10-Q 1 c858-20180630x10q.htm 10-Q 20180630 Q2



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 June 30, 2018



[   ] 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)





 

 

Florida

 

59‑2022148

(State or other jurisdiction of incorporation or organization)

 

(I.R.S Employer Identification No.)







 

 

401 East Las Olas Boulevard, Suite 800

 

 

Fort Lauderdale, Florida

 

33301

(Address of principal executive office)

 

(Zip Code)









(954) 940-4900

(Registrant's telephone number, including area code)



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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

 

 

Large accelerated filer [ ]

Accelerated filer[X]

Non-accelerated filer [ ]

Smaller reporting company [ ] 

Emerging growth company [ ]

 

 

 



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 August 1, 2018 is as follows:

 

Class A Common Stock of $.01 par value,  79,256,791 shares outstanding.
Class B Common Stock of $.01 par value, 17,977,453 shares outstanding.



 


 

 





 

 



 

 



 

 

BBX Capital Corporation

TABLE OF CONTENTS



Part I.



 

 

Item 1.

Financial Statements

 



 

 



Condensed Consolidated Statements of Financial Condition as of June 30, 2018 and December 31, 2017 - Unaudited



 

 



Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017 - Unaudited



 

 



Condensed Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2018 - Unaudited



 

 



Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 - Unaudited



 

 



Notes to Condensed Consolidated Financial Statements - Unaudited



 

 

Item 2.

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

38 



 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

66 



 

 

Item 4.

Controls and Procedures

66 



 

 

Part II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

67 



 

 

Item 1A.

Risk Factors

68 



 

 

Item 2.

Issuers Purchases of Equity Securities

68 



 

 

Item 6.

Exhibits

68 



 

 



Signatures

69 





  

 

 

 


 

 





PART I  FINANCIAL INFORMATION



Item 1. Financial Statements







 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Financial Condition - Unaudited

(In thousands, except share data)



 

 

 

 



 

 

 

December 31,



 

June 30, 2018

 

2017
*As Adjusted

ASSETS

 

 

 

 

Cash and cash equivalents

$

380,447 

 

362,526 

Restricted cash ($20,959 in 2018 and $19,488 in 2017 in variable

 

 

 

 

interest entities ("VIEs"))

 

54,471 

 

46,721 

Notes receivable, net ($296,016 in 2018 and $279,188 in 2017 in VIEs)

 

429,647 

 

426,858 

Trade inventory

 

21,280 

 

23,902 

Vacation ownership interest ("VOI") inventory

 

327,897 

 

281,291 

Real estate ($20,856 in 2018 and $27,828 in 2017 held for sale)

 

56,900 

 

68,536 

Investments in unconsolidated real estate joint ventures

 

41,801 

 

51,234 

Property and equipment, net

 

125,325 

 

111,929 

Goodwill

 

39,482 

 

39,482 

Intangible assets, net

 

71,761 

 

70,449 

Other assets

 

115,437 

 

122,753 

Total assets

$

1,664,448 

 

1,605,681 



 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable

$

27,694 

 

31,370 

Deferred income 

 

14,442 

 

16,893 

Escrow deposits

 

27,924 

 

21,079 

Other liabilities

 

87,701 

 

103,464 

Receivable-backed notes payable - recourse

 

101,582 

 

84,697 

Receivable-backed notes payable - non-recourse (in VIEs)

 

325,512 

 

336,421 

Notes payable and other borrowings

 

219,615 

 

144,114 

Junior subordinated debentures

 

135,974 

 

135,414 

Deferred income taxes

 

72,827 

 

47,968 

Redeemable 5% cumulative preferred stock of $.01 par value; authorized 15,000 shares;

 

 

 

 

issued and outstanding 10,000 shares in 2018 and 15,000 shares in 2017 with a stated value of $1,000 per share

 

9,310 

 

13,974 

Total liabilities

 

1,022,581 

 

935,394 



 

 

 

 

Commitments and contingencies (See Note 11)

 

 

 

 



 

 

 

 

Redeemable noncontrolling interest

 

2,590 

 

2,765 



 

 

 

 

Equity:

 

 

 

 

Preferred stock of $.01 par value; authorized 10,000,000 shares

 

 -

 

 -

Class A Common Stock of $.01 par value; authorized 150,000,000 shares;

 

 

 

 

issued and outstanding 79,256,791 in 2018 and 85,689,163 in 2017

 

793 

 

857 

Class B Common Stock of $.01 par value; authorized 20,000,000 shares;

 

 

 

 

issued and outstanding 13,936,432 in 2018 and 13,963,200 in 2017

 

139 

 

140 

Additional paid-in capital

 

176,050 

 

229,379 

Accumulated earnings

 

369,214 

 

353,384 

Accumulated other comprehensive income

 

1,452 

 

1,708 

Total shareholders' equity

 

547,648 

 

585,468 

Noncontrolling interests

 

91,629 

 

82,054 

Total equity

 

639,277 

 

667,522 

Total liabilities and equity

$

1,664,448 

 

1,605,681 



 

 

 

 

*  See Note 1 for a summary of adjustments.

 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited







1

 


 

 





 

 

 

 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited

(In thousands, except per share data)



 

 

 

 



 

For the Three Months Ended

 

For the Six Months Ended



 

June 30,

 

June 30,



 

2018

 

2017
*As Adjusted

 

2018

 

2017
*As Adjusted

Revenues

 

 

 

 

 

 

 

 

Sales of VOIs

$

68,573 

 

59,405 

 

124,714 

 

113,641 

Fee-based sales commissions

 

60,086 

 

63,915 

 

105,940 

 

109,069 

Other fee-based services

 

30,391 

 

29,935 

 

58,415 

 

56,056 

Cost reimbursements

 

14,059 

 

11,893 

 

30,260 

 

26,563 

Trade sales

 

43,908 

 

28,313 

 

82,286 

 

51,652 

Sales of real estate inventory

 

3,250 

 

 -

 

9,659 

 

 -

Interest income

 

20,664 

 

20,875 

 

42,581 

 

42,030 

Net gains on sales of real estate assets

 

733 

 

1,884 

 

4,802 

 

1,686 

Other revenue

 

1,562 

 

1,446 

 

2,611 

 

2,403 

Total revenues

 

243,226 

 

217,666 

 

461,268 

 

403,100 



 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

Cost of VOIs sold

 

6,789 

 

1,749 

 

8,601 

 

4,908 

Cost of other fee-based services

 

16,634 

 

15,374 

 

34,045 

 

31,481 

Cost reimbursements

 

14,059 

 

11,893 

 

30,260 

 

26,563 

Cost of trade sales

 

31,655 

 

22,299 

 

59,091 

 

41,895 

Cost of real estate inventory sold

 

2,381 

 

 -

 

6,628 

 

 -

Interest expense

 

10,403 

 

9,273 

 

19,594 

 

18,097 

Recoveries from loan losses, net

 

(1,981)

 

(999)

 

(6,794)

 

(4,093)

Asset impairments, net

 

104 

 

58 

 

336 

 

45 

Net gains on cancellation of junior subordinated debentures

 

 -

 

 -

 

 -

 

(6,929)

Reimbursements of litigation costs and penalty

 

 -

 

 -

 

 -

 

(9,606)

Selling, general and administrative expenses

 

141,563 

 

135,410 

 

266,918 

 

248,716 

Total costs and expenses

 

221,607 

 

195,057 

 

418,679 

 

351,077 



 

 

 

 

 

 

 

 

Equity in net (losses) earnings of unconsolidated

 

 

 

 

 

 

 

 

real estate joint ventures

 

(488)

 

3,087 

 

792 

 

6,323 

Foreign exchange (loss) gain

 

(37)

 

(398)

 

15 

 

(207)

Income before income taxes

 

21,094 

 

25,298 

 

43,396 

 

58,139 

Provision for income taxes

 

(8,655)

 

(9,131)

 

(15,255)

 

(21,895)

Net income

 

12,439 

 

16,167 

 

28,141 

 

36,244 

Less: Net income attributable to noncontrolling interests

 

5,958 

 

3,453 

 

10,518 

 

6,090 

Net income attributable to shareholders

$

6,481 

 

12,714 

 

17,623 

 

30,154 



 

 

 

 

 

 

 

 

Basic earnings per share

$

0.07 

 

0.13 

 

0.18 

 

0.31 

Diluted earnings per share

$

0.07 

 

0.12 

 

0.18 

 

0.28 



 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

94,390 

 

98,240 

 

97,007 

 

98,579 

Diluted weighted average number of common and

 

 

 

 

 

 

 

 

common equivalent shares outstanding

 

97,779 

 

106,173 

 

100,194 

 

106,061 



 

 

 

 

 

 

 

 

Cash dividends declared per Class A common share

$

0.010 

 

0.0075 

 

0.020 

 

0.0150 

Cash dividends declared per Class B common share

$

0.010 

 

0.0075 

 

0.020 

 

0.0150 



 

 

 

 

 

 

 

 

Net income

$

12,439 

 

16,167 

 

28,141 

 

36,244 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Unrealized gains on securities available for sale

 

 -

 

23 

 

 -

 

46 

Foreign currency translation adjustments

 

24 

 

138 

 

(4)

 

(117)

Other comprehensive income (loss), net

 

24 

 

161 

 

(4)

 

(71)

Comprehensive income, net of tax

 

12,463 

 

16,328 

 

28,137 

 

36,173 

Less: Comprehensive income attributable to noncontrolling interests

 

5,958 

 

3,453 

 

10,518 

 

6,090 

Comprehensive income attributable to shareholders

$

6,505 

 

12,875 

 

17,619 

 

30,083 



 

 

 

 

 

 

 

 

*  See Note 1 for a summary of adjustments.

 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited

 

 

 

 

2

 


 

 













 

 

 

 

 

 

 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Changes in Equity - Unaudited

For the Six Months Ended June 30, 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

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 $266 of loss attributable to redeemable noncontrolling interest

 -

 -

 

 -

 -

 -

17,623 

 -

17,623  10,784  28,407 

Other comprehensive income

 -

 -

 

 -

 -

 -

 -

(4) (4)

 -

(4)

Distributions to noncontrolling interests

 -

 -

 

 -

 -

 -

 -

 -

 -

(2,242) (2,242)

Increase in noncontrolling interest from loan foreclosure

 -

 -

 

 -

 -

 -

 -

 -

 -

704  704 

Purchase of noncontrolling interest

 -

 -

 

 -

 -

(587)

 -

 -

(587) 329  (258)

Class A Common Stock cash dividends declared

 -

 -

 

 -

 -

 -

(1,683)

 -

(1,683)

 -

(1,683)

Class B Common Stock cash dividends declared

 -

 -

 

 -

 -

 -

(362)

 -

(362)

 -

(362)

Repurchase and retirement of common stock from tender offer

(6,486)

 -

 

(65)

 -

(60,059)

 -

 -

(60,124)

 -

(60,124)

Conversion of common stock from Class B to Class A

27  (27)

 

(1)

 -

 -

 -

 -

 -

 -

Issuance of Common Stock from exercise of options

27 

 -

 

 -

 -

245 

 -

 -

245 

 -

245 

Share-based compensation

 -

 -

 

 -

 -

7,072 

 -

 -

7,072 

 -

7,072 

Balance, June 30, 2018

79,257  13,936 

$

793  139  176,050  369,214  1,452  547,648  91,629  639,277 

*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 Six Months Ended



 

June 30,



 

2018

 

2017

Operating activities:

 

 

 

 

Net income

$

28,141 

 

36,244 



 

 

 

 

Adjustment to reconcile net income to net cash

 

 

 

 

provided by operating activities:

 

 

 

 

Recoveries from loan losses and asset impairments, net

 

(6,458)

 

(4,048)

Provision for notes receivable allowances

 

21,447 

 

22,546 

Depreciation, amortization and accretion, net

 

11,869 

 

9,356 

Share-based compensation expense

 

7,072 

 

6,732 

Net gains on sales of real estate held-for-sale

 

 

 

 

and properties and equipment

 

(4,895)

 

(1,686)

Equity in earnings of unconsolidated real estate joint ventures

 

(792)

 

(6,323)

Return on investment in unconsolidated real estate joint ventures

 

5,071 

 

6,130 

Increase in deferred income tax

 

14,753 

 

23,151 

Net gains on cancellation of junior subordinated debentures

 

 -

 

(6,929)

Interest accretion on redeemable 5% cumulative preferred stock

 

649 

 

598 

Increase in notes receivable

 

(24,236)

 

(14,741)

Increase in VOI inventory

 

(25,770)

 

(26,351)

Decrease (increase) in trade inventory

 

2,712 

 

(6,330)

Decrease (increase) in real estate inventory

 

5,810 

 

(5,050)

Increase in other assets

 

(16,820)

 

(11,619)

Decrease in other liabilities

 

(5,924)

 

(4,260)

Net cash provided by operating activities

 

12,629 

 

17,420 

Investing activities:

 

 

 

 

Return of investment in unconsolidated real estate joint ventures

 

5,713 

 

472 

Investments in unconsolidated real estate joint ventures

 

(533)

 

(385)

Repayment of loans receivable

 

17,367 

 

5,830 

Proceeds from sales of loans and real estate held-for-sale

 

16,882 

 

9,101 

Additions to real estate held-for-sale and held-for-investment

 

(594)

 

(240)

Purchases of property and equipment

 

(20,073)

 

(8,378)

Proceeds from the sale of property and equipment

 

569 

 

 -

Cash paid for acquisition, net of cash received

 

 -

 

(58,484)

Decrease in cash from other investing activities

 

(163)

 

(24)

Net cash provided by (used in) investing activities

 

19,168 

 

(52,108)

Financing activities:

 

 

 

 

Repayments of notes payable and other borrowings

 

(95,600)

 

(149,450)

Proceeds from notes payable and other borrowings

 

154,771 

 

184,003 

Redemption of junior subordinated debentures

 

 -

 

(11,438)

Payments for debt issuance costs

 

(770)

 

(2,839)

Payments of interest on redeemable 5% cumulative preferred stock

 

(313)

 

(375)

Repurchase and retirement of Class A common stock

 

(60,124)

 

(6,213)

Purchase of noncontrolling interest

 

(258)

 

 -

Proceeds from the exercise of stock options

 

245 

 

62 

Dividends paid on common stock

 

(1,835)

 

(1,335)

Distributions to noncontrolling interest

 

(2,242)

 

 -

Net cash (used in) provided by financing activities

 

(6,126)

 

12,415 

Increase (decrease) in cash, cash equivalents and restricted cash

 

25,671 

 

(22,273)

Cash, cash equivalents and restricted cash at beginning of period 

 

409,247 

 

346,317 

Cash, cash equivalents and restricted cash at end of period 

$

434,918 

 

324,044 

Continued



4

 


 

 















 

 

 

 



 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Cash Flows - Unaudited

(In thousands)



 

 

 

 



 

For the Six Months Ended



 

June 30,



 

2018

 

2017

Supplemental cash flow information:

 

 

 

 

Interest paid on borrowings

$

17,709 

 

16,006 

Income taxes paid

 

1,755 

 

1,206 



 

 

 

 

Supplementary disclosure of non-cash investing and financing activities:

 

 

 

 

Construction funds receivable transferred to real estate

 

6,943 

 

 -

Acquisition of VOI inventory, property and equipment for notes payable

 

24,258 

 

 -

Loans receivable transferred to real estate

 

1,673 

 

910 

Reduction in redeemable 5% cumulative preferred stock

 

4,862 

 

 -

Reduction in note receivable from holder of redeemable cumulative preferred stock

 

(5,000)

 

 -

Decrease in deferred tax liabilities due to cumulative effect of excess

 

 

 

 

tax benefits

 

 -

 

3,054 



 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash

 

 

 

 

Cash and cash equivalents

 

380,447 

 

254,068 

Restricted cash

 

54,471 

 

69,976 

Total cash, cash equivalents, and restricted cash

$

434,918 

 

324,044 



 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited

















 

5

 


 

 





BBX Capital Corporation

Notes to Condensed Consolidated Financial Statements - Unaudited





1.    Basis of Financial Statement Presentation



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.” 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 June 30, 2018; the condensed consolidated results of operations and comprehensive income of the Company for the three and six months ended June 30, 2018 and 2017; the condensed consolidated changes in equity of the Company for the six months ended June 30, 2018; and the condensed consolidated cash flows of the Company for the six months ended June 30, 2018 and 2017.  Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 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, 2017 (the “2017 Annual Report”). 



The consolidated financial statements include the accounts of all the Company’s wholly-owned subsidiaries, other entities in which the Company and its subsidiaries hold controlling financial interests, and any VIEs in which the Company or one of its consolidated subsidiaries is deemed the primary beneficiary of the VIE. All significant inter-company accounts and transactions have been eliminated among consolidated entities.



Certain amounts for prior periods have been reclassified to conform to 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 Pronouncement” 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.



The Company’s principal investments include Bluegreen Vacations Corporation (“Bluegreen” or “Bluegreen Vacations”), real estate and real estate joint ventures, and middle market operating businesses. 



Bluegreen is a leading vacation ownership company that markets and sells VOIs and manages resorts in 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 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 Bluegreen’s points-based system, the approximately 215,000 owners in Bluegreen’s Vacation Club have the flexibility to stay at units available at any of its resorts and have access to approximately 11,100 other hotels and resorts through partnerships and exchange networks. Bluegreen’s sales and marketing platform is supported by exclusive marketing relationships with nationally-recognized consumer brands, such as Bass Pro 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 sales and development activities, Bluegreen now also derives a significant

6

 


 

 

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. 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.



Prior to the fourth quarter of 2017, Woodbridge Holdings, LLC (“Woodbridge”), a wholly-owned subsidiary of BBX Capital, owned 100% of Bluegreen. During the fourth quarter of 2017, Bluegreen completed an initial public offering (“IPO”) of its common stock by selling to the public 3,736,723 Bluegreen shares and Woodbridge selling 3,736,722 Bluegreen shares as a selling shareholder. As a result of Bluegreen’s IPO, BBX Capital currently owns 90% of Bluegreen through Woodbridge.



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 market operating businesses include Renin Holdings, LLC (“Renin”), a company that manufactures products for the home improvement industry, 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 retailer with 96 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. 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 85% and 15%, respectively, at June 30, 2018.   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.



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:



ASU No. 2014-09 –  Revenue Recognition (Topic 606): In May 2014, the FASB issued a new standard related to revenue recognition (as subsequently clarified and amended by various ASUs). Under the new standard, revenue is recognized when an entity satisfies a performance obligation 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, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.



The Company adopted the standard on January 1, 2018 under the full retrospective method and, accordingly, prior years’ results 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 recognizing revenue 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

7

 


 

 

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:



·

We utilize the transaction price upon completion of the contract for certain contracts with customers; 

·

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less or unsatisfied performance obligations or unsatisfied promises to transfer a distinct good or service that forms a part of a single performance obligation recognized over time.  See Note 2 for a further description of variable consideration identified in contracts with customers;

·

We expense all marketing and sales costs as incurred;

·

We exclude from the transaction price all taxes assessed by a governmental authority that are imposed on a specified transaction concurrent with the closing thereof and collected by the Company from a customer;

·

We do not disclose remaining performance obligations for variable consideration when the variable consideration is allocated entirely to a wholly unsatisfied performance obligation;

·

We do not disclose remaining performance obligations when revenue is recognized based on the Company’s right to invoice;

·

We account for shipping and handling activities that occur after the control of the goods is transferred to a customer as fulfillment activities instead of a separate performance obligation;

·

We recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset is one year or less; and

·

We do not adjust the transaction price for the effects of a significant financial component if we expect, at the contract inception, that the performance obligations will be satisfied within one year or less.



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 revenues for the transfer of nonfinancial assets to non-customers. The standard indicates that an entity should 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. Under the new standard, the full gain is recognized upon the transfer of control of the real estate to the unconsolidated joint venture, and any noncontrolling interest retained is measured at fair value.  In certain unconsolidated real estate joint ventures, the Company accounted for the transfer of land to such ventures for initial capital contributions as partial sales, resulting in deferred gains and joint venture basis adjustments.



The Company adopted the standard on January 1, 2018 under the full retrospective method and, accordingly, prior years’ results have been adjusted to apply the new standard as shown below.



8

 


 

 

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 six months ended June 30, 2017 and the years ended December 31, 2017 and 2016 (in thousands, except per share data):





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended June 30, 2017



 

As Previously Reported

 

ASU 2014-09 Adjustments

 

ASU 2017-05 Adjustments

 

As Adjusted

Statement of Operations

 

 

 

 

 

 

 

 

Sales of VOIs

$

56,695 

 

2,710 

 

 -

 

59,405 

Cost reimbursements

 

 -

 

11,893 

 

 -

 

11,893 

Cost reimbursements

 

 -

 

11,893 

 

 -

 

11,893 

Cost of VOIs sold

 

1,135 

 

614 

 

 -

 

1,749 

Trade sales

 

28,442 

 

(129)

 

 -

 

28,313 

Net gains on sales of real estate assets

 

1,884 

 

 -

 

 -

 

1,884 

Cost of trade sales

 

20,392 

 

1,907 

 

 -

 

22,299 

Selling, general and administrative expenses

 

136,741 

 

(1,331)

 

 -

 

135,410 

Equity in earnings of unconsolidated real estate joint ventures

 

3,455 

 

 -

 

(368)

 

3,087 

Income before income taxes

 

24,275 

 

1,391 

 

(368)

 

25,298 

(Provision) benefit for income taxes

 

(8,779)

 

(494)

 

142 

 

(9,131)

Net income

 

15,496 

 

897 

 

(226)

 

16,167 

  Less: Net income attributable to non-controlling interests

 

3,415 

 

38 

 

 -

 

3,453 

Net income attributable to shareholders

$

12,081 

 

859 

 

(226)

 

12,714 

Basic earnings per share

$

0.12 

 

 

 

 

 

0.13 

Diluted earnings per share

$

0.11 

 

 

 

 

 

0.12 









 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Six Months Ended June 30, 2017



 

As Previously Reported

 

ASU 2014-09 Adjustments

 

ASU 2017-05 Adjustments

 

As Adjusted

Statement of Operations

 

 

 

 

 

 

 

 

Sales of VOIs

$

111,152 

 

2,489 

 

 -

 

113,641 

Cost reimbursements

 

 -

 

26,563 

 

 -

 

26,563 

Cost reimbursements

 

 -

 

26,563 

 

 -

 

26,563 

Cost of VOIs sold

 

4,453 

 

455 

 

 -

 

4,908 

Trade sales

 

51,955 

 

(303)

 

 -

 

51,652 

Net gains on sales of real estate assets

 

2,179 

 

 -

 

(493)

 

1,686 

Cost of trade sales

 

38,465 

 

3,430 

 

 -

 

41,895 

Selling, general and administrative expenses

 

251,892 

 

(3,176)

 

 -

 

248,716 

Equity in earnings of unconsolidated real estate joint ventures

 

7,169 

 

 -

 

(846)

 

6,323 

Income before income taxes

 

58,000 

 

1,478 

 

(1,339)

 

58,139 

(Provision) benefit for income taxes

 

(21,833)

 

(579)

 

517 

 

(21,895)

Net income

 

36,167 

 

899 

 

(822)

 

36,244 

  Less: Net income attributable to non-controlling interests

 

6,211 

 

(121)

 

 -

 

6,090 

Net income attributable to shareholders

$

29,956 

 

1,020 

 

(822)

 

30,154 

Basic earnings per share

$

0.30 

 

 

 

 

 

0.31 

Diluted earnings per share

$

0.28 

 

 

 

 

 

0.28 





9

 


 

 









 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

As of and for the Year Ended December 31, 2017



 

As Previously Reported

 

ASU 2014-09 Adjustments

 

ASU 2017-05 Adjustments

 

As Adjusted

Statement of Financial Condition

 

 

 

 

 

 

 

 

Notes receivable, net

$

431,801 

 

(4,943)

 

 -

 

426,858 

Investment in unconsolidated 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 



 

 

 

 

 

 

 

 

Statement of Operations

 

 

 

 

 

 

 

 

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 real estate joint ventures

 

14,483 

 

 -

 

(1,942)

 

12,541 

Income before income taxes

 

93,374 

 

1,662 

 

(2,435)

 

92,601 

Benefit (provision) for income taxes

 

7,223 

 

             954

 

1,525 

 

9,702 

Net income

 

100,597 

 

2,616 

 

(910)

 

102,303 

  Less: Net income attributable to non-controlling interest

 

18,402 

 

(24)

 

 -

 

18,378 

Net income attributable to shareholders

$

82,195 

 

2,640 

 

(910)

 

83,925 

Basic earnings per share

$

0.83 

 

 

 

 

 

0.85 

Diluted earnings per share

$

0.79 

 

 

 

 

 

0.81 



10

 


 

 







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

As of and for the Year Ended December 31, 2016



 

As Previously Reported

 

ASU 2014-09 Adjustments

 

ASU 2017-05 Adjustments

 

As Adjusted

Statement of Financial Condition

 

 

 

 

 

 

 

 

Notes receivable, net

$

430,480 

 

(4,680)

 

 -

 

425,800 

Investment in unconsolidated 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 



 

 

 

 

 

 

 

 

Statement of Operations

 

 

 

 

 

 

 

 

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 real estate joint ventures

 

13,630 

 

 -

 

(1,452)

 

12,178 

Income before income taxes

 

78,036 

 

4,676 

 

(3,726)

 

78,986 

(Provision) benefit 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 non-controlling interest

 

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 

 

 

 

 

 

0.34 

Diluted earnings per share

$

0.32 

 

 

 

 

 

0.34 





On March 9, 2018, the Company filed its 2017 Annual Report which included in Item 8 – Note 2 to the consolidated financial statements the expected impacts to reported results of the retrospective adjustments to the Company’s financial statements for the years ended December 31, 2017 and 2016 due to the 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.  An entity should 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, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements.



ASU No. 2017-01, Business Combinations - Clarifying the Definition of a Business. This update affects the determination of whether a company has acquired or sold a business. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill and consolidations, and the standard aims to help entities determine whether transactions should be accounted for as acquisitions or disposals of assets or 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

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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, entities will be able 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 statement was adopted prospectively for $2.4 million of equity securities without readily determinable fair values. The adoption of this statement 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 enactment 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 elected to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act into accumulated earnings as of the adoption date.  The adoption of this statement 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 ASC Topic 740, Income Taxes (“ASC 740”), for the guidance previously provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”) for the application of ASC 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. See Note 10 for additional information regarding the accounting for income taxes and the Tax Reform Act.



Future Adoption of Recently Issued Accounting Pronouncements



The FASB has issued the following accounting pronouncements and guidance relevant to the Company’s operations which have not been adopted as of June 30, 2018



ASU No. 2016-02 – Leases (Topic 842),  as subsequently amended by ASU 2018-01 and ASU 2018-11This 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 update retained a dual model, requiring leases to be classified as either operating or finance based on largely similar criteria 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 will be effective for the Company on January 1, 2019. Entities have the option to adopt the standard under a modified retrospective transition method which applies the transition guidance at the beginning of the earliest period presented or an optional transition method which applies the transition guidance on the date of adoption with a cumulative-effect adjustment to opening balance of retained earnings.  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 has aggregate future minimum lease payments of $148.6 million at June 30, 2018 under its current non-cancelable lease agreements with various expirations 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 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. Significant implementation matters include implementing a lease accounting software application, assessing the impact on the Company’s internal control over financial reporting, and documenting and implementing new processes for accounting for its lease agreements under the standard. 



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ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard introduces an approach of estimating credit losses on certain types of financial instruments based on expected losses and also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for credit losses. In addition, the standard requires 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). 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 ASU 2016-13 may have on its consolidated financial statements. 





2.    Revenue Recognition



Sales of VOIs -  Revenue is recognized for sales of VOIs after the legal rescission period has expired on a properly executed VOI sales agreement and the collectibility of the note receivable from the buyer, if any, is reasonably assured.  Transfer of control of the VOI to the buyer occurs after the legal rescission period has expired as the risk and rewards associated with VOI ownership are transferred to the buyer at that time.  Customer deposits from contracts within the legal rescission period are recorded 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.



For sales of VOIs for which it provides financing, Bluegreen has reduced the transaction price for expected loan losses which it considers to be variable consideration. Bluegreen’s estimates of the variable consideration are based on the results of its static pool analysis, which relies on historical payment data for similar VOI notes receivable. 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 the variable consideration 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 standards. Bluegreen reviews its estimate of variable consideration on at least a quarterly basis. Loan origination costs are deferred and recognized over the life of the related notes receivable.



Under timeshare accounting rules, 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. Conversely, incremental revenues in excess of incremental carrying costs are recorded as a reduction to the carrying cost of VOI inventory. Incremental carrying costs include costs that have been incurred by Bluegreen during the holding period of unsold VOIs, such as developer subsidies and maintenance fees on unsold VOI inventory. 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 -  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 and the related consumer rescission period has expired.



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Other fee-based services and cost reimbursements -  Revenue in connection with Bluegreen’s other fee-based services (which are described below) is recognized as follows:



·

Resort and club management revenue and related cost reimbursements are recognized as services are rendered.  These services provided to the resort homeowner associations (“HOAs”) are comprised of day-to-day services to operate the resort including management services and certain accounting and administrative functions.  Management services provided to the Vacation Club include managing the reservation system and providing owner, billing and collection services.  Bluegreen’s management contracts are typically structured as cost-plus, with an initial term of three years and automatic one-year renewals. Bluegreen believes these services to be a series of distinct goods and services to be accounted for as a single performance obligation over time and recognizes revenue as the customer receives the benefits of its services.  Bluegreen allocates variable consideration to the distinct good or service within the series, such that revenue from management fees and cost reimbursements is recognized in each period as the uncertainty with respect to such variable consideration is resolved.

·

Title fee revenue is recognized when escrow amounts are released and title documents are completed.

·

Rental revenues are recognized on a daily basis which is consistent with the period for which the customer benefits from such service. 

·

Mortgage servicing revenue is recognized over time as services are rendered. 



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:



·

Revenue is recognized on wholesale trade sales when control of the products is transferred to customers, which generally occurs when the products are shipped and the customers accept delivery.  Certain customer trade sale contracts have provisions for right of return, volume rebates, and price concessions. These types of discounts are accounted for as variable consideration, and the Company uses the expected value method with constraints to calculate the estimated reduction in the trade sales revenue.  The inputs used for the expected value method are historical experience with the customer, sales forecasts and outstanding purchase orders;

·

Revenue is recognized on retail trade sales at the point of sale, which occurs when products are sold at the Company’s retail locations.



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.  Certain real estate sales contracts provide for a contingent purchase price which is accounted for as variable consideration. The Company estimates the amount of a portion of the variable consideration upon the closing of the real estate transaction based on an expected value methodology. The estimate of variable consideration is constrained 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 are current sales prices net of incentives, historical contingent price consideration receipts and sales contracts on similar properties.



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 notes receivable are carried at amortized cost less an allowance for loan losses. 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 June 30, 2018 and December 31, 2017, $15.5 million and $12.9 million, respectively, of Bluegreen’s VOI notes receivable were more than 90 days past due, and accordingly, consistent with its policy, are 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 loans receivable originated by BBX Capital 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.



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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 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 - Revenue disaggregated by category was as follows (in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,



 

2018

 

2017

 

2018

 

2017

Sales of VOIs

$

68,573 

 

59,405 

 

124,714 

 

113,641 

Fee-based sales commissions

 

60,086 

 

63,915 

 

105,940 

 

109,069 

Other fee-based services

 

25,562 

 

22,660 

 

49,514 

 

44,687 

Cost reimbursements

 

14,059 

 

11,893 

 

30,260 

 

26,563 

Title fees

 

3,175 

 

5,737 

 

5,863 

 

8,554 

Rental revenue

 

1,654 

 

1,538 

 

3,038 

 

2,815 

Trade sales - wholesale

 

19,988 

 

22,713 

 

38,353 

 

44,576 

Trade sales - retail

 

23,920 

 

5,600 

 

43,933 

 

7,076 

Sales of real estate inventory

 

3,250 

 

 -

 

9,659 

 

 -

Revenue from customers

 

220,267 

 

193,461 

 

411,274 

 

356,981 

Interest income

 

20,664 

 

20,875 

 

42,581 

 

42,030 

Net gains on sales of real estate assets

 

733 

 

1,884 

 

4,802 

 

1,686 

Other revenue

 

1,562 

 

1,446 

 

2,611 

 

2,403 

Total revenues

$

243,226 

 

217,666 

 

461,268 

 

403,100 







3.    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 based on market conditions at the time of the securitization.



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 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 June 30, 2018, Bluegreen was in compliance with all material terms under its securitization transactions, and no trigger events had occurred.



In accordance with 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 bases 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 a qualitative analysis to determine if Bluegreen must consolidate a VIE as the primary beneficiary. In accordance with applicable accounting guidance, Bluegreen has

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determined these securitization entities to be VIEs of which Bluegreen is 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.  Voluntary repurchases and substitutions by Bluegreen of defaulted notes during the six months ended June 30, 2018 and 2017 were $3.1 million and $4.9 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.



Information related to the assets and liabilities of Bluegreen’s consolidated VIEs included in the Company’s condensed consolidated statements of financial condition is set forth below (in thousands):







 

 

 

 



 

 

 

 



 

June 30,

 

December 31,



 

2018