts and delinquency information concerning Bluegreen Communities'
notes receivable are also managed at our corporate headquarters. A staff of
experienced collectors handles servicing of the division's receivables. We
generally make collection efforts by mail and telephone. Collection efforts
begin when an account is sixteen days past due, at which time we contact the
customer by telephone and attempt 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, we typically declare the loan in default
when the loan becomes 60 days delinquent. When the loan is 90 days past due, we
stop the accrual of interest (unless the loan is deemed to be an in-substance
foreclosure loan, in which case all accrued interest is reversed since our means
of recovery is determined through the resale of the underlying collateral and
not through collection on the note) and the Collection Manager determines the
action to be taken.
Loan Loss Reserves
The allowance for loan losses as a percentage of our outstanding notes
receivable was approximately 8% at both December 31, 2003 and 2004. We determine
the adequacy of our reserve for loan losses and review it on a regular basis
considering, among other factors, historical frequency of default, loss
experience, static pool analyses, estimated value of the underlying collateral,
present and expected economic conditions as well as other factors. During the
nine months ended December 31, 2002, the year ended December 31, 2003 and the
year ended December 31, 2004, the default rates on Bluegreen Resorts' and
Bluegreen Communities' receivables owned or serviced by us were as follows:
Nine Months
Ended Year Ended Year Ended
December 31, December 31, December 31,
Division 2002 2003 2004
- ------------------------ ------------ ------------ ------------
Bluegreen Resorts....... 4.4% 7.9% 8.5%
Bluegreen Communities... 2.2% 2.0% 1.9%
20
The default rate for Bluegreen Resorts was lower during the nine months ended
December 31, 2002 as compared to the years ended December 31, 2003 and 2004, as
the months of January through March of each year historically have had higher
seasonally adjusted default rates than other months during the year.
Sales of Receivables/Pledging of Receivables
During the nine months ended December 31, 2002 and the year sended December 31,
2003 and 2004, all of our notes receivable sold and the majority of our notes
receivable pledged consisted of notes receivable generated by Bluegreen Resorts.
Since 1986, we have sold or pledged a significant amount of our receivables,
generally retaining the right and obligation to service such receivables. In the
case of Bluegreen Communities' receivables pledged to a financial institution,
we generally must maintain a debt to eligible collateral rate (based on the
outstanding principal balance of the pledged loans) of 90%. We are obligated to
pledge additional eligible receivables or make additional principal payments in
order to maintain this collateralization rate. Since fiscal 1999, we have
maintained various vacation ownership receivables purchase facilities with
financial institutions. Our ability to sell and/or borrow against our notes
receivable from VOI buyers is a critical factor in our continued liquidity. The
vacation ownership business involves making sales of a product pursuant to which
a financed buyer is only required to pay a minimum of 10% of the purchase price
in cash up front, yet selling, marketing and administrative expenses are
primarily cash expenses, which, in our case for the year ended December 31,
2004, approximated 58% of sales. Accordingly, having facilities for the sale and
hypothecation of these vacation ownership receivables is a critical factor to
our meeting our short- and long-term cash needs.
The vacation ownership receivables purchase facilities that we have historically
maintained have typically utilized an owner's trust structure, pursuant to which
we sell receivables to one of our wholly-owned, special purpose finance
subsidiaries. These subsidiaries then sell the receivables to an owners' trust
(qualified special purpose entity) without recourse to us or our subsidiaries
except for breaches of certain representations and warranties at the time of
sale. We historically have not entered into any guarantees in connection with
our vacation ownership receivables purchase facilities. These facilities usually
have detailed requirements with respect to the eligibility of receivables for
purchase; and, fundings under these facilities are typically subject to certain
conditions precedent. Under such purchase facilities, a variable purchase price
of a portion of the principal balance of the receivables sold, subject to
certain terms and conditions, is paid at closing in cash. The balance of the
purchase price is deferred until such time as the purchaser of our vacation
ownership receivables has received a specified return and all servicing,
custodial, agent and similar fees and expenses have been paid. We have
historically acted as servicer of the vacation ownership receivables we have
sold under these purchase facilities for a fee.
Our vacation ownership receivables purchase facilities typically include various
conditions to purchase, covenants, trigger events and other provisions customary
for these types of transactions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Vacation Ownership Receivables Purchase Facilities - Off-Balance
Sheet Arrangements" for information about our current VOI receivables purchase
facilities.
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and remitting
such funds to the owners, lenders or investors in such receivables, accounting
for principal and interest on such receivables, making advances when required,
contacting delinquent borrowers, foreclosing, or terminating a contract for deed
or membership in our vacation club in the event that defaults are not remedied,
and performing other administrative duties. Our obligation to service the
receivables and our right to collect fees for a given pool of receivables are
set forth in a servicing agreement. We have the obligation and right to service
all of the receivables we originate and have retained the obligation and right
with respect to the receivables we have sold under any of our vacation ownership
receivable purchase facilities to date, although in certain circumstances the
purchasers may elect to appoint a new servicer. We typically receive an annual
servicing
21
fee ranging from approximately 1.5% to 2.0% of the principal balance of the
loans serviced on behalf of others. During the nine months ended December 31,
2002 and the years ended December 31, 2003 and 2004, we recognized aggregate
servicing fee income of $2.5 million, $3.8 million and $4.4 million,
respectively.
Regulation
The vacation ownership and real estate industries are subject to extensive and
complex regulation. We are 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 VOIs and various aspects of our 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 unfair
competition in interstate commerce. In addition to the laws applicable to our
customer financing and other operations discussed below, we are or may be
subject to the Fair Housing Act and various other federal statutes and
regulations. We are also subject to various foreign laws with respect to La
Cabana. In addition, there can be no assurance that in the future, VOIs will not
be deemed to be securities subject to regulation as such, which could have a
material adverse effect on us. There is no assurance that the cost of complying
with applicable laws and regulations will not be significant or that we are in
compliance with all applicable laws, including those discussed below. Any
failure to comply with current or future applicable laws or regulations could
have a material adverse effect on us.
Our sales and marketing of homesites 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, we have been exempt from HUD registration requirements because of the
size or number of the subdivided parcels and the limited nature of our
offerings. In those cases where we and our legal counsel determine parcels must
be registered to be sold, we file registration materials disclosing financial
information concerning the property, evidence of title and a description of the
intended manner of offering and advertising such property. We bear 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, we
regularly consult with counsel for assistance in complying with federal, state
and local law. We must obtain the approval of numerous governmental authorities
for our acquisition and marketing activities; and,changes in local circumstances
or applicable laws may necessitate the application for, or the modification of,
existing approvals.
Our vacation ownership resorts are subject to various regulatory requirements
including state and local approvals. The laws of most states require us to file
with a designated state authority a detailed offering statement describing our
business and all material aspects of the project and sale of VOIs. Laws in each
state where we sell VOIs generally grant the purchaser of a VOI the right to
cancel a contract of purchase at any time within a specified rescission 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 us.
Most states have other laws that regulate our activities, including: real estate
licensure; sellers 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. Under these laws, future owners may recover from us amounts in
connection with the repairs made to the developed property. As required by state
laws, we provide our VOI 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 VOI owner.
The development of our resorts is subject to various Federal, state and local
laws and regulations, including the Americans with Disabilities Act.
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, the property, as well as related costs of investigation and
property damage. These laws often impose such liability without regard to
whether the owner knew of the presence of such hazardous or toxic substances.
The presence of these substances, or the failure to properly remediate these
substances,
22
may adversely affect the owner's ability to sell or lease a property or to
borrow using the real property as collateral. Other federal and state laws
require the removal or encapsulation of asbestos-containing material when this
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.
Our 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, the Patriot Act, the Right to Financial Privacy Act and the
Gramm-Leach-Bliley Act.
During the year ended December 31, 2004, approximately 13% of our VOI sales were
generated by marketing to prospective purchasers obtained through internal and
affiliated telemarketing efforts. In addition, approximately16% of our VOI sales
during the year ended December 31, 2004, were generated by marketing to
prospective purchasers obtained from third-party VOI 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, the Federal Trade Commission has implemented national
"do not call" legislation. While we continue to be subject to telemarketing
risks and potential liability, we believe that our 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
us permission to contact them in the future, and through our exclusive marketing
agreement with Bass Pro. We have implemented procedures which we believe will
help reduce the possibility that individuals who have formally requested to the
applicable federal or state regulators that they be placed on a "do not call"
list are not contacted through one of our in-house or third-party contracted
telemarketing operations, although there can be no assurance that such
procedures will be effective in ensuring regulatory compliance. These measures
have increased and are expected to continue to increase our marketing costs.
Through December 31, 2004, we have not been subject to any material fines or
penalties as a result of our telemarketing operations. However, there is no
assurance that we will be able to efficiently or effectively market to
prospective purchasers through telemarketing operations in the future or that we
will be able to develop alternative sources of prospective purchasers of our VOI
products at acceptable costs.
Competition
Bluegreen Resorts competes with various high profile and well-established
operators. Many of the world's most recognized lodging, hospitality and
entertainment companies develop and sell VOIs in resort properties. Major
companies that now operate or are developing or planning to develop vacation
ownership resorts include Marriott International, Inc., the Walt Disney Company,
Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts,
Starwood Hotels and Resorts Worldwide, Inc. and Cendant Corporation. We also
compete with numerous other smaller owners and operators of vacation ownership
resorts. In addition to competing for sales leads and prospects, we compete with
other VOI developers for sales personnel. We believe that each of our vacation
ownership resorts faces the same general competitive conditions. Although, as
noted above, Bluegreen Resorts competes with various high profile and
well-established operators, we believe that we can compete on the basis of our
general reputation; the price, location and quality of our vacation ownership
resorts and the flexibility of our points-based Bluegreen Vacation Club product.
The development and operation of additional vacation ownership resorts by
competitors in our markets could have a material adverse impact on the demand
for our VOIs and our results of operations.
Bluegreen Communities competes with builders, developers and others for the
acquisition of property and with local, regional and national developers,
homebuilders and others with respect to the sale of homesites. Competition may
be generally less intense with respect to our homesite sales in the more rural
markets in which it operates. We believe that each of our Bluegreen Communities
projects faces the same general
23
competitive conditions. We believe that we can compete on the basis of our
reputation and the price, location and quality of the products we offer for
sale, as well as on the basis of our experience in land acquisition, development
and sale.
Our golf courses face competition for business from other operators of daily fee
and, to a lesser extent, private golf courses within the local markets where we
operate. Competition in these markets affects the rates that we charge 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.
We do not believe that such competitive factors have a material adverse impact
on our results of operations or financial position.
In our customer financing activities, we compete with banks, mortgage companies,
other financial institutions and government agencies offering financing of real
estate. In recent years, we have experienced increased competition with respect
to the financing of Bluegreen Communities sales as evidenced by the low
percentage of homesite sales internally financed since 1995.
Website Access to Exchange Act Reports
We post publicly available reports required to be filed with the SEC ("Exchange
Act Reports") on our website, www.bluegreenonline.com, as soon as reasonably
practicable after filing such reports with the SEC. We also make available on
our website the beneficial ownership reports (Forms 3, 4 and 5) filed by our
officers, directors and other reporting persons under Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act"). Our website and the
information contained therein or connected thereto are not incorporated into
this Annual Report on Form 10-K.
The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The website address for this site is www.sec.gov.
Personnel
As of December 31, 2004, we had 4,076 employees. Of the 4,076 employees, 477
were located at our headquarters in Boca Raton, Florida, and 3,599 in regional
field offices throughout the United States and Aruba (the field personnel
include 368 field employees supporting Bluegreen Communities and 3,231 field
employees supporting Bluegreen Resorts). Only our employees in Aruba are
represented by a collective bargaining unit, and we believe that our relations
with our employees are generally good.
24
Executive Officers
The following table sets forth certain information regarding our executive
officers as of March 11, 2005.
Name Age Position
- ------------------------- --- -----------------------------------------
George F. Donovan........ 66 President and Chief Executive Officer
John F. Chiste........... 48 Senior Vice President, Chief Financial
Officer and Treasurer
Daniel C. Koscher........ 47 Senior Vice President -- President,
Bluegreen Communities
John M. Maloney, Jr...... 43 Senior Vice President -- President,
Bluegreen Resorts
Sheila B. Beauchesne..... 40 Senior Vice President and Chief
Information Officer
Allan J. Herz............ 45 Senior Vice President, Mortgage
Operations
Douglas O. Kinsey........ 46 Senior Vice President, Acquisitions
and Development
James R. Martin.......... 57 Senior Vice President and General Counsel
and Clerk
Susan J. Milanese........ 45 Senior Vice President and Chief Human
Resources Officer
Anthony M. Puleo......... 37 Senior Vice President and Chief
Accounting Officer
George F. Donovan joined us 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 us in 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 us 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 1996, he became Senior Vice
President -- President, Bluegreen Communities. Prior to his employment
25
with us, 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 us in 2001 as Senior Vice President of Operations
and Business Development for Bluegreen Resorts. In May 2002, Mr. Maloney was
named our Senior Vice President and President of Bluegreen Resorts. 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 and Marketing
for the South Florida area.
Sheila B. Beauchesne joined us in 2004 as Senior Vice President and Chief
Information Officer. From 1997 to 1999, Ms. Beauchesne served as Vice President
of Information Technology for the North American Rental Group of AutoNation,
Inc., a publicly held automobile retailer. From 1999 to 2003, Ms. Beauchesne was
the Senior Vice President and Chief Information Officer of Martha Stewart Living
Omnimedia, Inc., a publicly held, integrated content and commerce company that
creates "how-to" content and domestic merchandise for homemakers and other
consumers. Ms. Beauchesne holds a B.S. in Computer Science.
Allan J. Herz joined us in 1992 and was named Director of Mortgage Operations in
September 1992. Mr. Herz was elected Vice President in 1993 and Senior Vice
President in 2004. 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. in Finance and Management and an
M.B.A.
Douglas O. Kinsey joined us in 2003 as Senior Vice President, Acquisitions and
Development. From 1997 to 2003, Mr. Kinsey served as Senior Vice President of
Real Estate Acquisitions for Fairfield Resorts, a vacation ownership resort
developer that was publicly-traded until its acquisition by another publicly
held company, Cendant Corporation. Mr. Kinsey holds a B.S.B.A. in finance.
James R. Martin joined us in 2004 as Senior Vice President, General Counsel and
Clerk. Prior to joining us, Mr. Martin was a partner with the law firm of Baker
& Hostetler LLP since 1985, focusing his practice on real estate, resort
development, vacation ownership, federal and state regulatory matters and
commercial and consumer law. Mr. Martin holds a B.A. and a Juris Doctorate.
Susan J. Milanese joined us in 1988. During her tenure, she has held various
management positions with us 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 and Administration. In 2004, Ms.
Milanese was elected Senior Vice President and Chief Human Resources Officer.
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 Masters of Science in Human Resource Management and a B.B.A. in
Accounting.
Anthony M. Puleo joined us in 1997 as Chief Accounting Officer. In 1998, Mr.
Puleo was elected Vice President and he was elected Senior Vice President in
2004. 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.
Our by-laws provide that, except as otherwise provided by law or our charter and
by-laws, the President, Treasurer and the Clerk hold office until the first
meeting of the Board of Directors following the next annual meeting of
shareholders and until their respective successors are chosen and qualified and
that all other officers hold office for the same period unless a shorter time is
specified in the vote appointing such officer or officers.
26
Item 2. PROPERTIES.
Our principal executive office is located in Boca Raton, Florida in
approximately 102,000 square feet of leased space. On December 31, 2004, we also
maintained regional sales offices in the Northeastern, Mid-Atlantic,
Southeastern, Midwestern, Southwestern and Western regions of the United States
as well as the island of Aruba. For a further description of our resort and
communities properties, please see "Item 1. Business--Company Products."
Item 3. Legal Proceedings.
In the ordinary course of our business, we become subject to claims or
proceedings from time to time relating to the purchase, subdivision, marketing,
sale or financing of real estate. Additionally, from time to time, we become
involved in disputes with existing and former employees. We believe that these
claims are routine litigation incidental to our business and the resolution of
these matters is not expected to have a material adverse effect on our financial
position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the New York Stock Exchange ("NYSE") and the
Archipelago Stock Exchange (formerly known as the Pacific Stock Exchange) under
the symbol "BXG". The following table sets forth, for the periods indicated, the
high and low closing price of our common stock as reported on the NYSE:
Price Range Price Range
------------- ---------------
High Low High Low
- -----------------------------------------------------------------------
The Year Ended The Year Ended
December 31, 2003 December 31, 2004
- ----------------- -----------------
First Quarter $3.70 $3.36 First Quarter $12.96 $ 6.25
Second Quarter 4.93 3.45 Second Quarter 13.99 10.28
Third Quarter 6.08 4.66 Third Quarter 13.77 9.61
Fourth Quarter 7.07 5.54 Fourth Quarter 20.07 10.48
There were approximately 1,020 record holders of our common stock as of March
11, 2005. The number of record holders does not reflect the number of persons or
entities holding their stock in "street" name through brokerage firms or other
entities.
We did not pay any cash or stock dividends during the year ended December 31,
2003, or the year ended December 31, 2004. Our Board of Directors has discussed
the possibility of paying cash dividends at some point in the future. However,
any decision by our Board to pay dividends will be based on our cash position,
operating and capital needs and the restrictions discussed below, and there is
no assurance that we will pay cash dividends in the foreseeable future.
Restrictions contained in the Indenture related to our $110 million 10 1/2%
Senior Secured Notes due 2008 issued in April 1998 restrict, and the terms of
certain of our credit facilities may, in certain instances, limit the payment of
cash dividends on our common stock and restrict our ability to repurchase
shares.
From time to time, our Board of Directors has adopted and publicly announced a
share repurchase program. Repurchases under such programs are subject to the
price of our stock, prevailing market conditions, our financial condition and
available resources, other investment alternatives and other factors. We are not
required to seek shareholder approval of share repurchase programs, have not
done so in the past, and do
27
not anticipate doing so in the future, except to the extent we may be required
to do so under applicable law. We have not repurchased any shares since the
fiscal year ended April 1, 2001. As of December 31, 2004, there were 694,500
shares remaining for purchase under our current repurchase program; however, we
have no present intention of acquiring these remaining shares in the foreseeable
future.
Our shareholders have approved all of our equity compensation plans, which
consist of our 1995 Stock Incentive Plan, our 1988 Outside Directors' Stock
Option Plan and our 1998 Non-Employee Director Stock Option Plan. Information
about securities authorized for issuance under our equity compensation plans as
of December 31, 2004, is as follows (in thousands, except per option data):
Number of Securities Remaining
Number of Securities to Weighted-Average Available for Future Issuance
be Issued Upon Exercise Exercise Price of Under Equity Compensation Plans
of Outstanding Stock Outstanding Stock (Excluding Outstanding Stock
Options Options Options)
- ----------------------- ----------------- -------------------------------
1,645 $5.29 781
Item 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related notes, and other
financial information appearing elsewhere in this Annual Report (dollars in
thousands, except per share data).
As of or for
the
As of or for the Years Nine Months As of or for the Years
Ended Ended Ended
---------------------- ------------ ---------------------------
April 1, March 31, December 31, December 31, December 31,
2001 2002 2002 2003 2004
-------- --------- ------------ ------------ ------------
Income Statement Data
Sales of real estate............. $229,874 $240,628 $222,655 $358,312 $