UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 20182019
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number
001-09071
BBX Capital Corporation
(Exact name of registrant as specified in its charter)
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Florida |
| 59‑2022148 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S Employer Identification No.) |
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401 East Las Olas Boulevard, Suite 800 |
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Fort Lauderdale, Florida |
| 33301 |
(Address of principal executive office) |
| (Zip Code) |
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(954) 940-4900 |
(Registrant's telephone number, including area code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, $.01 par value (including associated Preferred Share Purchase Rights) | BBX | New York Stock Exchange |
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X]NO [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES [X]NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ] | Accelerated filer[X] | Non-accelerated filer [ ] | Smaller reporting company [ ] |
Emerging growth company [ ] |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [ ]NO [ X ]
The number of shares outstanding of each of the registrant’s classes of common stock as of November 1, 2018October 29, 2019 is as follows:
Class A Common Stock of $.01 par value, 79,578,73076,932,065 shares outstanding.
Class B Common Stock of $.01 par value, 17,461,65518,627,873 shares outstanding.
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BBX Capital Corporation TABLE OF CONTENTS | ||
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Part I. | ||
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Item 1. | Financial Statements |
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| 1 | |
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| 2 | |
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| 3 | |
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| Notes to Condensed Consolidated Financial Statements - Unaudited | |
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Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. | ||
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Item 4. | ||
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Part II. | OTHER INFORMATION |
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Item 1. | ||
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Item 1A. | ||
Item 2. | 59 | |
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Item 6. | ||
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PART I – FINANCIAL INFORMATION
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BBX Capital Corporation | BBX Capital Corporation | BBX Capital Corporation | ||||||
Condensed Consolidated Statements of Financial Condition - Unaudited | Condensed Consolidated Statements of Financial Condition - Unaudited | Condensed Consolidated Statements of Financial Condition - Unaudited | ||||||
(In thousands, except share data) | (In thousands, except share data) | (In thousands, except share data) | ||||||
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| December 31, |
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| September 30, 2018 |
| 2017 |
| September 30, 2019 |
| December 31, 2018 |
ASSETS |
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Cash and cash equivalents | $ | 369,512 |
| 362,526 | $ | 368,818 |
| 366,305 |
Restricted cash ($17,081 in 2018 and $19,488 in 2017 in variable |
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interest entities ("VIEs")) |
| 55,710 |
| 46,721 | ||||
Notes receivable, net ($308,221 in 2018 and $279,188 in 2017 in VIEs) |
| 439,484 |
| 426,858 | ||||
Restricted cash ($19,185 in 2019 and $28,400 in 2018 in variable interest entities ("VIEs")) |
| 48,597 |
| 54,792 | ||||
Notes receivable, net ($299,374 in 2019 and $341,975 in 2018 in VIEs) |
| 445,706 |
| 439,167 | ||||
Trade inventory |
| 21,706 |
| 23,902 |
| 25,126 |
| 20,110 |
Vacation ownership interest ("VOI") inventory |
| 325,532 |
| 281,291 |
| 346,821 |
| 334,149 |
Real estate ($20,684 in 2018 and $27,828 in 2017 held for sale) |
| 52,579 |
| 68,536 | ||||
Real estate ($12,074 in 2019 and $20,202 in 2018 held for sale) |
| 59,574 |
| 54,956 | ||||
Investments in unconsolidated real estate joint ventures |
| 42,550 |
| 51,234 |
| 53,739 |
| 64,738 |
Property and equipment, net |
| 133,267 |
| 111,929 |
| 131,422 |
| 139,628 |
Goodwill |
| 39,482 |
| 39,482 |
| 37,248 |
| 37,248 |
Intangible assets, net |
| 71,609 |
| 70,449 |
| 68,342 |
| 69,710 |
Operating lease assets |
| 110,435 |
| - | ||||
Other assets |
| 126,336 |
| 122,753 |
| 121,610 |
| 124,217 |
Total assets | $ | 1,677,767 |
| 1,605,681 | $ | 1,817,438 |
| 1,705,020 |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Accounts payable | $ | 26,677 |
| 31,370 | $ | 29,206 |
| 29,537 |
Deferred income |
| 15,509 |
| 16,893 |
| 20,323 |
| 16,522 |
Escrow deposits |
| 31,957 |
| 21,079 |
| 25,149 |
| 22,255 |
Other liabilities |
| 112,133 |
| 103,464 |
| 128,318 |
| 104,441 |
Receivable-backed notes payable - recourse |
| 97,770 |
| 84,697 |
| 94,904 |
| 76,674 |
Receivable-backed notes payable - non-recourse (in VIEs) |
| 335,680 |
| 336,421 |
| 341,856 |
| 382,257 |
Notes payable and other borrowings |
| 197,177 |
| 144,114 |
| 161,420 |
| 200,887 |
Junior subordinated debentures |
| 136,231 |
| 135,414 |
| 137,038 |
| 136,425 |
Operating lease liabilities |
| 124,129 |
| - | ||||
Deferred income taxes |
| 68,453 |
| 47,968 |
| 90,695 |
| 86,363 |
Redeemable 5% cumulative preferred stock of $.01 par value; authorized 15,000 shares; |
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issued and outstanding 10,000 shares in 2018 and 15,000 shares in 2017 with a stated value of $1,000 per share |
| 9,390 |
| 13,974 | ||||
issued and outstanding 10,000 shares in 2019 and 2018 with a stated value of $1,000 per share |
| 9,730 |
| 9,472 | ||||
Total liabilities |
| 1,030,977 |
| 935,394 |
| 1,162,768 |
| 1,064,833 |
Commitments and contingencies (See Note 11) |
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Redeemable noncontrolling interest |
| 2,844 |
| 2,765 |
| 2,229 |
| 2,579 |
Equity: |
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Preferred stock of $.01 par value; authorized 10,000,000 shares |
| - |
| - |
| - |
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Class A Common Stock of $.01 par value; authorized 150,000,000 shares; |
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issued and outstanding 79,417,242 in 2018 and 85,689,163 in 2017 |
| 794 |
| 857 | ||||
issued and outstanding 76,580,091 in 2019 and 78,379,530 in 2018 |
| 766 |
| 784 | ||||
Class B Common Stock of $.01 par value; authorized 20,000,000 shares; |
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issued and outstanding 13,798,718 in 2018 and 13,963,200 in 2017 |
| 138 |
| 140 | ||||
issued and outstanding 14,840,534 in 2019 and 14,840,634 in 2018 |
| 148 |
| 148 | ||||
Additional paid-in capital |
| 175,896 |
| 229,379 |
| 162,183 |
| 161,684 |
Accumulated earnings |
| 374,405 |
| 353,384 |
| 392,167 |
| 385,789 |
Accumulated other comprehensive income |
| 1,507 |
| 1,708 |
| 1,420 |
| 1,215 |
Total shareholders' equity |
| 552,740 |
| 585,468 |
| 556,684 |
| 549,620 |
Noncontrolling interests |
| 91,206 |
| 82,054 |
| 95,757 |
| 87,988 |
Total equity |
| 643,946 |
| 667,522 |
| 652,441 |
| 637,608 |
Total liabilities and equity | $ | 1,677,767 |
| 1,605,681 | $ | 1,817,438 |
| 1,705,020 |
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* See Note 1 for a summary of adjustments. |
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See Notes to Condensed Consolidated Financial Statements - Unaudited | See Notes to Condensed Consolidated Financial Statements - Unaudited | See Notes to Condensed Consolidated Financial Statements - Unaudited |
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BBX Capital Corporation | BBX Capital Corporation | |||||||||||||||
Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited | Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited | Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited | ||||||||||||||
(In thousands, except per share data) | (In thousands, except per share data) | (In thousands, except per share data) | ||||||||||||||
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| For the Three Months Ended |
| For the Nine Months Ended |
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| September 30, |
| September 30, |
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
Revenues: |
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Sales of VOIs | $ | 70,698 |
| 62,453 |
| 195,412 |
| 176,094 | $ | 66,318 |
| 70,698 |
| 186,351 |
| 195,412 |
Fee-based sales commissions |
| 61,641 |
| 69,977 |
| 167,581 |
| 179,046 |
| 60,478 |
| 61,641 |
| 161,033 |
| 167,581 |
Other fee-based services |
| 31,057 |
| 27,386 |
| 89,472 |
| 83,442 |
| 33,744 |
| 31,057 |
| 94,015 |
| 89,472 |
Cost reimbursements |
| 16,900 |
| 14,097 |
| 47,157 |
| 40,660 |
| 21,111 |
| 16,900 |
| 58,705 |
| 47,157 |
Trade sales |
| 43,803 |
| 44,718 |
| 126,114 |
| 96,369 |
| 47,660 |
| 43,803 |
| 138,705 |
| 126,114 |
Sales of real estate inventory |
| 7,478 |
| - |
| 17,138 |
| - |
| 370 |
| 7,478 |
| 5,030 |
| 17,138 |
Interest income |
| 21,157 |
| 21,035 |
| 63,738 |
| 63,065 |
| 21,797 |
| 21,157 |
| 64,730 |
| 63,738 |
Net (losses) gains on sales of real estate assets |
| (4) |
| (18) |
| 4,798 |
| 1,668 | ||||||||
Net gains on sales of real estate assets |
| 399 |
| - |
| 11,395 |
| 4,802 | ||||||||
Other revenue |
| 1,673 |
| 1,248 |
| 4,282 |
| 3,652 |
| 3,237 |
| 1,669 |
| 7,540 |
| 4,278 |
Total revenues |
| 254,403 |
| 240,896 |
| 715,692 |
| 643,996 |
| 255,114 |
| 254,403 |
| 727,504 |
| 715,692 |
Costs and Expenses: |
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Cost of VOIs sold |
| 11,237 |
| 6,444 |
| 19,838 |
| 11,352 |
| 3,121 |
| 11,237 |
| 17,541 |
| 19,838 |
Cost of other fee-based services |
| 19,937 |
| 17,182 |
| 53,983 |
| 48,663 |
| 23,746 |
| 19,937 |
| 66,538 |
| 53,983 |
Cost reimbursements |
| 16,900 |
| 14,097 |
| 47,157 |
| 40,660 |
| 21,111 |
| 16,900 |
| 58,705 |
| 47,157 |
Cost of trade sales |
| 28,960 |
| 31,810 |
| 88,051 |
| 73,773 |
| 31,860 |
| 28,957 |
| 94,978 |
| 88,045 |
Cost of real estate inventory sold |
| 4,655 |
| - |
| 11,283 |
| - |
| - |
| 4,655 |
| 2,643 |
| 11,283 |
Interest expense |
| 11,130 |
| 9,483 |
| 30,732 |
| 27,580 |
| 11,870 |
| 11,130 |
| 34,679 |
| 30,869 |
Recoveries from loan losses, net |
| (443) |
| (2,005) |
| (7,236) |
| (6,098) |
| (1,821) |
| (443) |
| (4,206) |
| (7,258) |
Asset impairments, net |
| 191 |
| 1,506 |
| 527 |
| 1,551 | ||||||||
Net gains on cancellation of junior |
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subordinated debentures |
| - |
| - |
| - |
| (6,929) | ||||||||
Reimbursements of litigation costs and penalty |
| - |
| (2,113) |
| - |
| (11,719) | ||||||||
Impairment losses |
| 4,030 |
| 193 |
| 6,786 |
| 549 | ||||||||
Selling, general and administrative expenses |
| 143,558 |
| 146,842 |
| 410,490 |
| 395,489 |
| 148,549 |
| 143,559 |
| 448,510 |
| 410,359 |
Total costs and expenses |
| 236,125 |
| 223,246 |
| 654,825 |
| 574,322 |
| 242,466 |
| 236,125 |
| 726,174 |
| 654,825 |
Equity in net earnings of unconsolidated |
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real estate joint ventures |
| 373 |
| 2,105 |
| 1,165 |
| 8,428 | ||||||||
Equity in net earnings of unconsolidated real estate joint ventures |
| 28,534 |
| 373 |
| 37,276 |
| 1,165 | ||||||||
Foreign exchange gain (loss) |
| 76 |
| (105) |
| 91 |
| (312) |
| - |
| 76 |
| (24) |
| 91 |
Income before income taxes |
| 18,727 |
| 19,650 |
| 62,123 |
| 77,790 |
| 41,182 |
| 18,727 |
| 38,582 |
| 62,123 |
Provision for income taxes |
| (6,742) |
| (8,126) |
| (21,997) |
| (30,021) |
| (14,682) |
| (6,742) |
| (15,068) |
| (21,997) |
Net income |
| 11,985 |
| 11,524 |
| 40,126 |
| 47,769 |
| 26,500 |
| 11,985 |
| 23,514 |
| 40,126 |
Less: Net income attributable to noncontrolling interests |
| 5,806 |
| 3,398 |
| 16,324 |
| 9,488 |
| 4,112 |
| 5,806 |
| 11,275 |
| 16,324 |
Net income attributable to shareholders | $ | 6,179 |
| 8,126 |
| 23,802 |
| 38,281 | $ | 22,388 |
| 6,179 |
| 12,239 |
| 23,802 |
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Basic earnings per share | $ | 0.07 |
| 0.08 |
| 0.25 |
| 0.39 | $ | 0.24 |
| 0.07 |
| 0.13 |
| 0.25 |
Diluted earnings per share | $ | 0.06 |
| 0.08 |
| 0.24 |
| 0.36 | $ | 0.24 |
| 0.06 |
| 0.13 |
| 0.24 |
Basic weighted average number of common |
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shares outstanding |
| 93,193 |
| 98,073 |
| 95,722 |
| 98,408 | ||||||||
Diluted weighted average number of common and |
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common equivalent shares outstanding |
| 96,576 |
| 106,021 |
| 98,971 |
| 105,802 | ||||||||
Basic weighted average number of common shares outstanding |
| 92,587 |
| 93,193 |
| 93,002 |
| 95,722 | ||||||||
Diluted weighted average number of common and common equivalent shares outstanding |
| 94,059 |
| 96,576 |
| 94,306 |
| 98,971 | ||||||||
Cash dividends declared per Class A common share | $ | 0.010 |
| 0.0075 |
| 0.030 |
| 0.0225 | $ | 0.0125 |
| 0.010 |
| 0.0375 |
| 0.030 |
Cash dividends declared per Class B common share | $ | 0.010 |
| 0.0075 |
| 0.030 |
| 0.0225 | $ | 0.0125 |
| 0.010 |
| 0.0375 |
| 0.030 |
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Net income | $ | 11,985 |
| 11,524 |
| 40,126 |
| 47,769 | $ | 26,500 |
| 11,985 |
| 23,514 |
| 40,126 |
Other comprehensive income, net of tax: |
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Unrealized (losses) gains on securities available for sale |
| (11) |
| 16 |
| (11) |
| 62 | ||||||||
Unrealized gain (loss) on securities available for sale |
| 16 |
| (11) |
| 54 |
| (11) | ||||||||
Foreign currency translation adjustments |
| 65 |
| 418 |
| 62 |
| 301 |
| (75) |
| 66 |
| 151 |
| 62 |
Other comprehensive income, net |
| 54 |
| 434 |
| 51 |
| 363 | ||||||||
Other comprehensive (loss) income, net |
| (59) |
| 55 |
| 205 |
| 51 | ||||||||
Comprehensive income, net of tax |
| 12,039 |
| 11,958 |
| 40,177 |
| 48,132 |
| 26,441 |
| 12,040 |
| 23,719 |
| 40,177 |
Less: Comprehensive income attributable |
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to noncontrolling interests |
| 5,806 |
| 3,398 |
| 16,324 |
| 9,488 | ||||||||
Less: Comprehensive income attributable to noncontrolling interests |
| 4,112 |
| 5,806 |
| 11,275 |
| 16,324 | ||||||||
Comprehensive income attributable to shareholders | $ | 6,233 |
| 8,560 |
| 23,853 |
| 38,644 | $ | 22,329 |
| 6,234 |
| 12,444 |
| 23,853 |
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* See Note 1 for a summary of adjustments. |
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See Notes to Condensed Consolidated Financial Statements - Unaudited | See Notes to Condensed Consolidated Financial Statements - Unaudited | See Notes to Condensed Consolidated Financial Statements - Unaudited |
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BBX Capital Corporation | |||||||||||
Condensed Consolidated Statements of Changes in Equity - Unaudited | |||||||||||
For the Three Months Ended September 30, 2019 and 2018 | |||||||||||
(In thousands) | |||||||||||
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| Shares of |
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| Accumulated |
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| Common Stock |
| Common |
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| Other |
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| Outstanding |
| Stock | Additional |
| Comprehen- | Total | Non- |
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| Class | Paid-in | Accumulated | sive | Shareholders' | controlling | Total | ||
| A | B |
| A | B | Capital | Earnings | Income | Equity | Interests | Equity |
Balance, June 30, 2018 | 79,257 | 13,936 | $ | 793 | 139 | 175,002 | 370,262 | 1,452 | 547,648 | 91,629 | 639,277 |
Net income excluding $208 of income attributable to redeemable noncontrolling interest | - | - |
| - | - | - | 6,179 | - | 6,179 | 5,598 | 11,777 |
Other comprehensive income | - | - |
| - | - | - | - | 55 | 55 | - | 55 |
Distributions to noncontrolling interests | - | - |
| - | - | - | - | - | - | (6,021) | (6,021) |
Class A common stock cash dividends declared | - | - |
| - | - | - | (809) | - | (809) | - | (809) |
Class B common stock cash dividends declared | - | - |
| - | - | - | (179) | - | (179) | - | (179) |
Purchase and retirement of common stock | - | - |
| - | - | (17) | - | - | (17) | - | (17) |
Purchase and retirement of common stock from vesting of restricted stock awards | (375) | (137) |
| (4) | (1) | (3,777) | - | - | (3,782) | - | (3,782) |
Issuance of common stock from vesting of restricted stock awards | 535 | - |
| 5 | - | (5) | - | - | - | - | - |
Share-based compensation | - | - |
| - | - | 3,645 | - | - | 3,645 | - | 3,645 |
Balance, September 30, 2018 | 79,417 | 13,799 | $ | 794 | 138 | 174,848 | 375,453 | 1,507 | 552,740 | 91,206 | 643,946 |
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Balance, June 30, 2019 | 77,978 | 14,841 | $ | 780 | 148 | 166,015 | 370,983 | 1,479 | 539,405 | 92,948 | 632,353 |
Net income excluding $82 of income attributable to redeemable noncontrolling interest | - | - |
| - | - | - | 22,388 | - | 22,388 | 4,030 | 26,418 |
Purchase and retirement of common stock | (1,398) | - |
| (14) | - | (7,001) | - | - | (7,015) | - | (7,015) |
Other comprehensive loss | - | - |
| - | - | - | - | (59) | (59) | - | (59) |
Distributions to noncontrolling interests | - | - |
| - | - | - | - | - | - | (1,221) | (1,221) |
Class A common stock cash dividends declared | - | - |
| - | - | - | (962) | - | (962) | - | (962) |
Class B common stock cash dividends declared | - | - |
| - | - | - | (242) | - | (242) | - | (242) |
Share-based compensation | - | - |
| - | - | 3,169 | - | - | 3,169 | - | 3,169 |
Balance, September 30, 2019 | 76,580 | 14,841 | $ | 766 | 148 | 162,183 | 392,167 | 1,420 | 556,684 | 95,757 | 652,441 |
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements - Unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BBX Capital Corporation | |||||||||||||||||
Condensed Consolidated Statement of Changes in Equity - Unaudited | |||||||||||||||||
For the Nine Months Ended September 30, 2018 | |||||||||||||||||
(In thousands) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Common Stock |
| Common Stock |
|
|
|
|
| Accumulated |
|
|
|
|
|
| ||
| Outstanding |
| Amount |
| Additional |
|
|
| Other |
| Total |
| Non- |
|
| ||
| Class |
| Class |
| Paid-in |
| Accumulated |
| Comprehensive |
| Shareholders' |
| controlling |
| Total | ||
| A | B |
| A | B |
| Capital |
| Earnings |
| Income |
| Equity |
| Interests |
| Equity |
As adjusted balance, December 31, 2017 * | 85,689 | 13,963 | $ | 857 | 140 |
| 229,379 |
| 353,384 |
| 1,708 |
| 585,468 |
| 82,054 |
| 667,522 |
Cumulative effect from the adoption of ASU 2016-01 | - | - |
| - | - |
| - |
| 252 |
| (252) |
| - |
| - |
| - |
Net income excluding $58 of loss attributable to redeemable noncontrolling interest | - | - |
| - | - |
| - |
| 23,802 |
| - |
| 23,802 |
| 16,382 |
| 40,184 |
Other comprehensive income | - | - |
| - | - |
| - |
| - |
| 51 |
| 51 |
| - |
| 51 |
Distributions to noncontrolling interests | - | - |
| - | - |
| - |
| - |
| - |
| - |
| (8,263) |
| (8,263) |
Increase in noncontrolling interest from loan foreclosure | - | - |
| - | - |
| - |
| - |
| - |
| - |
| 704 |
| 704 |
Purchase of noncontrolling interest | - | - |
| - | - |
| (587) |
| - |
| - |
| (587) |
| 329 |
| (258) |
Class A Common Stock cash dividends declared | - | - |
| - | - |
| - |
| (2,492) |
| - |
| (2,492) |
| - |
| (2,492) |
Class B Common Stock cash dividends declared | - | - |
| - | - |
| - |
| (541) |
| - |
| (541) |
| - |
| (541) |
Repurchase and retirement of Common Stock from tender offer | (6,486) | - |
| (65) | - |
| (60,076) |
| - |
| - |
| (60,141) |
| - |
| (60,141) |
Repurchase and retirement of Common Stock from vesting of restricted awards | (375) | (137) |
| (4) | (1) |
| (3,777) |
| - |
| - |
| (3,782) |
| - |
| (3,782) |
Conversion of Common Stock from Class B to Class A | 27 | (27) |
| 1 | (1) |
| - |
| - |
| - |
| - |
| - |
| - |
Issuance of Common Stock from vesting of restricted stock awards | 535 | - |
| 5 | - |
| (5) |
| - |
| - |
| - |
| - |
| - |
Issuance of Common Stock from exercise of options | 27 | - |
| - | - |
| 245 |
| - |
| - |
| 245 |
| - |
| 245 |
Share-based compensation | - | - |
| - | - |
| 10,717 |
| - |
| - |
| 10,717 |
| - |
| 10,717 |
Balance, September 30, 2018 | 79,417 | 13,799 | $ | 794 | 138 |
| 175,896 |
| 374,405 |
| 1,507 |
| 552,740 |
| 91,206 |
| 643,946 |
*See Note 1 for a summary of adjustments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
See Notes to Condensed Consolidated Financial Statements - Unaudited |
3
|
|
|
|
|
|
|
|
|
|
BBX Capital Corporation | ||||
Condensed Consolidated Statements of Cash Flows - Unaudited | ||||
(In thousands) | ||||
|
|
|
|
|
|
| For the Nine Months Ended | ||
|
| September 30, | ||
|
| 2018 |
| 2017 |
Operating activities: |
|
|
|
|
Net income | $ | 40,126 |
| 47,769 |
Adjustment to reconcile net income to net cash |
|
|
|
|
provided by operating activities: |
|
|
|
|
Recoveries from loan losses and asset impairments, net |
| (6,709) |
| (4,547) |
Provision for notes receivable allowances |
| 35,866 |
| 32,066 |
Depreciation, amortization and accretion, net |
| 18,550 |
| 15,066 |
Share-based compensation expense |
| 10,717 |
| 10,119 |
Net gains on sales of real estate held-for-sale |
| (4,798) |
| (1,668) |
Equity in earnings of unconsolidated real estate joint ventures |
| (1,165) |
| (8,428) |
Return on investment in unconsolidated real estate joint ventures |
| 5,233 |
| 11,465 |
Increase in deferred income tax |
| 20,465 |
| 30,279 |
Net gains on cancellation of junior subordinated debentures |
| - |
| (6,929) |
Interest accretion on redeemable 5% cumulative preferred stock |
| 854 |
| 901 |
Increase in notes receivable |
| (48,492) |
| (29,526) |
Increase in VOI inventory |
| (23,405) |
| (30,707) |
Decrease (increase) in trade inventory |
| 2,286 |
| (5,613) |
Decrease (increase) in real estate inventory |
| 9,990 |
| (7,733) |
Increase in other assets |
| (24,705) |
| (12,657) |
Increase in other liabilities |
| 8,774 |
| 13,323 |
Net cash provided by operating activities |
| 43,587 |
| 53,180 |
Investing activities: |
|
|
|
|
Return of investment in unconsolidated real estate joint ventures |
| 6,586 |
| 888 |
Investments in unconsolidated real estate joint ventures |
| (1,755) |
| (2,645) |
Repayment of loans receivable |
| 17,930 |
| 9,522 |
Proceeds from sales of real estate held-for-sale |
| 17,121 |
| 10,601 |
Additions to real estate held-for-sale and held-for-investment |
| (1,102) |
| (933) |
Purchases of property and equipment |
| (33,316) |
| (14,158) |
Proceeds from the sale of property and equipment |
| 569 |
| - |
Cash paid for acquisition, net of cash received |
| - |
| (58,418) |
Decrease in cash from other investing activities |
| (5,072) |
| (373) |
Net cash provided by (used in) investing activities |
| 961 |
| (55,516) |
Financing activities: |
|
|
|
|
Repayments of notes payable and other borrowings |
| (152,204) |
| (197,581) |
Proceeds from notes payable and other borrowings |
| 196,439 |
| 206,884 |
Redemption of junior subordinated debentures |
| - |
| (11,438) |
Payments for debt issuance costs |
| (1,131) |
| (3,217) |
Payments of interest on redeemable 5% cumulative preferred stock |
| (438) |
| (563) |
Repurchase and retirement of Class A common stock |
| (60,141) |
| (6,213) |
Purchase of noncontrolling interest |
| (258) |
| - |
Proceeds from the exercise of stock options |
| 245 |
| 62 |
Dividends paid on common stock |
| (2,822) |
| (2,136) |
Distributions to noncontrolling interest |
| (8,263) |
| (3,920) |
Net cash used in financing activities |
| (28,573) |
| (18,122) |
Increase (decrease) in cash, cash equivalents and restricted cash |
| 15,975 |
| (20,458) |
Cash, cash equivalents and restricted cash at beginning of period |
| 409,247 |
| 346,317 |
Cash, cash equivalents and restricted cash at end of period | $ | 425,222 |
| 325,859 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
BBX Capital Corporation | ||||||||||||
Condensed Consolidated Statements of Changes in Equity - Unaudited | ||||||||||||
For the Nine Months Ended September 30, 2019 and 2018 | ||||||||||||
(In thousands) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |
| Shares of |
|
|
|
|
| Accumulated |
|
|
| ||
| Common Stock |
| Common |
|
| Other |
|
|
| |||
| Outstanding |
| Stock | Additional |
| Comprehen- | Total | Non- |
| |||
| Class |
| Class | Paid-in | Accumulated | sive | Shareholders' | controlling | Total | |||
| A | B |
| A | B | Capital | Earnings | Income | Equity | Interests | Equity | |
Balance, December 31, 2017 | 85,689 | 13,963 | $ | 857 | 140 | 228,331 | 354,432 | 1,708 | 585,468 | 82,054 | 667,522 | |
Cumulative effect from the adoption of ASU 2016-01 | - | - |
| - | - | - | 252 | (252) | - | - | - | |
Net income excluding $58 of loss attributable to redeemable noncontrolling interest | - | - |
| - | - | - | 23,802 | - | 23,802 | 16,382 | 40,184 | |
Other comprehensive income | - | - |
| - | - | - | - | 51 | 51 | - | 51 | |
Distributions to noncontrolling interests | - | - |
| - | - | - | - | - | - | (8,263) | (8,263) | |
Increase in noncontrolling interest from loan foreclosure | - | - |
| - | - | - | - | - | - | 704 | 704 | |
Purchase of noncontrolling interest | - | - |
| - | - | (587) | - | - | (587) | 329 | (258) | |
Class A common stock cash dividends declared | - | - |
| - | - | - | (2,492) | - | (2,492) | - | (2,492) | |
Class B common stock cash dividends declared | - | - |
| - | - | - | (541) | - | (541) | - | (541) | |
Purchase and retirement of common stock | (6,486) | - |
| (65) | - | (60,076) | - | - | (60,141) | - | (60,141) | |
Purchase and retirement of common stock from vesting of restricted stock awards | (375) | (137) |
| (4) | (1) | (3,777) | - | - | (3,782) | - | (3,782) | |
Conversion of common stock from Class B to Class A | 27 | (27) |
| 1 | (1) | - | - | - | - | - | - | |
Issuance of common stock from vesting of restricted stock awards | 535 | - |
| 5 | - | (5) | - | - | - | - | - | |
Issuance of common stock from exercise of options | 27 | - |
| - | - | 245 | - | - | 245 | - | 245 | |
Share-based compensation | - | - |
| - | - | 10,717 | - | - | 10,717 | - | 10,717 | |
Balance, September 30, 2018 | 79,417 | 13,799 | $ | 794 | 138 | 174,848 | 375,453 | 1,507 | 552,740 | 91,206 | 643,946 | |
|
|
|
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2018 | 78,379 | 14,841 | $ | 784 | 148 | 161,684 | 385,789 | 1,215 | 549,620 | 87,988 | 637,608 | |
Cumulative effect from the adoption of ASU 2016-02, net of income taxes and redeemable noncontrolling interest | - | - |
| - | - | - | (2,202) | - | (2,202) | - | (2,202) | |
Net income excluding $158 of loss attributable to redeemable noncontrolling interest | - | - |
| - | - | - | 12,239 | - | 12,239 | 11,433 | 23,672 | |
Purchase and retirement of common stock | (1,799) | - |
| (18) | - | (8,880) | - | - | (8,898) | - | (8,898) | |
Other comprehensive income | - | - |
| - | - | - | - | 205 | 205 | - | 205 | |
Distributions to noncontrolling interests | - | - |
| - | - | - | - | - | - | (3,664) | (3,664) | |
Class A common stock cash dividends declared | - | - |
| - | - | - | (2,933) | - | (2,933) | - | (2,933) | |
Class B common stock cash dividends declared | - | - |
| - | - | - | (726) | - | (726) | - | (726) | |
Share-based compensation | - | - |
| - | - | 9,379 | - | - | 9,379 | - | 9,379 | |
Balance, September 30, 2019 | 76,580 | 14,841 | $ | 766 | 148 | 162,183 | 392,167 | 1,420 | 556,684 | 95,757 | 652,441 | |
|
|
|
|
|
|
|
|
|
|
|
| |
See Notes to Condensed Consolidated Financial Statements - Unaudited |
Continued
4
|
|
|
|
|
|
|
|
|
|
BBX Capital Corporation | ||||
Condensed Consolidated Statements of Cash Flows -- Unaudited | ||||
(In thousands) | ||||
|
|
|
|
|
|
| For the Nine Months Ended | ||
|
| September 30, | ||
|
| 2018 |
| 2017 |
Supplemental cash flow information: |
|
|
|
|
Interest paid on borrowings | $ | 27,807 |
| 21,392 |
Income taxes paid |
| 3,103 |
| 2,570 |
Supplementary disclosure of non-cash investing and financing activities: |
|
|
|
|
Construction funds receivable transferred to real estate |
| 8,716 |
| 8,259 |
Acquisition of VOI inventory, property and equipment for notes payable |
| 24,258 |
| - |
Reduction in redeemable 5% cumulative preferred stock |
| 4,862 |
| - |
Reduction in note receivable from holder of |
|
|
|
|
redeemable 5% cumulative preferred stock |
| (5,000) |
| - |
Property and equipment transferred to real estate |
| - |
| 6,181 |
Decrease in deferred tax liabilities due to cumulative effect of excess |
|
|
|
|
tax benefits |
| - |
| 3,054 |
Repurchase and retirement of shares of common stock in connection |
|
|
|
|
with share based compensation withholding tax obligations |
| 3,782 |
| 4,028 |
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
Cash and cash equivalents |
| 369,512 |
| 264,380 |
Restricted cash |
| 55,710 |
| 61,479 |
Total cash, cash equivalents, and restricted cash | $ | 425,222 |
| 325,859 |
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements -- Unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows - Unaudited | |||||
(In thousands) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, |
| ||
|
| 2019 |
| 2018 |
|
Operating activities: |
|
|
|
|
|
Net income | $ | 23,514 |
| 40,126 |
|
Adjustment to reconcile net income to net cash |
|
|
|
|
|
provided by operating activities: |
|
|
|
|
|
Recoveries from loan losses, net |
| (4,206) |
| (7,258) |
|
Provision for notes receivable allowances |
| 39,462 |
| 35,866 |
|
Depreciation, amortization and accretion, net |
| 21,150 |
| 18,557 |
|
Share-based compensation expense |
| 9,379 |
| 10,717 |
|
Net gains on sales of real estate |
| (11,395) |
| (4,798) |
|
Equity earnings of unconsolidated real estate joint ventures |
| (37,276) |
| (1,165) |
|
Return on investment in unconsolidated real estate joint ventures |
| 38,020 |
| 5,233 |
|
Increase in deferred income tax |
| 5,210 |
| 20,465 |
|
Impairment losses |
| 6,786 |
| 549 |
|
Interest accretion on redeemable 5% cumulative preferred stock |
| 633 |
| 854 |
|
Increase in notes receivable |
| (46,001) |
| (48,492) |
|
Increase in VOI inventory |
| (12,672) |
| (23,405) |
|
(Increase) decrease in trade inventory |
| (5,016) |
| 2,286 |
|
(Increase) decrease in real estate inventory |
| (2,865) |
| 9,990 |
|
Net change in operating lease asset and operating lease liability |
| 1,134 |
| - |
|
Increase in other assets |
| (3,852) |
| (24,712) |
|
Increase in other liabilities |
| 38,389 |
| 8,774 |
|
Net cash provided by operating activities |
| 60,394 |
| 43,587 |
|
Investing activities: |
|
|
|
|
|
Return of investment in unconsolidated real estate joint ventures |
| 30,331 |
| 6,586 |
|
Investments in unconsolidated real estate joint ventures |
| (20,076) |
| (1,755) |
|
Proceeds from repayment of loans receivable |
| 4,766 |
| 17,930 |
|
Proceeds from sales of real estate held-for-sale |
| 20,374 |
| 17,121 |
|
Proceeds from sales of property and equipment |
| 15,011 |
| 569 |
|
Additions to real estate held-for-sale and held-for-investment |
| (438) |
| (1,102) |
|
Purchases of property and equipment |
| (26,286) |
| (33,316) |
|
Decrease in cash from other investing activities |
| (73) |
| (5,072) |
|
Net cash provided by investing activities |
| 23,609 |
| 961 |
|
|
|
|
| (Continued) |
|
5
|
|
|
|
|
|
BBX Capital Corporation | |||||
Condensed Consolidated Statements of Cash Flows - Unaudited | |||||
(In thousands) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, | |||
|
| 2019 |
| 2018 |
|
Financing activities: |
|
|
|
|
|
Repayments of notes payable and other borrowings |
| (171,061) |
| (152,204) |
|
Proceeds from notes payable and other borrowings |
| 99,921 |
| 196,439 |
|
Payments for debt issuance costs |
| (351) |
| (1,131) |
|
Payments of interest on redeemable 5% cumulative preferred stock |
| (375) |
| (438) |
|
Purchase and retirement of Class A common stock |
| (8,898) |
| (60,141) |
|
Purchase of noncontrolling interest |
| - |
| (258) |
|
Proceeds from the exercise of stock options |
| - |
| 245 |
|
Dividends paid on common stock |
| (3,257) |
| (2,822) |
|
Distributions to noncontrolling interests |
| (3,664) |
| (8,263) |
|
Net cash used in financing activities |
| (87,685) |
| (28,573) |
|
(Decrease) increase in cash, cash equivalents and restricted cash |
| (3,682) |
| 15,975 |
|
Cash, cash equivalents and restricted cash at beginning of period |
| 421,097 |
| 409,247 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 417,415 |
| 425,222 |
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
Interest paid on borrowings, net of amounts capitalized | $ | 30,252 |
| 27,807 |
|
Income taxes paid |
| 10,873 |
| 3,103 |
|
Supplementary disclosure of non-cash investing and financing activities: |
|
|
|
|
|
Construction funds receivable transferred to real estate |
| 15,890 |
| 8,716 |
|
Acquisition of VOI inventory, property and equipment for notes payable |
| - |
| 24,258 |
|
Loans receivable transferred to real estate |
| 333 |
| 1,673 |
|
Reduction in note receivable from holder of redeemable 5% cumulative preferred stock |
| - |
| (5,000) |
|
Reduction in redeemable 5% cumulative preferred stock |
| - |
| 4,862 |
|
Increase in other assets upon issuance of Community Development District Bonds |
| 8,110 |
| - |
|
Assumption of Community Development District Bonds by builders |
| 1,035 |
| 4,573 |
|
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
Cash and cash equivalents |
| 368,818 |
| 369,512 |
|
Restricted cash |
| 48,597 |
| 55,710 |
|
Total cash, cash equivalents, and restricted cash | $ | 417,415 |
| 425,222 |
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements - Unaudited |
|
56
BBX Capital Corporation
Notes to Condensed Consolidated Financial Statements - Unaudited
1. Organization and Basis of Financial Statement Presentation
Organization
BBX Capital Corporation and its subsidiaries (the “Company” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” or “our”) is a Florida-based diversified holding company. BBX Capital Corporation as a standalone entity without its subsidiaries is referred to as “BBX Capital.”
BBX Capital has two classes of common stock. Holders of the Class A common stock are entitled to one vote per share, which in the aggregate represents 22% of the combined voting power of the Class A common stock and the Class B common stock. Class B common stock represents the remaining 78% of the combined vote. The percentage of total common equity represented by Class A and Class B common stock was 84% and 16%, respectively, at September 30, 2019. Class B common stock is convertible into Class A common stock on a share for share basis at any time at the option of the holder.
Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these financial statements do not include all of the information and disclosures required by GAAP for complete financial statements.
In management’s opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which include normal recurring adjustments, that are necessary for a fair statement of the condensed consolidated financial condition of the Company at September 30, 2018;2019; the condensed consolidated results of operations and comprehensive income of the Company for the three and nine months ended September 30, 20182019 and 2017;2018; the condensed consolidated changes in equity of the Company for the three and nine months ended September 30, 2019 and 2018; and the condensed consolidated cash flows of the Company for the nine months ended September 30, 20182019 and 2017.2018. Operating results for the three and nine months ended September 30, 20182019 are not necessarily indicative of the results that may be expected for the year ending December 31, 20182019 or any other future period.
These unaudited condensed consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20172018 (the “2017“2018 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 9, 2018.12, 2019.
The condensed consolidated financial statements include the accounts of all of BBX Capital’s wholly-owned subsidiaries, other entities in which BBX Capital or its subsidiaries hold controlling financial interests, and any VIEs in which BBX Capital or one of its consolidated subsidiaries is deemed the primary beneficiary of the VIE. All significant inter-company accounts and transactions have been eliminated in consolidation.
Certain amounts for prior periods have been reclassified to conform to the presentation for the current period’s presentation. The Company’s adoption of the new revenue recognition accounting standard on a full retrospective basis required the Company to restate certain previously reported results. For further details regarding the impact of adopting new accounting pronouncements, see “Recently Adopted Accounting Pronouncements” section below. In addition, the Company also reclassified $19.5 million of loans receivable to other assets in its condensed consolidated statement of financial condition as of December 31, 2017.period.
Principal Investments
The Company’s principal investments include Bluegreen Vacations Corporation (“Bluegreen” or “Bluegreen Vacations”), real estateBBX Capital Real Estate LLC (“BBX Capital Real Estate”), Renin Holdings, LLC (“Renin”), and real estate joint ventures, and middle market operating businesses. IT’SUGAR, LLC (“IT’SUGAR”).
Bluegreen is a leading vacation ownership company that markets and sells VOIs and manages resorts in popular leisure and urban destinations. Bluegreen’s resort network includes 45 Club Resorts (resorts in which owners in the Bluegreen Vacation Club (“Vacation Club”) have the right to use most of the units in connection with their VOI ownership) and 24 Club Associate Resorts (resorts in which owners in Bluegreen’s Vacation Club have the right to use a limited
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number of units in connection with their VOI ownership). Bluegreen’s Club ResortsBluegreen markets, sells, and Club Associate Resortsmanages VOIs in resorts, which are primarilygenerally located in popular, high-volume, “drive-to” vacation locations,destinations, including Orlando, Las Vegas, Myrtle Beach, Charleston, and Charleston,New Orleans, among others. Through Bluegreen’sits points-based system, the approximately 216,000219,000 owners in Bluegreen’s Vacation Club have the flexibility to stay at units available at any of its resorts and have access to approximately 11,100over 11,350 other hotels and resorts through partnerships and exchange networks. Bluegreen’sThe resorts in which Bluegreen markets, sells, or manages VOIs were either developed or acquired by Bluegreen or were developed and are owned by third parties. Bluegreen earns fees for providing sales and marketing platform is supported by exclusive marketing relationships with nationally-recognized consumer brands, such as Bass Proservices to third party developers. Bluegreen also earns fees for providing management services to the Vacation Club and Choice Hotels. These marketing relationships drive sales within Bluegreen’s core demographic.
Prior to 2009, Bluegreen’s vacation ownership business consisted solely of the sale of VOIs in resorts that it developed or acquired. While it continues to conduct such saleshomeowners’ associations (“HOAs”), mortgage servicing, VOI title services, reservation services, and construction design and development activities, Bluegreen now also derives a
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significant portion of its revenue from its capital-light business model, which utilizes Bluegreen’s expertise and infrastructure to generate both VOI sales and recurring revenue from third parties without the significant capital investment generally associated with the development and acquisition of resorts. Bluegreen’s capital-light business activities include sales of VOIs owned by third-party developers pursuant to which Bluegreen is paid a commission (“fee-based sales”) and sales of VOIs that it purchases under just-in-time (“JIT”) arrangements with third-party developers or from secondary market sources.services. In addition, Bluegreen provides resorts and resort developers with other fee-based services, including resort management, mortgage servicing, title services and construction management. Bluegreen also offers financing to qualified VOI purchasers, which generates significant interest income.
PriorBBX Capital Real Estate is engaged in the acquisition, development, construction, ownership, financing, and management of real estate and investments in real estate joint ventures. In addition, BBX Capital Real Estate owns a 50% equity interest in The Altman Companies, LLC (the “Altman Companies”), a developer and manager of multifamily apartment communities, and manages the legacy assets acquired in connection with the Company’s sale of BankAtlantic in 2012, including portfolios of loans receivable and real estate properties.
Renin is engaged in the design, manufacture, and distribution of sliding doors, door systems and hardware, and home décor products and operates through its headquarters in Canada and two manufacturing and distribution facilities in the United States and Canada. In addition to its own manufacturing, Renin also sources various products and raw materials from China.
IT’SUGAR is a specialty candy retailer which operates approximately 100 retail locations in over 25 states and Washington D.C. Its products include bulk candy, candy in giant packaging, and novelty items that are sold at its retail locations, which include a mix of high-traffic resort and entertainment, lifestyle, mall/outlet, and urban locations across the fourth quarter of 2017, Woodbridge Holdings, LLCUnited States.
In addition to its principal investments, the Company has investments in various operating businesses, including companies in the confectionery industry.
In 2016, Food for Thought Restaurant Group (“Woodbridge”FFTRG”), a wholly-owned subsidiary of BBX Capital, owned 100% of Bluegreen’s common stock. During the fourth quarter of 2017, Bluegreen completed an initial public offeringentered into area development and franchise agreements with MOD Super Fast Pizza (“IPO”MOD Pizza”) of its common stock in which Bluegreen soldrelated to the public 3,736,723 sharesdevelopment of its common stock and Woodbridge, as a selling shareholder, soldup to the public 3,736,722 shares of Bluegreen’s common stock.approximately 60 MOD Pizza franchised restaurant locations throughout Florida. Through 2019, FFTRG had opened nine restaurant locations. As a result of Bluegreen’s IPO, BBX Capital currently owns 90% of Bluegreen’s common stock through Woodbridge.
The Company’s real estate investments include real estate joint venturesFFTRG’s overall operating performance and the acquisition,Company’s goal of streamlining its investment verticals, the Company entered into an agreement with MOD Pizza to terminate the area development ownership, financing, and managementfranchise agreements and transferred seven of real estate. The Company’s investments in middle market operating businesses include Renin Holdings, LLC (“Renin”), a company that manufactures products forits restaurant locations, including the home improvement industry,related assets, operations, and investments in confectionery businesses through its wholly-owned subsidiary, BBX Sweet Holdings, LLC (“BBX Sweet Holdings”). The Company’s investments in confectionery businesses include IT’SUGAR, LLC (“IT’SUGAR”), a specialty candy retailerlease obligations, to MOD Pizza during the third quarter of 2019. In addition, the Company closed the remaining two locations and terminated the related lease agreements. In connection with over 90 retail locations in 26 states and Washington, D.C. that was acquired by BBX Sweet Holdings in June 2017.
BBX Capital has two classes of common stock. Holdersthe transfer of the Class A common stock are entitledseven restaurant locations to one vote per share,MOD Pizza, the Company recognized an aggregate impairment loss of $4.0 million related to the disposal group, which inincluded property and equipment, intangible assets, and net lease liabilities, during the aggregate represents 22% of the combined voting power of the Class A common stock and the Class B common stock. Class B common stock represents the remaining 78% of the combined vote. The percentage of total common equity represented by Class A and Class B common stock was 85% and 15%, respectively, atthree months ended September 30, 2018. Class B common stock is convertible into Class A common stock on a share for share basis2019. In addition to the impairment losses recognized during the third quarter of 2019, the Company previously recognized $2.7 million of impairment losses associated with property and equipment at any time atthree restaurant locations. Accordingly, the optionCompany recognized $6.7 million of impairment losses associated with its investment in MOD Pizza restaurant locations during the holder.nine months ended September 30, 2019.
Recently Adopted Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) has issued the following Accounting Standards Updates (“ASU”) and guidance relevant to the Company’s operations which were adopted as of January 1, 2018:2019:
ASU No. 2014-09 2016-02 – Leases (Topic 842)– .Revenue Recognition (Topic 606): In May 2014, the FASB issued a newThis standard, related to revenue recognition (asas subsequently clarifiedamended and amendedclarified by various ASUs). UnderASUs, requires lessees to recognize assets and liabilities for the new standard, revenue is recognized when an entity satisfies a performance obligationrights and obligations created by transferring to a customer control over promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition,leases of assets. For income statement purposes, the standard retains a dual model which requires disclosure ofleases to be classified as either operating or finance based on criteria that are largely similar to those applied under prior lease accounting but without explicit bright lines. The standard also requires extensive quantitative and qualitative disclosures, including significant judgments and assumptions made by management in applying the nature,standard, intended to provide greater insight into the amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.leases.
The Company adopted the standard on January 1, 2018 under the full retrospective method, and accordingly, results for prior periods have been adjusted to apply the new standard as shown below.
The adoption of the standard affected Bluegreen in the following areas: (i) gross versus net presentation for payroll and insurance premium reimbursements related to resorts managed by Bluegreen and on behalf of third parties and (ii) the timing of the recognition of VOI revenue related to the removal of certain bright line tests regarding the determination of the adequacy of the buyer’s commitment under prior industry-specific guidance. Bluegreen concluded that the recognition of fee-based sales commissions, ancillary revenues, and rental revenues remained materially unchanged.
The adoption of the standard on the Company’s real estate activities results in recognizingrevenue sooner for contingent consideration on sales of real estate inventory.
The adoption of the standard did not materially affect revenue recognition associated with the Company’s trade sales. Retail trade sales performance obligations are generally satisfied at the time of the sales transaction as customers of the retail business typically pay in cash at the time of transfer of the promised goods, while wholesale trade sales performance obligations are generally satisfied when the promised goods are shipped by the Company or received by the customer. However, the Company has historically recognized shipping and handling costs in selling, general and
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administration expenses, and upon the adoption of the standard, the Company began accounting for such costs as a fulfillment cost in cost of trade sales.
The Company has elected to use the following practical expedients in connection with the adoption of ASU 2014-09:
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ASU No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). This standard provides guidance on the recognition of gains and losses from the transfer of nonfinancial assets to non-customers and requires that an entity must identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a non-customer or counterparty and derecognize each asset when the counterparty obtains control of the asset.
This standard significantly changed the guidance on the transfer of real estate to unconsolidated joint ventures. Under prior guidance, the transfer of real estate to an unconsolidated joint venture was accounted for as a partial sale, resulting in the recognition of a partial gain, and the noncontrolling interest retained was measured at historical cost, resulting in a basis adjustment to the seller’s investment in the joint venture. In addition, the partial gain could be deferred if the sale did not satisfy certain criteria for gain recognition. As a result, the Company previously accounted for the transfer of land to certain unconsolidated real estate joint ventures for initial capital contributions as partial sales, resulting in deferred gains and joint venture basis adjustments. However, under the new standard, the full gain is recognized upon the transfer of control of real estate to an unconsolidated joint venture, and any noncontrolling interest retained is measured at fair value.
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The Company adopted the standard on January 1, 20182019 and applied the transition guidance as of the date of adoption under the full retrospective method and, accordingly, prior years’ results have been adjusted to apply the new standard as shown below.
The following represents the impact of the adoption of ASU 2014-09 and ASU 2017-05 on our consolidated statements of financial condition as of December 31, 2017 and December 31, 2016 and consolidated statements of operations for the three and nine months ended September 30, 2017 and the years ended December 31, 2017 and 2016 (in thousands, except per share data):
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| For the Three Months Ended September 30, 2017 | |||||||
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| Prior to Adoption |
| ASU 2014-09 Adjustments |
| ASU 2017-05 Adjustments |
| As Adjusted | |
Statement of Operations: |
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Sales of VOIs | $ | 61,687 |
| 766 |
| - |
| 62,453 | |
Cost reimbursements |
| - |
| 14,097 |
| - |
| 14,097 | |
Cost reimbursements |
| - |
| 14,097 |
| - |
| 14,097 | |
Cost of VOIs sold |
| 6,284 |
| 160 |
| - |
| 6,444 | |
Trade sales |
| 44,877 |
| (159) |
| - |
| 44,718 | |
Net loss on sales of real estate assets |
| (18) |
| - |
| - |
| (18) | |
Cost of trade sales |
| 29,494 |
| 2,316 |
| - |
| 31,810 | |
Selling, general and administrative expenses |
| 149,021 |
| (2,179) |
| - |
| 146,842 | |
Equity in earnings of unconsolidated |
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real estate joint ventures |
| 2,451 |
| - |
| (346) |
| 2,105 | |
Income before income taxes |
| 19,686 |
| 310 |
| (346) |
| 19,650 | |
Provision for income taxes |
| (8,195) |
| (64) |
| 133 |
| (8,126) | |
Net income |
| 11,491 |
| 246 |
| (213) |
| 11,524 | |
Less: Net income attributable to |
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noncontrolling interests |
| 3,256 |
| 142 |
| - |
| 3,398 | |
Net income attributable to shareholders | $ | 8,235 |
| 104 |
| (213) |
| 8,126 | |
Basic earnings per share | $ | 0.08 |
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| 0.08 | |
Diluted earnings per share | $ | 0.08 |
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| 0.08 |
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| Prior to Adoption |
| ASU 2014-09 Adjustments |
| ASU 2017-05 Adjustments |
| As Adjusted | |
Statement of Operations: |
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Sales of VOIs | $ | 172,839 |
| 3,255 |
| - |
| 176,094 | |
Cost reimbursements |
| - |
| 40,660 |
| - |
| 40,660 | |
Cost reimbursements |
| - |
| 40,660 |
| - |
| 40,660 | |
Cost of VOIs sold |
| 10,737 |
| 615 |
| - |
| 11,352 | |
Trade sales |
| 96,831 |
| (462) |
| - |
| 96,369 | |
Net gains on sales of real estate assets |
| 2,161 |
| - |
| (493) |
| 1,668 | |
Cost of trade sales |
| 68,027 |
| 5,746 |
| - |
| 73,773 | |
Selling, general and administrative expenses |
| 400,845 |
| (5,356) |
| - |
| 395,489 | |
Equity in earnings of unconsolidated |
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real estate joint ventures |
| 9,620 |
| - |
| (1,192) |
| 8,428 | |
Income before income taxes |
| 77,687 |
| 1,788 |
| (1,685) |
| 77,790 | |
Provision for income taxes |
| (30,028) |
| (643) |
| 650 |
| (30,021) | |
Net income |
| 47,659 |
| 1,145 |
| (1,035) |
| 47,769 | |
Less: Net income attributable to |
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noncontrolling interests |
| 9,467 |
| 21 |
| - |
| 9,488 | |
Net income attributable to shareholders | $ | 38,192 |
| 1,124 |
| (1,035) |
| 38,281 | |
Basic earnings per share | $ | 0.39 |
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| 0.39 | |
Diluted earnings per share | $ | 0.36 |
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| 0.36 |
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| As of and for the Year Ended December 31, 2017 | ||||||
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| As Previously Reported |
| ASU 2014-09 Adjustments |
| ASU 2017-05 Adjustments |
| As Adjusted |
Statement of Financial Condition: |
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Notes receivable, net | $ | 431,801 |
| (4,943) |
| - |
| 426,858 |
Investment in unconsolidated |
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real estate joint ventures |
| 47,275 |
| - |
| 3,959 |
| 51,234 |
Property and equipment, net |
| 112,858 |
| (929) |
| - |
| 111,929 |
Other assets |
| 121,824 |
| 929 |
| - |
| 122,753 |
Other liabilities |
| 103,926 |
| - |
| (462) |
| 103,464 |
Deferred income |
| 36,311 |
| (19,418) |
| - |
| 16,893 |
Deferred income taxes |
| 43,093 |
| 3,755 |
| 1,120 |
| 47,968 |
Total equity | $ | 653,501 |
| 10,720 |
| 3,301 |
| 667,522 |
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Statement of Operations: |
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Sales of VOIs | $ | 239,662 |
| 2,355 |
| - |
| 242,017 |
Cost reimbursements |
| - |
| 52,639 |
| - |
| 52,639 |
Cost reimbursements |
| - |
| 52,639 |
| - |
| 52,639 |
Cost of VOIs sold |
| 17,439 |
| 240 |
| - |
| 17,679 |
Trade sales |
| 142,798 |
| (713) |
| - |
| 142,085 |
Net gains on sales of assets |
| 2,442 |
| - |
| (493) |
| 1,949 |
Cost of trade sales |
| 97,755 |
| 8,163 |
| - |
| 105,918 |
Selling, general and administrative expenses |
| 538,125 |
| (8,423) |
| - |
| 529,702 |
Equity in earnings of unconsolidated |
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real estate joint ventures |
| 14,483 |
| - |
| (1,942) |
| 12,541 |
Income before income taxes |
| 93,374 |
| 1,662 |
| (2,435) |
| 92,601 |
Benefit for income taxes |
| 7,223 |
| 954 |
| 1,525 |
| 9,702 |
Net income |
| 100,597 |
| 2,616 |
| (910) |
| 102,303 |
Less: Net income attributable to |
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noncontrolling interests |
| 18,402 |
| (24) |
| - |
| 18,378 |
Net income attributable to shareholders | $ | 82,195 |
| 2,640 |
| (910) |
| 83,925 |
Basic earnings per share | $ | 0.83 |
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| 0.85 |
Diluted earnings per share | $ | 0.79 |
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| 0.81 |
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| As of and for the Year Ended December 31, 2016 | ||||||
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| As Previously Reported |
| ASU 2014-09 Adjustments |
| ASU 2017-05 Adjustments |
| As Adjusted |
Statement of Financial Condition: |
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Notes receivable, net | $ | 430,480 |
| (4,680) |
| - |
| 425,800 |
Investment in unconsolidated |
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real estate joint ventures |
| 43,491 |
| - |
| 5,901 |
| 49,392 |
Property and equipment, net |
| 95,998 |
| (590) |
| - |
| 95,408 |
Other assets |
| 130,333 |
| 590 |
| - |
| 130,923 |
Other liabilities |
| 95,611 |
| - |
| (956) |
| 94,655 |
Deferred income |
| 37,015 |
| (17,493) |
| - |
| 19,522 |
Deferred income taxes |
| 44,318 |
| 4,711 |
| 2,645 |
| 51,674 |
Total equity | $ | 495,454 |
| 8,102 |
| 4,212 |
| 507,768 |
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Statement of Operations: |
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Sales of VOIs | $ | 266,142 |
| 7,732 |
| - |
| 273,874 |
Cost reimbursements |
| - |
| 49,557 |
| - |
| 49,557 |
Cost reimbursements |
| - |
| 49,557 |
| - |
| 49,557 |
Cost of VOIs sold |
| 27,346 |
| 1,483 |
| - |
| 28,829 |
Trade sales |
| 95,996 |
| (157) |
| - |
| 95,839 |
Net gains on sales of assets |
| 6,076 |
| - |
| (2,274) |
| 3,802 |
Cost of trade sales |
| 74,341 |
| 6,022 |
| - |
| 80,363 |
Selling, general and administrative expenses |
| 516,757 |
| (4,606) |
| - |
| 512,151 |
Equity in earnings of unconsolidated |
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real estate joint ventures |
| 13,630 |
| - |
| (1,452) |
| 12,178 |
Income before income taxes |
| 78,036 |
| 4,676 |
| (3,726) |
| 78,986 |
Provision for income taxes |
| (36,379) |
| (1,448) |
| 1,437 |
| (36,390) |
Net income |
| 41,657 |
| 3,228 |
| (2,289) |
| 42,596 |
Less: Net income attributable to |
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noncontrolling interests |
| 13,295 |
| 300 |
| (429) |
| 13,166 |
Net income attributable to shareholders | $ | 28,362 |
| 2,928 |
| (1,860) |
| 29,430 |
Basic earnings per share | $ | 0.33 |
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| 0.34 |
Diluted earnings per share | $ | 0.32 |
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| 0.34 |
On March 9, 2018,current-period adjustment method. As a result, the Company filedrecognized right-of-use assets and lease liabilities associated with its 2017 Annual Report which included in Item 8 – Note 2leases on January 1, 2019, with a cumulative-effect adjustment to the consolidated financial statementsopening balance of accumulated earnings, while the expected impacts to reported results of the retrospective adjustments tocomparable prior periods in the Company’s financial statements have been and will continue to be reported in accordance with Topic 840, including the disclosures of Topic 840.
The standard includes a number of optional practical expedients under the transition guidance. The Company elected the package of practical expedients which allowed the Company to not reassess prior conclusions about lease identification, lease classification, and initial direct costs. The Company also made accounting policy elections by class of underlying asset to not apply the recognition requirements of the standard to leases with terms of 12 months or less and to not separate non-lease components from lease components. Consequently, each separate lease component and the non-lease components associated with that lease component is accounted for the years ended December 31, 2017as a single lease component for lease classification, recognition, and 2016 due to themeasurement purposes.
Upon adoption of ASU 2014-09 and ASU 2017-05. Subsequent to the March 9, 2018 filing date, the Company revised its calculation of the expected impact of the full retrospective adoption of both standards, and the amounts included in the above tables reflect these revisions. The adoption of the new standards had no impact on our consolidated statements of cash flows.
ASU No. 2017-09, Compensation – Stock Compensation (Topic 718). This update was issued to provide guidance on determining which changes to the terms and conditions of share-based compensation awards require an entity to apply modification accounting under Topic 718. Under this guidance, an entity must apply modification accounting to changes to terms or conditions of a share-based compensation award unless there is no change in the fair value, vesting or classification of the modified award as compared to the original award. The standard is effective for annual periods beginning after December 15, 2017 and for interim periods within those annual periods. The Company adopted this standard on January 1, 2018. 2019, the Company recognized a lease liability of $123.2 million and a right-of-use asset of $113.2 million. The adoptiondifference between the lease liability and right-of-use asset primarily reflects the reclassification of thisaccrued straight-line rent and unamortized tenant allowances from other liabilities in the Company’s statement of financial condition to a reduction of the right-of-use asset. In addition, the Company recognized an impairment loss of $3.4 million in connection with the recognition of right-of-use assets for certain IT’SUGAR retail locations as a cumulative-effect adjustment to the opening balance of accumulated earnings. The implementation of the standard did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2017-01, Business Combinations - Clarifying the Definitionstatement of a Business.This update was issued to clarify the determination of whether an entity has acquired or sold a business. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwilloperations and consolidations, and the standard is intended to assist entities in the determination of whether transactions should be accounted for as acquisitions or disposals of assets or
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businesses. The standard is expected to result in more acquisitions being accounted for as asset purchases instead of business combinations. The guidance is effective for fiscal years beginning after December 15, 2017. The Company adopted this standard on January 1, 2018 using the prospective transition method. The adoption of this standard resulted in the Company accounting for Bluegreen’s acquisition of the Éilan Hotel & Spa in April 2018 as an asset acquisition, and consequently, all transaction costs were capitalized as part of the assets acquired.
ASU No.2016-01 –– Financial Instruments – Overall (Topic 825) – Recognition and Measurement of Financial Assets and Financial Liabilities.This update requires all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) to generally be measured at fair value through earnings and eliminates the available-for-sale classification for equity securities with readily determinable fair values and the cost method for equity investments without readily determinable fair values. However, the update allows entities to elect to record equity investments without readily determinable fair values at cost, less impairments. This update also simplifies the impairment assessment for equity investments and requires the use of an exit price when measuring the fair value of financial instruments for disclosure purposes. The amendments in this standard are effective for fiscal years beginning after December 15, 2017. The Company adopted this standard on January 1, 2018 and recognized a cumulative effect adjustment of $0.3 million, net of tax, to accumulated earnings as of January 1, 2018 for equity securities with readily determinable fair values. The standard was adopted prospectively for $2.4 million of equity securities without readily determinable fair values. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2018-02 –– Income Statement – Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.This update provides an entity with an option to reclassify to accumulated earnings the stranded tax effects within accumulated other comprehensive income associated with the reduction in the corporate income tax rate from the enactmentor statement of the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”). The Company elected to adopt this update as of January 1, 2018 and reclassified the stranded income tax effects from the Tax Reform Act into accumulated earnings as of the adoption date. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2018-05 –– Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.This update formally amended Topic 740 for the guidance previously provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”) related to the application of Topic 740 in the reporting period in which the Tax Reform Act was signed into law. The Company adopted SAB 118 in the fourth quarter of 2017, and therefore, the Company’s subsequent adoption of ASU 2018-05 in the first quarter of 2018 had no impact on its accounting for income taxes in the first quarter of 2018.cash flows. See Note 1012 for additional information regarding the Company’s accounting for income taxes and the Tax Reform Act.lease agreements.
Future Adoption of Recently Issued Accounting Pronouncements
The FASB has issued the following accounting pronouncements and guidance relevant to the Company’s operations which havehad not been adopted by the Company as of September 30, 2018:
ASU No. 2016-02 – Leases (Topic 842), as subsequently amended by ASU 2018-01 and ASU 2018-11.This standard will require assets and liabilities to be recognized on the balance sheet of a lessee for the rights and obligations created by leases of assets with terms of more than 12 months. For income statement purposes, the standard retained a dual model which requires leases to be classified as either operating or finance based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. This standard also requires extensive quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing leases.
This standard, which will be effective for the Company on January 1, 2019, permits two methods of adoption: a modified retrospective transition method or an optional transition method. The modified retrospective transition method applies the standard’s transition guidance as of the beginning of the earliest comparable period presented in an entity’s financial statements, which results in financial statements for the current periods that are comparable to the financial statements for the prior periods presented. The optional transition method applies the transition guidance on the date of adoption with a cumulative-effect adjustment to the opening balance of retained earnings. Under this transition method, comparable prior periods in an entity’s financial statements in the year of adoption would continue to be reported in accordance with Topic 840, including the disclosures of Topic 840.
The Company expects that the implementation of this new standard will have a material impact on its consolidated financial statements and related disclosures as the Company had aggregate future minimum lease payments of $147.5
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million at September 30, 2018 under its current non-cancelable lease agreements with various expiration dates between 2018 and 2030. The Company anticipates the recognition of additional assets and corresponding liabilities related to these leases on its consolidated statement of financial condition.
The Company anticipates adopting the standard on January 1, 2019 under the optional transition method, and accordingly, will not apply the new guidance in comparable prior periods presented in its financial statements in the year of adoption. The Company anticipates electing certain practical expedients available under the transition guidance within the standard, including the package of practical expedients which would allow the Company to not have to reassess under the new standard prior conclusions about lease identification, classification, and initial direct costs. The Company also expects to make accounting policy elections by class of underlying asset to not apply the recognition requirements of this standard to leases with a term of twelve months or less and to not separate non-lease components from lease components. If the election is made to not separate non-lease components from lease components, each separate lease component and the non-lease components associated with that lease component will instead be accounted for as a single lease component for lease classification, recognition, and measurement purposes.
The Company is currently in the process of evaluating its existing lease portfolio, including accumulating all of the necessary information required to properly account for leases under this standard. Other significant implementation matters include assessing the impact on the Company’s internal control over financial reporting and documenting and implementing new processes for accounting for its lease agreements.2019:
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.Instruments (as subsequently amended and clarified by various ASUs). This standard introduces an approach of estimating credit losses on certain types of financial instruments based on expected losses and will expandexpands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating its allowance for credit losses. In addition, the standard will requirerequires entities to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year). The standard also allows entities to irrevocably elect to measure certain financial instruments within the scope of the standard at fair value upon the adoption of the standard. This standard will be effective for the Company on January 1, 2020. Early adoption is permitted beginning on January 1, 2019. The Company is currently evaluating the impact that adopting ASU 2016-13 may have on its consolidated financial statements.
ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This standard modifies the disclosure requirements in Topic 820 related to the valuation techniques and inputs used in fair value measurements, uncertainty in measurement, and changes in measurements applied. This standard iswill be effective for the Company in annual periods beginning after December 15, 2019 and for interim periods within those annual periods. Early adoption is permitted.on January 1, 2020. The Company is currently evaluating thebelieves that this standard will not have a material impact that ASU 2018-13 may have on its consolidated financial statement footnotestatements and disclosures.
Sales of VOIs - Revenue is recognized for sales of VOIs after control of the VOI is deemed transferred to the customer, which is when the legal rescission period has expired on a binding executed VOI sales agreement and the collectability of the note receivable from the buyer, if any, is reasonably assured. Transfer of control of the VOI to the buyer is deemed to occur when the legal rescission period expires as the risk and rewards associated with VOI ownership are transferred to the buyer at that time. The Company records Bluegreen’s customer deposits from contracts within the legal rescission period in restricted cash and escrow deposits in the Company’s condensed consolidated statements of financial condition, as such amounts are refundable until the legal rescission period has expired. In cases where construction and development of Bluegreen’s developed resorts has not been substantially completed, Bluegreen defers all of the revenues and associated expenses for the sales of VOIs until construction is substantially complete and the resort may be occupied.
Bluegreen generally offers qualified purchasers financing for up to 90% of the purchase price of VOIs. The typical financing provides for a term of ten years and a fixed interest rate, is fully amortizing in equal installments and may be prepaid without penalty. For sales of VOIs for which Bluegreen provides financing, Bluegreen reduces the transaction price for expected loan losses, which it considers to be variable consideration. To the extent Bluegreen determines that it is probable that a significant reversal of cumulative revenue recognized may occur, it records an estimate of variable consideration as a reduction to the transaction price of the sales of VOIs until the uncertainty associated with the variable consideration is resolved. Bluegreen’s estimates of credit losses are based on the results of its static pool analysis, which relies on historical payment data for similar VOI notes receivable and tracks uncollectibles for each period’s sales over the entire life of the notes. Bluegreen also considers whether historical economic conditions are comparable to then current economic conditions, as well as variations in underwriting
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standards. Bluegreen reviews its estimate of variable consideration on at least a quarterly basis. VOI sales where no financing was provided do not have any material significant payment terms.
Rental operations, including accommodations provided through the use of Bluegreen’s sampler program, are accounted for as incidental operations whereby incremental carrying costs in excess of incremental revenues are expensed as incurred. During each of the periods presented, Bluegreen’s aggregate rental revenue and sampler revenue was less than the aggregate carrying cost of its VOI inventory. Accordingly, Bluegreen recorded such revenue as a reduction to the carrying cost of VOI inventory, which is included in cost of other fee-based services in the Company’s condensed consolidated statements of operations and comprehensive income for each period.
Fee-based sales commissions - Fee-based sales commission revenue is recognized when a sales transaction with a VOI purchaser is consummated in accordance with the terms of the fee-based sales agreement with the third-party developer, it is probable that a significant reversal of such revenue will not occur, and the related consumer rescission period has expired.
Other fee-based services and cost reimbursements - Revenue associated with Bluegreen’s other fee-based services (which are described below) is recognized as follows:
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Bluegreen’s cost of other fee-based services consists of the costs associated with the various activities described above, as well as developer subsidies and maintenance fees on its unsold VOIs.
Trade sales – Revenue is recognized on trade sales as follows:
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Sales of real estate inventory - Revenue is generally recognized on sales of real estate inventory to customers when the sales are closed and title passes to the buyer. The Company generally receives payment from the sale of real estate inventory at the date of closing. In addition, certain real estate sales contracts provide for a contingent purchase price which is accounted for as variable consideration. The Company estimates the amount of variable consideration that may be recognized upon the closing of the real estate transaction based on an expected value methodology. The estimate of variable consideration is recognized as revenue to the extent that it is not probable that a significant revenue reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved. The inputs used in the expected value model include current sales prices (net of incentives), historical contingent purchase price receipts, and sales contracts on similar properties.
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Interest income - Bluegreen provides financing for a significant portion of sales of its owned VOIs. Bluegreen recognizes interest income from financing VOI sales on the accrual method as earned based on the outstanding principal balance, interest rate, and terms stated in each individual financing agreement. Bluegreen’s VOI notes receivable are carried at amortized cost, less an allowance for loan losses. In addition, loan origination costs are deferred and recognized over the life of the related notes receivable. Interest income is suspended, and previously accrued but unpaid interest income is reversed, on all delinquent notes receivable when principal or interest payments are more than 90 days contractually past due and is not resumed until such loans are less than 90 days past due. As of September 30, 2018 and December 31, 2017, $17.0 million and $12.9 million, respectively, of Bluegreen’s VOI notes receivable were more than 90 days past due, and accordingly, were not accruing interest income. After 120 days, Bluegreen’s VOI notes receivable are generally written off against the allowance for loan losses.
Interest income from other loans receivable originated by the Company is recognized on accruing loans when management determines that it is probable that all of the principal and interest will be collected in accordance with the loan’s contractual terms. Interest income is recognized on non-accrual loans on a cash basis. Loans receivable are included in other assets in the Company’s statement of financial condition.
Net gains on sales of real estate assets – Net gains on sales of real estate assets represents sales of assets to non-customers. Gains (or losses) are recognized from sales to non-customers when the control of the asset has been transferred to the buyer, which generally occurs when title passes to the buyer.
Other revenue – Other revenue is primarily comprised of rental income from properties under operating leases. Rental income is recognized as rents become due, and rental payments received in advance are deferred until earned.
Disaggregated revenue – The table below sets forth the Company’s revenue disaggregated by category (in thousands):
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| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
Sales of VOIs | $ | 70,698 |
| 62,453 |
| 195,412 |
| 176,094 |
Fee-based sales commissions |
| 61,641 |
| 69,977 |
| 167,581 |
| 179,046 |
Other fee-based services |
| 25,744 |
| 23,170 |
| 75,257 |
| 67,857 |
Cost reimbursements |
| 16,900 |
| 14,097 |
| 47,157 |
| 40,660 |
Title fees |
| 3,491 |
| 2,373 |
| 9,355 |
| 10,927 |
Other customer revenue |
| 1,822 |
| 1,843 |
| 4,860 |
| 4,658 |
Trade sales - wholesale |
| 17,671 |
| 21,388 |
| 56,024 |
| 65,963 |
Trade sales - retail |
| 26,132 |
| 23,330 |
| 70,090 |
| 30,406 |
Sales of real estate inventory |
| 7,478 |
| - |
| 17,138 |
| - |
Revenue from customers |
| 231,577 |
| 218,631 |
| 642,874 |
| 575,611 |
Interest income |
| 21,157 |
| 21,035 |
| 63,738 |
| 63,065 |
Net (losses) gains on sales of real estate assets |
| (4) |
| (18) |
| 4,798 |
| 1,668 |
Other revenue |
| 1,673 |
| 1,248 |
| 4,282 |
| 3,652 |
Total revenues | $ | 254,403 |
| 240,896 |
| 715,692 |
| 643,996 |
3.2. Consolidated Variable Interest Entities
Bluegreen sells VOI notes receivable through special purpose finance entities. These transactions are generally structured as non-recourse to Bluegreen and are designed to provide liquidity for Bluegreen and to transfer the economic risks and benefits of the notes receivable to third parties. In a securitization, various classes of debt securities are issued by the special purpose finance entities that are generally collateralized by a single tranche of transferred assets, which consist of VOI notes receivable. Bluegreen services the securitized notes receivable for a fee pursuant to servicing agreements negotiated with third parties generally based on market conditions at the time of the securitization.
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In these securitizations, Bluegreen generally retains a portion of the securities and continues to service the securitized notes receivable. Under these arrangements, the cash payments received from obligors on the receivables sold are generally applied monthly to pay fees to service providers, make interest and principal payments to investors, and fund required reserves, if any, with the remaining balance of such cash retained by Bluegreen; however, to the extent
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the portfolio of receivables fails to satisfy specified performance criteria (as may occur due to, among other things, an increase in default rates or credit loss severity) or other trigger events occur, the funds received from obligors are required to be distributed on an accelerated basis to investors. Depending on the circumstances and the transaction, the application of the accelerated payment formula may be permanent or temporary until the trigger event is cured. As of September 30, 2018,2019, Bluegreen was in compliance with all material terms under its securitization transactions, and no trigger events had occurred.
In accordance with the applicable accounting guidance for the consolidation of VIEs, Bluegreen analyzes its variable interests, which may consist of loans, servicing rights, guarantees, and equity investments, to determine if an entity in which Bluegreen has a variable interest is a VIE. The analysis includes a review of both quantitative and qualitative factors. Bluegreen bases its quantitative analysis on the forecasted cash flows of the entity. Bluegreen basesentity and its qualitative analysis on the structure of the entity, including its decision-making ability and authority with respect to the entity, and relevant financial agreements. Bluegreen also uses qualitative analysis to determine if Bluegreen must consolidate a VIE as the primary beneficiary. In accordance with the applicable accounting guidance, Bluegreen has determined these securitization entities to be VIEs of which Bluegreen is the primary beneficiary and, therefore, Bluegreen consolidates the entities into its financial statements.
Under the terms of certain VOI note sales, Bluegreen has the right to repurchase or substitute a limited amount of defaulted notes for new notes at the outstanding principal balance plus accrued interest. Bluegreen’s voluntary repurchases and substitutions of defaulted notes duringfor the nine months ended September 30, 2019 and 2018 and 2017 were $4.4$8.4 million and $7.4$4.4 million, respectively. Bluegreen’s maximum exposure to loss relating to its non-recourse securitization entities is the difference between the outstanding VOI notes receivable and the notes payable, plus cash reserves and any additional residual interest in future cash flows from collateral.
The table below sets forth information regarding the assets and liabilities of Bluegreen’s consolidated VIEs included in the Company’s condensed consolidated statements of financial condition (in thousands):
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| September 30, |
| December 31, |
| September 30, |
| December 31, | |||||
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| 2018 |
| 2017 |
| 2019 |
| 2018 | |||||
Restricted cash | $ | 17,081 |
| 19,488 | $ | 19,185 |
| 28,400 | |||||
Securitized notes receivable, net |
| 308,221 |
| 279,188 |
| 299,374 |
| 341,975 | |||||
Receivable backed notes payable - non-recourse |
| 335,680 |
| 336,421 |
| 341,856 |
| 382,257 |
The restricted cash and the securitized notes receivable balances disclosed in the table above are restricted to satisfy obligations of the VIEs.
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43. Notes Receivable
The table below sets forth information regardingrelating to Bluegreen’s notes receivable and related allowance for loan losses (in thousands):
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| September 30, |
| December 31, |
| September 30, |
| December 31, |
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| 2018 |
| 2017 |
| 2019 |
| 2018 |
Notes receivable: |
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VOI notes receivable - non-securitized | $ | 167,717 |
| 184,971 | $ | 188,435 |
| 124,642 |
VOI notes receivable - securitized |
| 399,080 |
| 364,349 |
| 391,922 |
| 447,850 |
Notes receivable secured by homesites (1) |
| 986 |
| 1,329 |
| 694 |
| 898 |
Gross notes receivable |
| 567,783 |
| 550,649 |
| 581,051 |
| 573,390 |
Allowance for loan losses - non-securitized |
| (37,341) |
| (38,497) |
| (42,728) |
| (28,258) |
Allowance for loan losses - securitized |
| (90,859) |
| (85,161) |
| (92,548) |
| (105,875) |
Allowance for loan losses - homesites (1) |
| (99) |
| (133) |
| (69) |
| (90) |
Notes receivable, net | $ | 439,484 |
| 426,858 | $ | 445,706 |
| 439,167 |
Allowance as a % of gross notes receivable |
| 23% |
| 22% |
| 23% |
| 23% |
(1) | Notes receivable secured by homesites were originated through a business, substantially all |
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The weighted-average interest rate charged on Bluegreen’s notes receivable was 15.1%14.9% and 15.3%15.1% at September 30, 20182019 and December 31, 2017,2018, respectively. Bluegreen’s VOI notes receivable bear interest at fixed rates.rates and are generally secured by property located in Florida, Missouri, Nevada, South Carolina, Tennessee, and Wisconsin.
Credit Quality of Notes Receivable and the Allowance for Loan Losses
Bluegreen monitors the credit quality of its receivables on an ongoing basis. Bluegreen holds large amounts of homogeneous VOI notes receivable and assesses uncollectibility based on pools of receivables as Bluegreen does not believe that there are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. In estimating future creditloan losses, Bluegreen does not use a single primary indicator of credit quality but instead evaluates its VOI notes receivable based upon a static pool analysis that incorporates the ageaging of the respective receivables, default trends, and prepayment rates by origination year, as well as the FICO scores of the borrowers.
The activity in Bluegreen’s allowance for loan losses (including notes receivable secured by homesites) was as follows (in thousands):
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| For the Nine Months Ended |
| For the Nine Months Ended | |||||
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| September 30, |
| September 30, | |||||
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| 2018 |
| 2017 |
| 2019 |
| 2018 | |
Balance, beginning of period | $ | 123,791 |
| 120,270 | $ | 134,222 |
| 123,791 | |
Provision for loan losses |
| 35,866 |
| 32,066 |
| 39,462 |
| 35,866 | |
Write-offs of uncollectible receivables |
| (31,358) |
| (31,581) |
| (38,339) |
| (31,358) | |
Balance, end of period | $ | 128,299 |
| 120,755 | $ | 135,345 |
| 128,299 | |
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The table below sets forth information regarding the percentage of gross notes receivable outstanding by FICO score of the borrower at origination, was as follows:
the time of origination:
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| September 30, |
| December 31, |
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| 2018 |
| 2017 |
| September 30, |
| December 31, |
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FICO Score |
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| 2018 |
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700+ | 56.00 | % | 54.00 | % | 59.00 | % | 57.00 | % | |
600-699 | 40.00 |
| 41.00 |
| 38.00 |
| 39.00 |
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<699 | 3.00 |
| 3.00 |
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<600 | 2.00 |
| 3.00 |
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No score (1) | 1.00 |
| 2.00 |
| 1.00 |
| 1.00 |
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Total | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % |
(1) | VOI notes receivable attributable to borrowers without a FICO score are primarily related to foreign borrowers. |
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The table below sets forth information regarding the delinquency status of Bluegreen’s VOI notes receivable (in thousands):
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| September 30, |
| December 31, |
| September 30, |
| December 31, |
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| 2018 |
| 2017 |
| 2019 |
| 2018 |
Current | $ | 539,836 |
| 525,482 | $ | 547,425 |
| 541,783 |
31-60 days |
| 5,462 |
| 6,088 |
| 6,797 |
| 5,783 |
61-90 days |
| 4,531 |
| 4,897 |
| 5,271 |
| 4,516 |
> 90 days (1) |
| 16,968 |
| 12,853 | ||||
> 91 days (1) |
| 20,864 |
| 20,410 | ||||
Total | $ | 566,797 |
| 549,320 | $ | 580,357 |
| 572,492 |
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(1) | Includes |
5.
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4. Trade Inventory
TradeThe Company’s trade inventory consisted of the following (in thousands):
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| September 30, |
| December 31, |
| September 30, |
| December 31, |
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| 2018 |
| 2017 |
| 2019 |
| 2018 |
Raw materials | $ | 3,334 |
| 3,320 | $ | 3,204 |
| 2,718 |
Paper goods and packaging materials |
| 1,052 |
| 865 |
| 1,572 |
| 1,122 |
Finished goods |
| 17,320 |
| 19,717 |
| 20,350 |
| 16,270 |
Total trade inventory | $ | 21,706 |
| 23,902 | $ | 25,126 |
| 20,110 |
Trade inventory is measured at the lower of cost or market. Cost includes all costs of conversions, including materials, direct labor, production overhead, depreciation of equipment, and shipping costs. Raw materials are stated at the lower of approximate cost, on a first-in, first-out or average cost basis, and market is determined by reference to replacement cost. Raw materials are not written down unless the goods in which they are incorporated are expected to be sold for less than cost, in which case, they are written down by reference to replacement cost of the raw materials. Finished goods and work in progress are stated at the lower of cost or market determined on a first-in, first-out or average cost basis. Shipping and handling fees billed to customers are recorded as trade sales, and shipping and handling fees paid by the Company are recorded as cost of goods sold.
6.5. VOI Inventory
Bluegreen’s VOI inventory consisted of the following (in thousands):
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| .19 |
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| September 30, |
| December 31, |
| September 30, |
| December 31, |
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| 2018 |
| 2017 |
| 2019 |
| 2018 |
Completed VOI units | $ | 232,205 |
| 194,503 | $ | 271,441 |
| 237,010 |
Construction-in-progress |
| 20,965 |
| 22,334 |
| 1,542 |
| 26,587 |
Real estate held for future VOI development |
| 72,362 |
| 64,454 |
| 73,838 |
| 70,552 |
Total VOI inventory | $ | 325,532 |
| 281,291 | $ | 346,821 |
| 334,149 |
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7.6. Real Estate
RealThe Company’s real estate consisted of the following (in thousands):
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| September 30, |
| December 31, |
| September 30, |
| December 31, |
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| 2018 |
| 2017 |
| 2019 |
| 2018 |
Real estate held-for-sale: |
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Land | $ | 18,742 |
| 20,528 | $ | 10,204 |
| 18,439 |
Rental properties |
| - |
| 6,181 | ||||
Residential single-family |
| 1,092 |
| 1,119 |
| 719 |
| 832 |
Other |
| 850 |
| - |
| 1,151 |
| 931 |
Total real estate held-for-sale |
| 20,684 |
| 27,828 |
| 12,074 |
| 20,202 |
Real estate held-for-investment: |
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Land |
| 10,939 |
| 13,066 |
| 6,002 |
| 10,976 |
Other |
| - |
| 839 | ||||
Total real estate held-for-investment |
| 10,939 |
| 13,905 |
| 6,002 |
| 10,976 |
Real estate inventory |
| 20,956 |
| 26,803 |
| 41,498 |
| 23,778 |
Total real estate | $ | 52,579 |
| 68,536 | $ | 59,574 |
| 54,956 |
In April 2019, the Company sold its remaining land parcels located at PGA Station in Palm Beach Gardens, Florida for net proceeds of $8.3 million and recognized a gain on sale of real estate of $1.8 million during the nine months ended September 30, 2019. In connection with the sale, the Company invested $2.1 million of the proceeds in the PGA Lender, LLC joint venture as described in Note 7 below.
In May 2019, the Company transferred RoboVault, a self-storage facility located in Fort Lauderdale, Florida, from property and equipment to real estate held-for-sale following a buyer’s completion of due diligence on the property and subsequently sold it to the buyer for net proceeds of $11.8 million. As a result of the sale, the Company recognized a gain on sale of real estate of $4.8 million during the nine months ended September 30, 2019.
In June 2019, the Company sold a land parcel located in St. Cloud, Florida that was previously held for investment for net proceeds of $8.7 million and recognized a gain on sale of real estate of $3.0 million during the nine months ended September 30, 2019.
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7.. Investments in Unconsolidated Real Estate Joint Ventures
As of September 30, 2018,2019, the Company had equity interests in 18 unconsolidated real estate joint ventures primarily involved in the development of single-family master planned communities and, multifamily apartment and townhome communities, as well as single-family master planned communities. In addition, the Company owns a 50% equity interest in the Altman Companies, a developer and manager of multifamily apartment communities.
Investments in unconsolidated real estate joint ventures are accounted for as unconsolidated variable interest entities.VIEs. See Note 32 for information regarding the Company’s investments in consolidated variable interest entities.VIEs.
InvestmentsThe Company’s investments in unconsolidated real estate joint ventures consisted of the following (in thousands):
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|
|
|
|
|
| September 30, |
| December 31, |
|
|
| 2018 |
| 2017 |
|
Altis at Kendall Square, LLC | $ | 70 |
| 78 |
|
Altis at Lakeline - Austin Investors LLC |
| 3,835 |
| 4,156 |
|
New Urban/BBX Development, LLC |
| 102 |
| 2,064 |
|
Sunrise and Bayview Partners, LLC |
| 1,438 |
| 1,499 |
|
Hialeah Communities, LLC |
| 109 |
| 473 |
|
PGA Design Center Holdings, LLC |
| 736 |
| 1,862 |
|
CCB Miramar, LLC |
| 1,575 |
| 1,225 |
|
Centra Falls, LLC |
| 15 |
| 159 |
|
The Addison on Millenia Investment, LLC |
| 5,220 |
| 5,933 |
|
BBX/S Millenia Blvd Investments, LLC |
| 151 |
| 5,611 |
|
Altis at Bonterra - Hialeah, LLC |
| 19,533 |
| 19,566 |
|
Altis at Shingle Creek Manager, LLC |
| 353 |
| 338 |
|
Altis at Grand Central Capital, LLC |
| 2,160 |
| 1,872 |
|
Centra Falls II, LLC |
| 157 |
| 551 |
|
BBX/Label Chapel Trail Development, LLC |
| 4,694 |
| 4,885 |
|
Altis Promenade Capital, LLC |
| 997 |
| 962 |
|
Altis Ludlam - Miami Investor, LLC |
| 415 |
| - |
|
Altis Preserve, LLC |
| 990 |
| - |
|
Investments in unconsolidated real estate joint ventures | $ | 42,550 |
| 51,234 |
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
|
| 2019 |
| 2018 |
Altis at Lakeline - Austin Investors LLC | $ | 242 |
| 4,531 |
Altis at Grand Central Capital, LLC |
| 2,660 |
| 2,549 |
Altis Promenade Capital, LLC |
| 2,190 |
| 2,195 |
Altis at Bonterra - Hialeah, LLC |
| 497 |
| 21,602 |
Altis Ludlam - Miami Investor, LLC |
| 966 |
| 675 |
Altis Suncoast Manager, LLC |
| 743 |
| 1,857 |
Altis Pembroke Gardens, LLC |
| 1,277 |
| 1,284 |
Altis Fairways, LLC |
| 1,883 |
| 1,876 |
Altis Wiregrass, LLC |
| 1,816 |
| 1,897 |
Altis LH-Miami Manager, LLC |
| 799 |
| - |
Altis Vineland Pointe Manager, LLC |
| 4,500 |
| - |
The Altman Companies, LLC |
| 15,267 |
| 14,893 |
ABBX Guaranty, LLC |
| 3,750 |
| 2,500 |
Sunrise and Bayview Partners, LLC |
| 1,499 |
| 1,439 |
PGA Design Center Holdings, LLC |
| 988 |
| 691 |
CCB Miramar, LLC |
| 4,316 |
| 1,575 |
BBX/Label Chapel Trail Development, LLC |
| 1,892 |
| 4,515 |
L03/212 Partners, LLC |
| 1,886 |
| - |
PGA Lender, LLC |
| 2,110 |
| - |
Sky Cove, LLC |
| 4,179 |
| - |
All other investments in real estate joint ventures |
| 279 |
| 659 |
Total | $ | 53,739 |
| 64,738 |
19
During May 2018, the Company invested in a joint venture, Altis Ludlam – Miami Investor, LLC, to acquire land and obtain entitlements for a potential multifamily apartment development project located in Miami, Florida.
During August 2018, the Company invested in a joint venture, Altis Preserve, LLC, to acquire land and obtain entitlements for a potential multifamily apartment development project located in Odessa, Florida.
See Note 10 to the Company’s consolidated financial statements included in the 20172018 Annual Report for the Company’s accounting policies for analyzingrelating to its investments in unconsolidated real estate joint ventures.ventures, including the Company’s analysis and determination that such entities are VIEs in which the Company is not the primary beneficiary.
Sales by Unconsolidated Real Estate Joint Ventures
In April 2019, the Altis at Lakeline joint venture sold its 354 unit multifamily apartment community located in Cedar Park, Texas. As a result of the sale, the Company recognized $5.0 million of equity earnings and received approximately $9.3 million of distributions from the venture for the nine months ended September 30, 2019.
In April 2019, the PGA Design Center joint venture sold its remaining commercial buildings located in Palm Beach Gardens, Florida for $9.2 million and provided seller financing to the buyer for $4.6 million. As a result of the sale, the Company recognized $2.8 million of equity earnings and received approximately $2.3 million of distributions from the venture for the nine months ended September 30, 2019. As described below, the joint venture contributed the promissory note received from the buyer to a newly formed joint venture between the PGA Design Center joint venture and the Company.
13
In August 2019, the Altis at Bonterra joint venture sold its 314 unit multifamily apartment community located in Hialeah, Florida. As a result of the sale, the Company recognized $29.1 million of equity earnings and received approximately $46.0 million of distributions from the venture for the three and nine months ended September 30, 2019. In addition, prior to the sale, the Company received approximately $4.3 million of distributions from the venture during the nine months ended September 30, 2019 related to the operating profits of the venture.
New Unconsolidated Real Estate Joint Ventures
In January 2019, the Company invested in L03/212 Partners, LLC, a joint venture formed to invest in the development of The Main Las Olas, a mixed-used project located in downtown Fort Lauderdale, Florida that is planned to be comprised of an office tower with approximately 365,000 square feet of leasable area, a residential tower with approximately 341 units, and approximately 45,000 square feet of ground floor retail. As of September 30, 2019, the Company had funded $1.9 million of its expected capital contribution of $4.0 million.
In April 2019, the Company invested $2.1 million in PGA Lender, LLC, a joint venture formed with the PGA Design Center joint venture to participate in the $4.6 million seller financing provided to the buyer of the PGA Design Center joint venture’s commercial buildings, as described above. In connection with the transaction, the Company contributed $2.1 million in cash in exchange for a 45.88% equity interest in the venture, while the PGA Design Center joint venture contributed the $4.6 million promissory note received from the buyer in exchange for $2.1 million in cash and a 54.12% equity interest in the venture.
In June 2019, the Company invested $4.2 million in Sky Cove, LLC, a joint venture formed to develop, construct, and sell 204 single family homes in Westlake, Florida.
In August 2019, the Company invested $4.5 million in Altis Vineland Pointe Manager, LLC, a joint venture formed to acquire land, obtain entitlements, and fund predevelopment costs for the development of a potential multifamily apartment community in Orlando, Florida.
Summarized Financial Information of Certain Unconsolidated Real Estate Joint Ventures
The condensed statements of operations for Altis at Bonterra – Hialeah, LLC were as follows (in thousands):
9.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended | ||||
|
| September 30, |
| September 30, | ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
Total revenues | $ | 927 |
| 1,755 |
| 4,479 |
| 6,109 |
Gain on sale of real estate |
| 33,608 |
| - |
| 33,608 |
| - |
Other expenses |
| (813) |
| (1,622) |
| (4,339) |
| (6,222) |
Net earnings | $ | 33,722 |
| 133 |
| 33,748 |
| (113) |
Equity in net earnings of unconsolidated real estate joint venture - Altis at Bonterra - Hialeah, LLC | $ | 29,100 |
| 128 |
| 29,100 |
| (107) |
|
|
|
|
|
|
|
|
|
The condensed statements of financial condition for Altis at Bonterra – Hialeah, LLC were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
|
| 2019 |
| 2018 |
Assets |
|
|
|
|
Cash | $ | 1,433 |
| 4,033 |
Real estate |
| - |
| 55,734 |
Other assets |
| 6 |
| 134 |
Total assets | $ | 1,439 |
| 59,901 |
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
Notes payable | $ | - |
| 38,641 |
Other liabilities |
| 888 |
| 571 |
Total liabilities |
| 888 |
| 39,212 |
Total equity |
| 551 |
| 20,689 |
Total liabilities and equity | $ | 1,439 |
| 59,901 |
|
|
|
|
|
14
8. Debt
Notes Payable and Other Borrowings
The table below sets forth information regarding the Company’s notes payable and other borrowings (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2018 |
| December 31, 2017 | ||||||||
|
|
|
|
|
| Carrying |
|
|
|
|
| Carrying |
|
|
|
|
|
| Amount of |
|
|
|
|
| Amount of |
|
| Debt |
| Interest |
| Pledged |
| Debt |
| Interest |
| Pledged |
|
| Balance |
| Rate |
| Assets |
| Balance |
| Rate |
| Assets |
Bluegreen: |
|
|
|
|
|
|
|
|
|
|
|
|
2013 Notes Payable | $ | 33,750 |
| 5.50% | $ | 33,662 | $ | 46,500 |
| 5.50% | $ | 29,403 |
Pacific Western Term Loan |
| - |
| - |
| - |
| 2,715 |
| 6.72% |
| 9,884 |
Fifth Third Bank Note |
| 3,895 |
| 5.08% |
| 7,937 |
| 4,080 |
| 4.36% |
| 8,071 |
NBA Line of Credit |
| - |
| - |
| - |
| 5,089 |
| 4.75% |
| 15,260 |
NBA Éilan Loan |
| 24,258 |
| 5.35% |
| 34,539 |
| - |
| - |
| - |
Fifth Third Syndicated |
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit |
| 55,000 |
| 4.99% |
| 87,785 |
| 20,000 |
| 4.27% |
| 75,662 |
Fifth Third Syndicated |
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan |
| 22,813 |
| 5.04% |
| 26,702 |
| 23,750 |
| 4.32% |
| 23,960 |
Unamortized debt |
|
|
|
|
|
|
|
|
|
|
|
|
issuance costs |
| (1,882) |
|
|
|
|
| (1,940) |
|
|
|
|
Total Bluegreen | $ | 137,834 |
|
|
|
| $ | 100,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
Community Development |
|
|
|
|
|
|
|
|
|
|
|
|
District Obligations | $ | 13,263 |
| 4.50-6.00% | $ | 20,956 | $ | 21,435 |
| 4.50-6.00% | $ | 26,803 |
TD Bank Term Loan and |
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit |
| 9,422 |
| 5.13% |
| (1) |
| 12,890 |
| 4.02% |
| (1) |
Anastasia Seller's Note (2) |
| 1,491 |
| 5.00% |
| (1) |
| 1,471 |
| 5.00% |
| (1) |
Iberia $50.0 million |
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Line of Credit |
| 30,000 |
| 5.10% |
| (3) |
| - |
| - |
| - |
Iberia $5.0 million Revolving |
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit |
| - |
| - |
| - |
| 3,820 |
| 4.12% |
| (1) |
Banc of America Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
& Capital Equipment Note |
| 620 |
| 4.75% |
| (4) |
| - |
| - |
| - |
Unsecured Note |
| 3,400 |
| 6.00% |
| (5) |
| 3,400 |
| 6.00% |
| (5) |
Other |
| 1,542 |
| 5.41% |
| 1,955 |
| 1,544 |
| 5.25% |
| 1,993 |
Unamortized debt |
|
|
|
|
|
|
|
|
|
|
|
|
issuance costs |
| (395) |
|
|
|
|
| (640) |
|
|
|
|
Total other | $ | 59,343 |
|
|
|
| $ | 43,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable and |
|
|
|
|
|
|
|
|
|
|
|
|
other borrowings | $ | 197,177 |
|
|
|
| $ | 144,114 |
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2019 |
| December 31, 2018 | ||||||||
|
|
|
|
|
| Carrying |
|
|
|
|
| Carrying |
|
|
|
|
|
| Amount of |
|
|
|
|
| Amount of |
|
| Debt |
| Interest |
| Pledged |
| Debt |
| Interest |
| Pledged |
|
| Balance |
| Rate |
| Assets |
| Balance |
| Rate |
| Assets |
Bluegreen: |
|
|
|
|
|
|
|
|
|
|
|
|
2013 Notes Payable | $ | - |
| - | $ | - | $ | 28,125 |
| 5.50% | $ | 22,878 |
Fifth Third Bank Note |
| 3,649 |
| 5.11% |
| 7,757 |
| 3,834 |
| 5.34% |
| 7,892 |
NBA Éilan Loan |
| 19,974 |
| 5.34% |
| 32,821 |
| 25,603 |
| 5.60% |
| 35,615 |
Fifth Third Syndicated |
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit |
| 75,000 |
| 4.88% |
| 102,431 |
| 55,000 |
| 5.27% |
| 92,415 |
Fifth Third Syndicated |
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan |
| 21,094 |
| 5.08% |
| 28,809 |
| 22,500 |
| 5.37% |
| 27,724 |
Unamortized debt |
|
|
|
|
|
|
|
|
|
|
|
|
issuance costs |
| (672) |
|
|
|
|
| (1,671) |
|
|
|
|
Total Bluegreen | $ | 119,045 |
|
|
|
| $ | 133,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
Community Development |
|
|
|
|
|
|
|
|
|
|
|
|
District Obligations | $ | 29,432 |
| 4.25-6.00% | $ | 44,771 | $ | 24,583 |
| 4.25-6.00% | $ | 35,155 |
TD Bank Term Loan and |
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit |
| 8,394 |
| 5.24% |
| (1) |
| 8,117 |
| 5.47% |
| (1) |
Iberia $50.0 million |
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Line of Credit |
| - |
| - |
| (2) |
| 30,000 |
| 5.35% |
| (2) |
Banc of America Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
& Capital Equipment Note |
| 406 |
| 4.75% |
| (3) |
| 555 |
| 4.75% |
| (3) |
Unsecured Note (4) |
| 3,400 |
| 6.00% |
| - |
| 3,400 |
| 6.00% |
|
|
Other (4) |
| 1,580 |
| 5.89% |
| 1,905 |
| 1,507 |
| 5.25% |
| 1,968 |
Unamortized debt |
|
|
|
|
|
|
|
|
|
|
|
|
issuance costs |
| (837) |
|
|
|
|
| (666) |
|
|
|
|
Total other | $ | 42,375 |
|
|
|
| $ | 67,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable and |
|
|
|
|
|
|
|
|
|
|
|
|
other borrowings | $ | 161,420 |
|
|
|
| $ | 200,887 |
|
|
|
|
(1) | The collateral is a blanket lien on |
(2) |
|
| The collateral is membership interests in Woodbridge having a value of not less than $100.0 million. |
| The collateral is a security interest in the equipment financed by the underlying note. Additionally, IT’SUGAR is guarantor on the note. |
| BBX Capital is guarantor on the note. |
See Note 13 to the Company’s consolidated financial statements included in the 20172018 Annual Report for additional information regarding the above listed notes payable and other borrowings.
15
New debt issuances and significant changes related to the above listed notes payable and other borrowings during the nine months ended September 30, 2018 are detailed below.
Pacific Western Term Loan. - Bluegreen hadIn February 2019, the Meadow View at Twin Creeks Community Development District issued $8.1 million of community development bonds in order to fund the infrastructure improvements for Phase II of the Company’s Beacon Lake Community development and repay a non-revolving term loan (the “Pacific Western Term Loan”)portion of the bonds previously issued in 2016 in connection with Pacific Western Bank secured by unsold inventoryPhase I of the development. The bonds issued in February 2019 have fixed interest rates ranging from 5.20% to 5.80% and undeveloped landmature at various times during the years 2030 through 2049. The Company at its option has the ability to repay a specified portion of the bonds at the Bluegreen Odyssey Dells Resort. Duringtime that it sells developed lots in the quarter endedBeacon Lakes Community.
In July 2019, the Company modified the Iberia $50.0 million revolving line of credit to, among other things, extend the maturity of the line of credit from March 6, 2020 to June 30, 2021 and remove a financial covenant regarding fixed charge coverage. Under the terms of the modified line of credit, the Company has the option to extend the maturity of the line of credit for a twelve-month period, subject to the satisfaction of certain conditions.
In September 30, 2018,2019, Bluegreen repaid in full its 2013 Notes Payable. Accordingly, the then outstanding balancerelated unamortized debt issuance costs associated with the notes of $0.4 million were written off in the Pacific Western Term Loan. third quarter of 2019.
NBA Line of Credit. - Bluegreen/Big Cedar Vacations hadIn December 2016, Bluegreen entered into a $100.0 million syndicated credit facility with Fifth Third Bank, as administrative agent and lead arranger, and certain other bank participants as lenders. In October 2019, Bluegreen amended and restated the facility and increased the facility to $225.0 million. The amended facility includes a $100.0 million term loan (the “Fifth Third Syndicated Term Loan”) with quarterly amortization requirements and a $125.0 million revolving line of credit (the “NBA“Fifth Third Syndicated Line of Credit”) with the National Bank of Arizona (“NBA”) with a borrowing limit of $20.0 million. The NBA Line of Credit provided for a revolving advance period expiring in September 2020 and maturity in March 2025 and was secured by unsold inventory and a building under construction at Bluegreen/Big Cedar Vacations’ The Cliffs at Long Creek Resort. During the quarter ended September 30, 2018, Bluegreen repaid in full the then outstanding balance of the NBA Line of Credit. In connection with such repayment, availability. Amounts borrowed under the NBA Receivables Facility described below was increased by $20.0 million and there is no further availability under this line.
NBA Éilan Loan – In April 2018, Bluegreen purchased the Éilan Hotel & Spa in San Antonio, Texas for approximately $34.3 million. In connection with the acquisition, Bluegreen entered into a non-revolving acquisition loan (the “NBA Éilan Loan”) with NBA. The NBA Éilan Loan provides for advances of up to $27.5 million, $24.3 million of which was used to fund the acquisition of the resort and up to an additional $3.2 million which may be drawn upon to fund certain future improvement costs over a 12-month advance period. Principal payments will be effected through release payments from sales of VOIs at the Éilan Hotel & Spa that serve as collateral for the NBA Éilan Loan, subject to a minimum amortization schedule, with the remaining balance due at maturity in April 2023. Borrowings under the NBA Éilan Loanamended facility generally bear interest at an annual rate equal to one-month LIBOR plus 3.25%, subject2.00% - 2.50% depending on Bluegreen’s leverage ratio, are collateralized by certain of Bluegreen’s VOI inventory, sales center buildings, management fees, short-term receivables, and cash flows from residual interests relating to a floor of 4.75%. As of September 30, 2018, there was $24.3certain term securitizations, and will mature in October 2024. At closing, Bluegreen borrowed the entire $100.0 million outstanding on the NBA Éilan Loan.
Toronto-Dominion Commercial Bank (“TD Bank”) Term Loanterm loan and Line of Credit - Renin has maintained a credit facility with TD Bank. Under the terms and conditions of the credit facility, TD Bank provides term loans for up to $1.7$30.0 million and loans under a revolving credit facility for up to approximately $16.3 million based on available collateral as defined in the facility and subject to Renin’s compliance with the terms and conditions of the facility, including certain specific financial covenants. In September 2018, the maturity date of the revolving credit portion of the facility was amended to extend the maturity date to September 2019. The maturity dates of the term loans under the facility remain unchanged and are scheduled to mature between 2020 and 2022.
Iberia $50.0 million Revolving Line of Credit - In March 2018, BBX Capital, BBX Sweet Holdings, Food for Thought Restaurant Group-Florida, LLC, the former BBX Capital Corporation, (“BCC”), and Woodbridge, entered into a Loan and Security Agreement and related agreements with IberiaBank (“Iberia”), as administrative agent and lender, and City National Bank of Florida, as lender, which provide for a $50.0 million revolving line of credit. Amounts borrowed underProceeds were used to repay the outstanding balance on the existing syndicated credit facility, accrue interest at a floating rate of 30-day LIBOR plus a margin of 3.0%repay $3.6 million on the existing Fifth Third Bank Note Payable, and pay expenses and fees associated with the amendment, with the remainder to 3.75% or the Prime Rate plus a margin of 1.50% to 2.25%. The applicable margin is based on BBX Capital’s debt to EBITDA ratio. Payments of interest only are payable monthly. The facility matures, and all outstanding principal and interest will be payable, on March 6, 2020, with twelve-month renewal options at BBX Capital’s request, subject to satisfaction of certain conditions. The facility is secured by a pledge of a percentage of BBX Capital’s membership interests in Woodbridge having a value of not less than $100.0 million. Borrowings under the facility may be used for business acquisitions, real estate investments, stock repurchases, letters of credit and general corporate purposes.
Under the terms and conditions of the Loan and Security Agreement, BBX Capital is required to comply with certain financial covenants, including maintaining minimum unencumbered liquidity and complying with financial ratios related to fixed charge coverage and debt to EBITDA. The Loan and Security Agreement also contains customary affirmative and negative covenants, including those that, among other things, limit the ability of BBX Capital and the
21
other borrowers to incur additional indebtedness and to make certain loans and investments. As of September 30, 2018, there was $30.0 million outstanding on the line of credit.
Iberia $5.0 million Revolving Line of Credit – BBX Sweet Holdings had a revolving line of credit with Iberia that was secured by the assets of BBX Sweet Holdings and its subsidiaries and guaranteed by the Company. During the quarter ended September 30, 2018, the Company repaid in full the then outstanding balance of the line of credit.
Banc of America Leasing & Capital Equipment Note – In September 2018, IT’SUGAR entered into a Master Loan and Security Agreement with Banc of America Leasing & Capital, LLC which sets forth the terms and conditions pursuant to which IT’SUGAR may borrow funds to purchase equipment under one or more equipment security notes. The Agreement contains customary representations and covenants, including the submission of quarterly and annual financial statements to the lender. Each equipment note constitutes a separate, distinct and independent financing of equipment and is secured by a security interest in the purchased equipment and is an unconditional contractual obligation of IT’SUGAR. As of September 30, 2018, there was one equipment note outstanding with a balance of $0.6 million. The equipment note bears interest at a fixed rate of 4.75% per annum and is payable in 36 consecutive monthly principal and interest installments of $18,516 with a maturity date of September 2021. The equipment note is subject to a prepayment charge equal to one percent of the amount prepaid multiplied by the number of years or fraction thereof for the then remaining equipment note term.
Bank of America Revolving Line of Credit - In August 2018, IT’SUGAR entered into a revolving credit facility with Bank of America. Under the terms and conditions of the credit facility, Bank of America has agreed to provide a revolving line of credit to IT’SUGAR for up to $4.0 million based on available collateral as defined by the credit facility and subject to IT’SUGAR’s compliance with the terms and conditions of the credit facility including certain specific financial covenants. The revolving credit facility is available through August 2021 and amounts outstanding bear interest at a LIBOR daily floating rate plus 1.50% or a monthly LIBOR rate subject to the terms and conditions of the credit facility. Payments of interest only will be payable monthly. There were no borrowings outstanding under the credit facility as of September 30, 2018.
Under the terms and conditions of this revolving line of credit, IT’SUGAR is required to comply with certain financial covenants, including quarterly and annual debt service coverage ratios. The facility also contains various covenants, including those that, among other things, limit the ability of IT’SUGAR to incur liens, make certain investments, or engage in certain asset acquisitions or dispositions.
2216
Receivable-Backed Notes Payable
The table below sets forth information regarding Bluegreen’s receivable-backed notes payable facilities (dollars in thousands):
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| September 30, 2018 |
| December 31, 2017 |
| September 30, 2019 |
| December 31, 2018 | ||||||||||||||||
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| Principal |
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| Pledged/ |
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| Pledged/ |
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| Debt |
| Interest |
| Secured |
| Debt |
| Interest |
| Secured |
| Debt |
| Interest |
| Secured |
| Debt |
| Interest |
| Secured |
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| Balance |
| Rate |
| Receivables |
| Balance |
| Rate |
| Receivables |
| Balance |
| Rate |
| Receivables |
| Balance |
| Rate |
| Receivables |
Receivable-backed notes |
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payable - recourse: |
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Liberty Bank Facility | $ | 40,392 |
| 5.00% | $ | 48,589 | $ | 24,990 |
| 5.00% | $ | 30,472 | $ | 28,247 |
| 5.25% | $ | 34,545 | $ | 17,654 |
| 5.25% | $ | 22,062 |
NBA Receivables Facility |
| 40,297 |
| 4.83% |
| 53,695 |
| 44,414 |
| 4.10% |
| 53,730 |
| 35,809 |
| 4.79% |
| 43,706 |
| 48,414 |
| 5.27% |
| 57,805 |
Pacific Western Facility |
| 17,081 |
| 5.84% |
| 21,586 |
| 15,293 |
| 6.00% |
| 19,516 |
| 30,848 |
| 4.92% |
| 37,954 |
| 10,606 |
| 5.52% |
| 13,730 |
Total | $ | 97,770 |
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| $ | 123,870 | $ | 84,697 |
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| $ | 103,718 | $ | 94,904 |
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| $ | 116,205 | $ | 76,674 |
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| $ | 93,597 |
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Receivable-backed notes |
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payable - non-recourse: |
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KeyBank/DZ Purchase Facility | $ | 49,733 |
| 5.01% | $ | 62,164 | $ | 16,144 |
| 4.31% | $ | 19,866 |
| 19,035 |
| 4.84% |
| 23,390 |
| - |
| - |
| - |
Quorum Purchase Facility |
| 39,739 |
| 4.75-5.50% |
| 44,907 |
| 16,771 |
| 4.75-6.90% |
| 18,659 |
| 44,865 |
| 4.75-5.50% |
| 50,337 |
| 40,074 |
| 4.75-5.50% |
| 45,283 |
2012 Term Securitization |
| 16,978 |
| 2.94% |
| 19,593 |
| 23,227 |
| 2.94% |
| 25,986 |
| 9,986 |
| 2.94% |
| 11,558 |
| 15,212 |
| 2.94% |
| 16,866 |
2013 Term Securitization |
| 29,814 |
| 3.20% |
| 32,288 |
| 37,163 |
| 3.20% |
| 39,510 |
| 20,090 |
| 3.20% |
| 21,995 |
| 27,573 |
| 3.20% |
| 29,351 |
2015 Term Securitization |
| 47,624 |
| 3.02% |
| 51,430 |
| 58,498 |
| 3.02% |
| 61,705 |
| 34,093 |
| 3.02% |
| 36,676 |
| 44,230 |
| 3.02% |
| 47,690 |
2016 Term Securitization |
| 68,155 |
| 3.35% |
| 76,206 |
| 83,142 |
| 3.35% |
| 91,348 |
| 52,632 |
| 3.35% |
| 58,817 |
| 63,982 |
| 3.35% |
| 72,590 |
2017 Term Securitization |
| 88,632 |
| 3.12% |
| 100,847 |
| 107,624 |
| 3.12% |
| 119,582 |
| 69,763 |
| 3.12% |
| 79,551 |
| 83,513 |
| 3.12% |
| 95,877 |
2018 Term Securitization |
| 96,907 |
| 4.02% |
| 109,599 |
| 114,480 |
| 4.02% |
| 125,916 | ||||||||||||
Unamortized debt issuance costs |
| (4,995) |
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| - |
| (6,148) |
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| - |
| (5,515) |
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| - |
| (6,807) |
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| - |
Total | $ | 335,680 |
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| $ | 387,435 | $ | 336,421 |
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| $ | 376,656 | $ | 341,856 |
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| $ | 391,923 | $ | 382,257 |
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| $ | 433,573 |
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Total receivable-backed debt | $ | 433,450 |
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| $ | 511,305 | $ | 421,118 |
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| $ | 480,374 | $ | 436,760 |
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| $ | 508,128 | $ | 458,931 |
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| $ | 527,170 |
There were no new debt issuances or significant changes related to the above listed facilities during the nine months ended September 30, 2019. See Note 13 to the Company’s consolidated financial statements included in the 20172018 Annual Report for additional information regarding the above listed receivable-backed notes payable facilities.
New debt issuances and significant changes related to receivable-backed notes payable during the nine months ended September 30, 2018 are detailed below.
Liberty Bank Facility - Bluegreen has maintained a revolving VOI notes receivable hypothecation facility (the “Liberty Bank Facility”) with Liberty Bank which provides for advances on eligible receivables pledged under the Liberty Bank Facility, subject to specified terms and conditions, during a revolving credit period. On March 12, 2018, the Liberty Bank Facility was amended and restated to extend the revolving credit period from March 2018 to March 2020, extend the maturity date from November 2020 until March 2023, and amend the interest rate on borrowings as described below. Subject to its terms and conditions, the Liberty Bank Facility provides for advances of (i) 85% of the unpaid principal balance of Qualified Timeshare Loans assigned to agent, and (ii) 60% of the unpaid principal balance of Non-Conforming Timeshare Loans assigned to agent, during the revolving credit period of the facility. Maximum permitted outstanding borrowings under the Liberty Bank Facility are $50.0 million, subject to the terms of the facility. Through March 31, 2018, borrowings under the Liberty Bank Facility bore interest at the Wall Street Journal (“WSJ”) Prime Rate plus 0.50% per annum, subject to a 4.00% floor. Pursuant to the March 2018 amendment to the Liberty Bank Facility, effective April 1, 2018, all borrowings outstanding under the facility bear interest at an annual rate equal to the WSJ Prime Rate, subject to a 4.00% floor. Principal repayments and interest on borrowings under the Liberty Bank Facility are paid as cash is collected on the pledged receivables, with the remaining balance being due by maturity, subject to the terms of the facility.
NBA Receivables Facility - Bluegreen/Big Cedar Vacations has a revolving VOI hypothecation facility (the “NBA Receivables Facility”) with NBA. The NBA Receivables Facility provides for advances at a rate of 85% on eligible receivables pledged under the facility, subject to eligible collateral and specified terms and conditions, during a
23
revolving credit period expiring in September 2020 and allows for maximum borrowings of up to $70.0 million (inclusive of the $20.0 million increase in availability described above). The maturity date for the facility is March 2025. The interest rate applicable to future borrowings under the NBA Receivables Facility is equal to the 30-day LIBOR plus 2.75% (with an interest rate floor of 3.50%). All principal and interest payments received on pledged receivables are applied to principal and interest due under the facility, with the remaining balance being due by maturity, subject to the terms of the facility.
Pacific Western Facility – Bluegreen has a revolving VOI notes receivable hypothecation facility (the “Pacific Western Facility”) with Pacific Western Bank, which provides for advances on eligible VOI notes receivable pledged under the facility, subject to specified terms and conditions, during a revolving credit period. Maximum outstanding borrowings under the Pacific Western Facility are $40.0 million, subject to eligible collateral and customary terms and conditions. On August 15, 2018, the Pacific Western Facility was amended to extend the revolving advance period from September 2018 to September 2021, extend the maturity date from September 2021 until September 2024 (in each case, subject to an additional 12-month extension at the option of Pacific Western Bank) and amend the interest rate on borrowings as described below. Eligible “A” VOI notes receivable that meet certain eligibility and FICO score requirements, which Bluegreen believes are typically consistent with loans originated under its current credit underwriting standards, are subject to an 85% advance rate. The Pacific Western Facility also allows for certain eligible “B” VOI notes receivable (which have less stringent FICO score requirements) to be funded at a 53% advance rate. Through September 21, 2018, borrowings under the Pacific Western Facility bore interest at the then prevailing interest rates under the facility, which ranged from 30-day LIBOR plus 3.50% to 4.50%. Pursuant to the amendment to the Pacific Western Facility, effective September 21, 2018, all borrowings outstanding under the facility bear interest at an annual rate equal to 30-day LIBOR plus 3.00%; provided, however, that a portion of the borrowings, to the extent such borrowings are in excess of established debt minimums, will bear interest at 30-day LIBOR plus 2.75%. Principal repayments and interest on borrowings under the Pacific Western Facility are paid as cash is collected on the pledged VOI notes receivable, subject to future required decreases in the advance rates after the end of the revolving advance period, with the remaining balance being due by maturity, subject to the terms of the facility.
Quorum Purchase Facility - Bluegreen and Bluegreen/Big Cedar Vacations have a VOI notes receivable purchase facility (the “Quorum Purchase Facility”) with Quorum Federal Credit Union (“Quorum”), pursuant to which Quorum has agreed to purchase eligible VOI notes receivable in an amount of up to an aggregate $50.0 million purchase price, subject to certain conditions precedent and other terms of the facility. On April 6, 2018, the Quorum Purchase Facility was amended to extend the revolving purchase period from June 30, 2018 to June 30, 2020, and provided for a fixed interest rate of 4.95% per annum on advances made through September 30, 2018. The interest rate on advances made after September 30, 2018 will be set at the time of funding based on rates mutually agreed upon by all parties. The amendment also reduced the loan purchase fee applicable to advances from 0.50% to 0.25% and extended the maturity of the Quorum Purchase Facility from December 2030 to December 2032. Of the amounts outstanding under the Quorum Purchase Facility at September 30, 2018, $5.0 million accrues interest at a rate per annum of 4.75%, $29.9 million accrues interest at a rate per annum of 4.95%, $2.7 million accrues interest at a rate per annum of 5.0%, and $2.1 million accrues interest at a rate per annum of 5.5%. The Quorum Purchase Facility provides for an 85% advance rate on eligible receivables sold under the facility; however, Quorum can modify this advance rate on future purchases subject to the terms and conditions of the Quorum Purchase Facility. Eligibility requirements for VOI notes receivable sold include, among others, that the obligors under the VOI notes receivable sold be members of Quorum at the time of the note sale. Subject to the performance of the collateral, Bluegreen or Bluegreen/Big Cedar Vacations, as applicable, will receive any excess cash flows generated by the VOI notes receivable transferred to Quorum under the facility (excess meaning after payment of customary fees, interest and principal under the facility) on a pro-rata basis as borrowers make payments on their VOI notes receivable. While ownership of the VOI notes receivable included in the Quorum Purchase Facility is transferred and sold for legal purposes, the transfer of these VOI notes receivable is accounted for as a secured borrowing for financial reporting purposes. The facility is nonrecourse.
24
Junior Subordinated Debentures
The table below sets forth information regarding the Company’s junior subordinated debentures (dollars in thousands):
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| September 30, |
| December 31, |
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| 2017 |
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| September 30, 2019 |
| December 31, 2018 | ||||
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| Effective |
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| Effective |
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| Effective |
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| Effective |
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| Carrying | Interest |
| Carrying | Interest | Maturity |
| Carrying | Interest |
| Carrying | Interest |
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| Amounts | Rates (1) |
| Amounts | Rates (1) | Years (2) |
| Amounts | Rates (1) |
| Amounts | Rates (1) |
Woodbridge - Levitt Capital Trusts I - IV | $ | 66,302 | 6.14 - 6.20% | $ | 66,302 | 5.14 - 5.19% | 2035 - 2036 | $ | 66,302 | 6.07 - 6.17% | $ | 66,302 | 6.20 - 6.65% |
Bluegreen Statutory Trusts I - VI |
| 110,827 | 7.14 - 7.24% |
| 110,827 | 6.18 - 6.59% | 2035 - 2037 |
| 110,827 | 7.07 - 7.22% |
| 110,827 | 7.32 - 7.70% |
Unamortized debt issuance costs |
| (1,218) |
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| (1,272) |
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| (1,147) |
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| (1,200) |
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Unamortized purchase discount |
| (39,680) |
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| (40,443) |
|
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| (38,944) |
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| (39,504) |
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Total junior subordinated debentures | $ | 136,231 |
| $ | 135,414 |
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| $ | 137,038 |
| $ | 136,425 |
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(1) |
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17
Woodbridge and Bluegreen have each formed statutory business trusts (collectively, the “Trusts”), each of which issued trust preferred securities and invested the proceeds thereof in junior subordinated debentures of Woodbridge and Bluegreen, respectively. The Trusts are VIEs in which Woodbridge and Bluegreen, as applicable, are not the primary beneficiaries. Accordingly, the Company and its subsidiaries dodoes not consolidate the operations of these Trusts; instead, the beneficial interests in the Trusts are accounted for under the equity method of accounting. Included in other assets as of September 30, 20182019 and December 31, 20172018 was $5.9$2.1 million of equity in the Trusts. Interest on the junior subordinated debentures and distributions on the trust preferred securities are payable quarterly in arrears at the same interest rate.
During January 2017, Woodbridge purchased approximately $11.1 millionAll of Levitt Capital Trust II (“LCTII”) trust preferred securities for $6.7 million and purchased approximately $7.7 million of Levitt Capital Trust III (“LCTIII”) trust preferred securities for $4.7 million, and in February 2017, Woodbridge delivered the purchased securities to the respective trusts in exchange for the cancellation of $11.1 million of Woodbridge’s junior subordinated debentures heldwere eligible for redemption by LCTIIWoodbridge and $7.7 millionBluegreen, as applicable, as of Woodbridge’s junior subordinated debentures held by LCTIII. As a result, in February 2017, Woodbridge recognized a $6.9 million gain associated with the cancellation of the notes, which is included in “Net gains on cancellation of junior subordinated debentures” in the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2017.2019 and December 31, 2018.
See Note 13 to the Company’s consolidated financial statements included in the 20172018 Annual Report for additional information regarding the Company’s junior subordinated debentures.
Debt Compliance and Amounts Available under Credit Facilities
As of September 30, 2018,2019, BBX Capital and its subsidiaries were in compliance with all financial debt covenants under their debt instruments, as amended.
Amounts available under credit facilities for BBX Capital and its debt instruments. Assubsidiaries as of September 30, 2018, Bluegreen had availability of approximately $122.8 million2019 were as follows (in thousands):
BBX Capital | $ | 50,000 |
Bluegreen | 131,196 | |
Renin | 3,668 | |
IT'SUGAR | 4,000 | |
Total credit availability | $ | 188,864 |
The amounts available under its receivable-backed purchase andthe Company’s credit facilities inventory lines of credit and corporate credit line,are subject to eligible collateral and the terms of the facilities, as applicable. As of September 30, 2018, BBX Capital and its other subsidiaries had availability of approximately $27.9 million under revolving lines of credit, subject to eligible collateral and the terms of the facilities, as applicable.
9. Revenue Recognition
The table below sets forth the Company’s revenue disaggregated by category (in thousands):
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| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||
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| 2019 |
| 2018 |
| 2019 |
| 2018 |
Sales of VOIs |
| $ | 66,318 |
| 70,698 |
| 186,351 |
| 195,412 |
Fee-based sales commissions |
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| 60,478 |
| 61,641 |
| 161,033 |
| 167,581 |
Resort and club management revenue |
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| 27,165 |
| 25,744 |
| 78,169 |
| 75,257 |
Cost reimbursements |
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| 21,111 |
| 16,900 |
| 58,705 |
| 47,157 |
Resort title fees |
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| 4,289 |
| 3,491 |
| 10,092 |
| 9,355 |
Trade sales - wholesale |
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| 18,664 |
| 17,672 |
| 59,024 |
| 56,024 |
Trade sales - retail |
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| 28,996 |
| 26,131 |
| 79,681 |
| 70,090 |
Sales of real estate inventory |
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| 370 |
| 7,478 |
| 5,030 |
| 17,138 |
Other |
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| 5,527 |
| 3,491 |
| 13,294 |
| 9,138 |
Revenue from customers |
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| 232,918 |
| 233,246 |
| 651,379 |
| 647,152 |
Interest income |
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| 21,797 |
| 21,157 |
| 64,730 |
| 63,738 |
Net gains on sales of real estate assets |
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| 399 |
| - |
| 11,395 |
| 4,802 |
Total revenues |
| $ | 255,114 |
| 254,403 |
| 727,504 |
| 715,692 |
18
10. Income Taxes
BBX Capital and its subsidiaries file a consolidated U.S. federal income tax return and income tax returns in various state and foreign jurisdictions.
On December 22, 2017, the Tax Reform Act was signed into law. In addition to changes or limitations to certain tax deductions, including limitations on the deductibility of interest payable to related and unrelated lenders and further limiting deductible executive compensation, the Tax Reform Act permanently lowers the federal corporate tax rate to 21% from the previous maximum rate of 35%, effective for tax years commencing January 1, 2018. As a result of the Tax Reform Act, SAB 118 and ASU 2018-05 were issued to address the application of ASC 740 in situations in which
25
an entity does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. Under this guidance, an entity may record provisional amounts for the impact of the Tax Reform Act which may be revised during a one year “measurement period.” In accordance with this guidance, the Company remeasured its net deferred tax liabilities in the fourth quarter of 2017 due to the reduction of the corporate tax rate to 21% and recorded a provisional tax benefit of $45.3 million in its statement of operations for the year ended December 31, 2017. During the nine months ended September 30, 2018, the Company reduced the provisional tax benefit recognized for the year ended December 31, 2017 by $2.8 million as a result of its analysis of the impact of the Tax Reform Act on the deductibility of certain compensation to covered employees. The Company continues to analyze the impact of the Tax Reform Act, which may differ, possibly materially, from the provisional amounts recorded by the Company due to, among other things, additional analysis, changes in interpretations and assumptions made by the Company, and additional regulatory guidance that may be issued. Therefore, the Company may recognize additional revisions during the one year measurement period in accordance with the guidance in SAB 118 and ASU 2018-05 and expects to complete its analysis prior to the end of 2018.
The Company’s effective income tax rate was approximately 36% during the nine months ended September 30, 2018, excluding the discrete income tax expense of $2.8 million related to the provisional adjustment described above, as compared to 44% during the nine months ended September 30, 2017. The Company’s effective income tax rate for the nine months ended September 30, 2018, excluding the impact of the provisional adjustment described above, was favorably impacted by the reduction in the federal corporate tax rate from 35% to 21% commencing on January 1, 2018, partially offset by limitations in the deductibility of compensation to covered employees.
Effective income tax rates for interim periods are based upon the Company’s current estimated annual rate, which varies based upon the Company’s estimate of taxable earnings and the mix of taxable earnings in the various states in which the Company operates. The Company’s effective tax rate was applied to income before income taxes reduced by net income attributable to noncontrolling interests in joint ventures taxed as partnerships. In addition, the Company recognizes taxes related to unusual or infrequent items or resulting from a change in judgment regarding a position taken in a prior period as discrete items in the interim period in which the event occurs.
The Company’s effective income tax rate was approximately 38% and 37% during the three and nine months ended September 30, 2019, respectively, compared to an effective income tax rate of 44% and 36% for the three and nine months ended September 30, 2018, respectively. The effective tax rate for the nine months ended September 30, 2019 excludes the tax benefit associated with the $39.1 million Bass Pro litigation settlement described in Note 11 below, which the Company accounted for as a discrete item at the statutory income tax rate of 26%. The effective income tax rate for the nine months ended September 30, 2018 excludes a discrete income tax expense of $2.8 million related to the recognition of a provisional adjustment associated with the December 2017 Tax Reform Act.
The Company’s effective income tax rates for the three and nine months ended September 30, 2019 and 2018 were higher than the expected federal income tax rate of 21% due to nondeductible executive compensation and state income taxes.
11. Commitments and Contingencies
Litigation Matters
In the ordinary course of business, BBX Capital and its subsidiaries are parties to lawsuits as plaintiff or defendant involving its operations and activities. Bluegreen is subject to claims or proceedings from time to time relating to the purchase, sale, marketing, or financing of VOIs orand other business activities. Additionally, from time to time in the ordinary course of business, the Company is involved in disputes with existing and former employees, vendors, taxing jurisdictions, and various other parties and Bluegreen also receives individual consumer complaints as well asand complaints, received through regulatoryinquiries, and orders requiring compliance from governmental and consumer agencies, including Offices of State Attorneys General. The Company takes these matters seriously and attempts to resolve any such issues as they arise.
Reserves are accrued for matters in which management believes it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. Management does not believe that the aggregate liability relating to known contingencies in excess of the aggregate amounts accrued will have a material impact on the Company’s results of operations or financial condition. However, litigation is inherently uncertain, and the actual costs of resolving legal claims, including awards of damages, may be substantially higher than the amounts accrued for these claims and may have a material adverse impact on the Company’s results of operations or financial condition.
Adverse judgementsjudgments and the costs of defending or resolving legal claims may be substantial and may have a material adverse impact on the Company’s financial statements. Management is not at this time able to estimate a range of reasonably possible losses with respect to matters in which it is reasonably possible that a loss will occur. In certain matters, management is unable to estimate the loss or reasonable range of loss until additional developments provide information sufficient to support an assessment of the loss or reasonable range of loss. Frequently in these matters, the claims are broad, and the plaintiffs have not quantified or factually supported their claim.
The following is a description of certain litigation matters:
BBX Capital Litigation
Securities and Exchange Commission ComplaintThere were no material pending legal proceedings against BBX Capital or its subsidiaries other than proceedings against Bluegreen as of September 30, 2019.
In 2012, the SEC brought an action in the United States District Court for the Southern District of Florida against BCC and Alan B. Levan, BCC’s Chairman and Chief Executive Officer. Following an initial trial in 2014 and the reversal on appeal of certain judgments of the district court by the Eleventh Circuit Court of Appeals, a second trial
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was held in 2017,Bluegreen / Bass Pro Litigation and on May 8, 2017, the jury rendered a verdict in favor of BCC and Mr. Levan and against the SEC on all counts.Settlement
In connectionBluegreen, indirectly through Bluegreen Vacations Unlimited (“BVU”), its wholly-owned subsidiary, has an exclusive marketing agreement with Bass Pro, a nationally-recognized retailer of fishing, marine, hunting, camping and sports gear, that provides Bluegreen with the Eleventh Circuit Courtright to market and sell vacation packages at kiosks in each of Appeals’ reversalBass Pro’s retail locations and through other means. As previously disclosed, in March 2019, Bluegreen received a notice from Bass Pro stating that Bass Pro intended to cancel Bluegreen’s access to the Bass Pro marketing channels and advertising materials as of 30 days from the date of the notice unless Bluegreen cured the alleged breaches to Bass Pro’s satisfaction. While Bluegreen responded to Bass Pro with respect to each of the issues raised prior to the expiration of the cure period, on April 17, 2019, Bass Pro and its affiliates brought an action against BVU alleging that BVU failed to pay certain judgmentscommissions due it under the parties’ marketing agreement, improperly charged a tour generation fee, and that its conduct in the first trial,Bass Pro retail stores breached its contractual commitments. On May 24, 2019, Bluegreen received notice from Bass Pro and its affiliates that it was terminating the marketing agreement based on the failure to cure the alleged breaches, and Bluegreen was removed from all Bass Pro retail stores. BVU subsequently filed a counter claim against Bass Pro and Big Cedar LLC.
On June 13, 2019, Bluegreen entered into a settlement agreement which became final on January 31, 2017,resolved the litigation and reinstated and amended the resolutionmarketing agreement. Pursuant to the terms of the mattersettlement agreement, Bass Pro agreed to reinstate BVU’s access to Bass Pro’s marketing channels, including Bass Pro and Cabela’s retail stores. Additionally, with no admission of any wrongdoing, Bluegreen paid Bass Pro $20.0 million within 15 days after the execution of the settlement agreement; Bluegreen agreed to pay Bass Pro $4.0 million on each January 1 from 2020 through 2024; and Bluegreen agreed that Bass Pro would retain $1.5 million of an amount prepaid to them earlier in favor2019 under the marketing agreement. Additionally, in lieu of BCCthe previous commission arrangement, Bluegreen agreed to pay Bass Pro a fixed annual fee of $70,000 for each Bass Pro and Mr. LevanCabela’s retail store that BVU accesses (excluding retail stores which are designated to provide tours to Bluegreen/Big Cedar Vacations, or “Bluegreen/Big Cedar Feeder Stores”) plus $32 per net vacation package sold (less cancellations and refunds within 45 days of sale), excluding sales at Bluegreen/Big Cedar Feeder Stores. Bluegreen also agreed to contribute to the Wonders of Wildlife Foundation $5.00 per net package sold (less cancellations and refunds within 45 days of sale), subject to an annual minimum of $700,000. The fixed annual fee was prorated for 2019. Subject to the terms and conditions of the settlement agreement, Bluegreen will generally be required to pay the fixed annual fee with respect to at least 59 Bass Pro retail stores and a minimum number of Cabela’s retail stores that increases over time to a total of at least 60 Cabela’s retail stores by the end of 2021. Notwithstanding the foregoing, the minimum number of Bass Pro and Cabela’s retail stores for purposes of the fixed annual fee may be reduced under certain circumstances set forth in the second trial, BBX Capital received legalparties’ agreement, including as a result of a reduction of traffic in the stores in excess of 25% year-over-year. The parties also executed mutual waivers and releases and agreed to the dismissal of the litigation. Bluegreen accrued for the net present value of the above payments required by the settlement agreement, plus attorneys’ fees and costs, reimbursements from its insurance carriertotaling approximately $39.1 million, which is reflected in selling, general, and administrative expenses in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 20172019. As of approximately $7.1September 30, 2019, $17.6 million as well aswas accrued for the release of a $4.6 million penalty assessed against BCCremaining payments required by the settlement agreement, which are reflected in the first trial. The legal fees and costs reimbursements and the release of the penalty are reflectedother liabilities in the Company’s condensed consolidated statement of operationsfinancial condition.
As of September 30, 2019, Bluegreen sold vacation packages in “Reimbursements68 of litigation costsBass Pro retail stores and penalty” for7 Cabela’s retail stores. During the nine months ended September 30, 2017.2019 and 2018, VOI sales to prospects and leads generated by the agreement with Bass Pro accounted for approximately 13% and 14%, respectively, of Bluegreen’s VOI sales volume.
In Re BCC Merger Shareholder Litigation
On August 10, 2016, Shiva Stein filed a lawsuit against the Company, BBX Merger Sub, LLC, BCC, and the members of BCC’s board of directors, which seeks to establish a class of BCC’s shareholders and challenges the Merger. The plaintiff asserts that the Merger consideration undervalues BCC and is unfair to BCC’s public shareholders, that the sales process was unfair and that BCC’s directors breached their fiduciary duties of care, loyalty and candor owed to the public shareholders of BCC because, among other reasons, they failed to take steps to maximize the value of BCC to its public shareholders and instead diverted consideration to themselves. The lawsuit also alleges that BBX Capital, as the controlling shareholder of BCC, breached its fiduciary duties of care, loyalty and candor owed to the public shareholders of BCC by utilizing confidential, non-public information to formulate the Merger consideration and not acting in the best interests of BCC’s public shareholders. In addition, the lawsuit includes a cause of action against BCC, the Company, and Merger Sub for aiding and abetting the alleged breaches of fiduciary duties. The lawsuit requested that the court grant an injunction blocking the proposed Merger or, if the proposed Merger is completed, rescind the transaction or award damages as determined by the court. On September 15, 2016, Defendants filed a Motion to Dismiss the amended complaint. On November 21, 2016, the Court issued an order granting the Motion to Dismiss with prejudice. Plaintiff appealed the Court’s order dismissing the amended complaint to the Fourth District Court of Appeals, and on March 21, 2018, the Fourth District Court of Appeals issued an opinion affirming the dismissal of the action. The time period for plaintiff to appeal the Fourth District Court of Appeals ruling has lapsed.
The following is a description of certain ongoing litigation matters:
Other Bluegreen Litigation
On August 24, 2016, Whitney Paxton and Jeff Reeser filed a lawsuit against Bluegreen Vacations Unlimited, Inc. (“BVU”), a wholly-owned subsidiary of Bluegreen, and certain of its employees, seeking to establish a class action of former and current employees of BVU and alleging violations of plaintiffs’ rights under the Fair Labor Standards Act of 1938 (the “FLSA”) and breach of contract. The lawsuit also claims that the defendants terminated plaintiff Whitney Paxton as retaliation for her complaints about alleged violations of the FLSA. The lawsuit seeks damages in the amount of the unpaid compensation owed to the plaintiffs. During July 2017, a magistrate judge entered a report and recommendation that the plaintiffs’ motion to conditionally certify collective action and facilitate notice to potential class members be granted with respect to certain employees and denied as to others. During September 2017, the judge accepted the recommendation and granted preliminary approval of class certification. Based on that conditional class certification, all potential class members were provided Consent Forms to opt-in to the lawsuit, which opt-in period has since expired, and a set number of opt-ins has been determined (approximately 80). Class-wide discovery was subsequently served and plaintiffs filed a Motion for Protective Order which is pending. Bluegreen intends to seek to compel 59 of the currently named opt-in plaintiffs to submit their respective claims to arbitration on an individual basis. Bluegreen believes that the lawsuit is without merit and intends to vigorously defend the action.
On September 22, 2017, Stephen Potje, Tamela Potje, Sharon Davis, Beafus Davis, Matthew Baldwin, Tammy Baldwin, Arnor Lee, Angela Lee, Gretchen Brown, Paul Brown, Jeremy Estrada, Emily Estrada, Michael Oliver, Carrie Oliver, Russell Walters, Elaine Walters, and Mike Ericson, individually and on behalf of all other similarly situated, filed a purported class action lawsuit against Bluegreen which asserted claims for alleged violations of the Florida Deceptive and Unfair Trade Practices Act and the Florida False Advertising Law. In the complaint, the plaintiffs alleged the making of false representations in connection with Bluegreen’s sales of VOIs, including representations regardingVOIs. The purported class action lawsuit was dismissed without prejudice after mediation. However, on or about April 24, 2018, plaintiffs re-filed their individual claims in Palm Beach County Circuit Court. Subsequently, on October 15, 2019, the ability to use points for stays or other experiences with other vacation providers,Court entered an order granting summary judgment in favor of Bluegreen and dismissed all claims.
On February 28, 2018, Oscar Hernandez and Estella Michael filed a purported class action litigation in San Bernardino Superior Court against BVU. The central claims in the ability to cancel VOI purchases and receive a refund of the purchase price and the ability to roll over unused points and that annual maintenance fees would not increase. The complaint, sought to establish a class of consumers who, since the beginning of the applicable statute of limitations, purchased VOIs from Bluegreen, had their annual maintenance fees relating to Bluegreen VOIs increased, or were unable to roll over their unused points to the nextas amended during June 2018, include alleged
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calendar year. The plaintiffs sought damages in the amount allegedfailures to have been improperly obtained by Bluegreen,pay overtime and wages at termination and to provide meal and rest periods, as well as any statutory enhanced damages, attorneys’ fees and costs, and equitable and injunctive relief. On November 20, 2017, Bluegreen moved to dismiss the complaint and, in response, the plaintiffs filed an amended complaint dropping the claims relating to non-compliant wage statements and unreimbursed business expenses; and a claim under the Florida Deceptive and Unfair Trade Practices Act and adding claims for fraudPrivate Attorney’s General Act. Plaintiffs sought to represent a class of approximately 660 hourly, non-exempt employees who worked in the inducementstate of California since March 1, 2014. In April 2019, the parties mediated and violation ofagreed to settle the Florida Vacation Plan and Timesharing Act. On March 20, 2018, the plaintiffs withdrew their motionmatter for class action certification and on March 23, 2018,an immaterial amount. It is expected that the court orderedwill approve the settlement and the dismissal of the suit. On April 24, 2018,lawsuit after the plaintiffs filed a new lawsuit against BVU, for substantially the same claims, but only on behalf of the 18 named individuals and not as a class action. Bluegreen believes that the lawsuit is without merit and intends to vigorously defend the action.
On January 4, 2018, Gordon Siu, individually and on behalf of all others similarly situated, filed a lawsuit against BVU and others, Choice Hotels International, Inc. which asserted claims for alleged violations of California law that relates to the recording of telephone conversations with consumers. Plaintiff alleges that after staying at a Choice Hotels resort, defendants placed a telemarketing call to plaintiff to sell the Choice Hotels customer loyalty program and a vacation package at a Choice hotel via the Bluegreen Getaways vacation package program. Plaintiff alleges that he was not timely informed that the phone conversation was being recorded and is seeking certification of a class comprised of other persons recorded on calls without their consent within one year before the filing of the original complaint. After BVU moved to dismiss the complaint, plaintiff amended his complaint to dismiss one of the two causes of action in the original complaint on the basis that that particular statute only concerns land line phones. Plaintiff and Choice agreed to a confidential settlement and Choice has been dismissed from this lawsuit. Plaintiff seeks money damages and injunctive relief. Bluegreen believes the lawsuit is without merit and intends to vigorously defend the action.
On May 3, 2018, Katja Anderson and George Galloway, individually and on behalf of all other persons similarly situated, filed a lawsuit against Bluegreen which asserted violations of the Telephone Consumer Practices Act. The plaintiffs claimed that they received multiple telemarketing calls in the spring of 2015 despite their requests not to be called. Plaintiffs sought certification of a class of individuals in the United States who received more than one telephone call made by Bluegreen or on its behalf within a 12-month period; to a telephone number that was registered with the National Do Not Call Registry for at least 30 days. Plaintiffs sought money damages, attorneys’ fees and a court order requiring Bluegreen to cease all unsolicited telephone calling activities. Bluegreen moved to dismiss the lawsuit and, on August 13, 2018, this case was dismissed without prejudice.documents are executed.
On June 28, 2018, Melissa S. Landon, Edward P. Landon, Shane Auxier and Mu Hpare, individually and on behalf of all others similarly situated, filed a purported class action lawsuit against Bluegreenthe Company and BVU asserting claims for alleged violations of the Wisconsin Timeshare Act, Wisconsin law prohibiting illegal referral selling, and Wisconsin law prohibiting illegal attorney’s fee provisions. Plaintiffs allegations include that Bluegreen failed to disclose the identity of the seller of real property at the beginning of itsBluegreen’s initial contact with the purchaser; that Bluegreen misrepresented who the seller of the real property was; that Bluegreen misrepresented the buyer’s right to cancel; that Bluegreen included an illegal attorney’s fee provision in the sales document(s); that Bluegreen offered an illegal “today only” incentive to purchase; and that Bluegreen utilizes an illegal referral selling program to induce the sale of VOIs. Plaintiffs seek certification of a class consisting of all persons who, in Wisconsin, purchased from Bluegreen one or more VOIs within six years prior to the filing of this lawsuit. Plaintiffs seek statutory damages, attorneys’ fees and injunctive relief. Bluegreen believes the lawsuit is without merit and intendintends to vigorously defend the action.
On January 7, 2019, Shehan Wijesinha filed a purported class action lawsuit alleging violations of the Telephone Consumer Protection Act (the “TCPA”). It is alleged that BVU called plaintiff’s cell phone for telemarketing purposes using an automated dialing system and that plaintiff did not give BVU his express written consent to do so. Plaintiffs seek certification of a class comprised of other persons in the United States who, within the four years prior to the filing of the complaint, received similar calls from or on behalf of BVU without the person’s consent. Plaintiff seeks monetary damages, attorneys’ fees, and injunctive relief. Bluegreen believes the lawsuit is without merit and intends to vigorously defend the action. On July 15, 2019, the court entered an order staying this case pending a ruling from the Federal Communications Commission clarifying the definition of an automatic telephone dialing system under the TCPA and the decision of the Eleventh Circuit in a separate action brought against a VOI company by a plaintiff alleging violations of the TCPA.
On January 7, 2019, Debbie Adair and thirty-four other timeshare purchasers filed a lawsuit against BVU and Bass Pro alleging violations of the Tennessee Consumer Protection Act, the Tennessee Time-share Act, the California Time-Share Act, fraudulent misrepresentation for failure to make certain required disclosures, fraudulent inducement for inducing purchasers to remain under contract past rescission, unauthorized practice of law, civil conspiracy, unjust enrichment, and breach of contract. Plaintiffs seek rescission of their contracts, monetary damages, including statutory treble damages, or in the alternative, punitive damages in an amount not less than $0.5 million. Bluegreen believes the lawsuit is without merit and intends to vigorously defend the action. Bluegreen has agreed to indemnify Bass Pro with respect to the claims brought against it in this proceeding.
On March 15, 2018, BVU entered into an Agreement for Purchase and Sale of Assets with T. Park Central, LLC, O. Park Central, LLC, and New York Urban Ownership Management, LLC (collectively “New York Urban”) (the “Purchase and Sale Agreement”), which provides for the purchase of The Manhattan Club inventory over a number of years and the assumption of the management contract with The Manhattan Club HOAanticipated to occur in 2021. On October 7, 2019, New York Urban initiated arbitration proceedings against BVU alleging that The Manhattan Club HOA (of which BVU is a member) is obligated to pay an increased management fee to a New York Urban affiliate and that this higher amount would be the benchmark for BVU’s purchase of the management contract under the parties’ Purchase and Sale Agreement. New York Urban is also seeking damages in the arbitration proceedings in excess of $10.0 million for promissory estoppel and tortious interference. BVU has denied New York Urban’s claims and has declared New York Urban in default under the Purchase and Sale Agreement for, among other things, initiating arbitration in violation of the Purchase and Sale Agreement. BVU has informed New York Urban that it would not proceed with its inventory purchases until New York Urban’s defaults are cured. The Purchase and Sale Agreement provides that, in the event of a breach, the nonbreaching party may either waive the breach or terminate the Purchase and Sale Agreement as its sole and exclusive remedy.
Commencing in 2015, it came to Bluegreen’s attention that its collection efforts with respect to its VOI notes receivable were being impacted by a then emerging, industry-wide trend involving the receipt of “cease and desist” letters from attorneysexit firms and timeshare exit companiesattorneys purporting to represent certain VOI owners. Following receipt of these letters, Bluegreen is unable to contact the owners unless allowed by law. Bluegreen believes these attorneys and timeshare exit companiesfirms have encouraged such owners to become delinquent and ultimately default on their obligations and that such actions and Bluegreen’s inability to contact the owners are a primary contributor to the increase in its annual default rates. Bluegreen’s average annual
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default rates have increased from 6.9% in 2015 to 8.4%8.6% in 2018.2019. Bluegreen also estimates that approximately 16.8%15.0% of the total delinquencies on its VOI notes receivable as of September 30, 20182019 related to VOI notes receivable subject to these letters.this issue. Bluegreen has in a number of cases pursued, and may in the future pursue, legal action against the VOI owners, and as described below, against the exit firms.
On December 21, 2018, Bluegreen filed a lawsuit against timeshare exit firm Totten Franqui and certain of its affiliates (“TPEs”). In the complaint, Bluegreen alleged that the TPEs, through various forms of deceptive advertising, as well as inappropriate direct contact with VOI owners, made false statements about Bluegreen and provided misleading information to the VOI owners. The TPEs have encouraged nonpayment by consumers and exacted fees for doing so. Bluegreen believes the consumers are paying fees to the TPEs in exchange for illusory services and has asserted claims against the TPEs under the Lanham Act, as well as tortious interference with contractual relations, civil conspiracy to commit tortious interference, and other claims. During the course of the litigation, the TPEs and Totten Franqui filed for bankruptcy, which resulted in the litigation being stayed. The bankruptcy judge has appointed an independent trustee to handle the estate of the debtors, and Bluegreen has been in discussions with the bankruptcy trustee about a possible settlement. Bluegreen intends to assert all of its legal rights in the bankruptcy case.
The following is a description of certain commitments, contingencies, and guarantees:
In lieu of paying maintenance fees for unsold VOI inventory, Bluegreen provides subsidies tomay enter into subsidy agreements with certain HOAs to provide funds to operate and maintain vacation ownership properties in excess of assessments collected from owners of the VOIs.HOAs. During the nine months ended September 30, 20182019 and 2017,2018, Bluegreen made payments related to such
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subsidies of $2.2$10.5 million and $1.7$2.2 million, respectively. As of September 30, 2018,2019, Bluegreen was providing subsidies to ten HOAs and had $6.2accrued $8.0 million accrued for such subsidies, which is included in other liabilities in the Company’s condensed consolidated statement of financial condition. As of December 31, 2017,2018, Bluegreen had no accrued liabilities for such subsidies.
In August 2016, BBX Capital entered into a severance arrangement with a former executive pursuant to which the executive is entitled to receive $3.7 million in cash payments over a three-year period ending in August 2019. As of September 30, 2018, the Company had a $0.9 million liability remaining under this arrangement, which is included in other liabilities in the Company’s condensed consolidated statement of financial condition.
In September 2017, Bluegreen entered into an agreement with a former executive in connection with his retirement. Pursuant to the terms of the agreement, Bluegreen agreed to make payments totaling approximately $2.9 million through March 2019. As of September 30, 2018, $1.2 million remained payable under this arrangement. Also, during the second half of 2017, Bluegreen commenced an initiative designed to streamline its operations in certain areas to facilitate future growth. Such initiative resulted in $5.8 million of severance accrued as of December 31, 2017 and $0.4 million accrued as of September 30, 2018. Such outstanding amounts are included in other liabilities in the Company’s condensed consolidated statements of financial condition.
In March 2018, Bluegreen’s compensation committee approved in principle the material terms of an Executive Leadership Incentive Plan (the “ELIP”), which provides for the grant of cash-settled performance units (“Performance Units”) and cash-settled stock appreciation rights (“SARs”) to participants in the ELIP. It is contemplated that each participant will be granted award opportunities representing a percentage of his or her base salary (the “Target LTI”). In the case of certain of Bluegreen’s executive officers, the award will be divided 30% to SARs and 70% to Performance Units. For other participants, including certain Bluegreen senior vice presidents, certain vice presidents and certain other employees, the award will be 100% in Performance Units. Performance Units will represent the right of the recipient to receive a cash payment based on the achievement of levels of EBITDA and return on invested capital (“ROIC”) during a two-year period. SARs granted under the ELIP, upon exercise after vesting, will entitle the holder to a cash payment in an amount equal to the excess of the market price of Bluegreen’s common stock on the date of exercise over the exercise price of the SAR. The SARs will vest in equal annual installments on the first, second and third anniversary of the date of grant and have a five-year term. In March 2018, Bluegreen’s compensation committee approved grants of 639,643 SARs at an exercise price of $19.72 per share to certain of Bluegreen’s officers, as well as Performance Units to receive up to approximately $7.4 million in 2020, depending on actual results from the two years ending December 31, 2019. As of September 30, 2018, Bluegreen had $3.7 million accrued for the ELIP, which is included in other liabilities in the Company’s condensed consolidated statement of financial condition.
Bluegreen has an exclusive marketing agreement with Bass Pro, a nationally-recognized retailer of fishing, marine, hunting, camping and sports gear, that provides Bluegreen with the right to market and sell vacation packages at kiosks in each of Bass Pro’s retail locations and through certain other means. As of September 30, 2018, Bluegreen was selling vacation packages in 69 of Bass Pro’s stores. Bluegreen compensates Bass Pro based on VOI sales generated through the program. No compensation is paid to Bass Pro under the agreement on sales made at Bluegreen/Big Cedar Vacations’ resorts. During the nine months ended September 30, 2018 and 2017, VOI sales to prospects and leads generated by the agreement with Bass Pro accounted for approximately 14% and 15%, respectively, of Bluegreen’s VOI sales volume. On October 9, 2017, Bass Pro advised Bluegreen that it believed the amounts paid to it as VOI sales commissions should not have been adjusted for certain purchaser defaults. Bluegreen previously had informed Bass Pro that the aggregate amount of such adjustments for defaults charged back to Bass Pro between January 2008 and June 2017 totaled approximately $4.8 million. While Bluegreen believed and continues to believe that these adjustments were appropriate and consistent with both the terms and the intent of the agreements with Bass Pro, in October 2017, in order to demonstrate its good faith, Bluegreen paid the amount at issue to Bass Pro pending future resolution of the matter. Bluegreen has continued to make payments to Bass Pro as it believes appropriate and consistent with the agreements, which continue to be adjusted for defaults, and Bass Pro has accepted these payments as historically calculated. Subsequently and again more recently, Bass Pro has raised issues regarding adjustments for defaults and requested additional information regarding the calculation of commissions payable to Bass Pro and other amounts payable under the agreements, including reimbursements paid to Bluegreen, as well as regarding the operations at Bluegreen/Big Cedar Vacations. Bluegreen does not believe that the issues raised by Bass Pro have impacted current operations under the marketing agreement or relative to Bluegreen/Big Cedar Vacations. Bluegreen has formally responded to Bass Pro with its view on these matters and intends to provide Bass Pro with all appropriately requested information. Bluegreen’s agreements with Bass Pro provide that in the event of any dispute the CEOs of the companies will meet to work toward a resolution of the issues or disagreements between the parties. Accordingly, it is anticipated that such process will be followed in good faith and that the parties will appropriately resolve any issues. While Bluegreen does not believe that any material additional amounts are due to Bass Pro as a
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result of these matters, the Company’s future results may be impacted by any change in the calculations utilized in connection with payments or reimbursements required under the agreements or if Bluegreen is unable to resolve the issue.
The Company guarantees certain obligations of its wholly-owned subsidiaries and unconsolidated real estate joint ventures, as follows:including the following:
· | BBX Capital is a guarantor of 50% of the outstanding balance of a third party loan to the Sunrise and Bayview Partners, LLC real estate joint venture, which had an outstanding balance of $5.0 million as of September 30, |
· | BBX Capital is a guarantor |
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12. Common Stock and Redeemable 5% Cumulative Preferred StockLeases
Cash Tender OfferBBX Capital and its subsidiaries are lessees under various operating leases for retail stores, sales offices, call centers, office space, equipment, and vehicles. Many of the Company’s lease agreements include one or more options to renew, with renewal terms that can extend the lease term from one to seven years, and the exercise of such renewal options is generally at the Company’s discretion. Certain of the Company’s lease agreements include rental payments based on a percentage of sales generated at the leased location over contractually specified levels, and others include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain material residual value guarantees or material restrictive covenants.
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The Company recognizes right-of-use assets and lease liabilities associated with lease agreements with an initial term of greater than 12 months, while lease agreements with an initial term of 12 months or less are not recorded in the Company’s statement of financial condition. The Company generally does not include lease payments associated with renewal options that are exercisable at its discretion in the measurement of its right-of-use assets and lease liabilities as it is not reasonably certain that such options will be exercised. The table below sets forth information regarding the Company’s lease agreements which had an initial term of greater than 12 months (dollars in thousands):
As of | |||
September 30, 2019 | |||
Operating lease assets | $ | 110,435 | |
Operating lease liabilities | $ | 124,129 | |
Weighted average remaining lease term (years) | 6.5 | ||
Weighted average discount rate (1) | 5.33 | % |
(1) | As most of the Company’s lease agreements do not provide an implicit rate, the Company estimates incremental secured borrowing rates corresponding to the maturities of its lease agreements to determine the present value of future lease payments. To estimate incremental borrowing rates applicable to BBX Capital and its subsidiaries, the Company considers various factors, including the rates applicable to its recently issued debt and credit facilities and prevailing financial market conditions. The Company used the incremental borrowing rates applicable to BBX Capital and its subsidiaries on January 1, 2019 for operating leases that commenced prior to that date. |
The Company generally recognizes lease costs associated with its operating leases on a straight-line basis over the lease term, while variable lease payments that do not depend on an index or rate are recognized as variable lease costs in the period in which the obligation for those payments is incurred. The table below sets forth information regarding the Company’s lease costs which are included in cost of trade sales and selling, general, and administrative expenses in the Company’s condensed consolidated statements of operations (in thousands):
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| September 30, 2019 |
Fixed lease costs | $ | 7,300 |
| 21,677 |
Short-term lease costs |
| 1,377 |
| 3,718 |
Variable lease costs |
| 2,237 |
| 6,717 |
Total operating lease costs | $ | 10,914 |
| 32,112 |
The table below sets forth information regarding the maturity of the Company’s operating lease liabilities as of September 30, 2019 (in thousands):
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Period Ending December 31, |
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2019 | $ | 6,735 |
2020 |
| 25,671 |
2021 |
| 24,484 |
2022 |
| 22,343 |
2023 |
| 19,145 |
After 2023 |
| 56,736 |
Total lease payments |
| 155,114 |
Less: interest |
| 30,985 |
Present value of lease liabilities | $ | 124,129 |
The above operating lease payments exclude $9.9 million of legally binding minimum lease payments for lease agreements executed but not yet commenced, as the Company has not received possession of the leased property. Included in the Company’s statement of cash flows under operating activities for the nine months ended September 30, 2019 was $20.8 million of cash paid for amounts included in the measurement of lease liabilities. During the nine months ended September 30, 2019, the Company obtained $21.7 million of right-of-use assets in exchange for operating lease liabilities.
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13. Common Stock
Share Repurchase Program
In April 2018,June 2017, BBX Capital completedCapital’s board of directors approved a cash tender offer pursuantshare repurchase program authorizing the purchase of up to which it purchased and retired 6,486,486 shares of its Class A Common Stock at a purchase price of $9.25 per share for an aggregate purchase price of approximately $60.1 million, inclusive of acquisition costs. As of April 19, 2018, the shares purchased in the tender offer represented approximately 7.6% of the total number of outstanding5,000,000 shares of BBX Capital’s Class A Common Stock and 6.3%Class B Common Stock at an aggregate cost of up to $35.0 million. During the three and nine months ended September 30, 2019, BBX Capital purchased 1,398,361 and 1,799,539 shares of its Class A Common Stock, respectively, for approximately $7.0 million and $8.9 million, respectively. As of September 30, 2019, BBX Capital had purchased 3,321,132 shares of its Class A Common Stock for approximately $18.9 million pursuant to the June 2017 share repurchase program.
Stock Incentive Plans
On January 8, 2019, BBX Capital’s total issued and outstanding equity (which includescompensation committee of the issued and outstandingboard of directors granted awards of 1,923,975 restricted shares of BBX Capital’s Class B Common Stock). Stock to its executive officers under the BBX Capital Corporation 2014 Incentive Plan. The aggregate grant date fair value of the awards was $11.8 million, and the shares vest ratably in annual installments of approximately 481,000 shares over four periods beginning on October 1, 2019.
Redeemable 5% Cumulative Preferred Stock
As of December 31, 2017, the Company had outstanding 15,000 shares of 5% Cumulative Preferred Stock with a stated value of $1,000 per share. During December 2013, the Company made a $5.0 million loan to the holders of the 5% Cumulative Preferred Stock. The loan was secured by 5,000 shares of the 5% Cumulative Preferred Stock, had a term of five years, accrued interest at a rate of 5% per annum, and provided for payments of interest on a quarterly basis during the term of the loan, with all outstanding amounts being due and payable at maturity in December 2018.
On March 31, 2018, the Company redeemed 5,000 shares of the 5% Cumulative Preferred Stock in exchange for the cancellation of the $5.0 million loan to the holders of the 5% Cumulative Preferred Stock.
As of September 30, 2018, the Company had outstanding 10,000 shares of 5% Cumulative Preferred Stock.
Restricted Stock
On September 30, 2018, 534,696In October 2019, 566,322 shares of restricted Class A common stock awards and 773,2021,901,793 shares of restricted Class B common stock awards previously granted to certain of the Company’s officers vested. The officers surrendered a total of 374,895222,848 shares of Class A common stock and 137,064 shares of Class B common stock to the
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Company to satisfy the $3.8 million tax withholding obligation associated with the vesting of these awards on September 30, 2018. The Company retired the surrendered shares.
The following is a summary of the Company’s restricted Class A and Class B common stock activity for the nine months ended September 30, 2018:
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| Grant Date |
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| Fair Value |
Unvested balance outstanding, beginning of period | 4,994,515 | $ | 3.39 |
Granted | 1,487,051 |
| 8.70 |
Vested | (1,307,898) |
| 3.36 |
Forfeited | - |
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Unvested balance outstanding, end of period | 5,173,668 | $ | 4.92 |
The fair value of shares of the Company’s restricted stock awards which vested in September 2018 and 2017 was $9.6 million during each period. The Company recognized restricted stock compensation expense of approximately $10.7 million and $10.1 million during the nine months ended September 30, 2018 and 2017, respectively.
Between October 1, 2018 and October 5, 2018, 566,322 shares of restricted Class A common stock awards and 1,420,800 shares of restricted Class B common stock awards previously granted to certain of the Company’s officers vested. The officers surrendered a total of 414,834 shares of Class A common stock and 368,084748,357 shares of Class B common stock to the Company to satisfy the $5.7$4.5 million tax withholding obligation associated with the vesting of these shares.awards. The Company retired the surrendered shares.
Earnings per Share
During the three and nine months ended September 30, 2019, approximately 3,039,265 shares of unvested restricted stock awards were not included in Octoberthe computation of diluted earnings per share for such periods because such awards were assumed to be fully repurchased under the treasury stock method based on the unrecognized compensation cost associated with such awards. During the three and nine months ended September 30, 2018,. there were no unvested restricted stock awards that were excluded from the computation of diluted earnings per share for such periods.
1314. Noncontrolling Interests and Redeemable Noncontrolling Interest
Noncontrolling interests in the Company’s consolidated subsidiaries consisted of the following (in thousands):
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| September 30, |
| December 31, |
| September 30, |
| December 31, |
|
| 2018 |
| 2017 |
| 2019 |
| 2018 |
Bluegreen (1) | $ | 42,725 |
| 39,271 | $ | 40,159 |
| 41,478 |
Bluegreen / Big Cedar Vacations (2) |
| 47,630 |
| 43,021 |
| 54,706 |
| 45,611 |
Joint ventures and other |
| 851 |
| (238) |
| 892 |
| 899 |
Total noncontrolling interests | $ | 91,206 |
| 82,054 | $ | 95,757 |
| 87,988 |
The redeemable noncontrolling interest included in the Company’s condensed consolidated statements of financial condition as of September 30, 2019 and December 31, 2018 of $2.2 million and $2.6 million, respectively, is comprised of a redeemable noncontrolling interest associated with IT’SUGAR. The Company owns 90.4% of IT’SUGAR’s Class B Units, while the remaining 9.6% of such units are held by a noncontrolling interest and may be redeemed for cash at the holder’s option upon a contingent event outside of the Company’s control.
3124
Income (loss) attributable to noncontrolling interests, including redeemable noncontrolling interests, consisted of the following (in thousands):
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| For the Three |
| For the Nine |
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| Months Ended |
| Months Ended |
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
Bluegreen (1) | $ | 2,048 |
| - |
| 6,817 |
| - | $ | 1,962 |
| 2,048 |
| 2,346 |
| 6,817 |
Bluegreen / Big Cedar Vacations (2) |
| 3,585 |
| 3,252 |
| 9,509 |
| 9,418 |
| 2,248 |
| 3,585 |
| 9,095 |
| 9,509 |
Joint ventures and other |
| 173 |
| 146 |
| (2) |
| 70 |
| (98) |
| 173 |
| (166) |
| (2) |
Net income attributable to noncontrolling interests | $ | 5,806 |
| 3,398 |
| 16,324 |
| 9,488 | $ | 4,112 |
| 5,806 |
| 11,275 |
| 16,324 |
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(1) |
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(2) | Bluegreen has a joint venture arrangement pursuant to which it owns 51% of Bluegreen/Big Cedar |
14.
15. Fair Value Measurement
Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting literature definesAccounting standards define an input fair value hierarchy that has three broad levels and gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The input fair value hierarchy is summarized below:
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Level 1: | Unadjusted quoted prices in active markets for identical assets or liabilities |
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Level 2: | Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability |
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Level 3: | Unobservable inputs for the asset or liability |
3225
Financial Disclosures about Fair Value of Financial Instruments
The following tables presentbelow set forth information forregarding the Company’s consolidated financial instruments at September 30, 2018 and December 31, 2017 (in thousands):
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| Fair Value Measurements Using |
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| Fair Value Measurements Using | ||||
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| Quoted prices |
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| Quoted prices |
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| Carrying |
|
| in Active | Significant |
|
| Carrying |
|
| in Active | Significant |
|
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| Amount |
| Fair Value | Markets | Other | Significant |
| Amount |
| Fair Value | Markets | Other | Significant |
|
| As of |
| As of | for Identical | Observable | Unobservable |
| As of |
| As of | for Identical | Observable | Unobservable |
|
| September 30, |
| September 30, | Assets | Inputs | Inputs |
| September 30, |
| September 30, | Assets | Inputs | Inputs |
|
| 2018 |
| 2018 | (Level 1) | (Level 2) | (Level 3) |
| 2019 |
| 2019 | (Level 1) | (Level 2) | (Level 3) |
Financial assets: |
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Cash and cash equivalents | $ | 369,512 |
| 369,512 | 369,512 | - | - | $ | 368,818 |
| 368,818 | 368,818 | - | - |
Restricted cash |
| 55,710 |
| 55,710 | 55,710 | - | - |
| 48,597 |
| 48,597 | 48,597 | - | - |
Loans receivable (1) |
| 6,292 |
| 7,437 | - | 7,437 | ||||||||
Notes receivable, net |
| 439,484 |
| 542,000 | - | 542,000 |
| 445,706 |
| 587,000 | - | 587,000 | ||
Financial liabilities: |
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| ||
Receivable-backed notes payable | $ | 433,450 |
| 431,964 | - | 431,964 | $ | 436,760 |
| 456,600 | - | 456,600 | ||
Notes payable and other borrowings |
| 197,177 |
| 201,460 | - | 201,460 |
| 161,420 |
| 169,366 | - | 169,366 | ||
Junior subordinated debentures |
| 136,231 |
| 142,000 | - | 142,000 |
| 137,038 |
| 149,500 | - | 149,500 | ||
Redeemable 5% cumulative preferred stock |
| 9,390 |
| 9,053 | - | 9,053 |
| 9,730 |
| 9,538 | - | 9,538 |
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| Fair Value Measurements Using |
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| Fair Value Measurements Using | ||||
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| Quoted prices |
|
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| Quoted prices |
|
|
|
| Carrying |
|
| in Active | Significant |
|
| Carrying |
|
| in Active | Significant |
|
|
| Amount |
| Fair Value | Markets | Other | Significant |
| Amount |
| Fair Value | Markets | Other | Significant |
|
| As of |
| As of | for Identical | Observable | Unobservable |
| As of |
| As of | for Identical | Observable | Unobservable |
|
| December 31, |
| December 31, | Assets | Inputs | Inputs |
| December 31, |
| December 31, | Assets | Inputs | Inputs |
|
| 2017 |
| 2017 | (Level 1) | (Level 2) | (Level 3) |
| 2018 |
| 2018 | (Level 1) | (Level 2) | (Level 3) |
Financial assets: |
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|
| |
Cash and cash equivalents | $ | 362,526 |
| 362,526 | 362,526 | - | - | $ | 366,305 |
| 366,305 | 366,305 | - | - |
Restricted cash |
| 46,721 |
| 46,721 | 46,721 | - | - |
| 54,792 |
| 54,792 | 54,792 | - | - |
Loans receivable (1) |
| 19,454 |
| 21,125 | - | - | 21,125 | |||||||
Notes receivable, net |
| 426,858 |
| 525,000 | - | - | 525,000 |
| 439,167 |
| 537,000 | - | 537,000 | |
Notes receivable from preferred |
|
|
|
|
|
|
| |||||||
shareholders (2) |
| 5,000 |
| 5,000 | - | - | 5,000 | |||||||
Financial liabilities: |
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|
|
|
|
|
|
|
| |
Receivable-backed notes payable | $ | 421,118 |
| 425,900 | - | - | 425,900 | $ | 458,931 |
| 462,400 | - | 462,400 | |
Notes payable and other borrowings |
| 144,114 |
| 149,438 | - | - | 149,438 |
| 200,887 |
| 203,547 | - | 203,547 | |
Junior subordinated debentures |
| 135,414 |
| 132,000 | - | - | 132,000 |
| 136,425 |
| 132,400 | - | 132,400 | |
Redeemable 5% cumulative preferred stock |
| 13,974 |
| 13,977 | - | - | 13,977 |
| 9,472 |
| 9,538 | - | 9,538 |
(1)Included in other assets in the Company’s condensed consolidated statements of financial condition as of September 30, 2018 and December 31, 2017.
(2)Included in other assets in the Company’s condensed consolidated statements of financial condition as of December 31, 2017.
Management has made estimates of fair value that it believes to be reasonable. However, because there is no active market for many of these financial instruments, the fair value of these financial instruments has been derived using the income approach technique with Level 3 unobservable inputs. Estimates used in net present value financial models rely on assumptions and judgments regarding issues where the outcome is unknown, and actual results or values may differ significantly from these estimates. These fair value estimates do not consider the tax effect that would be associated with the disposition of the assets or liabilities at their fair value estimates. As such, the estimated value upon sale or disposition of the asset may not be received, and the estimated value upon disposition of the liability in advance of its scheduled maturity may not be paid.
3326
The amounts reported in the consolidated statements of financial condition for cash and cash equivalents and restricted cash approximate fair value.
The fair value of the Company’s accruing loans is calculated using an income approach with Level 3 inputs by discounting forecasted cash flows using estimated market discount rates. The fair value of non-accruing collateral dependent loans is estimated using an income approach with Level 3 inputs utilizing the fair value of the collateral adjusted for operating and selling expenses and discounted over the estimated holding period based on the market risk inherent in the property.
The fair values of Bluegreen’s notes receivable and note receivable from preferred shareholders are estimated using Level 3 inputs and are based on estimated future cash flows considering contractual payments and estimates of prepayments and defaults, discounted at a market rate.
The fair value of the 5% Cumulative Preferred Stock, which is subject to mandatory redemption, is calculated using the income approach with Level 3 inputs by discounting the estimated cash flows at a market discount rate.
The amounts reported in the consolidated statements of financial condition relating to Bluegreen’s notes payable and other borrowings, as well as variable rate receivable-backed notes payable, approximate fair value for indebtedness that provides for variable interest rates. The fair valuevalues of Bluegreen’s fixed rate, receivable-backed notes payable was determinedare estimated using Level 3 inputs by discounting the net cash outflows estimated to be used to repay the debt. These obligations are to be satisfied using the proceeds from the consumer loans that secure the obligations.
The fair value of the Company’s Community Development Bonds, which are included in notes payable and other borrowings above, is measured using the market approach with Level 3 inputs obtained based on estimated market prices of similar financial instruments. Community Development Bonds are included in notes payable and other borrowings in the above table.
The fair valuevalues of the Company’s other borrowings (other than Bluegreen’s notes payable and other borrowings and Community Development Bonds above) isare measured using the income approach with Level 3 inputs obtained by discounting the forecasted cash flows based on estimated market rates.
The fair value of the Company’s junior subordinated debentures is estimated using Level 3 inputs based on the contractual cash flows discounted at a market rate or based on market price quotes from the over-the-counter bond market.
The fair value of the 5% Cumulative Preferred Stock, which is subject to mandatory redemption, is calculated using the income approach with Level 3 inputs by discounting the estimated cash flows at a market discount rate.
15.
16. Certain Relationships and Related Party Transactions
The Company may be deemed to be controlled by Alan B. Levan, the Company’s Chairman and Chief Executive Officer, and John E. Abdo, the Company’s Vice Chairman. Together, Mr. Alan B. Levan and Mr. Abdo may be deemed to beneficially own shares of the Company’s Class A Common Stock and Class B Common Stock representing approximately 77%78% of the Company’s total voting power. Mr. Alan B. Levan and Mr. Abdo also serve as Chairman and Vice Chairman, respectively, of Bluegreen’s Board of Directors. Jarett S. Levan, the Company’s President and son of Alan B. Levan, and Seth M. Wise, the Company’s Executive Vice President, also serve as directors of the Company and Bluegreen.
Woodbridge is a wholly-owned subsidiary of the Company and owns 90%owned 90.3% of BluegreenBluegreen’s outstanding common stock as of September 30, 2018.2019.
Bluegreen paid or reimbursed the Company for management advisory, risk management, administrative and other services in the amounts of $0.4 million and $1.3 million during the three and nine months ended September 30, 2019, respectively, and $0.6 million and $1.2 million during the three and nine months ended September 30, 2018, respectively, and $0.3respectively.
The Company received $11.4 million and $1.2$34.3 million of dividends from Bluegreen during the three and nine months ended September 30, 2017, respectively.
The Company received2019, respectively, and $10.1 million and $30.3 million of dividends from Bluegreen during the three and nine months ended September 30, 2018, respectively. The Company received $20.0 million and $40.0 million of dividends during the three and nine months ended September 30, 2017, respectively.
During the nine months ended September 30, 2018, Bluegreen paid $0.6 million for the acquisition of VOI inventory from a company whose President is the son of David L. Pontius, Bluegreen’s Executive Vice President and Chief Operating Officer.
34
In April 2015, pursuant to a Loan Agreement and Promissory Note, a wholly ownedwholly-owned subsidiary of Bluegreen provided an $80.0 million loan to BBX Capital. Amounts outstanding on the loan borebear interest at a rate of 10% per annum until July 2017 when the interest rate was reduced to 6% per annum. Payments of interest are required on a quarterly basis, with the entire $80.0 million principal balance and accrued interest beingall outstanding amounts are due and payable in April 2020. BBX Capital is permitted to prepay the loan in whole or in part at any time, and prepayments willmay be required, to the extent necessary, in order for Bluegreen or its subsidiaries to remain in compliance with covenants under outstanding indebtedness. During each of the three and nine months ended September 30, 2019 and 2018, BBX Capital recognized $1.2 million and $3.6 million, respectively, of interest expense on the loan to Bluegreen. During the three and nine months ended September 30, 2017, BBX Capital recognized $1.2 million and $5.2 million, respectively, of interest expense on the loan to Bluegreen. The interest expense was eliminated in consolidation in the Company’s condensed consolidated financial statements.
27
In May 2015, the Company, BCC, Woodbridge, Bluegreen, Renin, and their respective subsidiaries entered into an Agreement to Allocate Consolidated Income Tax Liability and Benefits pursuant to which, among other customary terms and conditions, the parties agreed to file consolidated federal tax returns. Under the agreement, the parties calculate their respective income tax liabilities and attributes as if each of them were a separate filer. If any tax attributes of one party to the agreement are used by another party to the agreement to offset such other party’s tax liability, the party providing the benefit will receive an amount for the tax benefits realized. During the nine months ended September 30, 2019, BBX Capital received $13.0 million and $1.0 million of tax sharing payments from Bluegreen and Renin, respectively. BBX Capital did not receive any tax sharing payments from Bluegreen and Renin during the three months ended September 30, 2019. During the three and nine months ended September 30, 2018, Bluegreen paid the CompanyBBX Capital received $7.1 million and $21.0 million, respectively, pursuant to this agreement. During the three and nine months ended September 30, 2017, Bluegreen paid the Company $13.9 million and $39.3 million, respectively, pursuant to this agreement.of tax sharing payments from Bluegreen.
During each of the three and nine months ended September 30, 20182019 and 2017,2018, the Company paid Abdo Companies, Inc. approximately $77,000 and $230,000, respectively, in exchange for certain management services. John E. Abdo, the Company’s Vice Chairman, is the principal shareholder and Chief Executive Officer of Abdo Companies, Inc.
Certain of the Company’s affiliates, including its executive officers, have independently made investments with their own funds in investments that the Company has sponsored or in which the Company holds investments.
16.17. Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly reviewed by the chief operating decision maker in assessing performance and deciding how to allocate resources. Reportable segments consist of one or more operating segments with similar economic characteristics, products and services, production processes, type of customer, distribution system or regulatory environment.
The information provided for segment reporting is obtained from internal reports utilized by management of the Company, and the presentation and allocation of assets and results of operations may not reflect the actual economic costs of the segments as standalone businesses. If a different basis of allocation were utilized, the relative contributions of the segments might differ, but the relative trends in the segments’ operating results would, in management’s view, likely not be materially impacted.
The Company’s reportable segments are its principal investments: Bluegreen, BBX Capital Real Estate, Renin, and IT’SUGAR. See Note 1 for a description of these segments.
In the tablesegment information for the three and nine months ended September 30, 20182019 and 2017,2018, amounts set forth in the column entitled “Corporate Expenses & Other”“Other” include interest expense associated with Woodbridge’s trust preferred securities, corporate overhead, the Company’s pizza restaurant operations as a franchisee of MOD Pizza, andinvestments in various operating businesses, including its remaining operating businesses in the confectionery industry, a controlling financial interest in a restaurant acquired in connection with a loan receivable default. Thedefault, and its pizza restaurant operations as a franchisee of MOD Pizza. As described in Note 1, the Company opened twoexited its pizza restaurant operations as a franchisee of MOD Pizza restaurant locations duringin September 2019. The amounts set forth in the fourth quartercolumn entitled “Reconciling Items and Eliminations” include corporate general and administrative expenses, interest expense associated with Woodbridge’s junior subordinated debentures and BBX Capital’s $50.0 million revolving line of 2017credit, and three locations during the nine months ended September 30, 2018. As of September 30, 2018, management determined that the restaurant operations did not warrant separate presentation as a reportable segment.elimination entries.
The Company evaluates segment performance based on segment income before income taxes.
Set forth below is summary information regarding the Company’s reportable segments:
Bluegreen
Bluegreen markets, sells and manages real estate-based VOIs in resorts generally located in popular, high-volume, “drive-to” vacation destinations, which were developed or acquired by Bluegreen or are owned by others, in which
3528
case Bluegreen earns fees for providing these services. Bluegreen also earns fees by providing VOI title services, club and homeowners’ association management services, mortgage servicing, reservation services, services related to the Traveler-Plus program, food and beverage and other retail operations, and construction design and development services. In addition, Bluegreen provides financing to qualified individual purchasers of VOIs, which provides significant interest income.
BBX Capital Real Estate
BBX Capital Real Estate’s activities include the acquisition, development, ownership, and management of real estate, real estate development projects, and investments in real estate joint ventures. BBX Capital Real Estate also manages the legacy assets acquired in connection withThe table below sets forth the Company’s salesegment information as of BankAtlantic in July 2012. The legacy assets include portfolios of loans receivable, real estate properties, and loans previously charged off by BankAtlantic.
Renin
Renin is engaged in the design, manufacture, and distribution of specialty doors, door systems and hardware, and home décor products in the United States and Canada and operates through its headquarters in Canada and two manufacturing, assembly and distribution facilities in Canada and the United States. In addition to its own manufacturing, Renin also sources various products and raw materials from China. Duringfor the three months ended September 30, 2018 and 2017, total revenues for the Renin reportable segment include $9.6 million and $6.8 million, respectively, of trade sales to two major customers and their affiliates. During the three months ended September 30, 2018 and 2017, Renin’s revenues generated outside the United States totaled $7.0 million and $5.0 million, respectively. During the nine months ended September 30, 2018 and 2017, total revenues for the Renin reportable segment include $26.4 million and $23.4 million, respectively, of trade sales to two major customers and their affiliates. During the nine months ended September 30, 2018 and 2017, Renin’s revenues generated outside the United States totaled $16.9 million and $15.8 million, respectively. As of September 30, 2018 and 2017, Renin’s properties and equipment located outside the United States totaled $2.1 million and $2.3 million, respectively.2019 (in thousands):
BBX Sweet Holdings
BBX Sweet Holdings consists of IT’SUGAR, Hoffman’s Chocolates, and manufacturing facilities in the chocolate and confection industries which serve customers such as boutique retailers, big box chains, department stores, national resort properties, corporate customers, and private label brands. IT’SUGAR, which was acquired by BBX Sweet Holdings in June 2017, is a specialty candy retailer which currently has over 90 retail locations in 26 states and Washington, D.C. Hoffman’s Chocolates is a manufacturer and retailer of gourmet chocolates with retail locations in South Florida.
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Revenues: |
| Bluegreen |
| BBX Capital Real Estate |
| Renin |
| IT'SUGAR |
| Other |
| Reconciling Items and Eliminations |
| Segment Total |
Sales of VOIs | $ | 66,318 |
| - |
| - |
| - |
| - |
| - |
| 66,318 |
Fee-based sales commissions |
| 60,478 |
| - |
| - |
| - |
| - |
| - |
| 60,478 |
Other fee-based services |
| 33,744 |
| - |
| - |
| - |
| - |
| - |
| 33,744 |
Cost reimbursements |
| 21,111 |
| - |
| - |
| - |
| - |
| - |
| 21,111 |
Trade sales |
| - |
| - |
| 16,442 |
| 24,678 |
| 6,541 |
| (1) |
| 47,660 |
Sales of real estate inventory |
| - |
| 370 |
| - |
| - |
| - |
| - |
| 370 |
Interest income |
| 22,081 |
| 166 |
| - |
| - |
| 45 |
| (495) |
| 21,797 |
Net gains on sales of real estate assets |
| - |
| 399 |
| - |
| - |
| - |
| - |
| 399 |
Other revenue |
| 2,146 |
| 197 |
| - |
| 15 |
| 1,053 |
| (174) |
| 3,237 |
Total revenues |
| 205,878 |
| 1,132 |
| 16,442 |
| 24,693 |
| 7,639 |
| (670) |
| 255,114 |
Costs and expenses: |
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|
|
Cost of VOIs sold |
| 3,121 |
| - |
| - |
| - |
| - |
| - |
| 3,121 |
Cost of other fee-based services |
| 23,746 |
| - |
| - |
| - |
| - |
| - |
| 23,746 |
Cost reimbursements |
| 21,111 |
| - |
| - |
| - |
| - |
| - |
| 21,111 |
Cost of trade sales |
| - |
| - |
| 12,983 |
| 13,902 |
| 4,976 |
| (1) |
| 31,860 |
Cost of real estate inventory sold |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Interest expense |
| 10,388 |
| - |
| 131 |
| 24 |
| 29 |
| 1,298 |
| 11,870 |
Recoveries from loan losses, net |
| - |
| (1,821) |
| - |
| - |
| - |
| - |
| (1,821) |
Impairment losses |
| - |
| 37 |
| - |
| - |
| 3,993 |
| - |
| 4,030 |
Selling, general and administrative expenses |
| 117,159 |
| 2,336 |
| 2,849 |
| 9,567 |
| 4,900 |
| 11,738 |
| 148,549 |
Total costs and expenses |
| 175,525 |
| 552 |
| 15,963 |
| 23,493 |
| 13,898 |
| 13,035 |
| 242,466 |
Equity in net earnings of unconsolidated real estate joint ventures |
| - |
| 28,534 |
| - |
| - |
| - |
| - |
| 28,534 |
Foreign exchange gain (loss) |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Income (loss) before income taxes | $ | 30,353 |
| 29,114 |
| 479 |
| 1,200 |
| (6,259) |
| (13,705) |
| 41,182 |
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|
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|
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Total assets | $ | 1,360,829 |
| 147,712 |
| 32,103 |
| 150,841 |
| 32,135 |
| 93,818 |
| 1,817,438 |
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|
|
Expenditures for property and equipment | $ | 3,986 |
| 1 |
| 79 |
| 3,752 |
| 224 |
| - |
| 8,042 |
Depreciation and amortization | $ | 3,585 |
| - |
| 303 |
| 1,181 |
| 714 |
| 101 |
| 5,884 |
Debt accretion and amortization | $ | 1,430 |
| 22 |
| 6 |
| 56 |
| 1 |
| 60 |
| 1,575 |
Cash and cash equivalents | $ | 183,207 |
| 21,781 |
| - |
| 2,412 |
| 7,745 |
| 153,673 |
| 368,818 |
Real estate equity method investments | $ | - |
| 53,739 |
| - |
| - |
| - |
| - |
| 53,739 |
Goodwill | $ | - |
| - |
| - |
| 35,167 |
| 2,081 |
| - |
| 37,248 |
Receivable-backed notes payable | $ | 436,760 |
| - |
| - |
| - |
| - |
| - |
| 436,760 |
Notes payable and other borrowings | $ | 119,045 |
| 32,009 |
| 8,394 |
| 406 |
| 1,861 |
| (295) |
| 161,420 |
Junior subordinated debentures | $ | 71,883 |
| - |
| - |
| - |
| - |
| 65,155 |
| 137,038 |
3629
The table below sets forth the Company’s segment information as of and for the three months ended September 30, 2018 (in thousands):
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|
|
| ||||||||||||||
|
| Reportable Segments |
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
| BBX |
|
|
|
|
| Corporate |
|
|
|
| ||||||||||||||
|
|
|
| Capital |
|
|
| BBX |
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real |
|
|
| Sweet |
| & |
|
|
| Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bluegreen |
| Estate |
| Renin |
| Holdings |
| Other |
| Eliminations |
| Total |
| Bluegreen |
| BBX Capital Real Estate |
| Renin |
| IT'SUGAR |
| Other |
| Reconciling Items and Eliminations |
| Segment Total |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs | $ | 70,698 |
| - |
| - |
| - |
| - |
| - |
| 70,698 | $ | 70,698 |
| - |
| - |
| - |
| - |
| - |
| 70,698 |
Fee-based sales commissions |
| 61,641 |
| - |
| - |
| - |
| - |
| - |
| 61,641 |
| 61,641 |
| - |
| - |
| - |
| - |
| - |
| 61,641 |
Other fee-based services |
| 31,057 |
| - |
| - |
| - |
| - |
| - |
| 31,057 |
| 31,057 |
| - |
| - |
| - |
| - |
| - |
| 31,057 |
Cost reimbursements |
| 16,900 |
| - |
| - |
| - |
| - |
| - |
| 16,900 |
| 16,900 |
| - |
| - |
| - |
| - |
| - |
| 16,900 |
Trade sales |
| - |
| - |
| 15,330 |
| 26,181 |
| 2,297 |
| (5) |
| 43,803 |
| - |
| - |
| 15,330 |
| 22,663 |
| 5,815 |
| (5) |
| 43,803 |
Sales of real estate inventory |
| - |
| 7,478 |
| - |
| - |
| - |
| - |
| 7,478 |
| - |
| 7,478 |
| - |
| - |
| - |
| - |
| 7,478 |
Interest income |
| 21,531 |
| 229 |
| - |
| 15 |
| 582 |
| (1,200) |
| 21,157 |
| 21,531 |
| 229 |
| - |
| - |
| 10 |
| (613) |
| 21,157 |
Net losses on sales of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
real estate assets |
| - |
| (4) |
| - |
| - |
| - |
| - |
| (4) | ||||||||||||||
Other revenue |
| 378 |
| 576 |
| - |
| 101 |
| 776 |
| (158) |
| 1,673 |
| 378 |
| 572 |
| - |
| 99 |
| 840 |
| (220) |
| 1,669 |
Total revenues |
| 202,205 |
| 8,279 |
| 15,330 |
| 26,297 |
| 3,655 |
| (1,363) |
| 254,403 |
| 202,205 |
| 8,279 |
| 15,330 |
| 22,762 |
| 6,665 |
| (838) |
| 254,403 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOIs sold |
| 11,237 |
| - |
| - |
| - |
| - |
| - |
| 11,237 |
| 11,237 |
| - |
| - |
| - |
| - |
| - |
| 11,237 |
Cost of other fee-based services |
| 19,937 |
| - |
| - |
| - |
| - |
| - |
| 19,937 |
| 19,937 |
| - |
| - |
| - |
| - |
| - |
| 19,937 |
Cost reimbursements |
| 16,900 |
| - |
| - |
| - |
| - |
| - |
| 16,900 |
| 16,900 |
| - |
| - |
| - |
| - |
| - |
| 16,900 |
Cost of trade sales |
| - |
| - |
| 12,306 |
| 15,542 |
| 1,117 |
| (5) |
| 28,960 |
| - |
| - |
| 12,306 |
| 12,236 |
| 4,420 |
| (5) |
| 28,957 |
Cost of real estate inventory sold |
| - |
| 4,655 |
| - |
| - |
| - |
| - |
| 4,655 |
| - |
| 4,655 |
| - |
| - |
| - |
| - |
| 4,655 |
Interest expense |
| 9,208 |
| - |
| 157 |
| 50 |
| 2,915 |
| (1,200) |
| 11,130 |
| 9,208 |
| - |
| 157 |
| - |
| 53 |
| 1,712 |
| 11,130 |
Recoveries from loan losses, net |
| - |
| (443) |
| - |
| - |
| - |
| - |
| (443) |
| - |
| (443) |
| - |
| - |
| - |
| - |
| (443) |
Asset impairments, net |
| - |
| 191 |
| - |
| - |
| - |
| - |
| 191 | ||||||||||||||
Selling, general and |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
administrative expenses |
| 112,407 |
| 2,304 |
| 2,250 |
| 10,666 |
| 16,089 |
| (158) |
| 143,558 | ||||||||||||||
Impairment losses |
| - |
| 193 |
| - |
| - |
| - |
| - |
| 193 | ||||||||||||||
Selling, general and administrative expenses |
| 112,407 |
| 2,307 |
| 2,250 |
| 8,962 |
| 4,868 |
| 12,765 |
| 143,559 | ||||||||||||||
Total costs and expenses |
| 169,689 |
| 6,707 |
| 14,713 |
| 26,258 |
| 20,121 |
| (1,363) |
| 236,125 |
| 169,689 |
| 6,712 |
| 14,713 |
| 21,198 |
| 9,341 |
| 14,472 |
| 236,125 |
Equity in net earnings of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
unconsolidated real |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
estate joint ventures |
| - |
| 373 |
| - |
| - |
| - |
| - |
| 373 | ||||||||||||||
Equity in net earnings of unconsolidated real estate joint ventures |
| - |
| 373 |
| - |
| - |
| - |
| - |
| 373 | ||||||||||||||
Foreign exchange gain |
| - |
| - |
| 76 |
| - |
| - |
| - |
| 76 |
| - |
| - |
| 76 |
| - |
| - |
| - |
| 76 |
Income (loss) before |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
income taxes | $ | 32,516 |
| 1,945 |
| 693 |
| 39 |
| (16,466) |
| - |
| 18,727 | ||||||||||||||
Income (loss) before income taxes | $ | 32,516 |
| 1,940 |
| 693 |
| 1,564 |
| (2,676) |
| (15,310) |
| 18,727 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets | $ | 1,336,992 |
| 135,929 |
| 28,798 |
| 89,968 |
| 168,396 |
| (82,316) |
| 1,677,767 | $ | 1,336,992 |
| 136,290 |
| 28,798 |
| 71,450 |
| 37,577 |
| 66,660 |
| 1,677,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
and equipment | $ | 9,242 |
| 131 |
| 99 |
| 2,042 |
| 1,729 |
| - |
| 13,243 | ||||||||||||||
Expenditures for property and equipment | $ | 9,242 |
| 131 |
| 99 |
| 1,942 |
| 1,704 |
| 125 |
| 13,243 | ||||||||||||||
Depreciation and amortization | $ | 3,169 |
| 91 |
| 284 |
| 1,610 |
| 293 |
| - |
| 5,447 | $ | 3,169 |
| 91 |
| 292 |
| 1,153 |
| 644 |
| 108 |
| 5,457 |
Debt accretion and amortization | $ | 1,086 |
| - |
| 4 |
| 53 |
| 91 |
| - |
| 1,234 | $ | 1,086 |
| - |
| 4 |
| (90) |
| 143 |
| 91 |
| 1,234 |
Cash and cash equivalents | $ | 195,439 |
| 21,625 |
| - |
| 6,485 |
| 145,963 |
| - |
| 369,512 | $ | 195,439 |
| 21,625 |
| - |
| 4,483 |
| 10,068 |
| 137,897 |
| 369,512 |
Equity method investments | $ | - |
| 42,550 |
| - |
| - |
| - |
| - |
| 42,550 | ||||||||||||||
Real estate equity method investments | $ | - |
| 42,550 |
| - |
| - |
| - |
| - |
| 42,550 | ||||||||||||||
Goodwill | $ | - |
| - |
| - |
| 39,482 |
| - |
| - |
| 39,482 | $ | - |
| - |
| - |
| 35,167 |
| 4,315 |
| - |
| 39,482 |
Receivable-backed notes payable | $ | 433,450 |
| - |
| - |
| - |
| - |
| - |
| 433,450 | $ | 433,450 |
| - |
| - |
| - |
| - |
| - |
| 433,450 |
Notes payable and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
borrowings | $ | 137,834 |
| 16,285 |
| 9,422 |
| 3,610 |
| 110,026 |
| (80,000) |
| 197,177 | ||||||||||||||
Notes payable and other borrowings | $ | 137,834 |
| 16,285 |
| 9,422 |
| 620 |
| 3,090 |
| 29,926 |
| 197,177 | ||||||||||||||
Junior subordinated debentures | $ | 71,147 |
| - |
| - |
| - |
| 65,084 |
| - |
| 136,231 | $ | 71,147 |
| - |
| - |
| - |
| - |
| 65,084 |
| 136,231 |
3730
The table below sets forth the Company’s segment information as of and for the threenine months ended September 30, 20172019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reportable Segments |
|
|
|
|
|
| ||||||
|
|
|
| BBX |
|
|
|
|
| Corporate |
|
|
| Segment |
|
|
|
| Capital |
|
|
| BBX |
| Expenses |
|
|
| Total |
|
|
|
| Real |
|
|
| Sweet |
| & |
|
|
| *As |
|
| Bluegreen |
| Estate |
| Renin |
| Holdings |
| Other |
| Eliminations |
| Adjusted |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs | $ | 62,453 |
| - |
| - |
| - |
| - |
| - |
| 62,453 |
Fee-based sales commissions |
| 69,977 |
| - |
| - |
| - |
| - |
| - |
| 69,977 |
Other fee-based services |
| 27,386 |
| - |
| - |
| - |
| - |
| - |
| 27,386 |
Cost reimbursements |
| 14,097 |
| - |
| - |
| - |
| - |
| - |
| 14,097 |
Trade sales |
| - |
| - |
| 16,463 |
| 28,255 |
| - |
| - |
| 44,718 |
Interest income |
| 21,296 |
| 697 |
| - |
| 1 |
| 241 |
| (1,200) |
| 21,035 |
Net losses on sales of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real estate assets |
| - |
| (18) |
| - |
| - |
| - |
| - |
| (18) |
Other revenue |
| (119) |
| 964 |
| - |
| 14 |
| 507 |
| (118) |
| 1,248 |
Total revenues |
| 195,090 |
| 1,643 |
| 16,463 |
| 28,270 |
| 748 |
| (1,318) |
| 240,896 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOIs sold |
| 6,444 |
| - |
| - |
| - |
| - |
| - |
| 6,444 |
Cost of other fee-based services |
| 17,182 |
| - |
| - |
| - |
| - |
| - |
| 17,182 |
Cost reimbursements |
| 14,097 |
| - |
| - |
| - |
| - |
| - |
| 14,097 |
Cost of trade sales |
| - |
| - |
| 13,509 |
| 18,301 |
| - |
| - |
| 31,810 |
Interest expense |
| 8,058 |
| - |
| 161 |
| 85 |
| 2,379 |
| (1,200) |
| 9,483 |
Recoveries from loan losses, net |
| - |
| (2,005) |
| - |
| - |
| - |
| - |
| (2,005) |
Asset impairments, net |
| - |
| 1,233 |
| - |
| 273 |
| - |
| - |
| 1,506 |
Reimbursement of litigation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs and penalty |
| - |
| - |
| - |
| - |
| (2,113) |
| - |
| (2,113) |
Selling, general and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative expenses |
| 114,934 |
| 3,099 |
| 2,598 |
| 10,879 |
| 15,450 |
| (118) |
| 146,842 |
Total costs and expenses |
| 160,715 |
| 2,327 |
| 16,268 |
| 29,538 |
| 15,716 |
| (1,318) |
| 223,246 |
Equity in net earnings of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unconsolidated real |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
estate joint ventures |
| - |
| 2,105 |
| - |
| - |
| - |
| - |
| 2,105 |
Foreign exchange loss |
| - |
| - |
| (105) |
| - |
| - |
| - |
| (105) |
Income (loss) before |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes | $ | 34,375 |
| 1,421 |
| 90 |
| (1,268) |
| (14,968) |
| - |
| 19,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets | $ | 1,166,247 |
| 171,270 |
| 38,286 |
| 98,538 |
| 131,406 |
| (81,891) |
| 1,523,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and equipment | $ | 3,973 |
| 58 |
| 615 |
| 522 |
| 612 |
| - |
| 5,780 |
Depreciation and amortization | $ | 2,420 |
| 161 |
| 323 |
| 1,327 |
| 176 |
| - |
| 4,407 |
Debt accretion and amortization | $ | 1,123 |
| - |
| - |
| - |
| 180 |
| - |
| 1,303 |
Cash and cash equivalents | $ | 124,002 |
| 13,246 |
| - |
| 9,304 |
| 117,828 |
| - |
| 264,380 |
Equity method investments | $ | - |
| 47,995 |
| - |
| - |
| - |
| - |
| 47,995 |
Goodwill | $ | - |
| - |
| - |
| 41,016 |
| - |
| - |
| 41,016 |
Receivable-backed notes payable | $ | 419,335 |
| - |
| - |
| - |
| - |
| - |
| 419,335 |
Notes payable and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
borrowings | $ | 95,594 |
| 20,907 |
| 16,113 |
| 5,169 |
| 80,000 |
| (80,000) |
| 137,783 |
Junior subordinated debentures | $ | 70,100 |
| - |
| - |
| - |
| 65,012 |
| - |
| 135,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bluegreen |
| BBX Capital Real Estate |
| Renin |
| IT'SUGAR |
| Other |
| Reconciling Items and Eliminations |
| Segment Total |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs | $ | 186,351 |
| - |
| - |
| - |
| - |
| - |
| 186,351 |
Fee-based sales commissions |
| 161,033 |
| - |
| - |
| - |
| - |
| - |
| 161,033 |
Other fee-based services |
| 94,015 |
| - |
| - |
| - |
| - |
| - |
| 94,015 |
Cost reimbursements |
| 58,705 |
| - |
| - |
| - |
| - |
| - |
| 58,705 |
Trade sales |
| - |
| - |
| 51,124 |
| 63,347 |
| 24,250 |
| (16) |
| 138,705 |
Sales of real estate inventory |
| - |
| 5,030 |
| - |
| - |
| - |
| - |
| 5,030 |
Interest income |
| 65,964 |
| 631 |
| - |
| - |
| 130 |
| (1,995) |
| 64,730 |
Net gains on sales of real estate assets |
| - |
| 11,395 |
| - |
| - |
| - |
| - |
| 11,395 |
Other revenue |
| 4,228 |
| 1,492 |
| 152 |
| 241 |
| 2,020 |
| (593) |
| 7,540 |
Total revenues |
| 570,296 |
| 18,548 |
| 51,276 |
| 63,588 |
| 26,400 |
| (2,604) |
| 727,504 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOIs sold |
| 17,541 |
| - |
| - |
| - |
| - |
| - |
| 17,541 |
Cost of other fee-based services |
| 66,538 |
| - |
| - |
| - |
| - |
| - |
| 66,538 |
Cost reimbursements |
| 58,705 |
| - |
| - |
| - |
| - |
| - |
| 58,705 |
Cost of trade sales |
| - |
| - |
| 40,989 |
| 37,442 |
| 16,563 |
| (16) |
| 94,978 |
Cost of real estate inventory sold |
| - |
| 2,643 |
| - |
| - |
| - |
| - |
| 2,643 |
Interest expense |
| 29,955 |
| - |
| 387 |
| 81 |
| 72 |
| 4,184 |
| 34,679 |
Recoveries from loan losses, net |
| - |
| (4,206) |
| - |
| - |
| - |
| - |
| (4,206) |
Impairment losses |
| - |
| 37 |
| - |
| - |
| 6,749 |
| - |
| 6,786 |
Selling, general and administrative expenses |
| 355,041 |
| 6,709 |
| 8,326 |
| 26,645 |
| 16,061 |
| 35,728 |
| 448,510 |
Total costs and expenses |
| 527,780 |
| 5,183 |
| 49,702 |
| 64,168 |
| 39,445 |
| 39,896 |
| 726,174 |
Equity in net earnings of unconsolidated real estate joint ventures |
| - |
| 37,276 |
| - |
| - |
| - |
| - |
| 37,276 |
Foreign exchange loss |
| - |
| - |
| (24) |
| - |
| - |
| - |
| (24) |
Income (loss) before income taxes | $ | 42,516 |
| 50,641 |
| 1,550 |
| (580) |
| (13,045) |
| (42,500) |
| 38,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property and equipment | $ | 18,502 |
| 4 |
| 284 |
| 6,233 |
| 1,245 |
| 18 |
| 26,286 |
Depreciation and amortization | $ | 10,453 |
| 93 |
| 897 |
| 3,313 |
| 1,889 |
| 320 |
| 16,965 |
Debt accretion and amortization | $ | 3,616 |
| 133 |
| 23 |
| 168 |
| 2 |
| 243 |
| 4,185 |
* See Note 1 for a summary of adjustments.
3831
The table below sets forth the Company’s segment information as of and for the nine months ended September 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reportable Segments |
|
|
|
|
|
| ||||||
|
|
|
| BBX |
|
|
|
|
| Corporate |
|
|
|
|
|
|
|
| Capital |
|
|
| BBX |
| Expenses |
|
|
|
|
|
|
|
| Real |
|
|
| Sweet |
| & |
|
|
| Segment |
|
| Bluegreen |
| Estate |
| Renin |
| Holdings |
| Other |
| Eliminations |
| Total |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs | $ | 195,412 |
| - |
| - |
| - |
| - |
| - |
| 195,412 |
Fee-based sales commissions |
| 167,581 |
| - |
| - |
| - |
| - |
| - |
| 167,581 |
Other fee-based services |
| 89,472 |
| - |
| - |
| - |
| - |
| - |
| 89,472 |
Cost reimbursements |
| 47,157 |
| - |
| - |
| - |
| - |
| - |
| 47,157 |
Trade sales |
| - |
| - |
| 47,205 |
| 72,442 |
| 6,479 |
| (12) |
| 126,114 |
Sales of real estate inventory |
| - |
| 17,138 |
| - |
| - |
| - |
| - |
| 17,138 |
Interest income |
| 63,771 |
| 2,064 |
| - |
| 46 |
| 1,457 |
| (3,600) |
| 63,738 |
Net gains on sales of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real estate assets |
| - |
| 4,798 |
| - |
| - |
| - |
| - |
| 4,798 |
Other revenue |
| 1,269 |
| 2,024 |
| - |
| 155 |
| 1,296 |
| (462) |
| 4,282 |
Total revenues |
| 564,662 |
| 26,024 |
| 47,205 |
| 72,643 |
| 9,232 |
| (4,074) |
| 715,692 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOIs sold |
| 19,838 |
| - |
| - |
| - |
| - |
| - |
| 19,838 |
Cost of other fee-based services |
| 53,983 |
| - |
| - |
| - |
| - |
| - |
| 53,983 |
Cost reimbursements |
| 47,157 |
| - |
| - |
| - |
| - |
| - |
| 47,157 |
Cost of trade sales |
| - |
| - |
| 38,454 |
| 46,707 |
| 2,902 |
| (12) |
| 88,051 |
Cost of real estate inventory sold |
| - |
| 11,283 |
| - |
| - |
| - |
| - |
| 11,283 |
Interest expense |
| 25,470 |
| - |
| 497 |
| 238 |
| 8,127 |
| (3,600) |
| 30,732 |
Recoveries from loan losses, net |
| - |
| (7,236) |
| - |
| - |
| - |
| - |
| (7,236) |
Asset impairments, net |
| - |
| 340 |
| - |
| 187 |
| - |
| - |
| 527 |
Selling, general and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative expenses |
| 315,535 |
| 7,165 |
| 7,641 |
| 34,099 |
| 46,512 |
| (462) |
| 410,490 |
Total costs and expenses |
| 461,983 |
| 11,552 |
| 46,592 |
| 81,231 |
| 57,541 |
| (4,074) |
| 654,825 |
Equity in net earnings of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unconsolidated real |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
estate joint ventures |
| - |
| 1,165 |
| - |
| - |
| - |
| - |
| 1,165 |
Foreign exchange gain |
| - |
| - |
| 91 |
| - |
| - |
| - |
| 91 |
Income (loss) before |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes | $ | 102,679 |
| 15,637 |
| 704 |
| (8,588) |
| (48,309) |
| - |
| 62,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and equipment | $ | 24,347 |
| 298 |
| 447 |
| 4,330 |
| 3,894 |
| - |
| 33,316 |
Depreciation and amortization | $ | 9,087 |
| 283 |
| 869 |
| 4,346 |
| 806 |
| - |
| 15,391 |
Debt accretion and amortization | $ | 2,765 |
| 2 |
| 12 |
| 159 |
| 221 |
| - |
| 3,159 |
39
The table below sets forth the Company’s segment information for the nine months ended September 30, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Reportable Segments |
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
| BBX |
|
|
|
|
| Corporate |
|
|
| Segment | ||||||||||||||
|
|
|
| Capital |
|
|
| BBX |
| Expenses |
|
|
| Total | ||||||||||||||
|
|
|
| Real |
|
|
| Sweet |
| & |
|
|
| *As |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bluegreen |
| Estate |
| Renin |
| Holdings |
| Other |
| Eliminations |
| Adjusted |
| Bluegreen |
| BBX Capital Real Estate |
| Renin |
| IT'SUGAR |
| Other |
| Reconciling Items and Eliminations |
| Segment Total |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs | $ | 176,094 |
| - |
| - |
| - |
| - |
| - |
| 176,094 | $ | 195,412 |
| - |
| - |
| - |
| - |
| - |
| 195,412 |
Fee-based sales commissions |
| 179,046 |
| - |
| - |
| - |
| - |
| - |
| 179,046 |
| 167,581 |
| - |
| - |
| - |
| - |
| - |
| 167,581 |
Other fee-based services |
| 83,442 |
| - |
| - |
| - |
| - |
| - |
| 83,442 |
| 89,472 |
| - |
| - |
| - |
| - |
| - |
| 89,472 |
Cost reimbursements |
| 40,660 |
| - |
| - |
| - |
| - |
| - |
| 40,660 |
| 47,157 |
| - |
| - |
| - |
| - |
| - |
| 47,157 |
Trade sales |
| - |
| - |
| 51,447 |
| 44,922 |
| - |
| - |
| 96,369 |
| - |
| - |
| 47,205 |
| 58,967 |
| 19,954 |
| (12) |
| 126,114 |
Sales of real estate inventory |
| - |
| 17,138 |
| - |
| - |
| - |
| - |
| 17,138 | ||||||||||||||
Interest income |
| 65,673 |
| 1,915 |
| - |
| 3 |
| 674 |
| (5,200) |
| 63,065 |
| 63,771 |
| 2,064 |
| - |
| 1 |
| 105 |
| (2,203) |
| 63,738 |
Net gains on sales of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
real estate assets |
| - |
| 1,668 |
| - |
| - |
| - |
| - |
| 1,668 | ||||||||||||||
Net gains on sales of real estate assets |
| - |
| 4,802 |
| - |
| - |
| - |
| - |
| 4,802 | ||||||||||||||
Other revenue |
| (120) |
| 3,023 |
| - |
| 27 |
| 1,079 |
| (357) |
| 3,652 |
| 1,269 |
| 2,020 |
| - |
| 134 |
| 1,455 |
| (600) |
| 4,278 |
Total revenues |
| 544,795 |
| 6,606 |
| 51,447 |
| 44,952 |
| 1,753 |
| (5,557) |
| 643,996 |
| 564,662 |
| 26,024 |
| 47,205 |
| 59,102 |
| 21,514 |
| (2,815) |
| 715,692 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOIs sold |
| 11,352 |
| - |
| - |
| - |
| - |
| - |
| 11,352 |
| 19,838 |
| - |
| - |
| - |
| - |
| - |
| 19,838 |
Cost of other fee-based services |
| 48,663 |
| - |
| - |
| - |
| - |
| - |
| 48,663 |
| 53,983 |
| - |
| - |
| - |
| - |
| - |
| 53,983 |
Cost reimbursements |
| 40,660 |
| - |
| - |
| - |
| - |
| - |
| 40,660 |
| 47,157 |
| - |
| - |
| - |
| - |
| - |
| 47,157 |
Cost of trade sales |
| - |
| - |
| 41,332 |
| 32,441 |
| - |
| - |
| 73,773 |
| - |
| - |
| 38,454 |
| 34,020 |
| 15,583 |
| (12) |
| 88,045 |
Cost of real estate inventory sold |
| - |
| 11,283 |
| - |
| - |
| - |
| - |
| 11,283 | ||||||||||||||
Interest expense |
| 23,779 |
| - |
| 343 |
| 255 |
| 8,403 |
| (5,200) |
| 27,580 |
| 25,470 |
| - |
| 497 |
| - |
| 241 |
| 4,661 |
| 30,869 |
Recoveries from loan losses, net |
| - |
| (6,098) |
| - |
| - |
| - |
| - |
| (6,098) |
| - |
| (7,258) |
| - |
| - |
| - |
| - |
| (7,258) |
Asset impairments, net |
| - |
| 1,278 |
| - |
| 273 |
| - |
| - |
| 1,551 | ||||||||||||||
Net gains on cancellation of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
junior subordinated debentures |
| - |
| - |
| - |
| - |
| (6,929) |
| - |
| (6,929) | ||||||||||||||
Reimbursement of litigation |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
costs and penalty |
| - |
| - |
| - |
| - |
| (11,719) |
| - |
| (11,719) | ||||||||||||||
Selling, general and |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
administrative expenses |
| 312,257 |
| 8,002 |
| 8,404 |
| 20,638 |
| 46,545 |
| (357) |
| 395,489 | ||||||||||||||
Impairment losses |
| - |
| 362 |
| - |
| - |
| 187 |
| - |
| 549 | ||||||||||||||
Selling, general and administrative expenses |
| 315,535 |
| 7,175 |
| 7,641 |
| 25,559 |
| 16,541 |
| 37,908 |
| 410,359 | ||||||||||||||
Total costs and expenses |
| 436,711 |
| 3,182 |
| 50,079 |
| 53,607 |
| 36,300 |
| (5,557) |
| 574,322 |
| 461,983 |
| 11,562 |
| 46,592 |
| 59,579 |
| 32,552 |
| 42,557 |
| 654,825 |
Equity in net earnings of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
unconsolidated real |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
estate joint ventures |
| - |
| 8,428 |
| - |
| - |
| - |
| - |
| 8,428 | ||||||||||||||
Foreign exchange loss |
| - |
| - |
| (312) |
| - |
| - |
| - |
| (312) | ||||||||||||||
Income (loss) before |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
income taxes | $ | 108,084 |
| 11,852 |
| 1,056 |
| (8,655) |
| (34,547) |
| - |
| 77,790 | ||||||||||||||
Equity in net earnings of unconsolidated real estate joint ventures |
| - |
| 1,165 |
| - |
| - |
| - |
| - |
| 1,165 | ||||||||||||||
Foreign exchange gain |
| - |
| - |
| 91 |
| - |
| - |
| - |
| 91 | ||||||||||||||
Income (loss) before income taxes | $ | 102,679 |
| 15,627 |
| 704 |
| (477) |
| (11,038) |
| (45,372) |
| 62,123 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
fixed assets | $ | 9,380 |
| 257 |
| 2,454 |
| 1,144 |
| 923 |
| - |
| 14,158 | ||||||||||||||
Expenditures for property and equipment | $ | 24,347 |
| 298 |
| 447 |
| 4,169 |
| 3,841 |
| 214 |
| 33,316 | ||||||||||||||
Depreciation and amortization | $ | 7,089 |
| 480 |
| 712 |
| 2,509 |
| 544 |
| - |
| 11,334 | $ | 9,087 |
| 283 |
| 869 |
| 3,327 |
| 1,445 |
| 387 |
| 15,398 |
Debt accretion and amortization | $ | 3,470 |
| - |
| 18 |
| 30 |
| 214 |
| - |
| 3,732 | $ | 2,765 |
| 2 |
| 12 |
| - |
| 159 |
| 221 |
| 3,159 |
* See Note 1 for a summary of adjustments.
40
17.18. Subsequent Events
2018 Term Securitization
In October 2018, Bluegreen completedSubsequent events have been evaluated through the 2018-A Term Securitization, a private offering and sale of approximately $117.7 million of investment-grade, VOI receivable-backed notes (the "Notes"), including approximately $49.8 million of Class A Notes, approximately $33.1 million of Class B Notes and approximately $34.8 million of Class C Notes with interest rates of 3.77%, 3.95% and 4.44%, respectively, which blends to an overall weighted average interest rate of approximately 4.02%. The gross advance rate for this transaction was 87.2%. The Notes mature in February 2034. KeyBanc Capital Markets Inc. (“KeyCM”) and Barclays Capital Inc. acted as joint bookrunners and co-lead managers anddate the financial statements were the initial purchasers of the Notes. KeyCM also acted as structuring agent for the transaction.
The amount of the VOI notes receivables sold oravailable to be sold to BXG Receivables Note Trust 2018-A (the “Trust”) is approximately $135.0 million, approximately $109.0 million of which was sold to the Trust at closing and approximately $26.0 million of which is expected to be sold to the Trust prior to February 25, 2019. The gross proceedsissued. As of such sales to the Trust are anticipated to be approximately $117.7 million. A portion of the proceeds received at the closing was used to: repay KeyBank National Association (“KeyBank”) and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (“DZ Bank”) approximately $49.2 million, representing all amounts outstanding (including accrued interest) under Bluegreen’s existing purchase facility with KeyBank and DZ Bank (the "KeyBank/DZ Purchase Facility"); repay Liberty Bank approximately $20.4 million under Bluegreen’s existing Liberty Bank Facility; repay Pacific Western Bank approximately $7.1 million under Bluegreen’s existing Pacific Western Bank Facility; capitalize a reserve fund; and pay fees and expenses associated with the transaction. The remainder of the proceeds from the 2018-A Term Securitization are expected to be used by Bluegreen for general corporate purposes. As a result of the facility repayments described above, following the closing of the 2018-A Term Securitization, (i)date, there were no amounts outstanding under the KeyBank/DZ Purchase Facility, which allows for maximum outstanding receivable-backed borrowings of $80.0 million on a revolving basis through December 31, 2019, (ii) there was approximately $19.1 million outstanding under the Liberty Bank Facility, which permits maximum outstanding receivable-backed borrowings of $50.0 million on a revolving basis through March 12, 2020, and (iii) there was approximately $9.6 million outstanding under the Pacific Western Bank Facility, which permits maximum outstanding receivable-backed borrowings of $40.0 million on a revolving basis through September 20, 2021, in each case, subject to eligible collateral and thesubsequent events identified that required recognition or disclosure other terms and conditions of each facility, respectively. Thus, subject to the foregoing, approximately $76.7 millionthan as disclosed in the aggregate was available under the KeyBank/DZ Purchase Facility, Liberty Bank Facility and Pacific Western Facility as a result of the repayments.
Further, subject to performance of the collateral, Bluegreen will receive any excess cash flows generated by the receivables transferred under the 2018-A Term Securitization (meaning excess cash after payments of customary fees, interest, and principal under the 2018-A Term Securitization) on a pro-rata basis as borrowers make payments on their VOI loans.
While ownership of the VOI receivables included in the 2018-A Term Securitization is transferred and sold for legal purposes, the transfer of these VOI notes receivables is accounted for as a secured borrowing for financial accounting purposes. Accordingly, no gain or loss was recognized as a result of the transaction.
Investment in Altman Companies
In October 2018, the Company entered into an agreement pursuant to which it has agreed, subject to the satisfaction or waiver of the conditions to closing, to acquire a fifty percent (50%) membership interest in The Altman Companies, LLC (“Altman Companies”), a real estate development company which operates a fully integrated multifamily platform covering all aspects of the development process and includes membership interests in Altman Development Company, Altman-Glenewinkel Construction, and Altman Management Company, for a purchase price of $11.8 million. Simultaneously with this investment, the Company has agreed to acquire interests in the managing member of eight multifamily real estate developments affiliated with Altman Companies (the “Developments”) for an aggregate purchase price of $10.9 million, subject to adjustment based on the terms of the agreement.
The Company has also agreed, subject to various terms and conditions, to acquire an additional forty percent (40%) of the membership interests in Altman Companies for a purchase price of $9.4 million in approximately four years after the closing of the initial purchase. The seller, Joel Altman, can also, at his option, or in other predefined circumstances, require the Company to acquire the remaining ten percent (10%) interest in Altman Companies for $2.4 million.
41
Closing of the investment in Altman Companies and the Developments is subject to the satisfaction or waiver of certain conditions, including obtaining consents from lenders and investors in the Developments.
The Addison on Millenia Investment, LLC
In October 2018, The Addison on Millenia Investment, LLC, a joint venture in which the Company holds a noncontrolling equity interest which had a carrying amount of $5.2 million as of September 30, 2018, sold its 292 unit multifamily apartment facility located in Orlando, Florida. In connection with the sale, the Company received $14.4 million of distributions from the joint venture.
footnotes herein.
4232
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward -LookingExcept as otherwise noted or where the context otherwise requires, the terms “the Company,” “we,” “us,” or “our” refers to BBX Capital Corporation and its consolidated subsidiaries, and the term “BBX Capital” refers to BBX Capital Corporation as a standalone entity.
Forward-Looking Statements
This document contains forward-looking statements based largely on current expectations of BBX Capital Corporation (referred to together with its subsidiaries as the “Company,” “we,” “us,” or “our,” and without its subsidiaries as “BBX Capital”)Company that involve a number of risks and uncertainties. All opinions, forecasts, projections, future plans, or other statements, other than statements of historical fact, are forward-looking statements and can be identified by the use of words or phrases such as “plans,” “believes,” “will,” “expects,” “anticipates,” “intends,” “estimates,” “our view,” “we see,” “would”“would,” and words and phrases of similar import. The forward-looking statements in this document are also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve substantial risks and uncertainties. We can give no assurance that such expectations will prove to be correct. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained herein. Forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. When considering forward-looking statements, the reader should keep in mind the risks, uncertainties, and other cautionary statements made in this report.report and in the Company’s other reports filed with the SEC. The reader should not place undue reliance on any forward-looking statement, which speaks only as of the date made. This document also contains information regarding the past performance of the Company and its respective investments and operations, and theoperations. The reader should note that prior or current performance is not a guarantee or indication of future performance. FutureComparisons of results could differ materiallyfor current and any prior periods are not intended to express any future trends or indications of future performance, and all such information should only be viewed as a result of a variety of risks and uncertainties.historical data.
Some factors which may affectFuture results and the accuracy of the forward-looking statements apply generally to the industries in which the Company operates, including the resort development and vacation ownership industries in which Bluegreen Vacations Corporation (“Bluegreen”) operates, the real estate development and construction industry in which BBX Capital Real Estate operates, the home improvement industry in which Renin Holdings, LLC (“Renin”) operates, and the confectionery industry in which BBX Sweet Holdings, LLC (“BBX Sweet Holdings”) operates.
Thesemay be affected by various risks and uncertainties, include, butincluding the risk factors applicable to the Company which are described in “Item 1. Business – Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”), as well as the risk that Bluegreen Vacations Corporation’s (“Bluegreen” or “Bluegreen Vacations”) relationship with Bass Pro under the revised terms of its marketing agreement with Bass Pro may not limited to:
|
|
|
|
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With respect to Bluegreen may not open kiosks in Cabela’s stores in the risks and uncertainties include, but are not limited to:
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With respect to BBX Capital Real Estate, the risks and uncertainties include, but are not limited to:
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With respect to the Company’s investment activities in middle market operating businesses, the risks and uncertainties include, but are not limited to:
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In addition to the risks and factors identified above, reference is also made to the other risks and factors detailed in this report and the other reports filed by the Company with the SEC, including those disclosed in the “Risk Factors” sectionare not necessarily all of the important factors that could cause the Company’s Annual Report on Form 10-K foractual results to differ materially from those expressed in any of the year ended December 31, 2017 (the “2017 Annual Report”). Theforward-looking statements. Other unknown or unpredictable factors could cause the Company’s actual results to differ materially from those expressed in any of the forward-looking statements. As a result, the Company cautions that the foregoing factors are not exclusive.
Given these uncertainties, you are cautioned not to place undue reliance on forward-looking statements, and you should read this Quarterly Report on Form 10-Q with the understanding that actual future results, levels of activity, performance, and events and circumstances may be materially different from prior results or what the Company expects. The Company qualifies all forward-looking statements by these cautionary statements.
Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and the Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report.
Critical Accounting Policies
ForSee Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the section “Critical Accounting Policies” to the Company’s 2018 Annual Report for a discussion of the Company’s critical accounting policies, see Note 2 to the Company’s condensed consolidated financial statements included in Item 1 of this report and “Critical Accounting Policies” in the Company’s 2017 Annual Report.policies.
33
New Accounting Pronouncements
See Note 1 to the Company’s condensed consolidated financial statements included underin Item 1 of this report for a discussion of new accounting pronouncements applicable to the Company.
Overview
BBX Capital is a Florida-based diversified holding company withwhose principal investments are Bluegreen Vacations, BBX Capital Real Estate LLC (“BBX Capital Real Estate”), Renin Holdings, LLC (“Renin”), and IT’SUGAR, LLC (“IT’SUGAR”). In addition to its principal investments, the Company has other investments in Bluegreen, real estate and real estate joint ventures, and middle market operating businesses. Bluegreen is a sales, marketing and management company focused on the vacation ownership industry. The Company’s real estate investments include real estate joint ventures and the acquisition, development, ownership, financing, and management of real estate. The Company’s investments in middle marketvarious operating businesses, include Renin, a company that manufactures products forincluding companies in the home improvement industry, investments in confectionery businesses through its wholly-owned subsidiary, BBX Sweet Holdings, and more recently, its activities as a franchisee of MOD Pizza.industry.
The Company’s strategygoal is to build long-term shareholder value. Since many of the Company’s assets do not generate income on a regular or predictable basis, ourthe Company’s objective continues to be long-term growth as measured by increases in book value and intrinsic value over time. In addition, the Company’s goal is to streamline its investment verticals so that the Company can be more easily analyzed and followed by the marketplace. The Company regularly reviews the performance of its investments and, based upon economic, market, and other relevant factors, considers transactions involving the sale or disposition of all or a portion of its assets, investments, or subsidiaries. These include, among other alternatives, a sale or spin-off of its assets, investments, or subsidiaries or transactions involving public or private issuances of debt or equity securities which decrease or dilute the Company’s ownership interest in such investments.
In 2016, Food for Thought Restaurant Group (“FFTRG”), a wholly-owned subsidiary of BBX Capital, entered into area development and franchise agreements with MOD Super Fast Pizza (“MOD Pizza”) related to the development of up to approximately 60 MOD Pizza franchised restaurant locations throughout Florida. Through 2019, FFTRG had opened nine restaurant locations. As a result of FFTRG’s overall operating performance and the Company’s goal of streamlining its investment verticals, the Company entered into an agreement with MOD Pizza to terminate the area development and franchise agreements and transferred seven of its restaurant locations, including the related assets, operations, and lease obligations, to MOD Pizza during the third quarter of 2019. In addition, the Company closed the remaining two locations and terminated the related lease agreements. The Company recognized $4.0 million and $6.7 million of impairment losses associated with its investment in MOD Pizza restaurant locations during the three and nine months ended September 30, 2019, respectively.
As of September 30, 2018,2019, the Company had total consolidated assets of approximately $1.7$1.8 billion and shareholders’ equity of approximately $552.7$556.7 million. Net income attributable to shareholders for the three and nine months ended September 30, 2018 was approximately $6.2 million and $23.8 million, respectively. Net income attributable to shareholders for the three and nine months ended September 30, 2017 was approximately $8.1 million and $38.3 million, respectively.
Summary of Consolidated Results of Operations
Consolidated Results
The following summarizes key financial highlights for the three months ended September 30, 20182019 compared to the same 20172018 period:
46
· | Total consolidated revenues |
· | Income before income taxes |
· | Net income attributable to common shareholders |
· | Diluted earnings per share |
The following summarizes key financial highlights for the nine months ended September 30, 20182019 compared to the same 20172018 period:
· | Total consolidated revenues |
· | Income before income taxes |
· | Net income attributable to common shareholders |
· | Diluted earnings per share |
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The Company’s consolidated results for the three and nine months ended September 30, 2019 compared to the same 2018 period were significantly impacted by the following events:following:
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· | The |
The Company’s consolidated results for the three and nine months ended September 30, 2017 were significantly impacted by the following events:
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In addition to the items discussed above for the three months ended September 30, 2019, the Company’s consolidated results for the nine months ended September 30, 2019 compared to the same 2018 period were impacted by the following:
· | The recognition of a |
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· | An increase in Bluegreen’s net carrying cost of VOI inventory primarily due to Bluegreen’s acquisition of the Éilan Hotel and |
· | A decrease in BBX Capital Real |
4735
Segment Results
We currently report the results of our business activities through the following reportable segments: Bluegreen, BBX Capital Real Estate, Renin, and BBX Sweet Holdings.IT’SUGAR.
Information regarding income (loss) before income taxes by reportable segment for the three and nine months ended September 30, 2018 and 2017 is set forth in the table below (in thousands):
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| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||
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| 2018 |
| 2017 |
| Change |
| 2018 |
| 2017 |
| Change |
Bluegreen | $ | 32,516 |
| 34,375 |
| (1,859) |
| 102,679 |
| 108,084 |
| (5,405) |
BBX Capital Real Estate |
| 1,945 |
| 1,421 |
| 524 |
| 15,637 |
| 11,852 |
| 3,785 |
Renin |
| 693 |
| 90 |
| 603 |
| 704 |
| 1,056 |
| (352) |
BBX Sweet Holdings |
| 39 |
| (1,268) |
| 1,307 |
| (8,588) |
| (8,655) |
| 67 |
Corporate Expenses & Other |
| (16,466) |
| (14,968) |
| (1,498) |
| (48,309) |
| (34,547) |
| (13,762) |
Income before income taxes |
| 18,727 |
| 19,650 |
| (923) |
| 62,123 |
| 77,790 |
| (15,667) |
Provision for income taxes |
| (6,742) |
| (8,126) |
| 1,384 |
| (21,997) |
| (30,021) |
| 8,024 |
Net income |
| 11,985 |
| 11,524 |
| 461 |
| 40,126 |
| 47,769 |
| (7,643) |
Less: Net income attributable to |
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noncontrolling interests |
| 5,806 |
| 3,398 |
| 2,408 |
| 16,324 |
| 9,488 |
| 6,836 |
Net income attributable to shareholders | $ | 6,179 |
| 8,126 |
| (1,947) |
| 23,802 |
| 38,281 |
| (14,479) |
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| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | |||||||||
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| 2019 |
| 2018 |
| Change |
| 2019 |
| 2018 |
| Change | |
Bluegreen | $ | 30,353 |
| 32,516 |
| (2,163) |
| 42,516 |
| 102,679 |
| (60,163) | |
BBX Capital Real Estate |
| 29,114 |
| 1,940 |
| 27,174 |
| 50,641 |
| 15,627 |
| 35,014 | |
Renin |
| 479 |
| 693 |
| (214) |
| 1,550 |
| 704 |
| 846 | |
IT'SUGAR |
| 1,200 |
| 1,564 |
| (364) |
| (580) |
| (477) |
| (103) | |
Other |
| (6,259) |
| (2,676) |
| (3,583) |
| (13,045) |
| (11,038) |
| (2,007) | |
Reconciling items and eliminations |
| (13,705) |
| (15,310) |
| 1,605 |
| (42,500) |
| (45,372) |
| 2,872 | |
Income before income taxes |
| 41,182 |
| 18,727 |
| 22,455 |
| 38,582 |
| 62,123 |
| (23,541) | |
Provision for income taxes |
| (14,682) |
| (6,742) |
| (7,940) |
| (15,068) |
| (21,997) |
| 6,929 | |
Net income |
| 26,500 |
| 11,985 |
| 14,515 |
| 23,514 |
| 40,126 |
| (16,612) | |
Less: Net income attributable to noncontrolling interests |
| 4,112 |
| 5,806 |
| (1,694) |
| 11,275 |
| 16,324 |
| (5,049) | |
Net income attributable to shareholders | $ | 22,388 |
| 6,179 |
| 16,209 |
| 12,239 |
| 23,802 |
| (11,563) |
Bluegreen Reportable Segment
Segment Description
Bluegreen is a leading vacation ownership company that markets and sells VOIs and manages resorts in popular leisure and urban destinations. Bluegreen’s resort network includes 45 Club Resorts (resorts in which owners in its Vacation Club have the right to use most of the units in connection with their VOI ownership) and 24 Club Associate Resorts (resorts in which owners in its Vacation Club have the right to use a limited number of units in connection with their VOI ownership). Bluegreen’s Club Resorts and Club Associate Resorts are primarily located in popular, high-volume, “drive-to” vacation locations, including Orlando, Las Vegas, Myrtle Beach and Charleston, among others. Through its points-based system, the approximately 216,000219,000 owners in its Vacation Club have the flexibility to stay at units available at any of its resorts and have access to approximately 11,10011,350 other hotels and resorts through partnerships and exchange networks. Bluegreen has a robust sales and marketing platform supported by exclusive marketing relationships with nationally-recognized consumer brands, Bass Pro and Choice Hotels. These marketing relationshipswhich drive sales within its core demographic.
VOI Sales and Financing
Bluegreen’s primary business is the marketing and sale of deeded VOIs, developed either by Bluegreen or third parties. Customers who purchase these VOIs receive an annual allotment of points, which can be redeemed for stays at one of its resorts or at approximately 11,100 other hotels and resorts available through partnerships and exchange networks. Historically, VOI companies have funded the majority of the capital investment in connection with resort development with internal resources and acquisition and development financing. In 2009, Bluegreen began selling VOIs on behalf of third-party developers and has successfully diversified from a business focused on capital-intensive resort development to a more flexible model with a balanced mix of developed and capital-light inventory. Bluegreen’s relationships with third-party developers enable it to generate fees from the sales and marketing of their VOIs without incurring the significant upfront capital investment generally associated with resort acquisition or development. While sales of acquired or developed inventory typically result in greater income before income taxes and Adjusted EBITDA contribution, fee-based sales typically require no initial investment or development financing risk. Both acquired or developed VOI sales and fee-based VOI sales drive recurring, incremental and long-term fee streams by adding owners to Bluegreen’s Vacation Club and new resort management contracts. In conjunction with
48
sales of VOIs owned by Bluegreen, Bluegreen also generates interest income by originating loans to qualified purchasers. Collateralized by the underlying VOIs, Bluegreen’s loans are generally structured as 10-year, fully-amortizing loans with a fixed interest rate ranging from approximately 12% to 18% per annum. As of September 30, 2018, the weighted-average interest rate on its VOI notes receivable was 15.2%. In addition, Bluegreen earns fees for various other services, including title and escrow services in connection with the closing of VOI sales, and for mortgage servicing.
Resort Operations and Club Management
Bluegreen enters into management agreements with the HOAs that maintain most of the resorts in its Vacation Club and earns fees for providing management services to those HOAs and Bluegreen’s approximately 216,000 Vacation Club owners. These resort management services include oversight of housekeeping services, maintenance, and certain accounting and administration functions. Bluegreen’s management contracts yield highly predictable, recurring cash flows and do not have the traditional risks associated with hotel management contracts that are linked to daily rate or occupancy. Bluegreen’s management contracts are typically structured as “cost-plus,” with an initial term of three years and automatic one-year renewals. In connection with the management services providedSee Item 7 to the Vacation Club, Bluegreen manages the reservation system and provides owner, billing and collection services. Bluegreen has not lost any of the 45 Club Resort management contracts. In additionCompany’s 2018 Annual Report for additional information with respect to resort and club management services, Bluegreen earns fees for various other services that produce recurring, predictable and long term-revenue, including construction management services for third-party developers.
Principal Components Affecting Bluegreen’s Results of Operations
Principal Components of Revenues
Fee-Based Sales. Represent sales of third-party VOIs where Bluegreen is paid a commission.
JIT Sales. Represent sales of VOIs acquired from third parties in close proximity to when Bluegreen intends to sell such VOIs.
Secondary Market Sales. Represent sales of VOIs acquired from HOAs or other owners, typically in connection with maintenance fee defaults. This inventory is generally purchased at a greater discount to retail price compared to developed VOIs and VOIs purchased by Bluegreen for sale as part of Bluegreen JIT sales activities.
Developed VOI Sales. Represent sales of VOIs in resorts that Bluegreen has developed or acquired (not including inventory acquired through JIT and secondary market arrangements).
Financing Revenue. Represents revenue from the financing of VOI sales, which includes interest income and loan servicing fees. Bluegreen also earns fees from providing mortgage servicing to certain third-party developers relating to VOIs sold by them.
Other Fee-Based Services. Represents resort operation and club management fees from managing the Vacation Club and transaction fees for certain resort amenities and certain member exchanges. Bluegreen also earns recurring management fees under its management agreements with HOAs for day-to-day management services, including oversight of housekeeping services, maintenance, and certain accounting and administrative functions. Bluegreen also includes in other fee-based services revenue earned from various other services that produce recurring, predictable and long-term revenue, such as title services.
Principal Components of Costs and Expenses
Cost of VOIs Sold. Represents the cost at which Bluegreen’s owned VOIs sold during the period were relieved from inventory. In addition to inventory from its developed VOI business, Bluegreen’s owned VOIs also include those that were acquired by Bluegreen under JIT and secondary market arrangements. Compared to the cost of Bluegreen’s developed VOI inventory, VOIs acquired in connection with JIT arrangements typically have a relatively higher associated cost of sales as a percentage of sales, while those acquired in connection with secondary market arrangements typically have a lower cost of sales as a percentage of sales, as secondary market inventory is generally obtained from HOAs at a significant discount to retail price. Cost of VOIs sold as a percentage of sales of VOIs varies between periods based on the relative costs of the specific VOIs sold in each period and the size of the point packages of the VOIs sold (primarily due to offered volume discounts, and taking into account consideration of cumulative sales to existing owners). Additionally, the effect of changes in estimates under the relative sales value method,
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including estimates of projected sales, future defaults, upgrades and incremental revenue from the resale of repossessed VOI inventory, are reflected on a retrospective basis in the period the change occurs. Cost of sales will typically be favorably impacted in periods where a significant amount of secondary market VOI inventory is acquired or actual defaults and equity trades are higher and the resulting change in estimate is recognized. While Bluegreen believes that additional inventory will be available through the secondary market at favorable prices in the future, there can be no assurance that such inventory will be available as expected.
Net Carrying Cost of VOI Inventory. Represents the maintenance fees and developer subsidies for unsold VOI inventory paid or accrued to the HOAs that maintain the resorts. Bluegreen attempts to offset this expense, to the extent possible, by generating revenue from renting its VOIs and through utilizing them in its sampler programs. Bluegreen nets such revenue from this expense item.
Selling and Marketing Expense. Represents costs incurred to sell and market VOIs, including costs relating to marketing and incentive programs, tours, and related wages and sales commissions. Revenues from vacation package sales are netted against selling and marketing expenses.
Financing Expense. Represents financing interest expense related to Bluegreen’s receivable-backed debt, amortization of the related debt issuance costs, and expenses incurred in providing financing and servicing loans, including administrative costs associated with mortgage servicing activities for Bluegreen’s loans and the loans of certain third-party developers. Mortgage servicing activities include, among other things, payment processing, reporting and collections services.
Cost of Other Fee-Based Services. Represents costs incurred to manage resorts and the Vacation Club, including payroll and related costs and other administrative costs to the extent not reimbursed by the Vacation Club or HOAs.
General and Administrative Expense. Primarily represents compensation expense for personnel supporting Bluegreen’s business and operations, professional fees (including consulting, audit and legal fees), and administrative and related expenses.operations.
Key Business and Financial Metrics and Terms Used by Management
In addition to the principal components of revenues and expenses affecting Bluegreen’ results of operations, which are further described in Item 7 to the Company’s 2018 Annual Report, Bluegreen’s management uses certain key business and financial metrics and terms to discuss its results of operations, including certain terms which are not recognized by GAAP, which are described below.
Sales of VOIs. Represent sales of Bluegreen’s owned VOIs, including sales of developed VOIs and those acquired through JITjust-in-time (“JIT”) and secondary market arrangements, reduced by equity trade allowances and a provision for loan losses. In addition to the factors impacting system-wide sales of VOIs (as described below), sales of VOIs are impacted by the proportion of system-wide sales of VOIs sold on behalf of third-partiesthird parties on a commission basis, which are not included in sales of VOIs.
System-wide Sales of VOIs. Represents all sales of VOIs, whether owned by Bluegreen or a third party immediately prior to the sale. Sales of VOIs owned by third parties are transacted as sales of VOIs in Bluegreen’s Vacation Club through the same selling and marketing process used to sell Bluegreen’s VOI inventory. Bluegreen considers system-wide sales of VOIs to be an important operating measure because it reflects all sales of VOIs by Bluegreen’s sales
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and marketing operations without regard to whether Bluegreen or a third party owned such VOI inventory at the time of sale. System-wide sales of VOIs is not a recognized term under GAAP and should not be considered as an alternative to sales of VOIs or any other measure of financial performance derived in accordance with GAAP or to any other method of analyzing Bluegreen’s results as reported under GAAP.
Guest Tours. Represents the number of sales presentations given at Bluegreen’s sales centers during the period.
Sale to Tour Conversion Ratio. Represents the rate at which guest tours are converted to sales of VOIs and is calculated by dividing the number of sales transactions by the number of guest tours.
Average Sales Volume Per Guest (“VPG”). Represents the sales attributable to tourseach guest tour at Bluegreen’s sales locations and is calculated by dividing VOI sales of VOIs by guest tours. Bluegreen considers VPG to be an important operating measure because it measures the effectiveness of Bluegreen’s sales process, combining the average transaction price with the sale-to-tour conversion ratio.
EBITDA. Bluegreen defines EBITDA as earnings, or net income (loss), before taking into account interest income (excluding interest earned on VOI notes receivable), interest expense (excluding interest expense incurred on debt secured by VOI notes receivable), income and franchise taxes, and depreciation and amortization. For the purposes of the EBITDA calculation, no adjustments are made for interest income earned on VOI notes receivable or the interest
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expense incurred on debt that is secured by such notes receivable because they are both considered to be part of the operations of Bluegreen’s business.
Adjusted EBITDA. Bluegreen defines Adjusted EBITDA as EBITDA adjusted for EBITDA attributable to the noncontrolling interest in Bluegreen/Big Cedar Vacations (in which Bluegreen owns a 51% interest) and items that Bluegreen believes are not representative of ongoing operating results. Accordingly, amounts paid, accrued, or incurred in connection with the Bass Pro settlement in June 2019 were excluded in the computation of Adjusted EBITDA for the nine months ended September 30, 2019.
Bluegreen considers EBITDA and Adjusted EBITDA to be an indicator of its operating performance, and they are used by Bluegreen to measure its ability to service debt, fund capital expenditures, and expand its business. EBITDA is also used by companies, lenders, investors and others because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels, and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
Bluegreen considers Adjusted EBITDA to be a useful supplemental measure of Bluegreen’s operating performance that facilitates the comparability of historical financial periods.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) or any other measure of financial performance or liquidity, including cash flow, derived in accordance with GAAP, or to any other method of analyzing Bluegreen’s results as reported under GAAP. The limitations of using EBITDA or Adjusted EBITDA as an analytical tool include, without limitation, that EBITDA or Adjusted EBITDA does not reflect (i) changes in, or cash requirements for, working capital needs; (ii) interest expense, or the cash requirements necessary to service interest or principal payments on indebtedness (other than as noted above); (iii) tax expense or the cash requirements to pay taxes; (iv) historical cash expenditures or future requirements for capital expenditures or contractual commitments; or (v) the effect on earnings or changes resulting from matters that Bluegreen considers not to be indicative of its future operations or performance. Further, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. In addition, Bluegreen’s definition of Adjusted EBITDA may not be comparable to definitions of Adjusted EBITDA or other similarly titled measures used by other companies.
5137
Results of Operations
Information regarding the results of operations for Bluegreen, for the three and nine months ended September 30, 2018 and 2017, including a reconciliation of net income to EBITDA and Adjusted EBITDA, is set forth below (dollars in thousands):
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| For the Three Months Ended September 30, |
| For the Three Months Ended September 30, | ||||||||||||
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| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||||||
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| Amount |
| % of System-wide sales of VOIs (5) |
| Amount |
| % of System-wide sales of VOIs (5) |
| Amount |
| % of System-wide sales of VOIs (5) |
| Amount |
| % of System-wide sales of VOIs (5) |
Developed VOI sales (1) | $ | 90,596 |
| 52% | $ | 77,907 |
| 45% | $ | 87,863 |
| 52% | $ | 90,596 |
| 52% |
Secondary market sales |
| 54,300 |
| 31% |
| 38,732 |
| 24% |
| 72,081 |
| 42% |
| 54,300 |
| 31% |
Fee-based sales |
| 88,155 |
| 51% |
| 97,963 |
| 57% |
| 87,646 |
| 51% |
| 88,155 |
| 51% |
JIT sales |
| 13,591 |
| 8% |
| 14,306 |
| 8% |
| 4,505 |
| 3% |
| 13,591 |
| 8% |
Less: Equity trade allowances (6) |
| (73,336) |
| -42% |
| (57,543) |
| -34% |
| (81,720) |
| -48% |
| (73,336) |
| -42% |
System-wide sales of VOIs |
| 173,306 |
| 100% |
| 171,365 |
| 100% |
| 170,375 |
| 100% |
| 173,306 |
| 100% |
Less: Fee-based sales |
| (88,155) |
| -51% |
| (97,963) |
| -57% |
| (87,646) |
| -51% |
| (88,155) |
| -51% |
Gross sales of VOIs |
| 85,151 |
| 49% |
| 73,402 |
| 43% |
| 82,729 |
| 49% |
| 85,151 |
| 49% |
Provision for loan losses (2) |
| (14,453) |
| -17% |
| (10,949) |
| -15% |
| (16,411) |
| -20% |
| (14,453) |
| -17% |
Sales of VOIs |
| 70,698 |
| 41% |
| 62,453 |
| 36% |
| 66,318 |
| 39% |
| 70,698 |
| 41% |
Cost of VOIs sold (3) |
| (11,237) |
| -16% |
| (6,444) |
| -10% |
| (3,121) |
| -5% |
| (11,237) |
| -16% |
Gross profit (3) |
| 59,461 |
| 84% |
| 56,009 |
| 90% |
| 63,197 |
| 95% |
| 59,461 |
| 84% |
Fee-based sales commissions (4) |
| 61,641 |
| 70% |
| 69,977 |
| 71% |
| 60,478 |
| 69% |
| 61,641 |
| 70% |
Financing revenue, net of |
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financing expense |
| 12,323 |
| 7% |
| 13,238 |
| 8% |
| 11,693 |
| 7% |
| 12,323 |
| 7% |
Other fee-based services |
| 47,957 |
| 28% |
| 41,483 |
| 24% |
| 54,855 |
| 32% |
| 47,957 |
| 28% |
Cost of other fee-based services |
| (33,929) |
| -20% |
| (30,442) |
| -18% |
| (38,979) |
| -23% |
| (33,929) |
| -20% |
Net carrying cost of VOI inventory |
| (2,908) |
| -2% |
| (837) |
| 0% |
| (5,878) |
| -3% |
| (2,908) |
| -2% |
Selling and marketing expenses |
| (84,955) |
| -49% |
| (88,116) |
| -51% |
| (87,358) |
| -51% |
| (84,955) |
| -49% |
General and administrative expenses |
| (27,452) |
| -16% |
| (26,818) |
| -16% |
| (29,801) |
| -17% |
| (27,452) |
| -16% |
Operating profit |
| 32,138 |
| 19% |
| 34,494 |
| 20% |
| 28,207 |
| 17% |
| 32,138 |
| 19% |
Other income |
| 378 |
|
|
| (119) |
|
|
| 2,146 |
|
|
| 378 |
|
|
Provision for income taxes |
| (8,443) |
|
|
| (12,584) |
|
|
| (7,778) |
|
|
| (8,443) |
|
|
Net income | $ | 24,073 |
|
| $ | 21,791 |
|
| $ | 22,575 |
|
| $ | 24,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
| 8,443 |
|
|
| 12,584 |
|
|
| 7,778 |
|
|
| 8,443 |
|
|
Income before taxes |
| 32,516 |
|
|
| 34,375 |
|
|
| 30,353 |
|
|
| 32,516 |
|
|
Depreciation and amortization |
| 3,169 |
|
|
| 2,420 |
|
|
| 3,585 |
|
|
| 3,169 |
|
|
Franchise taxes |
| 56 |
|
|
| 72 |
|
|
| 112 |
|
|
| 56 |
|
|
Interest expense (other than interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
incurred on debt that is secured by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOI notes receivable) |
| 4,207 |
|
|
| 3,544 |
|
|
| 5,326 |
|
|
| 4,207 |
|
|
Interest income (other than interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earned on VOI notes receivable) |
| (1,407) |
|
|
| (1,292) |
|
|
| (1,799) |
|
|
| (1,407) |
|
|
EBITDA |
| 38,541 |
|
|
| 39,119 |
|
|
| 37,577 |
|
|
| 38,541 |
|
|
Adjustments for Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate realignment costs |
| - |
|
|
| 3,216 |
|
| ||||||||
Loss on assets held for sale |
| 18 |
|
|
| 4 |
|
| ||||||||
(Gain) loss on assets held for sale |
| (166) |
|
|
| 18 |
|
| ||||||||
EBITDA attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bluegreen/Big Cedar Vacations |
| (3,637) |
|
|
| (3,209) |
|
|
| (2,364) |
|
|
| (3,637) |
|
|
Severance |
| 1,924 |
|
|
| - |
|
| ||||||||
Adjusted EBITDA | $ | 34,922 |
|
| $ | 39,130 |
|
| $ | 36,971 |
|
| $ | 34,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||||||
|
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||||||
|
| Amount |
| % of System-wide sales of VOIs (5) |
| Amount |
| % of System-wide sales of VOIs (5) |
| Amount |
| % of System-wide sales of VOIs (5) |
| Amount |
| % of System-wide sales of VOIs (5) |
Developed VOI sales (1) | $ | 218,842 |
| 46% | $ | 216,451 |
| 46% | $ | 255,288 |
| 55% | $ | 218,842 |
| 46% |
Secondary market sales |
| 185,847 |
| 38% |
| 117,711 |
| 26% |
| 184,571 |
| 40% |
| 185,847 |
| 38% |
Fee-based sales |
| 246,773 |
| 52% |
| 257,756 |
| 55% |
| 237,793 |
| 51% |
| 246,773 |
| 52% |
JIT sales |
| 32,274 |
| 7% |
| 37,374 |
| 8% |
| 9,157 |
| 2% |
| 32,274 |
| 7% |
Less: Equity trade allowances (6) |
| (205,625) |
| -43% |
| (161,951) |
| -35% | ||||||||
Less: Equity trade allowances (6) |
| (223,182) |
| -48% |
| (205,625) |
| -43% | ||||||||
System-wide sales of VOIs |
| 478,111 |
| 100% |
| 467,341 |
| 100% |
| 463,627 |
| 100% |
| 478,111 |
| 100% |
Less: Fee-based sales |
| (246,773) |
| -52% |
| (257,756) |
| -55% |
| (237,793) |
| -51% |
| (246,773) |
| -52% |
Gross sales of VOIs |
| 231,338 |
| 48% |
| 209,585 |
| 45% |
| 225,834 |
| 49% |
| 231,338 |
| 48% |
Provision for loan losses (2) |
| (35,926) |
| -16% |
| (33,491) |
| -16% |
| (39,483) |
| -17% |
| (35,926) |
| -16% |
Sales of VOIs |
| 195,412 |
| 41% |
| 176,094 |
| 38% |
| 186,351 |
| 40% |
| 195,412 |
| 41% |
Cost of VOIs sold (3) |
| (19,838) |
| -10% |
| (11,352) |
| -6% |
| (17,541) |
| -9% |
| (19,838) |
| -10% |
Gross profit (3) |
| 175,574 |
| 90% |
| 164,742 |
| 94% |
| 168,810 |
| 91% |
| 175,574 |
| 90% |
Fee-based sales commissions (4) |
| 167,581 |
| 68% |
| 179,046 |
| 69% |
| 161,033 |
| 68% |
| 167,581 |
| 68% |
Financing revenue, net of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing expense |
| 38,301 |
| 8% |
| 41,894 |
| 9% |
| 36,009 |
| 8% |
| 38,301 |
| 8% |
Other fee-based services |
| 136,629 |
| 29% |
| 124,102 |
| 27% |
| 152,720 |
| 33% |
| 136,629 |
| 29% |
Cost of other fee-based services |
| (94,065) |
| -20% |
| (86,104) |
| -18% |
| (106,390) |
| -23% |
| (94,065) |
| -20% |
Net carrying cost of VOI inventory |
| (7,075) |
| -1% |
| (3,219) |
| -1% |
| (18,853) |
| -4% |
| (7,075) |
| -1% |
Selling and marketing expenses |
| (233,961) |
| -49% |
| (242,040) |
| -52% |
| (235,580) |
| -51% |
| (233,961) |
| -49% |
General and administrative expenses |
| (81,574) |
| -17% |
| (70,217) |
| -15% |
| (119,461) |
| -26% |
| (81,574) |
| -17% |
Operating profit |
| 101,410 |
| 21% |
| 108,204 |
| 23% |
| 38,288 |
| 8% |
| 101,410 |
| 21% |
Other income |
| 1,269 |
|
|
| (120) |
|
|
| 4,228 |
|
|
| 1,269 |
|
|
Provision for income taxes |
| (24,997) |
|
|
| (38,487) |
|
|
| (9,124) |
|
|
| (24,997) |
|
|
Net income | $ | 77,682 |
|
| $ | 69,597 |
|
| $ | 33,392 |
|
| $ | 77,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
| 24,997 |
|
|
| 38,487 |
|
|
| 9,124 |
|
|
| 24,997 |
|
|
Income before taxes |
| 102,679 |
|
|
| 108,084 |
|
|
| 42,516 |
|
|
| 102,679 |
|
|
Depreciation and amortization |
| 9,087 |
|
|
| 7,089 |
|
|
| 10,453 |
|
|
| 9,087 |
|
|
Franchise taxes |
| 180 |
|
|
| 127 |
|
|
| 171 |
|
|
| 180 |
|
|
Interest expense (other than interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
incurred on debt that is secured by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOI notes receivable) |
| 11,136 |
|
|
| 10,415 |
|
|
| 14,564 |
|
|
| 11,136 |
|
|
Interest income (other than interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earned on VOI notes receivable) |
| (4,222) |
|
|
| (5,487) |
|
|
| (5,437) |
|
|
| (4,222) |
|
|
EBITDA |
| 118,860 |
|
|
| 120,228 |
|
|
| 62,267 |
|
|
| 118,860 |
|
|
Adjustments for Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate realignment costs |
| 751 |
|
|
| 3,679 |
|
| ||||||||
(Gain) loss on assets held for sale |
| 9 |
|
|
| 44 |
|
|
| (2,146) |
|
|
| 9 |
|
|
EBITDA attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bluegreen/Big Cedar Vacations |
| (9,521) |
|
|
| (9,183) |
|
|
| (9,339) |
|
|
| (9,521) |
|
|
Severance |
| 1,924 |
|
|
| 751 |
|
| ||||||||
Bass Pro Settlement |
| 39,121 |
|
|
| - |
|
| ||||||||
Adjusted EBITDA | $ | 110,099 |
|
| $ | 114,768 |
|
| $ | 91,827 |
|
| $ | 110,099 |
|
|
5339
(1) | Developed VOI sales represent sales of VOIs acquired or developed by Bluegreen as part of its developed VOI business. Developed VOI sales do not include Secondary Market sales, Fee-Based sales or JIT sales. |
(2) | Percentages for provision for loan losses are calculated as a percentage of gross sales of VOIs, which excludes Fee-Based sales |
(3) | Percentages for costs of VOIs sold and gross profit are calculated as a percentage of sales of VOIs (and not as a percentage of system-wide sales of VOIs). |
(4) | Percentages for Fee-Based sales |
(5) | Represents the applicable line item, calculated as a percentage of system-wide sales of VOIs, unless otherwise indicated in the above footnotes. |
(6) | Equity trade allowances are amounts granted to customers upon trading in their existing VOIs in connection with the purchase of additional VOIs. |
Sales of VOIsVOIs. . Sales of VOIs were $66.3 million and $186.4 million during the three and nine months ended September 30, 2019, respectively, and $70.7 million and $195.4 million during the three and nine months ended September 30, 2018, respectively, and $62.5 million and $176.1 million during the three and nine months ended September 30, 2017, respectively. Sales of VOIs are impacted by the factors described below in system-wide sales of VOIs. Gross sales of VOIs were reduced by $16.4 million and $39.5 million during the three and nine months ended September 30, 2019, respectively, and $14.5 million and $35.9 million during the three and nine months ended September 30, 2018, respectively, and $10.9 million and $33.5 million during the three and nine months ended September 30, 2017,2019, respectively, for the provision for loan losses. The provision for loan losses varies based on the amount of financed, non-fee based sales during the period and changes in Bluegreen’s estimates of future notes receivable performance for existing loans. Bluegreen’s provision for loan losses as a percentage of gross sales of VOIs was 17%20% and 16%17% during the three and nine months ended September 30, 2018,2019, respectively, and 15%17% and 16% for the three and nine months ended September 30, 2017,2018, respectively. The percentage of Bluegreen’s sales which were realized in cash within 30 days from sale decreasedwas approximately 40% and 42% during the three and nine months ended September 30, 2019, respectively, compared to 39% and 41% during the three and nine months ended September 30, 2018, from 41% during the three months ended September 30, 2017 and decreased to 41% during the nine month ended September 30, 2018 from 43% during the nine months ended September 30, 2017.respectively. The increaseincreases in the provision for loan loss for the three months ended September 30, 2018 islosses were primarily due to lower cash sales and the impact of additional reserves on prior years’ originations offset by the impact of an increase in Bluegreen’s weighted-average FICO score in 2018 compared to prior years. Bluegreen has in recent years experienced an increase in itsaverage annual default rates.rates, which Bluegreen believes that a significant portion of the increaseis due in default rates in recent years is duelarge part to the receipt of letters from attorneys and timeshare exit companies who purport to represent certain VOI owners and who have encouraged such owners to become delinquent and ultimately default on their obligations. Defaults associated with such letters in the third quarter of 2019 were up 61% compared to the third quarter of 2018 and up 26% compared to the second quarter of 2019. The increase in such defaults were primarily driven by higher attorney default activity for Bluegreen’s resorts and owners located in Missouri, where Bluegreen believes certain attorneys are currently targeting its customers. See Note 11 – Commitments and Contingencies to the Company’s condensed consolidated financial statements included in Item 1 of this report for additional information regarding such letters and actions taken by Bluegreen in connection with these letters.therewith. While Bluegreen believes its notes receivable are adequately reserved at this time, actual defaults may differ from the estimates, and the reserve may not be adequate. In addition to the factors described below impacting system-wide sales of VOIs, sales of VOIs are impacted by the proportion of system-wide sales of VOIs sold on behalf of third parties on a commission basis, which are not included in sales of VOIs.
The average default rates and delinquency rates (more than 30 days past due) on Bluegreen’s VOI notes receivable were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Twelve Months Ended September 30, |
| For the Twelve Months Ended September 30, | ||||
|
| 2018 |
| 2017 |
| 2019 |
| 2018 |
Average annual default rates |
| 8.41% |
| 8.07% |
| 8.59% |
| 8.41% |
|
|
|
|
|
|
|
|
|
|
| As of September 30, |
| As of September 30, | ||||
|
| 2018 |
| 2017 |
| 2019 |
| 2018 |
Delinquency rates |
| 2.79% |
| 3.06% |
| 3.31% |
| 2.79% |
|
|
|
|
| ||||
|
|
|
|
|
System-wide sales of VOIs. System-wide sales of VOIs were $170.4 million and $463.6 million during the three and nine months ended September 30, 2019, respectively, and $173.3 million and $478.1 million during the three and nine months ended September 30, 2018, respectively, and $171.4 million and $467.3 million during the three and nine months ended September 30, 2017,2019, respectively. Bluegreen estimates that system-wide sales of VOIs were adversely impacted by approximately $5.8$6.0 million and $6.2$5.8 million as a result of named hurricanes in September 20182019 and 2017,2018, respectively. System-wide VOI sales increaseddecreased during the three and nine months ended September 30, 20182019 compared to the comparablesame 2018 periods in 2017 due to an increase in the VPG, partially offset by a decrease in VPG and the number of guest tours. During 2017, Bluegreen began several initiatives to screen the credit qualifications of potential marketing guests, resulting in a higher VPG and a lower number of tours.In addition, Bluegreen believes its screeningthat the decrease in system-wide VOI sales for the nine months ended September 30, 2019 was due in part to disruptions in staffing and operations at certain of marketing guestsBluegreen’s sales offices related to the issues with Bass Pro which were resolved when the parties entered into a settlement agreement in June 2019. See Note 11 to the Company’s condensed consolidated financial statements included in Item 1 of this report for additional information regarding the Bass Pro settlement.
5440
has resulted in improved efficiencies in its sales process; however, there is no assurance that such efficiencies will continue.
Included in system-wide sales are Fee-Based Sales, JIT Sales, Secondary Market Sales, and developed VOI sales. Sales by category are tracked based on which deeded VOI is conveyed in each transaction. Bluegreen manages which VOIs are sold based on several factors, including the needs of fee-based clients, Bluegreen’s debt service requirements, and default resale requirements under term securitizationsecuritizations and similar transactions. These factors contribute to fluctuations in the amount of sales by category from period to period.
The following table sets forth certain information forrelated to Bluegreen’s system-wide sales of VOIs for the three and nine months ended September 30, 2018 and 2017:VOIs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, | ||||||||||||||||||||
|
| 2018 |
| 2017 |
| % Change |
|
| 2018 |
| 2017 |
| % Change |
| 2019 |
| 2018 |
| % Change |
|
| 2019 |
| 2018 |
| % Change | ||||
Number of sales offices at period-end |
| 25 |
| 23 |
| 9% |
|
| 25 |
| 23 |
| 9% |
| 26 |
| 25 |
| 4% |
|
| 26 |
| 25 |
| 4% | ||||
Number of active sales arrangements with |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
third-party clients at period-end |
| 15 |
| 14 |
| 7% |
|
| 15 |
| 14 |
| 7% |
| 15 |
| 15 |
| 0% |
|
| 15 |
| 15 |
| 0% | ||||
Total number of VOI sales transactions |
| 10,955 |
| 11,598 |
| -6% |
|
| 30,959 |
| 30,638 |
| 1% |
| 11,613 |
| 10,955 |
| 6% |
|
| 30,530 |
| 30,959 |
| -1% | ||||
Average sales price per transaction | $ | 15,988 | $ | 15,055 |
| 6% |
| $ | 15,576 | $ | 15,440 |
| 1% | $ | 14,799 | $ | 15,988 |
| -7% |
| $ | 15,290 | $ | 15,576 |
| -2% | ||||
Number of total guest tours |
| 66,434 |
| 69,479 |
| -4% |
|
| 182,183 |
| 193,687 |
| -6% |
| 65,875 |
| 66,434 |
| -1% |
|
| 179,180 |
| 182,183 |
| -2% | ||||
Sale-to-tour conversion ratio – total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
marketing guests |
| 16.5% |
| 16.7% |
| -1% |
|
| 17.0% |
| 15.8% |
| 8% |
| 17.6% |
| 16.5% |
| 7% |
|
| 17.0% |
| 17.0% |
| 0% | ||||
Number of new guest tours |
| 42,118 |
| 45,060 |
| -7% |
|
| 113,621 |
| 125,673 |
| -10% |
| 40,914 |
| 42,118 |
| -3% |
|
| 109,451 |
| 113,621 |
| -4% | ||||
Sale-to-tour conversion ratio – new |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
marketing guests |
| 13.9% |
| 14.1% |
| -1% |
|
| 14.5% |
| 13.1% |
| 11% |
| 14.4% |
| 13.9% |
| 4% |
|
| 14.0% |
| 14.5% |
| -3% | ||||
Percentage of sales to existing owners |
| 50.7% |
| 48.1% |
| 5% |
|
| 51.0% |
| 48.8% |
| 5% |
| 52.5% |
| 50.7% |
| 4% |
|
| 53.9% |
| 51.0% |
| 6% | ||||
Average sales volume per guest | $ | 2,636 | $ | 2,513 |
| 5% |
| $ | 2,647 | $ | 2,442 |
| 8% | $ | 2,609 | $ | 2,636 |
| -1% |
| $ | 2,605 | $ | 2,647 |
| -2% |
Cost of VOIs Sold. During the three months ended September 30, 20182019 and 2017,2018, cost of VOIs sold was $11.2$3.1 million and $6.4$11.2 million, respectively, and represented 16%5% and 10%16%, respectively, of sales of VOIs. During the nine months ended September 30, 20182019 and 2017,2018, cost of VOIs sold was $19.8$17.5 million and $11.4$19.8 million, respectively, and represented 10%9% and 6%10%, respectively, of sales of VOIs. During the three months ended September 30, 2018, Bluegreen’s VOI sales were of comparatively higher cost product, and Bluegreen acquired less secondary market VOI inventory as compared to the three months ended September 30, 2017. Secondary market purchases were temporarily suspended in September 2018, in connection with a computer system conversion involving its sales and inventory process. Cost of VOIs sold as a percentage of sales of VOIs varies between periods based on the relative costs of the specific VOIs sold in each period and the size of the point packages of the VOIs sold or acquired (due to offered volume discounts, including consideration of cumulative sales to existing owners). Additionally, the effect of changes in estimates under the relative sales value method, including estimates of project sales, future defaults, upgrades, and incremental revenue from the resale of repossessed VOI inventory, are reflected on a retrospective basis in the period the change occurs. Therefore, cost of sales will typically be favorably impacted in periods wherein which a significant amount of Secondary Market VOI inventory is acquired or actual defaults and equity trades are higher than originally estimatedanticipated and the resulting change in estimate is recognized. During the second quarter of 2017,2019 periods, Bluegreen implemented a revised VOI pricing matrix. These changes increased the average selling price of VOIs by approximately 4%. As a result of this pricing change, Bluegreen also increased its estimate of total gross margin that will be generated on the sale of itsacquired more Secondary Market VOI inventory undercompared to the relative2018 periods due to a temporary suspension of Secondary Market VOI inventory purchases in September 2018 in connection with a computer system conversion involving Bluegreen’s sales value method. Accordingly,and inventory process. In addition, during the second quarter of 2017, Bluegreen recognized a benefit to cost of VOI sold of $5.1 million with no comparable price increase and2019 periods, Bluegreen’s cost of sales benefitbenefited from sales of relatively lower cost VOIs as compared to the 2018 periods in 2018.which relatively higher cost VOIs were sold.
Fee-Based Sales Commissions.Commission Revenue. During the three months ended September 30, 20182019 and 2017,2018, Bluegreen sold $88.2$87.6 million and $98.0$88.2 million, respectively, of third-party VOI inventory under commission arrangements and earned sales and marketing commissions of $61.6$60.5 million and $70.0$61.6 million, respectively, in connection with those sales. During the nine months ended September 30, 20182019 and 2017,2018, Bluegreen sold $246.8$237.8 million and $257.8$246.8 million, respectively, of third-party VOI inventory under commission arrangements and earned sales and marketing commissions of $167.6$161.0 million and $179.0$167.6 million, respectively, in connection with those sales. The decreases in sales of third-party developer inventory on a commission basis during the 2019 periods were due primarily to the factors described above relating to the decrease in system-wide sales of VOIs. Bluegreen earned an average sales and marketing commission of 69% and 68% during the three and nine months ended September 30, 2019, respectively, and 70% and 68% during the three and nine months ended September 30, 2018, respectively, compared to 71% and 69% during the three and nine months ended September 30, 2017,
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respectively, which is net of a reserve for commission refunds in connection with early defaults and cancellations, pursuant to the terms of certain of itsBluegreen’s fee-based service arrangements. The decrease in sales and marketing commissions as a percentage of fee-based sales for the three and ninemonths ended September 30, 2019 as compared to the three months ended September 30, 2018 is primarily related to the mix of developer sales at higher commission rates in the 2017 periods,2018 period as well as higher commissionreserves for early tenured defaults in the 2019 period, which Bluegreen refunds associated with defaults and cancellations.to third-party developers in certain circumstances.
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Financing Revenue, Net of Financing Expense. During the three and nine months ended September 30, 2018 and 2017,2019, financing revenue, net of financing expense was $11.7 million and $36.0 million, respectively, compared to $12.3 million and $13.2$38.3 million respectively, and during the nine months ended September 30,respective comparable 2018 and 2017, was $38.3 million and $41.9 million, respectively.periods. The decrease in finance revenue, net of finance expense is primarily attributable to a result of Bluegreen’s higher weighted average cost of borrowing and lower weighted average interest rates on VOI notes receivable,higher outstanding debt balances during the 2019 periods as compared to the 2018 periods. Additionally, in September 2019, Bluegreen paid off its 2013 Notes Payable and, in connection with the introductionthis repayment, wrote off unamortized debt issuance costs of “risk-based pricing” pursuant$0.4 million which contributed to which buyer’s interest rates are determined based on their FICO score at the point of sale, partially offset by an increase in Bluegreen’s VOI notes receivable portfolio. interest expense in the 2019 periods.
Other Fee-Based Services. During the three and nine months ended September 30, 2018 and 2017,2019, revenue from Bluegreen’s resort operations, club management, and title operations was $54.9 million and $152.7 million, respectively, compared to $48.0 million and $41.5$136.6 million, respectively which wasduring the comparable 2018 periods. These other fee-based services revenues were partially offset by expenses directly related to these operations of $33.9$39.0 million and $30.4$106.4 million, respectively. Duringfor the three and nine months ended September 30, 20182019, respectively, and 2017, revenue from Bluegreen’s resort operations, club management and title operations was $136.6$33.9 million and $124.1 million, respectively, which was partially offset by expenses directly related to these operations of $94.1 million and $86.1 million,for the comparable 2018 periods, respectively.
Other fee-based services revenue increased 15.6%14% and 10.1%12% during the three and nine months ended September 30, 20182019, respectively, as compared to the same periods in 2017.2018. Bluegreen providesCost reimbursement revenue, which primarily consists of payroll and payroll related costs for management services to the Vacation Club and to a majority of the HOAs of the resorts within the Vacation Club. In connection with its managementand other services Bluegreen also managesprovides where Bluegreen is the Vacation Club reservation system, provides services to ownersemployer, increased 25% during both the three and performs billing and collection servicesnine months ended September 30, 2019 as compared to the Vacation Clubcomparable 2018 periods. Net of cost reimbursement revenue, resort operations and certain HOAs. Additionally, Bluegreen generatesclub management revenues from its Traveler Plus program, foodincreased 7% and beverage operations at5% for the resorts,three and other retail operations. Bluegreen also earns commissions from providing rental services to third parties and fees from managing the construction activities of certain of its fee based third-party developer clients. The resort properties Bluegreen manages increased from 48 as ofnine months ended September 30, 20172019 as compared to 49 as of September 30,the comparable 2018 due to a new resort under management in New Orleans, Louisiana.periods. Resort operations and club management revenues increased during the 20182019 periods compared to the 20172018 periods primarily as a result of such increasethe receipt of management fees for the full periods in the number of2019 related to managed resorts added during 2018 and the foodhigher third-party rental commissions. Bluegreen managed 49 resort properties as of both September 30, 2019 and beverage and other operations at the Éilan Hotel & Spa, which Bluegreen acquired in AprilSeptember 30, 2018.
DuringCost of other fee-based services increased 15% and 13% during the three and nine months ended September 30, 2018, cost of other fee-based services increased 11.5% and 9.3%2019, respectively, as compared to the three and nine months ended September 30, 2017.same periods in 2018. This increase iswas primarily due to increased cost reimbursement expense and the higher costs associated with programs provided to VOI owners, the increased costs of providing management services as a resulttiming of the increase in the number ofnew managed resorts and the operating costs of the Éilan Hotel & Spa.described above.
Net Carrying Cost of VOI Inventory.The carrying cost of Bluegreen’s VOI inventory was $7.2$9.2 million and $4.1$7.2 million during the three months ended September 30, 20182019 and 2017,2018, respectively, which was partlypartially offset by rental and sampler revenues of $4.3$3.3 million and $3.3$4.3 million, respectively. The carrying cost of Bluegreen’s inventory was $20.1$26.7 million and $12.5$20.1 million during the nine months ended September 30, 20182019 and 2017,2018, respectively, which was partlypartially offset by rental and sampler revenues of $13.0$7.8 million and $9.3$13.0 million, respectively. The increase in net carrying costs of VOI inventory was primarily related to Bluegreen’s acquisition of the Éilan Hotel and Spa during April 2018, increased maintenance fees and developer subsidies associated with the increase in VOI inventory, decreased rentals of developer inventory, and decreased net operating profits from Bluegreen’s sampler program.
Selling and Marketing Expenses. Selling and marketing expenses were $87.4 million and $235.6 million during the three and nine months ended September 30, 2018 is primarily due to Bluegreen’s acquisition of the Éilan Hotel & Spa during April 2018, which added $1.6 million2019, respectively, and $2.9 million, respectively, to the carrying costs of Bluegreen’s VOI inventory, and increased maintenance fees and developer subsidies associated with its increase in VOI inventory.
Selling and Marketing Expenses. Selling and marketing expenses were $85.0 million and $88.1$234.0 million during the three months ended September 30, 2018 and 2017, respectively, and $234.0 million and $242.0 million during the nine months ended September 30, 2018, and 2017, respectively. As a percentage of system-wide sales of VOIs, selling and marketing expenses decreasedincreased to 49%51% during both the three and nine months ended September 30, 20182019 from 51% and 52%49% during both the three and ninesix months ended September 30, 2017,2018, respectively. SellingThe increase in selling and marketing expenses varyas a percentage of system-wide sales of VOIs is primarily attributable to higher costs per guest tour and lower VPG.
Bluegreen’s agreement with Bass Pro previously provided for the payment of a variable commission upon the sale of a VOI to a marketing prospect obtained through the Bass Pro marketing channels. As discussed herein, pursuant to the settlement agreement and amended marketing arrangement with Bass Pro, the settlement payments and a portion of the ongoing annual marketing fees are fixed costs and/or are subject to annual minimums regardless of the volume of VOI sales produced from the resulting marketing prospects generated from the amended agreement. If Bluegreen’s amended agreement with Bass Pro does not generate a sufficient number of prospects and leads or is terminated or limited, Bluegreen may not be able to successfully market and sell its products and services at current sales levels, at anticipated levels, or at levels required in order to offset the costs associated with its marketing efforts. In addition, the amended arrangement with Bass Pro is expected to result in an annual 9% increase in Bluegreen’s marketing expenses as a percentage of sales from period to periodthe program based in part on the relative proportion ofincrease in fixed costs associated with the program and anticipated VOI sales volumes from this marketing methods utilized during such periods, most notablychannel. Should Bluegreen’s VOI sales volumes be below expectations, the percentage of sales to Bluegreen’s existing owners, which has a relatively lower cost compared to other methods. Existing owner sales increased to 51% of system-wide sales during both the three and nine months ended September 30, 2018 from 48% during the three months ended September 30, 2017 and 49% during the nine months ended September 30, 2017. In addition, Bluegreen’s corporate realignment initiative commenced during the fourth quarter of 2017, as described in further detailincrease in the Company’s 2017 Annualcosts of this marketing program would be higher than expected, and Bluegreen’s results of operations and cash flows would be adversely impacted.
5642
Report, reduced certain selling and marketing expenses. See also “Commitments” below for additional information regarding Bluegreen’s corporate realignment initiative.
General and Administrative Expenses. General and administrative expenses were $27.5$29.8 million and $26.8$119.5 million during the three months ended September 30, 2018 and 2017, respectively, and $81.6 million and $70.2 million during the nine months ended September 30, 20182019, respectively, and 2017,$27.5 million and $81.6 million during the three and nine months ended September 30, 2018, respectively. As a percentage of system-wide sales of VOIs, general and administrative expenses were 16%17% and 26% during both the three months ended September 30, 2018 and 2017, respectively, and 17% and 15% during the nine months ended September 30, 20182019 and 2017, respectively. The increase in16% and 17% for the three and nine months ended September 30, 2018, as comparedrespectively. General and administrative expenses for the nine months ended September 30, 2019 include a charge of $39.1 million related to the comparable prior year periodssettlement of the dispute with Bass Pro in June 2019. See Note 11 to the Company’s condensed consolidated financial statements included in Item 1 of this report for additional information regarding the Bass Pro settlement. In addition, during the three and nine months ended September 30, 2019, Bluegreen accrued severance and transition expenses of $1.9 million pursuant to agreements entered into with certain executives and members of management during 2019.
Other Income. Other income was primarily due to higher executive leadership$2.1 million and long-term incentive compensation expense, higher outside legal expenses$4.2 million during the three and nine months ended September 30, 2019, respectively, and $0.4 million and $1.3 million during the three and nine months ended September 30, 2018, respectively. These increases in connection with a new focus on defending litigation which Bluegreen believes to be frivolous, higher self-insured health care costs, depreciation expense, executive severance expense, including thoseother income, net were primarily related to corporate realignment activities commencinga land sale during June 2019, which resulted in December 2017,a gain of $2.0 million, and expensesthe receipt of $1.7 million in business interruption insurance proceeds in July 2019 related to investor and public relations associated with being a public company.named hurricane in 2017.
BBX Capital Real Estate Reportable Segment
Segment Description
BBX Capital Real Estate’s primary activities includeEstate (or BBXRE) is engaged in the acquisition, development, construction, ownership, financing, and management of real estate and investments in real estate joint ventures. BBX Capital Real Estateventures, including investments in multifamily apartment and townhome communities, single-family master-planned communities, and commercial properties located primarily in Florida. In addition, BBXRE owns a 50% equity interest in the Altman Companies, a developer and manager of multifamily apartment communities.
BBXRE also manages the legacy assets acquired in connection with the Company’s sale of BankAtlantic in July 2012. The legacy assets include2012, including portfolios of loans receivable and real estate properties, and loans previously charged-off by BankAtlantic.properties.
Current Trends and Developments
Beacon Lake Master Planned Development
During the nine months ended September 30, 2018, BBX Capital Real Estate invested in two real estate joint ventures to potentially develop multifamily apartment communities in Miami and Odessa, Florida and2019, BBXRE continued its development of the Beacon Lake Community in St. Johns County, Florida withand sold to homebuilders the closing of 205remaining 51 developed lots to homebuilders.in Phase I of the project, which is comprised of 302 lots. In addition, BBXRE is currently developing the projects associated with its unconsolidatedlots comprising Phase II of the project, which is expected to include approximately 400 single-family homes and 196 townhomes, and 79 lots for single-family homes as part of a future phase of the project. BBXRE anticipates that sales of Phase II lots to homebuilders will commence during the first quarter of 2020.
The Altman Companies and Related Investments
In 2018, BBXRE acquired a 50% membership interest in the Altman Companies, a joint venture between the Company and Joel Altman (“JA”) engaged in the development, construction, and management of multifamily apartment communities. As of September 30, 2019, BBXRE had investments in nine active developments sponsored by the Altman Companies, comprised of three developments that are stabilized or being leased and expected to be sold over the next two years, four developments that are under construction, and two projects that are currently in predevelopment stages.
During the nine months ended September 30, 2019, BBXRE monetized certain of its investments in real estate joint ventures that were sponsored by the Altman Companies, including the following:
· | In April 2019, the Altis at Lakeline joint venture sold its 354 unit multifamily apartment community located in Cedar Park, Texas. As a result of the sale, BBXRE recognized $5.0 million of equity earnings and received approximately $9.3 million of distributions from the venture during the nine months ended September 30, 2019. |
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· | In August 2019, the Altis at Bonterra joint venture sold its 314 unit multifamily apartment community located in Hialeah, Florida. As a result of the sale, BBXRE recognized $29.1 million of equity earnings and received approximately $46.0 million of distributions from the joint venture during the nine months ended September 30, 2019. In addition, prior to the sale, BBXRE received approximately $4.3 million of distributions from the venture during the nine months ended September 30, 2019 related to prior operating profits of the venture. |
BBXRE also continued to progress, includinginvest in new real estate joint ventures sponsored by the sale of commercial buildingsAltman Companies, which are summarized below:
· | In August 2019, BBXRE invested $4.5 million in the Altis at Vineland Pointe joint venture, which was formed to acquire land, obtain entitlements, and fund predevelopment costs for the development of a potential multifamily apartment community in Orlando, Florida. The joint venture expects to receive entitlements for the project, close on permanent development financing, and commence construction in 2020. |
During the nine months ended September 30, 2019, the PGA Design Center joint venture sold its remaining commercial buildings located in Palm Beach Gardens, Florida and BBX/S Millenia Blvdprovided seller financing to the buyer for a portion of the sales price. As a result of the sale, BBXRE recognized $2.8 million of equity earnings and received approximately $2.3 million of distributions from the venture.
In addition, BBXRE invested in two new real estate joint ventures, duringincluding The Main Las Olas joint venture, which was formed to invest in the development of The Main Las Olas, a mixed-used project in downtown Fort Lauderdale, Florida that is planned to be comprised of an office tower with approximately 365,000 square feet of leasable area, a residential tower with approximately 341 units, and approximately 45,000 square feet of ground floor retail, and the Sky Cove joint venture, which was formed to develop, construct, and sell 204 single-family homes in Westlake Florida. BBXRE has invested $1.9 million in The Main Las Olas joint venture and $4.2 million in the Sky Cove joint venture and expects to invest an additional $2.1 million in The Main Las Olas joint venture as the development progresses.
Other Real Estate Activity
During the nine month periodmonths ended September 30, 2019, BBXRE sold other various real estate assets within its portfolio, including RoboVault, a self-storage facility located in Fort Lauderdale, Florida, its remaining land parcels located at PGA Station in Palm Beach Gardens, Florida, and land parcels located in St. Cloud, Florida and Leesburg, Florida. As a result of these sales, BBXRE recognized total net gains on sales of real estate of $11.4 million and received aggregate net proceeds of $32.1 million. In connection with the sale of a multifamily apartment complexits remaining land parcels at PGA Station, which were sold to the buyer of the commercial buildings sold by the Addison on MilleniaPGA Design Center joint venture, as described above, BBXRE reinvested $2.1 million of the proceeds in October 2018. the PGA Lender joint venture, a joint venture formed with the PGA Design Center joint venture to invest in the seller financing provided to the buyer by the PGA Design Center joint venture.
While revenues and recoveries from loan losses associated with the legacy asset portfolio have generally been decreasing as a result of an overall decline in the outstanding balance of the portfolio, BBX Capital Real Estate generated significant activity in the portfolio during the first half of 2018, including the repayment and settlement of commercial nonaccrual loans and the sale of a student housing complex previously acquired through foreclosure.
In October 2018, BBX Capital Real Estate entered into an agreement pursuant to which it has agreed, subject to the satisfaction or waiver of the conditions to closing, to acquire a fifty percent (50%) membership interest in The Altman Companies, LLC (“Altman Companies”), a real estate development company which operates a fully integrated multifamily platform covering all aspects of the development process and includes membership interests in Altman Development Company, Altman-Glenewinkel Construction, and Altman Management Company, for a purchase price of $11.8 million. Simultaneously with this investment, BBX Capital Real Estate has agreed to acquire interests in the managing member of eight multifamily real estate developments affiliated with Altman Companies (the “Developments”) for an aggregate purchase price of $10.9 million, subject to adjustment based on the terms of the agreement. BBX Capital Real Estate has also agreed, subject to various terms and conditions, to acquire an additional forty percent (40%) of the membership interests in Altman Companies for a purchase price of $9.4 million in approximately four years after the closing of the initial purchase. The seller, Joel Altman, can also, at his option, or in other predefined circumstances, require BBX Capital Real Estate to acquire the remaining ten percent (10%) interest in Altman Companies for $2.4 million.
BBX Capital Real Estate expects that Altman Companies will continue to operate primarily as a real estate developer with Joel Altman serving as its Chief Executive Officer. It is anticipated that, if the transaction is consummated, BBX
5744
Capital Real Estate and Joel Altman will invest in future projects based on their relative ownership percentages in Altman Companies going forward.
Closing of the investment in Altman Companies and the Developments is subject to the satisfaction or waiver of certain conditions, including obtaining consents from lenders and investors in the Developments.
BBX Capital Real Estate remains focused on identifying additional investment opportunities and expanding its development pipeline.
Results of Operations
Information regarding the results of operations for BBX Capital Real Estate for the three and nine months ended September 30, 2018 and 2017BBXRE is set forth below (dollars in thousands):
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| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||||||||||
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| 2018 |
| 2017 |
| Change |
| 2018 |
| 2017 |
| Change |
| 2019 |
| 2018 |
| Change |
| 2019 |
| 2018 |
| Change |
Sales of real estate inventory | $ | 7,478 |
| - |
| 7,478 |
| 17,138 |
| - |
| 17,138 | $ | 370 |
| 7,478 |
| (7,108) |
| 5,030 |
| 17,138 |
| (12,108) |
Interest income |
| 229 |
| 697 |
| (468) |
| 2,064 |
| 1,915 |
| 149 |
| 166 |
| 229 |
| (63) |
| 631 |
| 2,064 |
| (1,433) |
Net (losses) gains on sales of |
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real estate assets |
| (4) |
| (18) |
| 14 |
| 4,798 |
| 1,668 |
| 3,130 | ||||||||||||
Net gains on sales of real estate assets |
| 399 |
| - |
| 399 |
| 11,395 |
| 4,802 |
| 6,593 | ||||||||||||
Other |
| 576 |
| 964 |
| (388) |
| 2,024 |
| 3,023 |
| (999) |
| 197 |
| 572 |
| (375) |
| 1,492 |
| 2,020 |
| (528) |
Total revenues |
| 8,279 |
| 1,643 |
| 6,636 |
| 26,024 |
| 6,606 |
| 19,418 |
| 1,132 |
| 8,279 |
| (7,147) |
| 18,548 |
| 26,024 |
| (7,476) |
Cost of real estate inventory sold |
| 4,655 |
| - |
| 4,655 |
| 11,283 |
| - |
| 11,283 |
| - |
| 4,655 |
| (4,655) |
| 2,643 |
| 11,283 |
| (8,640) |
Recoveries from loan losses, net |
| (443) |
| (2,005) |
| 1,562 |
| (7,236) |
| (6,098) |
| (1,138) |
| (1,821) |
| (443) |
| (1,378) |
| (4,206) |
| (7,258) |
| 3,052 |
Asset impairments, net |
| 191 |
| 1,233 |
| (1,042) |
| 340 |
| 1,278 |
| (938) | ||||||||||||
Selling, general and |
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administrative expenses |
| 2,304 |
| 3,099 |
| (795) |
| 7,165 |
| 8,002 |
| (837) | ||||||||||||
Impairment losses |
| 37 |
| 193 |
| (156) |
| 37 |
| 362 |
| (325) | ||||||||||||
Selling, general and administrative expenses |
| 2,336 |
| 2,307 |
| 29 |
| 6,709 |
| 7,175 |
| (466) | ||||||||||||
Total costs and expenses |
| 6,707 |
| 2,327 |
| 4,380 |
| 11,552 |
| 3,182 |
| 8,370 |
| 552 |
| 6,712 |
| (6,160) |
| 5,183 |
| 11,562 |
| (6,379) |
Equity in net earnings of |
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unconsolidated joint ventures |
| 373 |
| 2,105 |
| (1,732) |
| 1,165 |
| 8,428 |
| (7,263) | ||||||||||||
Equity in net earnings of unconsolidated joint ventures |
| 28,534 |
| 373 |
| 28,161 |
| 37,276 |
| 1,165 |
| 36,111 | ||||||||||||
Income before income taxes | $ | 1,945 |
| 1,421 |
| 524 |
| 15,637 |
| 11,852 |
| 3,785 | $ | 29,114 |
| 1,940 |
| 27,174 |
| 50,641 |
| 15,627 |
| 35,014 |
BBX Capital Real Estate’s income before income taxes for the three months ended September 30, 20182019 compared to the same 20172018 period increased by $0.5$27.2 million primarily due to the following:
· |
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· | A net increase in recoveries from loan losses primarily due to payments received in 2019 from guarantors on two previously charged off commercial loans; partially offset by |
· | A decrease in net profits from the sale of |
BBX Capital Real Estate’s income before income taxes for the nine months ended September 30, 2019 compared to the same 2018 period increased by $35.0 million primarily due to the following:
· | A net increase in equity in earnings of unconsolidated joint ventures and gains on sales of real estate assets primarily associated with the sales in the 2019 period described above, as well as the sale of single-family homes by the Chapel Trail joint venture; partially offset by |
· | The recognition of a $3.1 million net gain upon the sale of a student housing complex in the 2018 period; |
· | A decrease in interest income and recoveries from loan losses primarily due to the continued decline in the balance of the legacy asset portfolio, as several significant nonaccrual commercial loans were repaid in 2018; and |
· | A decrease in |
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BBX Capital Real Estate’s income before taxes for the nine months ended September 30, 2018 compared to the same 2017 period increased by $3.8 million primarily due to the following:
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Renin Reportable Segment
Segment Description
Renin is engaged in the design, manufacture, and distribution of specialtysliding doors, door systems and hardware, and home décor products in the United States and Canada and operates through its headquarters in Canada and two manufacturing and distribution facilities in the United States and Canada. In addition to its own manufacturing, Renin also sources various products and raw materials from China. Renin’s products are sold through three channels in North America: retail, commercial, and direct installation in the greater Toronto area.
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Current Trends and Developments
During 2018,2019, Renin has continued to experience a shift in its customer mix towardtowards retail customers, including big box retailers, while its barn door product has increasedproducts have continued to increase as a percentage of its overall product mix. In particular, during the nine months ended September 30, 2018,2019, retail, commercial, and direct installation trade sales as a percentage of total gross trade sales were 57%64%, 32%26%, and 11%10%, respectively, as compared to 49%58%, 37%,32% and 14%10% during the same 2017 period, which primarilycomparable 2018 period. This shift reflects the addition of Costco as a retail customer of barn doors, the expansion of Renin’s sales program with Lowe’s to include additional stores, and a decrease in commercial and direct installation tradesales. As a result, Renin’s sales and an increase in sales to e-commerce retail customers. During the nine months ended September 30, 2018, Renin’sof barn door salesproducts as a percentage of total gross sales increased to 30% from 19%34% during the same 2017 period, which reflects an overall increase in barn door sales and a decrease in sales across various other product types, including closet doors and hardware and direct installation sales.
Although they did not have a significant impact on Renin’s results of operations for the nine months ended September 30, 2019 from 29% during the same 2018 tariffs on goods imported from Canada and China could have a material impact on Renin’s operations. However, the ultimate impact of such tariffs is uncertain at this time.period.
Results of Operations
Information regarding the results of operations for Renin for the three and nine months ended September 30, 2018 and 2017 is set forth below (dollars in thousands):
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| 2018 |
| 2017 |
| Change |
| 2018 |
| 2017 |
| Change |
| 2019 |
| 2018 |
| Change |
| 2019 |
| 2018 |
| Change |
Trade sales | $ | 15,330 |
| 16,463 |
| (1,133) |
| 47,205 |
| 51,447 |
| (4,242) | $ | 16,442 |
| 15,330 |
| 1,112 |
| 51,124 |
| 47,205 |
| 3,919 |
Cost of trade sales |
| (12,306) |
| (13,509) |
| 1,203 |
| (38,454) |
| (41,332) |
| 2,878 |
| (12,983) |
| (12,306) |
| (677) |
| (40,989) |
| (38,454) |
| (2,535) |
Gross margin |
| 3,024 |
| 2,954 |
| 70 |
| 8,751 |
| 10,115 |
| (1,364) |
| 3,459 |
| 3,024 |
| 435 |
| 10,135 |
| 8,751 |
| 1,384 |
Selling, general and administrative expenses |
| 2,849 |
| 2,250 |
| 599 |
| 8,326 |
| 7,641 |
| 685 | ||||||||||||
Total operating profits |
| 610 |
| 774 |
| (164) |
| 1,809 |
| 1,110 |
| 699 | ||||||||||||
Other revenue |
| - |
| - |
| - |
| 152 |
| - |
| 152 | ||||||||||||
Interest expense |
| 157 |
| 161 |
| (4) |
| 497 |
| 343 |
| 154 |
| (131) |
| (157) |
| 26 |
| (387) |
| (497) |
| 110 |
Selling, general and |
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|
|
|
|
|
|
|
|
|
|
| ||||||||||||
administrative expenses |
| 2,250 |
| 2,598 |
| (348) |
| 7,641 |
| 8,404 |
| (763) | ||||||||||||
Foreign exchange (gain) loss |
| (76) |
| 105 |
| (181) |
| (91) |
| 312 |
| (403) | ||||||||||||
Total costs and expenses |
| 2,331 |
| 2,864 |
| (533) |
| 8,047 |
| 9,059 |
| (1,012) | ||||||||||||
Foreign exchange gain (loss) |
| - |
| 76 |
| (76) |
| (24) |
| 91 |
| (115) | ||||||||||||
Income before income taxes | $ | 693 |
| 90 |
| 603 |
| 704 |
| 1,056 |
| (352) | $ | 479 |
| 693 |
| (214) |
| 1,550 |
| 704 |
| 846 |
Gross margin percentage | % | 19.73 |
| 17.94 |
| 1.79 |
| 18.54 |
| 19.66 |
| (1.12) | % | 21.04 |
| 19.73 |
| 1.31 |
| 19.82 |
| 18.54 |
| 1.29 |
SG&A as a percent of trade sales | % | 14.68 |
| 15.78 |
| (1.10) |
| 16.19 |
| 16.34 |
| (0.15) | % | 17.33 |
| 14.68 |
| 2.65 |
| 16.29 |
| 16.19 |
| 0.10 |
Renin’s income before income taxes for the three months ended September 30, 20182019 was $0.5 million compared to $0.7 million during the same 2017 period increased by $0.6 million2018 period. The decrease was primarily due to the following:
· | An increase in selling, general and administrative expenses primarily due to consulting expenses related to the |
· | An increase in trade sales primarily due to |
· |
|
59
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Renin’s income before income taxes for the nine months ended September 30, 20182019 was $1.6 million compared to $0.7 million during the same 2017 period decreased by $0.4 million2018 period. The increase was primarily due to an increase in trade sales and gross margin, partially offset by an increase in selling, general and administrative expenses, primarily related to the following:factors described above related to the three months ended September 30, 2019 and 2018.
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BBX Sweet HoldingsIT’SUGAR Reportable Segment
Segment Description
BBX Sweet HoldingsIT’SUGAR is engaged in the acquisition and management of businesses in the confectionery industry, including manufacturers, wholesalers, and retailers of chocolate, hard candy, and confectionery products.
Current Trends and Developments
In June 2017, BBX Sweet Holdings acquired IT’SUGAR, a specialty candy retailer which currently has over 90operates approximately 100 retail locations in 26over 25 states and Washington, DC. IT’SUGAR’sD.C. Its products include bulk candy, candy in giant candy packaging, and novelty items that are sold at its retail locations, which include a mix of high-traffic resort and entertainment, lifestyle, mall/outlet, and urban locations. During 2018, IT’SUGAR opened three new retail stores and plans to open a fourth bylocations across the end of 2018.United States.
During 2018, BBX Sweet Holdings exited its manufacturing facility in Utah and reduced the headcount at its corporate office, which resulted in the recognition of various costs, including severance costs for certain employees, lease obligations, and impairments of property and equipment.
In addition, the Company is continuing to evaluate the remaining operations of BBX Sweet Holdings’ wholesale business. To the extent that the Company decides to divest of or otherwise exit these wholesale operations, BBX Sweet Holdings may recognize additional impairment charges and incur additional costs in 2018 or in future periods. As of September 30, 2018, the net book value of the operations under evaluation was $8.6 million, and the total estimated future minimum rental payments for operating leases was $0.6 million.
6046
Current Trends and Developments
During 2019, IT’SUGAR continued to invest capital in several new retail locations, including Grand Bazaar, a 6,000 square foot flagship location in Las Vegas, Nevada that was opened in June 2019, and a new retail location in Orlando, Florida that was opened in March 2019. In addition, IT’SUGAR expects to open a 21,000 square foot, three story flagship location at American Dream, a 3 million square foot shopping and entertainment complex in New Jersey, during the fourth quarter of 2019. IT’SUGAR is also continuing to evaluate the lease agreements for its current retail locations where sales volumes may give rise to early lease termination rights and the potential opportunity to renegotiate lease terms and occupancy costs.
IT’SUGAR’s results of operations are subject to seasonal fluctuations, and the third quarter has historically been its most profitable quarter. It is anticipated that IT’SUGAR will incur a loss before income taxes for the year ended December 31, 2019 due primarily to the expected costs of opening new stores and the related depreciation expense. However, IT’SUGAR generated positive cash flows from operations during the nine months ended September 30, 2019 and is expected to continue to do so for the remainder of 2019.
Results of Operations
Information regarding the results of operations for BBX Sweet Holdings for the three and nine months ended September 30, 2018 and 2017IT’SUGAR is set forth below (dollars in thousands):
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|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||
|
| 2018 |
| 2017 |
| Change |
| 2018 |
| 2017(1) |
| Change |
Trade sales | $ | 26,181 |
| 28,255 |
| (2,074) |
| 72,442 |
| 44,922 |
| 27,520 |
Interest income |
| 15 |
| 1 |
| 14 |
| 46 |
| 3 |
| 43 |
Other revenue |
| 101 |
| 14 |
| 87 |
| 155 |
| 27 |
| 128 |
Total revenues |
| 26,297 |
| 28,270 |
| (1,973) |
| 72,643 |
| 44,952 |
| 27,691 |
Cost of trade sales |
| 15,542 |
| 18,301 |
| (2,759) |
| 46,707 |
| 32,441 |
| 14,266 |
Interest expense |
| 50 |
| 85 |
| (35) |
| 238 |
| 255 |
| (17) |
Assets impairments, net |
| - |
| 273 |
| (273) |
| 187 |
| 273 |
| (86) |
Selling, general and |
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|
|
|
|
|
|
|
|
administrative expenses |
| 10,666 |
| 10,879 |
| (213) |
| 34,099 |
| 20,638 |
| 13,461 |
Total costs and expenses |
| 26,258 |
| 29,538 |
| (3,280) |
| 81,231 |
| 53,607 |
| 27,624 |
Income (loss) before income taxes | $ | 39 |
| (1,268) |
| 1,307 |
| (8,588) |
| (8,655) |
| 67 |
Gross margin percentage | % | 40.64 |
| 35.23 |
| 5.41 |
| 35.52 |
| 27.78 |
| 7.74 |
SG&A as a percent of trade sales | % | 40.74 |
| 38.50 |
| 2.24 |
| 47.07 |
| 45.94 |
| 1.13 |
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|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| Change |
| 2019 |
| 2018 |
| Change |
Trade sales | $ | 24,678 |
| 22,663 |
| 2,015 |
| 63,347 |
| 58,967 |
| 4,380 |
Cost of trade sales |
| (13,902) |
| (12,236) |
| (1,666) |
| (37,442) |
| (34,020) |
| (3,422) |
Gross margin |
| 10,776 |
| 10,427 |
| 349 |
| 25,905 |
| 24,947 |
| 958 |
Selling, general and administrative expenses |
| 9,567 |
| 8,962 |
| 605 |
| 26,645 |
| 25,559 |
| 1,086 |
Total operating profits |
| 1,209 |
| 1,465 |
| (256) |
| (740) |
| (612) |
| (128) |
Interest and other income |
| 15 |
| 99 |
| (84) |
| 241 |
| 135 |
| 106 |
Interest expense |
| (24) |
| - |
| (24) |
| (81) |
| - |
| (81) |
Income (loss) before income taxes | $ | 1,200 |
| 1,564 |
| (364) |
| (580) |
| (477) |
| (103) |
Gross margin percentage | % | 43.67 |
| 46.01 |
| (2.34) |
| 40.89 |
| 42.31 |
| (1.42) |
SG&A as a percent of trade sales | % | 38.77 |
| 39.54 |
| (0.78) |
| 42.06 |
| 43.34 |
| (1.28) |
|
|
BBX Sweet Holdings’IT’SUGAR’s income (loss) before income taxes for the three months ended September 30, 20182019 was $1.2 million compared to $1.6 million during the same 20172018 period, improved by $1.3 million primarily due towhich reflects the following:
· | A |
· | A |
BBX Sweet Holdings’IT’SUGAR’s loss before income taxes for the nine months ended September 30, 20182019 compared to the same 20172018 period declinedincreased by $0.1 million$103,000 primarily due to the following:factors described above related to the three months ended September 30, 2019 and 2018.
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Other
Other in the Company’s segment information includes its investments in other operating businesses that are in various stages of development and currently generate operating losses. These investments include various companies in the confectionery industry, including Hoffman’s Chocolates, a manufacturer and retailer of gourmet chocolates with retail locations in South Florida, and other manufacturers/wholesalers of confectionery products. In addition to the above investments, the Company also holds various other investments, including a restaurant located in South Florida that was acquired through a loan foreclosure.
6147
Information regarding
During the nine months ended September 30, 2019 and 2018, Other also included the operating results of MOD Pizza restaurant locations located throughout Florida. As described in the “Overview” section above, during the third quarter of 2019, the Company entered into an agreement with MOD Pizza to terminate its area development and franchise agreements related to the development of MOD Pizza restaurant locations in Florida and transferred seven of its restaurant locations, including the related assets, operations, and lease obligations, to MOD Pizza. In addition, the Company closed the remaining two locations and terminated the related lease agreements.
Businesses in the Confectionery Industry
The loss before income taxes from the Company’s other businesses in the confectionery industry for the three and nine months ended September 30, 2019 was $1.3 million and $3.7 million, respectively, compared to $1.5 million and $8.1 million for the comparable 2018 periods, respectively. The decrease in losses generated by these operations reflects the impact of IT’SUGARvarious strategic initiatives implemented by the Company during 2018, which included the closure of a manufacturing facility and a reduction in corporate personnel and infrastructure.
Consistent with the Company’s goal of streamlining its investment verticals so the Company can be more easily analyzed and followed by the marketplace, the Company is evaluating strategic alternatives related to certain of its businesses in the confectionery industry, including, but not limited to, the possible sale, spin-off, or exit of these businesses. To the extent that are includedthe Company pursues one or more of these strategic alternatives, the Company may recognize impairment charges and incur additional costs in BBX’s Sweet Holdings’ resultsfuture periods. As of September 30, 2019, the confectionery businesses currently under evaluation had a net book value of approximately $5.0 million.
MOD Pizza Restaurant Operations
The loss before income taxes from the Company’s MOD Pizza restaurant operations for the three and nine months ended September 30, 2019 was $4.8 million and $9.5 million, respectively, compared to $1.4 million and $3.2 million for the comparable 2018 periods, respectively. The increase in losses was primarily attributable to the recognition of impairment losses of $4.0 million and 2017 is set forth below (dollars in thousands):
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| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||
|
| 2018 |
| 2017 |
| Change |
| 2018 |
| 2017(1) |
| Change |
Trade sales | $ | 22,688 |
| 22,590 |
| 98 |
| 58,967 |
| 26,876 |
| 32,091 |
Other revenue |
| 99 |
| 13 |
| 86 |
| 134 |
| 15 |
| 119 |
Total revenues |
| 22,787 |
| 22,603 |
| 184 |
| 59,101 |
| 26,891 |
| 32,210 |
Cost of trade sales |
| 12,237 |
| 12,283 |
| (46) |
| 34,020 |
| 14,391 |
| 19,629 |
Selling, general and |
|
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|
|
|
|
|
|
|
administrative expenses |
| 8,987 |
| 7,994 |
| 993 |
| 25,558 |
| 9,498 |
| 16,060 |
Total costs and expenses |
| 21,224 |
| 20,277 |
| 947 |
| 59,578 |
| 23,889 |
| 35,689 |
Income (loss) before income taxes | $ | 1,563 |
| 2,326 |
| (763) |
| (477) |
| 3,002 |
| (3,479) |
Gross margin percentage | % | 46.06 |
| 45.63 |
| 0.44 |
| 42.31 |
| 46.45 |
| (4.15) |
SG&A as a percent of trade sales | % | 39.61 |
| 35.39 |
| 4.22 |
| 43.34 |
| 35.34 |
| 8.00 |
|
|
We anticipate that BBX Sweet Holdings will continue to generate losses$6.7 million during the fourth quarter of 2018. Additionally, if BBX Sweet Holdings’ operations do not meet expectations, the Company decides to exit certain of its operations, or there is a downturn in the confectionery industry, BBX Sweet Holdings may recognize additional costs, including goodwill and other intangible assets impairment charges, in future periods.
Corporate Expenses & Other
Information regarding Corporate Expense & Other for the three and nine months ended September 30, 2018 and 2017 is set forth below (dollars in thousands):2019, respectively, primarily associated with the Company’s exit from its MOD Pizza restaurant operations during the third quarter of 2019.
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| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2018 |
| 2017 |
| Change |
| 2018 |
| 2017 |
| Change |
Corporate selling, general and |
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|
|
administrative expenses | $ | 16,089 |
| 15,450 |
| 639 |
| 46,512 |
| 46,545 |
| (33) |
Interest expense |
| 2,915 |
| 2,379 |
| 536 |
| 8,127 |
| 8,403 |
| (276) |
Net gains on cancellation of |
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|
|
junior subordinated debentures |
| - |
| - |
| - |
| - |
| (6,929) |
| 6,929 |
Reimbursements of litigation |
|
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|
costs and penalty |
| - |
| (2,113) |
| 2,113 |
| - |
| (11,719) |
| 11,719 |
Other income, net |
| (2,538) |
| (748) |
| (1,790) |
| (6,330) |
| (1,753) |
| (4,577) |
Total corporate expenses and other | $ | 16,466 |
| 14,968 |
| 1,498 |
| 48,309 |
| 34,547 |
| 13,762 |
Reconciling Items and Eliminations
Corporate Expenses & OtherReconciling items and eliminations in the Company’s segment information consists ofincludes the following:
· | BBX Capital’s corporate |
· |
|
| debentures and BBX Capital’s |
· |
|
· | The |
Corporate Expenses & Other for the nine months ended September 30, 2017 also included $6.9 million of net gains on the cancellation of Woodbridge’s junior subordinated debentures, $7.1 million of insurance carrier reimbursements
62
from litigation costs, and the reimbursement of a $4.6 million fine previously paid in connection with the SEC civil litigation against BCC.
Corporate Selling, General and Administrative Expenses
BBX Capital’s corporate selling, general and administrative expenses consist primarily of expensescosts associated with administering the various support functions at its corporate headquarters, including executive compensation, legal, accounting, legal, human resources, risk management, investor relations, and executive offices, as well as operating and start-up expenses for the Company’s MOD Pizza franchise restaurants and the expenses associated with a restaurant acquired in connection with a loan default.
offices. BBX Capital’s corporate selling, general and administrative expenses for the three and nine months ended September 30, 20182019 were $12.0 million and $36.6 million, respectively, compared to $13.0 million and $38.7 million, respectively, for the same periodcomparable 2018 periods. The decrease in 2017 increased by $0.6 million primarily due to higher costs associated with the Company’s MOD Pizza franchise operations. BBX Capital’s corporate selling, general and administrative expenses for the three and nine months ended September 30, 20182019 compared to the same period2018 periods primarily reflects lower share-based compensation expenses, reduced headcount, and lower professional fees in 2017 remained relatively unchanged; however, significant changes in certain components included the following:2019 periods.
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Interest Expense
Woodbridge’sExcluding its note payable to Bluegreen, BBX Capital’s interest expense on its junior subordinated debenturesfor the three and nine months ended September 30, 2019 was $1.1$1.3 million and $3.0$4.2 million, respectively, compared to $1.7 million and $4.8 million, respectively, for the comparable 2018 periods. The decrease in interest expense during the three and nine months ended September 30, 2018, respectively,2019 compared to $0.9the same 2018 periods primarily resulted from the repayment of the outstanding balance of $30.0 million and $2.4on BBX Capital’s $50.0 million respectively,revolving line of credit in January 2019, partially
48
offset by higher interest expense on Woodbridge’s junior subordinated debentures associated with higher rates on the variable rates of interest on such debt during the same periods in 2017, as higher LIBOR interest rates during 2018 were partially offset by the impact of lower average outstanding principal balances resulting from the cancellation of $18.8 million of the debentures in February 2017. 2019 periods.
BBX Capital’s interest expense on the $80.0 million note payable to Bluegreen which is eliminated in the Company’s condensed consolidated statements of operations, was $1.2 million for both the three months ended September 30, 2018 and 2017 and $3.6 million and $5.2 million for the nine months ended September 30, 2018 and 2017, respectively. The decrease in interest expense for the nine months ended September 30, 2018 compared to the same 2017 period was due to the reduction in the interest rate on the note payable from 10% per annum to 6% per annum on July 1, 2017.
BBX Capital’s interest expense on the Iberia $50.0 million revolving lineeach of credit issued in March 2018 was $0.5 million and $0.9 million for the three and nine months ended September 30, 2018. Interest2019 and 2018, respectively. The interest expense associated withon this note and the related interest income recognized by Bluegreen are eliminated in the Company’s redeemable 5% cumulative preferred stock was $0.2 million and $0.3 million for the three months ended September 30, 2018 and 2017, respectively, and $0.7 million and $0.9 million for the nine months ended September 30, 2018 and 2017, respectively.consolidated statements of operations.
OtherInterest Income net
Other income, net consists of investment interest income, other fee revenue, and the gross profits earned on restaurant operations, which includes total revenues and costs of trade sales associated with the Company’s MOD Pizza franchise operations and a restaurant acquired in connection with a loan receivable default and excludes selling, general and administrative expenses associated with such operations. For the three and nine months ended September 30, 2018, gross profits from restaurant operations were $1.2 million and $3.6 million, respectively.
MOD Pizza Franchise Operations
In 2016, the Company entered into area development agreements with MOD Pizza with an opportunity to develop up to approximately 60 MOD Pizza franchised restaurant locations throughout Florida over the next several years. Through November 5, 2018, six locations have been opened, and the Company expects to open two additional stores during the remainder of 2018. The Company is currently evaluating the rate at which it is opening new stores and may adjust the rate of growth in the future.
63
The Company’s MOD Pizza franchise operations generated net losses before taxes of $1.4 million and $0.7 million during the three months ended September 30, 2018 and 2017, respectively, and $3.2 million and $1.6 million during the nine months ended September 30, 2018 and 2017, respectively. The higher net losses in the 2018 periods were primarily attributable to selling, general, and administrative expenses, including compensation costs associated with store employees and operations, human resource, marketing, and finance personnel that were hired to establish initial restaurant operations, as well as costs associated with store openings and the review of potential restaurant sites. During the three and nine months ended September 30, 2018, the selling, general and administrative expenses were partially offset by sales generated from the five restaurant locations that were opened as of September 30, 2018. On average, for each of the five restaurant locations opened,2019, the Company incurred approximatelyrecognized $0.8 million in capital expenditures, netand $1.9 million, respectively, of anticipated tenant improvement allowances,interest and approximately $0.2investment income from BBX Capital’s interest-bearing cash accounts and other investments compared to $0.6 million in store opening costs.
Asand $1.6 million, respectively, for the Company develops the portfolio of MOD Pizza restaurant locations over the next several years, it expects to continue to incur net losses and capital expenditures due to the expected costs of opening new locations.
comparable 2018 periods.
Provision for Income Taxes
The Company estimates its effective annual income tax rate on a quarterly basis based on current and forecasted operating results for the annual period and applies the estimated effective income tax rate to its income before income taxes reduced by net income attributable to noncontrolling interests in joint ventures taxed as partnerships.
The Company’s effective income tax rate was approximately 38% and 37% during the three and nine months ended September 30, 2019, respectively, compared to an effective income tax rate of 44% and 36% duringfor the comparable 2018 periods. The effective tax rate for the nine months ended September 30, 2019 excludes the tax benefit associated with the $39.1 million Bass Pro litigation settlement, which the Company accounted for as a discrete item at the statutory income tax rate of 26%. The effective income tax rate for the nine months ended September 30, 2018 excludingexcludes a discrete income tax expense of $2.8 million related to anthe recognition of a provisional adjustment to the provisional tax benefit recognized during the year ended December 31, 2017 associated with the December 2017 Tax Reform Act, as compared to 44% duringAct.
The Company’s effective income tax rate for the three and nine months ended September 30, 2017, which reflects the favorable impact of the reduction in the federal corporate tax rate from 35% to 21% commencing on January 1, 2018. The Company’s effective tax rates for the2019 and 2018 and 2017 periods werewas higher than the applicableexpected federal income tax ratesrate of 21% and 35%, respectively,primarily due to nondeductible executive compensation to covered employees and state income taxes
See Note 10 – Income Taxes under Item 1 included in this report for additional information with respect to the Company’s effective income tax rate and the provisional tax benefit recognized during the year ended December 31, 2017 in connection with the enactment of the Tax Reform Act in December 2017.
taxes.
Net Income Attributable to Noncontrolling Interests
BBX Capital includes in itsCapital’s consolidated financial statements include the results of operations and financial position of various partially-owned subsidiaries in which it holds a controlling financial interest, including Bluegreen, Bluegreen/Big Cedar Vacations, and IT’SUGAR. As a result, the Company is required to attribute net income to the noncontrolling interests in these subsidiaries.
Net income attributable to noncontrolling interests was $5.8$4.1 million and $3.4$11.3 million during the three months ended September 30, 2018 and 2017, respectively, and $16.3 million and $9.5 million during the nine months ended September 30, 2019, respectively, compared to $5.8 million and $16.3 million, respectively, for the comparable 2018 and 2017, respectively. periods. The increasedecrease in net income attributable to noncontrolling interests for the three and nine months ended September 30, 20182019 compared to the same 20172018 periods was primarily due to Bluegreen’s IPO, which resulted in a decrease in the net income of BBX Capital’s ownership in Bluegreen’s common stock from 100% to 90%.Bluegreen and Bluegreen/Big Cedar Vacations.
Consolidated Financial Condition
Consolidated Assets and Liabilities
Total assets at September 30, 2018 and December 31, 2017 were $1.7 billion and $1.6 billion, respectively. The primary changes in the components of total assets are summarized below:
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6449
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Total liabilities at September 30, 2018 and December 31, 2017 were $1.0 billion and $935.4 million, respectively. The primary changes in components of total liabilities are summarized below:
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Consolidated Cash Flows
A summary of our consolidated cash flows is set forth below (in thousands):
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| For the Nine Months Ended |
|
| For the Nine Months Ended | ||||
|
| September 30, |
|
| September 30, | ||||
|
| 2018 |
| 2017 |
|
| 2019 |
| 2018 |
Cash flows provided by operating activities | $ | 43,587 |
| 53,180 |
| $ | 60,394 |
| 43,587 |
Cash flows provided by (used in) investing activities |
| 961 |
| (55,516) |
| ||||
Cash flows provided by investing activities |
| 23,609 |
| 961 | |||||
Cash flows used in financing activities |
| (28,573) |
| (18,122) |
|
| (87,685) |
| (28,573) |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 15,975 |
| (20,458) |
| ||||
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (3,682) |
| 15,975 | |||||
Cash, cash equivalents and restricted cash at beginning of period |
| 409,247 |
| 346,317 |
|
| 421,097 |
| 409,247 |
Cash, cash equivalents and restricted cash at end of period | $ | 425,222 |
| 325,859 |
| $ | 417,415 |
| 425,222 |
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Cash Flows provided by Operating Activities
The Company’s operating cash flows decreased $9.6increased by $16.8 million during the nine months ended September 30, 20182019 compared to the same 20172018 period. The decreaseincrease was primarily due to increasedan increase in operating distributions from real estate joint ventures and decreased spending on the acquisition and development of VOI inventory, partially offset by Bluegreenthe $20.0 million payment made to Bass Pro in June 2019 pursuant to the 2018 periodsettlement agreement described above, an increase in payments for federal income taxes, and lower operating distributionsa decrease in proceeds from unconsolidated real estate joint ventures primarily as a resultthe sale of developed lots at the CC Homes Bonterra joint venture's completion of sales in its 394 single-family home community development during late 2017.Beacon Lake Community development.
Cash Flows provided by/used inby Investing Activities
The Company’s investing cash flows increased by $56.5$22.6 million during the nine months ended September 30, 20182019 compared to the same period in 2017.2018 period. The increase reflects the $58.4 millionimpact of cash paid for the acquisition of IT’SUGARsales activity in June 2017 as well asBBX Capital Real Estate’s portfolio, which resulted in an increase in cash distributions from unconsolidated real estate joint ventures and higher net proceeds received from the sale of real estate held-for-sale, and the repaymentdecreased spending by Bluegreen on property and settlement of loans receivable in 2018,equipment, partially offset by increased capital expenditures at Bluegreen, including expenditures related to sales office
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expansionsa decline in loan collections in the legacy asset portfolio and information technology, and purchases of leasehold improvements and equipment for MOD Pizza restaurant locationsan increase in 2018.investments in real estate joint ventures.
Cash Flows used in Financing Activities
The Company’s cash used in financing cash flows decreasedactivities increased by $10.5$59.1 million during the nine months ended September 30, 20182019 compared to the same 2018 period, in 2017. The decreasewhich was primarily the result of $60.1 million paid for the purchase of 6,486,486 shares of BBX Capital’s Class A Common Stock partially offset by $30.0 milliondue to an increase in payments, net of borrowings, on the Company’s Iberia’s $50.0debt, partially offset by a net decrease of $51.2 million line of credit and other borrowingsin payments for the purchase and retirement of VOI inventorythe Company’s common stock during 2019 as compared to 2018, as the Company purchased 6.5 million shares of its common stock for $60.1 million in a tender offer in April 2018, and property and equipment.a decrease in distributions to noncontrolling interest, which was primarily attributable to distributions to the noncontrolling interest in Bluegreen/Big Cedar Vacations during the 2018 period.
Seasonality
Bluegreen has historically experienced, and expects to continue to experience, seasonal fluctuations in its revenues and results of operations. This seasonality has resulted, and may continue to result, in fluctuations in quarterly operating results. Due to consumer travel patterns, Bluegreen typically experiences an increase in tours and VOI sales during the second and third quarters of the calendar year.
IT'SUGAR and certain of the Company’s other operating businesses are subject to seasonal fluctuations in trade sales, which cause fluctuations in the Company’s quarterly results of operations. Historically, IT’SUGAR has generated its strongest retail trade sales during the months from June through August, as well as during the month of December.
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Commitments
The Company’s material commitments as of September 30, 20182019 included the required payments due on its receivable-backed debt, notes payable and other borrowings, junior subordinated debentures, commitments to complete certain projects based on its sales contracts with customers, subsidy advances to certain HOAs, and commitments under non-cancelable operating leases.
The following table summarizes the contractual minimum principal and interest payments required on all of the Company’s outstanding debt, outstanding payments required under the Bass Pro settlement agreement, and payments required on the Company’s non-cancelable operating leases by period due date as of September 30, 20182019 (in thousands):
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| Payments Due by Period |
| Payments Due by Period | |||||||||||||||||||||
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| Unamortized |
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| Debt |
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| Debt |
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| Less than |
| 1 — 3 |
| 4 — 5 |
| After 5 |
| Issuance |
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| Less than |
| 1 — 3 |
| 4 — 5 |
| After 5 |
| Issuance |
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Contractual Obligations |
| 1 year |
| Years |
| Years |
| Years |
| Costs |
| Total |
| 1 year |
| Years |
| Years |
| Years |
| Costs |
| Total | |
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Receivable-backed notes payable | $ | - |
| 6,045 |
| 111,190 |
| 321,209 |
| (4,994) |
| 433,450 | $ | - |
| 14,503 |
| 94,163 |
| 333,609 |
| (5,515) |
| 436,760 | |
Notes payable and other |
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borrowings |
| 66,821 |
| 31,315 |
| 87,304 |
| 14,014 |
| (2,277) |
| 197,177 | |||||||||||||
Notes payable and other borrowings |
| 14,273 |
| 111,863 |
| 7,591 |
| 29,202 |
| (1,509) |
| 161,420 | |||||||||||||
Jr. subordinated debentures |
| - |
| - |
| - |
| 177,129 |
| (40,898) |
| 136,231 |
| - |
| - |
| - |
| 177,129 |
| (40,091) |
| 137,038 | |
Redeemable 5% cumulative preferred stock |
| 5,000 |
| 5,000 |
| - |
| - |
| (270) |
| 9,730 | |||||||||||||
Noncancelable operating leases |
| 26,678 |
| 45,835 |
| 37,215 |
| 37,760 |
| - |
| 147,488 |
| 6,735 |
| 50,155 |
| 41,488 |
| 56,736 |
| - |
| 155,114 | |
Bass Pro settlement agreement |
| 4,000 |
| 8,000 |
| 8,000 |
| - |
| - |
| 20,000 | |||||||||||||
Total contractual obligations |
| 93,499 |
| 83,195 |
| 235,709 |
| 550,112 |
| (48,169) |
| 914,346 |
| 30,008 |
| 189,521 |
| 151,242 |
| 596,676 |
| (47,385) |
| 920,062 | |
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Interest Obligations (1) |
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Receivable-backed notes payable |
| 17,258 |
| 34,369 |
| 29,941 |
| 79,103 |
| - |
| 160,671 |
| 17,683 |
| 35,109 |
| 29,603 |
| 93,671 |
| - |
| 176,066 | |
Notes payable and other |
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borrowings |
| 8,989 |
| 12,493 |
| 3,523 |
| 5,283 |
| - |
| 30,288 | |||||||||||||
Notes payable and other borrowings |
| 7,736 |
| 10,577 |
| 3,400 |
| 21,643 |
| - |
| 43,356 | |||||||||||||
Jr. subordinated debentures |
| 12,043 |
| 24,084 |
| 24,084 |
| 149,538 |
| - |
| 209,749 |
| 11,977 |
| 23,954 |
| 23,954 |
| 136,694 |
| - |
| 196,579 | |
Total contractual interest |
| 38,290 |
| 70,946 |
| 57,548 |
| 233,924 |
| - |
| 400,708 |
| 37,396 |
| 69,640 |
| 56,957 |
| 252,008 |
| - |
| 416,001 | |
Total contractual obligations | $ | 131,789 |
| 154,141 |
| 293,257 |
| 784,036 |
| (48,169) |
| 1,315,054 | $ | 67,404 |
| 259,161 |
| 208,199 |
| 848,684 |
| (47,385) |
| 1,336,063 |
(1) | Assumes that the scheduled minimum principal payments are made in accordance with the table above and the interest rate on variable rate debt remains the same as the rate at September 30, |
In lieu of paying maintenance fees for unsold VOI inventory, Bluegreen provides subsidies tomay enter into subsidy agreements with certain HOAs to provide funds to operate and maintain vacation ownership properties in excess of assessments collected from owners of the VOIs.HOAs. During the nine months ended September 30, 2019 and 2018, Bluegreen made subsidy payments related to such subsidiesin connection with these arrangements of $10.5 million and $2.2 million.million, respectively. As of September 30, 2018,2019, Bluegreen was providing subsidies to ten HOAs and had $6.2accrued $8.0 million accrued for such subsidies, which is includedreflected in other liabilities in the Company’s condensed consolidated statement of financial condition. As of September 30,December 31, 2018, Bluegreen had no commitments to purchase VOI inventory.
In September 2017, Bluegreen entered into an agreement with a former executive in connection with his retirement. Pursuant to the terms of the agreement, Bluegreen agreed to make payments totaling approximately $2.9 million through March 2019. As of September 30, 2018, $1.2 million remained payable under this agreement. In addition, during the second half of 2017, Bluegreen implemented an initiative designed to streamline its operations in certain areas to facilitate future growth. Such initiative resulted in $5.8 million of severance accrued as of December 31, 2017
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and $0.4 million accrued as of September 30, 2018 which amounts are included in other liabilities in the Company condensed consolidated statement of financial condition as of such dates.
During 2016, the Company entered into a severance arrangement with an executive. Under the terms of the arrangement, the executive will receive $3.7 million over a three year period ending in August 2019. As of September 30, 2018, $0.9 million remained to be paid under this agreement.
A wholly-owned subsidiary of BBX Capital has opened, and may continue to open, MOD Pizza restaurant locations, which involves entering into lease agreements for such locations. BBX Capital has guaranteed performance on certain lease agreements for these locations and may be required to guarantee performance on additional lease agreements for new locations. subsidies.
The Company believes that its existing cash, anticipated cash to be generated from operations, anticipated future permitted borrowings under existing or future credit facilities, and anticipated future sales of notes receivable under existing, future, or replacement purchase facilities will be sufficient to meet its anticipated working capital, capital expenditures and debt service requirements, including the contractual payment of the obligations set forth above, for the foreseeable future, subject to the success of the Company’s ongoing business strategy and the ongoing availability of credit. The Company will continue its efforts to renew, extend, or replace any credit and receivables purchase facilities that have expired or that will expire in the near term. The Company may, in the future, also obtain additional credit facilities and may issue corporate debt or equity securities. Any debt incurred or issued may be secured or unsecured, bear interest at fixed or variable rates, and may be subject to such terms as the lender may require. In addition, the Company’s efforts to renew or replace credit facilities or receivables purchase facilities which have expired or which are scheduled to expire in the near term may not be successful, and sufficient funds may not be available from operations or under existing, proposed, or future revolving credit or other borrowing arrangements or receivables purchase facilities to meet cash needs, including debt service and other contractual obligations. To the extent the Company is
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unable to sell notes receivable or borrow under such facilities or generate sufficient cash from operations, the Company’s ability to satisfy its obligations would be materially adversely affected.affected.
Bluegreen’s receivables purchase facilities, and its credit facilities, indentures, and other outstanding debt instruments include what Bluegreen believes to be customary conditions to funding, eligibility requirements for collateral, cross-default and other acceleration provisions, and certain financial and other affirmative and negative covenants, including, among others, limits on the incurrence of indebtedness, payment of dividends, investments in joint ventures and other restricted payments, the incurrence of liens and transactions with affiliates, as well as covenants concerning net worth, fixed charge coverage requirements, debt-to-equity ratios, portfolio performance requirements and cash balances, and events of default or termination. In July 2019, Bluegreen amended the Fifth Third Bank Note Payable, Syndicated Line of Credit, and Term Loan, effective June 28, 2019, to exclude the $39.1 million Bass Pro settlement expense recognized during the nine months ended September 30, 2019 from the calculation of certain financial covenants in the credit facilities enabling it to maintain compliance with such covenants. In the future, Bluegreen may be required to seek waivers of such covenants but may not be successful in obtaining waivers, and such covenants may limit Bluegreen’sits ability to pay dividends, raise funds, sell receivables or satisfy or refinance its obligations, or otherwise adversely affect the Company’sits financial condition and results of operations.operations, as well as its ability to pay dividends. In addition, the Company’sBluegreen’s future operating performance and ability to meet its financial obligations will be subject to future economic conditions and to financial, business, and other factors, many of which may be beyond the Company’sBluegreen’s control.
As previously described, pursuant to the settlement agreement Bluegreen has an exclusiveentered into with Bass Pro and its affiliates in June 2019, Bluegreen paid Bass Pro $20.0 million and agreed to make five annual payments to Bass Pro of $4.0 million each January 1st commencing in 2020. In addition, in lieu of the commission payable to Bass Pro as previously contemplated by its marketing agreement with Bass Pro, a nationally-recognized retailer of fishing, marine, hunting, camping and sports gear, that provides Bluegreen with the right to market and sell vacation packages at kiosks in each of Bass Pro’s retail locations and through certain other means. As of September 30, 2018, Bluegreen was selling vacation packages in 69 of Bass Pro’s stores. Bluegreen compensateswill now pay Bass Pro based on VOI sales generated through the program. No compensation is paid to Bass Pro under the agreement on sales made at Bluegreen/Big Cedar Vacations’ resorts. During the nine months ended September 30, 2018 and 2017, VOI sales to prospects and leads generated by the agreement with Bass Pro accounteda fixed annual fee of $70,000 for approximately 14% and 15%, respectively, of Bluegreen’s VOI sales volume. On October 9, 2017, Bass Pro advised Bluegreen that it believed the amounts paid to it as VOI sales commissions should not have been adjusted for certain purchaser defaults. Bluegreen previously had informed Bass Pro that the aggregate amount of such adjustments for defaults charged back to Bass Pro between January 2008 and June 2017 totaled approximately $4.8 million. While Bluegreen believed and continues to believe that these adjustments were appropriate and consistent with both the terms and the intent of the agreements with Bass Pro, in October 2017, in order to demonstrate its good faith, Bluegreen paid the amount at issue to Bass Pro pending future resolution of the matter. Bluegreen has continued to make payments to Bass Pro as it believes appropriate and consistent with the agreements, which continue to be adjusted for defaults, and Bass Pro has accepted these payments as historically calculated. Subsequently and again more recently, Bass Pro has raised issues regarding adjustments for defaults and requested additional information regarding the calculation of commissions payable toeach Bass Pro and other amounts payable under the agreements, including reimbursements paidCabela’s retail store that Bluegreen is accessing (excluding sales at retail stores which are designated to Bluegreen, as well as regarding the operations of Bluegreen/Big Cedar Vacations. The issues raised by Bass Pro have not impacted current operations under the marketing agreement or relativeprovide tours to Bluegreen/Big Cedar Vacations.Vacations, or “Bluegreen/Big Cedar feeder stores”), plus $32.00 per net vacation package sold (less cancellations or refunds within 45 days of sale). Bluegreen has formally respondedalso agreed to
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contribute to the Wonders of Wildlife Foundation $5.00 per net package sold (less certain cancellations and refunds within 45 days of sale), subject to an annual minimum of $700,000. The fixed annual fee will be prorated for 2019. Bluegreen will generally be required to pay the fixed annual fee with respect to at least 59 Bass Pro with its view on these mattersretail stores and intendsa minimum number of Cabela’s retail stores that increases over time to providea total of at least 60 Cabela’s retail stores by the end of 2021, provided that the minimum number of Bass Pro with all appropriately requested information. Bluegreen’s agreements with Bass Pro provide that,and Cabela’s retail stores for purposes of the fixed annual fee may be reduced under certain circumstances set forth in the event of any dispute or disagreement between the parties, either party may give notice and thereafter the CEOs of the parties are required to communicate promptly with each other with a view to resolving the dispute or disagreement. Accordingly, it is anticipated that such process will be followed in good faith and that the parties will appropriately resolve any issues. While Bluegreen does not believe that any material additional amounts are due to Bass Prosettlement agreement, including as a result of these matters, its future results could be impacted by any changea reduction of traffic in the calculations utilizedstores in connection with payments or reimbursements required under the agreements or if Bluegreen is unable to resolve the issue.excess of 25% year-over-year.
Off-balance-sheet Arrangements
BBX Capital guarantees certain obligations of its wholly-owned subsidiaries and unconsolidated real estate joint ventures which are not included in the contractual obligations table above, and also guarantees certain of the obligations in the above table as described in further detail in Note 11 to the Company’s condensed consolidated financial statements included in Item 1 – Note 11 of this report.
The Company has investments in joint ventures involved in the development of multifamily apartment and townhome communities, as well as single-family master planned communities. The Company’s investments in these joint ventures are accounted for under the equity method of accounting, and as a result, the Company does not recognize the assets and liabilities of these joint ventures in its financial statements. As of September 30, 2019 and December 31, 2018, the Company’s investments in these joint ventures totaled $53.7 million and $64.7 million, respectively. These unconsolidated real estate joint ventures generally finance their activities with a combination of debt financing and equity. The Company generally does not directly guarantee the financing of these joint ventures, other than as described above and in Note 11 to the Company’s condensed consolidated financial statements included in Item 1 of this report, and the Company’s maximum exposure to losses from these joint ventures is its equity investment. The Company is typically not obligated to fund additional capital to its joint ventures; however, the Company’s interest in a joint venture may be diluted if the Company elects not to fund a joint venture capital call.
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Liquidity and Capital Resources
BBX Capital and Subsidiaries, excluding Bluegreen
As of September 30, 20182019 and December 31, 2017,2018, the Company, excluding Bluegreen, had cash, cash equivalents and short-term investments of approximately $174.1$185.6 million and $165.2$146.9 million, respectively. Management believes that BBX Capital has sufficient liquidity from the sources described below to fund operations, including its anticipated working capital, capital expenditure, and debt service requirements, for the foreseeable future, subject to the success of the Company’s ongoing business strategy and the ongoing availability of credit.
BBX Capital’s principal sources of liquidity are its available cash and short-term investments, distributionsdividends received from Bluegreen, borrowings from its $50.0 million IberiaBank revolving line of credit, distributions from unconsolidated real estate joint ventures, funds obtainedproceeds received from loan recoverieslot sales at the Beacon Lake Community development, and sales of real estate, and income from income producing real estate.
BBX Capital believes that its current financial condition and credit relationships, together with anticipated cash flows from other sources of funds, including potential dividends from Bluegreen (which, as described below, are subject to certain limitations), and, to the extent determined to be advisable, proceeds from the disposition of properties or investments, including its investments in middle market operating companies, will allow it to meet its anticipated near-term liquidity needs. BBX Capital may also seek additional liquidity from outside sources, including traditional bank financing, secured or unsecured indebtedness, or the issuance of equity and/or debt securities. However, these alternatives may not be available to BBX Capitalus on attractive terms, or at all. The inability to raise funds through the sources discussed above would have a material adverse effect on the Company’s business, results of operations, and financial condition.
BBX Capital expects that it will receive dividends from time to time from Bluegreen. For the nine months ended September 30, 2019 and 2018, BBX Capital received from Bluegreen dividends totalling $10.1totaling $34.3 million and $30.3 million, during the three and nine months ended September 30, 2018, respectively. On October 17, 2018, Bluegreen declared a quarterly cash dividend payable in the fourth quarter of 2018 of $0.15 per share on its common stock.In addition, Bluegreen has indicated that it intends to pay regular quarterly dividends on its common stock subject to the discretiondeclaration of such dividends by its board of directors. The ultimate payment of such dividends will be based upon factors that the BluegreenBluegreen’s board of directors deems to be appropriate, including Bluegreen’s operating results, financial condition, cash position, and operating and capital needs. Dividends from Bluegreen are also dependent on restrictions contained in Bluegreen’s debt facilities.facilities and may not continue at current or previous levels. On October 30, 2019, Bluegreen’s board of directors declared a quarterly cash dividend of $0.13 per share on its common stock, which represents a $0.04 per share reduction in Bluegreen’s quarterly cash dividend per share as compared to its quarterly dividends declared during the first, second, and third quarters of 2019. Except as otherwise noted, the debts and obligations of Bluegreen are not direct obligations of BBX Capital and generally are non-recourse to BBX Capital. Similarly, the assets of Bluegreen are not available to BBX Capital, absent a dividend or distribution. Furthermore, certain of Bluegreen’s credit facilities contain terms which could limit the payment of cash dividends without the lender’s consent or waiver, and Bluegreen may only pay dividends subject to such restrictions as well as the declaration of dividends by its board of directors. As a consequence, BBX Capital may not receive dividends from Bluegreen consistent with prior periods, in the time frames or amounts anticipated, or at all.
BBX Capital may also receive funds from its subsidiaries, including Bluegreen, in connection with its tax sharing agreement to the extent that the subsidiary utilizes BBX Capital’s tax benefits in BBX Capital’s consolidated tax
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return. During the three and nine months ended September 30, 2019 and 2018, BBX Capital received $7.1$13.0 million and $21.0 million, respectively, of tax sharing payments from Bluegreen.
Anticipated and Potential Liquidity Requirements
BBX Capital expects to use its available funds for operations and general corporate purposes (including working capital, capital expenditures, and debt service requirements and the Company’s other commitments described above), to make additional investments in real estate opportunities, middle market operating businesses, or other opportunities, to declare and pay cash dividends on the Company’s common stock, or to repurchasepurchase shares of its common stock pursuant to its share repurchase program.
During the first nine months of 2018, IT’SUGAR has opened three retail stores and expects to open an additional store in November 2018. Additionally, during 2019, IT’SUGAR currently anticipates renovating certain existing stores and opening four to six new stores. In connection with the anticipated store opening in November 2018, as well as the renovation of various existing stores and expected store openings during 2019, IT’SUGAR expects to incur approximately $6.0 million to $6.5 million of capital expenditures, net of tenant allowance reimbursements, during the remainder of 2018 and 2019.
The Company previously disclosed its plans to open a total of up to 60 MOD Pizza restaurant locations throughout Florida over the next several years. Through November 5, 2018, six locations have been opened, and the Company expects to open two additional stores during the remainder of 2018. The Company is currently evaluating the rate at which it is opening new stores and may adjust the rate of growth in the future. The Company expects to incur an aggregate of $2.0 million to $3.0 million of capital expenditures, net of tenant allowance reimbursements, to open locations during the remainder of 2018.stock.
In OctoberNovember 2018, the Company entered into an agreement pursuant to which it has agreed, subject to the satisfaction or waiver of the conditions to closing, to acquireBBXRE acquired a fifty percent (50%)50% membership interest in the Altman Companies, a real estate development company which operates a fully integrated multifamily platform covering all aspects ofjoint venture between the Company and JA engaged in the development, processconstruction, and which includes membership interestsmanagement of multifamily apartment communities. Although the Altman Companies generates revenues from the performance of development, general contractor, leasing, and property management services to the joint ventures that are formed to invest in Altman Development Company, Altman-Glenewinkel Construction,the development projects that it originates, it is expected to generate profits for BBXRE and Altman Management Company, for a purchase price of $11.8 million. Simultaneously with thisJA primarily through the equity distributions that BBXRE and JA receive through their investment the Company has agreed to acquire interests in the managing member of eight multifamilysuch joint
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ventures. Therefore, as the timing of such distributions to BBXRE and JA is generally contingent upon the sale or refinancing of a completed development project, it is anticipated that BBXRE and JA will be required to contribute capital to the Altman Companies for its ongoing operating costs and predevelopment expenditures, as well as to the managing member of newly formed joint ventures. At the current time, BBXRE anticipates that it will invest approximately $2.5 million to $3.5 million in the Altman Companies and related joint ventures during the remainder of 2019 related to planned predevelopment expenditures, investments in new joint ventures, and ongoing operating costs. In addition, BBXRE currently anticipates that it will contribute an additional $1.0 million to $2.0 million to ABBX Guaranty, LLC, a joint venture between BBXRE and JA that provides guarantees on the indebtedness and construction cost overruns of new real estate developments affiliated withjoint ventures formed by the Altman Companies.
Pursuant to the operating agreement of the Altman Companies, (the “Developments”) for an aggregate purchase price of $10.9 million, subject to adjustment based on the terms of the agreement. The Company hasBBXRE will also agreed, subject to various terms and conditions, to acquire an additional forty percent (40%) of40% equity interest in the membership interests in Altman Companies from JA for a purchase price of $9.4 million in approximately four years after the closing of the initial purchase. The seller, Joel Altman,January 2023, while JA can also, at his option or in other predefined circumstances, require the CompanyBBXRE to acquire thepurchase his remaining ten percent (10%)10% equity interest in the Altman Companies for $2.4 million. ClosingIn addition, in certain circumstances, BBXRE may acquire the 40% membership interests in Altman-Glenewinkel Construction that are not owned by the Altman Companies for a purchase price based on prescribed formulas in the operating agreement of Altman-Glenewinkel Construction.
In addition to BBXRE’s anticipated investments in the investment in Altman Companies and related joint ventures, BBXRE has entered into two real estate joint ventures, CCB Miramar, LLC and L03/212 Partners, LLC, in which the Developments is subjectCompany expects to contribute additional capital of approximately $9.0 million to $10.0 million during the satisfaction or waivernext twelve to eighteen months based on the current plans and estimates associated with the related development projects.
IT’SUGAR opened two retail stores during the nine months ended September 30, 2019 and currently expects to open a flagship location at American Dream in New Jersey in November 2019 and renovate certain existing stores during the remainder of certain conditions, including obtaining consents from lenders2019. In connection with the anticipated store opening and investors inrenovation of these existing stores, IT’SUGAR expects to incur approximately $3.0 million to $4.0 million of capital expenditures, net of tenant allowance reimbursements, for the Developments.remainder of 2019.
BBX Capital has previously indicated its intention to declare regular quarterly dividends on its Class A and Class B Common StockStock. In March, June, and September of 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.0125 per share, and the Company indicated that it intends to continue to declare regular quarterly dividends of $0.03$0.0125 per quarter per share on its common stock, or $3.0 million inClass A and Class B Common Stock, which is an increase from the aggregate,$0.01 per share regular quarterly dividend paid by the Company during the nine months ended September 30, 2018. However, future declarationdeclarations and paymentpayments of cash dividends with respect to the Company’s common stock, if any, will be determined in light of the Company’s then-current financial condition and results of the Company,operations, its operating and capital needs, and other factors deemed relevant by the board of directors.
On June 13, 2017, BBX Capital’s board of directors approved a share repurchase program which authorizes the repurchasepurchase of a total of up to 5,000,000 shares of the Company’Company’s Class A Common Stock and Class B Common Stock at an aggregate cost of no more than $35.0 million. This program replaces the Company’s prior repurchase program and authorizes management, at its discretion, to repurchasepurchase shares from time to time subject to market conditions and other factors. During the nine months ended September 30, 2018, the Company has not repurchased any shares under the program. However, in April 2018,2019, BBX Capital completed a cash tender offer pursuant to which it purchased 6,486,4861,799,539 shares of its Class A Common Stock at a purchase pricefor approximately $8.9 million. As of $9.25 per share for an aggregate purchase priceSeptember 30, 2019, BBX Capital had purchased 3,321,132 shares of approximately $60.1 million. The shares purchased in the tender offer, which was not conducted under the Company’s share repurchase program, represented approximately 7.6% of the total number of outstanding shares of
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BBX Capital’sits Class A Common Stock and 6.3% of BBX Capital’s total issued and outstanding equity (which includesfor approximately $18.9 million pursuant to the issued and outstanding shares of BBX Capital’s Class B Common Stock) as of April 19, 2018.
As of September 30, 2018, the Company had outstanding 10,000 shares of 5% Cumulative Preferred Stock with a stated value of $1,000 perJune 2017 share which are subject to mandatory redemption, of which 5,000 shares are required to be redeemed on December 31, 2019 and the remaining shares are required to be redeemed on December 31, 2020.repurchase program.
In April 2015, BBX Capital borrowed $80.0 million from a wholly-owned subsidiary of Bluegreen. Payments of interest are required on a quarterly basis, with the entire $80.0 million principal balance and accrued interest being due and payable in April 2020. This debt currently accrues interest at a per annum rate of 6% with quarterly interest payments to Bluegreen of $1.2 million, and BBX Capital may be required to repay all or a portion of the $80.0 million borrowed from Bluegreen if Bluegreen is not in compliance with debt covenants under its debt instruments.
In addition to the note payable to Bluegreen, the Company has other indebtedness which is summarized in Commitments above. The Company’s indebtedness, including any future debt incurred by the Company, may make usit more vulnerable to downturns in the economy and may subject the Company to covenants or restrictions on its operations and activities.
Credit Facilities with Future Availability
As of September 30, 2018,2019, BBX Capital and certain of its subsidiaries had the following credit facilities with future availability, subject to eligible collateral and the terms of the facilities, as applicable.
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IberiaIberiaBank $50.0 million Revolving Line of Credit. In March 2018, BBX Capital BBX Sweet Holdings, Food for Thought Restaurant Group-Florida, LLC, BCC and Woodbridge,certain of its wholly-owned subsidiaries entered into a Loan and Security Agreement and related agreements with IberiaBank (“Iberia”), as administrative agent and lender, and City National Bank of Florida, as lender, which provide for a $50.0 million revolving line of credit. Amounts borrowed under the facility accrue interest at a floating rate of 30-day LIBOR plus a margin of 3.0% to 3.75% or the Prime Rate plus a margin of 1.50% to 2.25%. The applicable margin is based on BBX Capital’s debt to EBITDA ratio. Payments of interest only are payable monthly. The facility matures, and all outstanding principal and interest will be payable, on March 6, 2020,June 30, 2021, with twelve-month renewal options at BBX Capital’s request, subject to satisfaction of certain conditions. The facility is secured by a pledge of a percentage of BBX Capital’s membership interests in Woodbridge having a value of not less than $100.0 million. Borrowings under the facility may be used for business acquisitions, real estate investments, stock repurchases, letters of credit, and general corporate purposes.
Under the terms and conditions of the Loan and Security Agreement, BBX Capital is required to comply with certain financial covenants, including maintaining minimum unencumbered liquidity and complying with financial ratios related to fixed charge coverage and debt to EBITDA.EBITDA financial ratios. The Loan and Security Agreement also contains customary affirmative and negative covenants, including those that, among other things, limit the ability of BBX Capital and the other borrowers to incur additional indebtedness and to make certain loans and investments. As of September 30, 2018,2019, there was $30.0 millionwere no borrowings outstanding onunder the line of credit.credit facility.
Toronto-Dominion Commercial Bank. In May 2017, Renin entered into a credit facility with TD Bank.Bank that was subsequently renewed in September 2019 and 2018. Under the terms and conditions of the credit facility, TD Bank agreed to provide term loans for up to $1.7 million and loans under a revolving credit facility for up to approximately $16.3 million subject to certain terms and conditions. As of September 30, 2018,2019, the outstanding amounts under the term loan and revolving credit facility were $1.3$0.8 million and $8.1$7.5 million, respectively, with effective interest rates of 5.92% and were bearing interest at an effective rate of 5.01% and 5.95%5.30%, respectively.
Bank of America Revolving Line of Credit. In August 2018, IT’SUGAR entered into a revolving credit facility with Bank of America. Under the terms and conditions of the credit facility, Bank of America has agreed to provide a revolving line of credit to IT’SUGAR for up to $4.0 million based on available collateral as defined by the credit facility and subject to IT’SUGAR’s compliance with the terms and conditions of the credit facility, including certain specific financial covenants. The revolving credit facility is available throughmatures in August 2021, and amounts outstanding bear interest at a LIBOR daily floating rate plus 1.50% or a monthly LIBOR rate subject to the terms and conditions of the credit facility. Payments of interest only will beare payable monthly. ThereAs of September 30, 2019, there were no borrowings outstanding under the credit facility as of September 30, 2018.facility.
Banc of America Leasing & Capital Equipment Note. In September 2018, IT’SUGAR entered into a Master Loan and Security Agreement with Banc of America Leasing & Capital, LLC which sets forth the terms and conditions pursuant to which IT’SUGAR may borrow funds to purchase equipment under one or more equipment security notes. The
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Agreement contains customary representations and covenants, including the submission of quarterly and annual financial statements to the lender.covenants. Each equipment note constitutes a separate, distinct and independent financing of equipment and is secured by a security interest in the purchased equipment and is an unconditional contractual obligation of IT’SUGAR. As of September 30, 2018,2019, there was one equipment note outstanding with a balance of $0.6$0.4 million.
As of September 30, 2019, BBX Capital and its subsidiaries (other than Bluegreen) had availability of approximately $57.7 million under the above revolving lines of credit, subject to eligible collateral and the terms of the facilities, as applicable.
Bluegreen
Bluegreen believes that it has sufficient liquidity from the sources described below to fund operations, including its anticipated working capital, capital expenditure, and debt service requirements, for the foreseeable future, subject to the success of its ongoing business strategy and the ongoing availability of credit.
Bluegreen’s primary sources of funds from internal operations are: (i) cash sales, (ii) down payments on VOI sales which are financed; (iii) proceeds from the sale of, or borrowings collateralized by, notes receivable, (iv) cash from finance operations, including mortgage servicing fees and principal and interest payments received on the purchase money mortgage loans arising from sales of VOIs, and (v) net cash generated from sales and marketing fee-based services and other fee-based services, including resort management operations.
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While the vacation ownership business has historically been capital intensive and Bluegreen may from time to time pursue transactions or activities which may require significant capital investment and adversely impact near term cash flows, Bluegreen has generally sought to focus on the generation of “free cash flow” (defined as cash flow from operating activities, less capital expenditures) by: (i) incentivizing sales associates and creating programs with third-party credit card companies to generate a higher percentage of sales in cash; (ii) maintaining sales volumes that focus on efficient marketing channels; (iii) limiting capital and inventory expenditures; (iv) utilizing sales and marketing, mortgage servicing, resort management services, title and construction expertise to pursue fee-based-service business relationships that generally require minimalless up-front capital investment and have the potential to produce incremental cash flows; and (v) more recently, by selling VOIs obtained through secondary market or JIT arrangements. In 2018, Bluegreen has invested more of its free-cash flow in additional sales offices and sales office expansions, as well as information technology expenditures, which Bluegreen expects to drive and support growth in future years. In addition, during April 2018, Bluegreen acquired the Éilan Hotel & Spa in San Antonio, Texas for $34.3 million, and borrowed $24.3 million to help fund the acquisition.
VOI sales are generally dependent upon providing financing to buyers. The ability to sell and/or borrow against notes receivable from VOI buyers has been a critical factor in Bluegreen’s continued liquidity. A financed VOI buyer is generally only required to payprovide a minimum of 10% to 20% of the purchase price in cash or equity at the time of sale; however, selling, marketing and administrative expenses attributable to the sale are primarily cash expenses that generally exceed a buyer’s minimum required down payment. Accordingly, having financing facilities available for the hypothecation, sale or transfer of VOI notes receivable has been a critical factor into Bluegreen’s ability to meet its short and long-term cash needs. Bluegreen has attempted to maintain a number of diverse financing facilities. Historically, Bluegreen has relied on its ability to sell receivables in the term securitization market in order to generate liquidity and create capacity in its receivable facilities. In addition, maintaining adequate VOI inventory to sell and pursue growth into new markets has historically required Bluegreen to incur debt for the acquisition, construction, and development of new resorts. The remaining developmentDevelopment expenditures during 2018the remainder of 2019 are expected to be in a range of $5.0$10.0 million to $10.0$15.0 million, which primarily relate to development at one of the Bluegreen/Big Cedar Vacations’ resorts, refurbishments at Bluegreen’s Blue Ridge Village Resort in Banner Elk, North Carolina and developmentrefurbishments at the Fountains resort in Orlando, Florida.
Bluegreen expects to seek to acquire or develop additional VOI inventory, which may increase acquisition and development expenditures as compared to prior periods and may involve or require the incurrence of additional debt.certain other resorts.
In connection with its capital-light business activities, Bluegreen has entered into agreements with third-party developers that allow Bluegreen to buy VOI inventory, typically on a non-committed basis, prior to when Bluegreen intends to sell such VOIs. Bluegreen’s capital-light business strategy also includes secondary market sales, pursuant to which Bluegreen enters into secondary market arrangements with certain HOAs and others on a non-committed basis, which allows Bluegreen to acquire VOIs generally at a significant discount, as such VOIs are typically obtained by the HOAs through foreclosure in connection with maintenance fee defaults. Remaining acquisitionsAcquisitions of JIT and secondary market inventory in 2018during the remainder of 2019 are expected to range from $2.0$1.0 million to $5.0 million.
In addition, remaining capital expenditures in connection with sales and marketing facilities as well as for information technology capital expenditures are expected to be in a range ofbetween $5.0 million and $10.0 million to $15.0 million in 2018.during the remainder of 2019.
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Available funds may also be used to acquire other businesses or assets, invest in other real estate based opportunities, pay dividends to its shareholders, or to fund loans to affiliates or others.
In October 2018, Bluegreen completed the 2018-A Term Securitization, a private offering and sale of approximately $117.7 million of investment-grade, VOI receivable-backed notes (the "Notes"), including approximately $49.8 million of Class A Notes, approximately $33.1 million of Class B Notes and approximately $34.8 million of Class C Notes with interest rates of 3.77%, 3.95% and 4.44%, respectively, which blends to an overall weighted average interest rate of approximately 4.02%. The gross advance rate for this transaction was 87.2%. The Notes mature in February 2034. KeyBanc Capital Markets Inc. (“KeyCM”) and Barclays Capital Inc. acted as joint bookrunners and co-lead managers and were the initial purchasers of the Notes. KeyCM also acted as structuring agent for the transaction.
The amount of the VOI notes receivables sold or to be sold to BXG Receivables Note Trust 2018-A (the “Trust”) is approximately $135.0 million, approximately $109.0 million of which was sold to the Trust at closing and approximately $26.0 million of which is expected to be sold to the Trust prior to February 25, 2019. The gross proceeds of such sales to the Trust are anticipated to be approximately $117.7 million. A portion of the proceeds received at the closing was used to: repay KeyBank National Association (“KeyBank”) and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (“DZ Bank”) approximately $49.2 million, representing all amounts outstanding (including accrued interest) under Bluegreen’s existing purchase facility with KeyBank and DZ Bank (the "KeyBank/DZ Purchase Facility"); repay Liberty Bank approximately $20.4 million under Bluegreen’s existing Liberty Bank Facility; repay Pacific Western Bank approximately $7.1 million under Bluegreen’s existing Pacific Western Bank Facility; capitalize a reserve fund; and pay fees and expenses associated with the transaction. The remainder of the proceeds from the 2018-A Term Securitization are expected to be used by Bluegreen for general corporate purposes. As a result of the facility repayments described above, following the closing of the 2018-A Term Securitization, (i) there were no amounts outstanding under the KeyBank/DZ Purchase Facility, which allows for maximum outstanding receivable-backed borrowings of $80.0 million on a revolving basis through December 31, 2019, (ii) there was approximately $19.1 million outstanding under the Liberty Bank Facility, which permits maximum outstanding receivable-backed borrowings of $50.0 million on a revolving basis through March 12, 2020, and (iii) there was approximately $9.6 million outstanding under the Pacific Western Bank Facility, which permits maximum outstanding receivable-backed borrowings of $40.0 million on a revolving basis through September 20, 2021, in each case, subject to eligible collateral and the other terms and conditions of each facility, respectively. Thus, subject to the foregoing, approximately $76.7 million in the aggregate was available under the KeyBank/DZ Purchase Facility, Liberty Bank Facility and Pacific Western Facility as a result of the repayments.
Further, subject to performance of the collateral, Bluegreen will receive any excess cash flows generated by the receivables transferred under the 2018-A Term Securitization (meaning excess cash after payments of customary fees, interest, and principal under the 2018-A Term Securitization) on a pro-rata basis as borrowers make payments on their VOI loans.
While ownership of the VOI receivables included in the 2018-A Term Securitization is transferred and sold for legal purposes, the transfer of these VOI notes receivables is accounted for as a secured borrowing for financial accounting purposes. Accordingly, no gain or loss was recognized as a result of the transaction.
Bluegreen’s level of debt and debt service requirements have several important effects on Bluegreen’s operations, including the following: (i) significant debt service cash requirements reduce the funds available for operations and future business opportunities and increase Bluegreen’s vulnerability to adverse economic and industry conditions, as well as conditions in the credit markets, generally; (ii) Bluegreen’s leverage position increases its vulnerability to economic and competitive pressures; (iii) the financial covenants and other restrictions contained in indentures, credit agreements and other agreements relating to Bluegreen’s indebtedness require Bluegreen to meet certain financial tests and may restrict Bluegreen’s ability to, among other things, pay dividends, borrow additional funds, dispose of assets or make investments; and (iv) Bluegreen’s leverage position may limit funds available for acquisitions, working capital, capital expenditures, dividends, and other general corporate purposes. Certain of Bluegreen’s competitors operate on a less leveraged basis and have greater operating and financial flexibility than Bluegreen does.
See Note 9 – Debt under Item 1 included in this report for additional information with respect to Bluegreen’s receivable-backed notes payable facilities.
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Credit Facilities for Bluegreen Receivables with Future Availability
Bluegreen maintains various credit facilities with financial institutions which allow Bluegreen to borrow against or sell its VOI notes receivable. As of September 30, 2018,2019, Bluegreen had the following credit facilities with future availability, all of which are subject to revolving availability terms during the advance period and therefore provide for additional availability as the facility is paid down, subject in each case to compliance with covenants, eligible collateral and applicable terms and conditions during the advance period (dollars in thousands):
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| Borrowing Limit as of September 30, 2018 |
| Outstanding Balance as of September 30, 2018 |
| Availability as of September 30, 2018 |
| Advance Period Expiration; Borrowing Maturity as of September 30, 2018 |
| Borrowing Rate; Rate as of September 30, 2018 |
| Borrowing Limit as of September 30, 2019 |
| Outstanding Balance as of September 30, 2019 |
| Availability as of September 30, 2019 |
| Advance Period Expiration; Borrowing Maturity as of September 30, 2019 |
| Borrowing Rate; Rate as of September 30, 2019 | ||
Liberty Bank Facility | $ | 50,000 | $ | 40,392 | $ | 9,608 |
| March 2020; March 2023 |
| Prime Rate; floor of 4.00%; 5.00% | $ | 50,000 | $ | 28,247 | $ | 21,753 |
| March 2020; March 2023 |
| Prime Rate; floor of 4.00%; 5.25% | ||
NBA Receivables Facility |
| 70,000 |
| 40,297 |
| 29,703 |
| September 2020; March 2025 |
| 30 day LIBOR + 2.75%; floor of 3.50%; 4.83% |
| 70,000 |
| 35,809 |
| 34,191 |
| September 2020; March 2025 |
| 30 day LIBOR + 2.75%; floor of 3.50%; 4.79% | ||
Pacific Western Facility |
| 40,000 |
| 17,081 |
| 22,919 |
| September 2021; September 2024 |
| 30 day LIBOR+2.75% to 3.00%; 5.84% |
| 40,000 |
| 30,848 |
| 9,152 |
| September 2021; September 2024 |
| 30 day LIBOR+2.75% to 3.00%; 4.92% | ||
KeyBank/DZ Purchase Facility |
| 80,000 |
| 49,733 |
| 30,267 |
| December 2019; December 2022 |
| 30 day LIBOR+2.75%; 5.01%(1) |
| 80,000 |
| 19,035 |
| 60,965 |
| December 2019; December 2022 |
| 30 day LIBOR+2.75%; 4.84% (1) | ||
Quorum Purchase Facility |
| 50,000 |
| 39,739 |
| 10,261 |
| June 2020; December 2032 |
| (2) |
| 50,000 |
| 44,865 |
| 5,135 |
| June 2020; December 2032 |
| (2) | ||
| $ | 290,000 | $ | 187,242 | $ | 102,758 |
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| $ | 290,000 | $ | 158,804 | $ | 131,196 |
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(1) | Borrowings accrue interest at a rate equal to either LIBOR, a “Cost of Funds” rate, or commercial paper rates plus 2.75%. The interest rate will increase to the applicable rate plus 4.75% upon the expiration of the advance period. |
(2) | Of the amounts outstanding under the Quorum Purchase Facility at September 30, |
See Note 8 under Item 1 included in this report and Note 13 to the Company’s consolidated financial statements included in the 2018 Annual Report for additional information with respect to Bluegreen’s receivable-backed notes payable facilities.
Other Credit Facilities and Outstanding Notes Payable
Fifth Third Syndicated Line-of-Credit and Fifth Third Syndicated Term Loan. In December 2016, Bluegreen entered into a $100.0 million syndicated credit facility with Fifth Third Bank, as administrative agent and lead arranger, and certain other bank participants as lenders. In October 2019, Bluegreen amended and restated the facility and increased the facility to $225.0 million. The amended facility includes a $25.0$100.0 million term loan (the “Fifth Third Syndicated Term Loan”) with quarterly amortization requirements and a $75.0$125.0 million revolving line of credit (the “Fifth Third Syndicated Line-of-Credit”Line of Credit”). Amounts borrowed under the amended facility generally bear interest at LIBOR plus 2.75%2.00% - 3.75%2.50% depending on Bluegreen’s leverage ratio, are collateralized by certain of Bluegreen’s VOI inventory, sales center buildings, management fees, and short-term receivables, and cash flows from residual interests relating to certain term securitizations, and will mature in December 2021. October 2024. At closing, Bluegreen borrowed the entire $100.0 million term loan and $30.0 million under the revolving line of credit. Proceeds were used to repay the outstanding balance on the existing syndicated credit facility, repay $3.6 million on the existing Fifth Third Bank Note Payable, and pay expenses and fees associated with the amendment, with the remainder to be used for general corporate purposes.
As of September 30, 2018,2019, outstanding borrowings under the facility (prior to the October 2019 amendment and repayment) totaled $77.8$96.1 million, including $22.8$21.1 million under the Fifth Third Syndicated Term Loan with an interest rate of 5.04%5.08%, and $55.0$75.0 million under the Fifth Third Syndicated Line of Credit with an interest rate of 4.99%4.88%.
Bluegreen also has outstanding obligations under various credit facilities and securitizations that have no remaining future availability as the advance periods have expired.
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See Note 9 – Debt8 under Item 1 included in this report and Note 13 to the Company’s consolidated financial statements included in the 2018 Annual Report for additional information with respect to Bluegreen’s other credit facilities terms and covenants.
73outstanding notes payable.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risks in the ordinary course of our business. These risks primarily include interest rate risk and equity price risk. The Company’s exposure to market risk has not materially changed from what was previously disclosed in our 20172018 Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 20182019 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Except asfor the litigation with respect to Bluegreen described below, there have been no material changes in our material legal proceedings from those disclosed in the “Legal Proceedings” section of our Annual Report on Form 10-K for the year ended December 31, 2017 and the Company’s2018, as updated in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 20182019 and June 30, 2018.2019.
Katja AndersonStephen Potje, Tamela Potje, Sharon Davis, Beafus Davis, Matthew Baldwin, Tammy Baldwin, Arnor Lee, Angela Lee, Gretchen Brown, Paul Brown, Jeremey Estrada, Emily Estrada, Michael Oliver, Carrie Oliver, Russel Walters, elaine Walters, and George Galloway,Mike Ericson v. Bluegreen Corporation, Case No.: 2018CA004782, 15 Judicial Circuit Court, Palm Beach County, Florida
On September 22, 2017, Stephen Potje, Tamela Potje, Sharon Davis, Beafus Davis, Matthew Baldwin, Tammy Baldwin, Arnor Lee, Angela Lee, Gretchen Brown, Paul Brown, Jeremy Estrada, Emily Estrada, Michael Oliver, Carrie Oliver, Russell Walters, Elaine Walters, and Mike Ericson, individually and on behalf of all other persons similarly situated v. Bluegreen Vacations Corporation, Case No. 18-cv-00127, United States District Court, Western District of Texas, Waco Division
On May 3, 2018, Katja Anderson and George Galloway, individually and on behalf of all other persons similarly situated, filed a purported class action lawsuit against Bluegreen which asserted claims for alleged violations of the Telephone ConsumerFlorida Deceptive and Unfair Trade Practices Act.Act and the Florida False Advertising Law. In the complaint, the plaintiffs alleged the making of false representations in connection with Bluegreen’s sales of VOIs. The plaintiffs claimed that they received multiple telemarketing calls in the spring of 2015 despite their requests not to be called. Plaintiffs sought certification of apurported class of individuals in the United States who received more than one telephone call made by us or on our behalf within a 12-month period to a telephone number that was registered with the National Do Not Call Registry for at least 30 days. Plaintiffs sought money damages, attorneys’ fees and a court order requiring Bluegreen to cease all unsolicited telephone calling activities. Bluegreen moved to dismiss theaction lawsuit and on August 13, 2018, this case was dismissed without prejudice.prejudice after mediation. However, on or about April 24, 2018, plaintiffs re-filed their individual claims in Palm Beach County Circuit Court. Subsequently, on October 15, 2019, the Court entered an order granting Bluegreen’s summary judgment and dismissed all claims.
On March 15, 2018, Bluegreen Vacations Unlimited (“BVU”), Bluegreen’s wholly-owned subsidiary, entered into an Agreement for Purchase and Sale of Assets with T. Park Central, LLC, O. Park Central, LLC, and New York Urban Ownership Management, LLC (collectively “New York Urban”) (the “Purchase and Sale Agreement”), which
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provides for the purchase of The Manhattan Club inventory over a number of years and the assumption of the management contract with The Manhattan Club HOAanticipated to occur in 2021. On October 7, 2019, New York Urban initiated arbitration proceedings against BVU alleging that the The Manhattan Club HOA (of which BVU is a member) is obligated to pay an increased management fee to a New York Urban affiliate and that this higher amount would be the benchmark for BVU’s purchase of the management contract under the parties’ Purchase and Sale Agreement. New York Urban is also seeking damages in the arbitration proceedings in excess of $10.0 million for promissory estoppel and tortious interference. BVU has denied New York Urban’s claims and has declared New York Urban in default under the Purchase and Sale Agreement for, among other things, initiating arbitration in violation of the Purchase and Sale Agreement. BVU has informed New York Urban that it would not proceed with its inventory purchases until New York Urban’s defaults are cured. The Purchase and Sale Agreement provides that, in the event of a breach, the nonbreaching party may either waive the breach or terminate the Purchase and Sale Agreement as its sole and exclusive remedy.
There have been no material changes in the risks and uncertainties that we face from those disclosed in the “Risk Factors” section of our 20172018 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Information regarding the Company’s purchase of its Class A Common Stock under its June 2017 repurchase program is set forth in the table below:
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Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 1 – July 31, 2019 | - | - | - | 3,077,229 shares (or approximately $23,147,000) |
August 1 – August 31, 2019 | - | - | - | 3,077,229 shares (or approximately $23,147,000) |
September 1 - September 30, 2019 | 1,398,361 | $5.00 | 1,398,361 | 1,678,868 shares (or approximately $16,143,000) |
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Total | 1,398,361 | $5.00 | 1,398,361 | 1,678,868 shares (or approximately $16,143,000) |
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(1) | On June 13, 2017, the Company’s Board of Directors approved a share repurchase program which authorizes the purchase of up to 5,000,000 shares of the Company’s Class A Common Stock and Class B Common Stock at an aggregate cost of up to $35.0 million. The June 2017 repurchase program authorizes management, at its discretion, to purchase shares from time to time subject to market conditions and other factors. |
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Exhibit 31.1Principal Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2Principal Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1*Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2*Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101.INS |
| XBRL Instance Document |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
* Exhibits furnished and not filed with this Form 10-Q.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BBX CAPITAL CORPORATION
November 6, 20181, 2019By: /s/ Alan B. Levan
Alan B. Levan, Chairman of the Board
and Chief Executive Officer
November 6, 20181, 2019By: /s/ Raymond S. Lopez
Raymond S. Lopez, Chief Financial Officer
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