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, 2019



[   ] 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)





 

 

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.





 

 

 

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 July 25, 2019 is as follows:

 

Class A Common Stock of $.01 par value,  77,978,452 shares outstanding.
Class B Common Stock of $.01 par value, 19,384,730 shares outstanding.



 


 

 





 

 



 

 



 

 

BBX Capital Corporation

TABLE OF CONTENTS



Part I.



 

 

Item 1.

Financial Statements

 



 

 



Condensed Consolidated Statements of Financial Condition as of June 30, 2019 and December 31, 2018 - Unaudited



 

 



Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018 - Unaudited



 

 



Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30,  2019 and 2018 - Unaudited



 

 



Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 - Unaudited



 

 



Notes to Condensed Consolidated Financial Statements - Unaudited



 

 

Item 2.

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

33 



 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

57 



 

 

Item 4.

Controls and Procedures

57 



 

 

Part II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

57 



 

 

Item 1A.

Risk Factors

58 



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58 



 

 

Item 6.

Exhibits

59 



 

 



Signatures

60 





  

 

 

 


 

 





PART I  FINANCIAL INFORMATION



Item 1. Financial Statements















 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Financial Condition - Unaudited

(In thousands, except share data)



 

 

 

 



 

 

 

 



 

June 30, 2019

 

December 31, 2018

ASSETS

 

 

 

 

Cash and cash equivalents

$

332,871 

 

366,305 

Restricted cash ($19,018 in 2019 and $28,400 in 2018 in variable interest entities ("VIEs"))

 

48,373 

 

54,792 

Notes receivable, net ($308,042 in 2019 and $341,975 in 2018 in VIEs)

 

440,854 

 

439,167 

Trade inventory

 

23,323 

 

20,110 

Vacation ownership interest ("VOI") inventory

 

342,220 

 

334,149 

Real estate ($13,024 in 2019 and $20,202 in 2018 held for sale)

 

53,564 

 

54,956 

Investments in unconsolidated real estate joint ventures

 

65,254 

 

64,738 

Property and equipment, net

 

134,107 

 

139,628 

Goodwill

 

37,248 

 

37,248 

Intangible assets, net

 

68,953 

 

69,710 

Operating lease assets

 

122,724 

 

 -

Other assets

 

132,270 

 

124,217 

Total assets

$

1,801,761 

 

1,705,020 



 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable

$

27,359 

 

29,537 

Deferred income 

 

17,668 

 

16,522 

Escrow deposits

 

25,531 

 

22,255 

Other liabilities

 

115,711 

 

104,441 

Receivable-backed notes payable - recourse

 

86,820 

 

76,674 

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

 

351,316 

 

382,257 

Notes payable and other borrowings

 

178,516 

 

200,887 

Junior subordinated debentures

 

136,829 

 

136,425 

Operating lease liabilities

 

137,643 

 

 -

Deferred income taxes

 

80,271 

 

86,363 

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

 

 

 

 

issued and outstanding 10,000 shares in 2019 and  2018 with a stated value of $1,000 per share

 

9,642 

 

9,472 

Total liabilities

 

1,167,306 

 

1,064,833 

Commitments and contingencies (See Note 11)

 

 

 

 

Redeemable noncontrolling interest

 

2,102 

 

2,579 

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 77,978,452 in 2019 and 78,379,530 in 2018 

 

780 

 

784 

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

 

 

 

 

issued and outstanding 14,840,534 in 2019 and 14,840,634 in 2018

 

148 

 

148 

Additional paid-in capital

 

166,015 

 

161,684 

Accumulated earnings

 

370,983 

 

385,789 

Accumulated other comprehensive income

 

1,479 

 

1,215 

Total shareholders' equity

 

539,405 

 

549,620 

Noncontrolling interests

 

92,948 

 

87,988 

Total equity

 

632,353 

 

637,608 

Total liabilities and equity

$

1,801,761 

 

1,705,020 



 

 

 

 



 

 

 

 

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 June 30,

 

For the Six Months Ended June 30,



 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Sales of VOIs 

$

68,302 

 

68,573 

 

120,033 

 

124,714 

Fee-based sales commissions

 

55,343 

 

60,086 

 

100,555 

 

105,940 

Other fee-based services

 

30,703 

 

30,391 

 

60,271 

 

58,415 

Cost reimbursements

 

17,358 

 

14,059 

 

37,594 

 

30,260 

Trade sales

 

45,061 

 

43,908 

 

91,045 

 

82,311 

Sales of real estate inventory

 

424 

 

3,250 

 

4,660 

 

9,659 

Interest income

 

21,518 

 

20,664 

 

42,933 

 

42,581 

Net gains on sales of real estate assets

 

9,664 

 

733 

 

10,996 

 

4,802 

Other revenue

 

2,960 

 

1,562 

 

4,303 

 

2,611 

Total revenues

 

251,333 

 

243,226 

 

472,390 

 

461,293 

Costs and Expenses:

 

 

 

 

 

 

 

 

Cost of VOIs sold

 

10,572 

 

6,789 

 

14,420 

 

8,601 

Cost of other fee-based services

 

19,924 

 

16,634 

 

42,792 

 

34,045 

Cost reimbursements

 

17,358 

 

14,059 

 

37,594 

 

30,260 

Cost of trade sales

 

30,828 

 

31,171 

 

63,118 

 

59,091 

Cost of real estate inventory sold

 

 -

 

2,381 

 

2,643 

 

6,628 

Interest expense

 

11,661 

 

10,403 

 

22,809 

 

19,602 

Recoveries from loan losses, net

 

(1,424)

 

(1,999)

 

(2,385)

 

(6,814)

Impairment losses

 

2,138 

 

122 

 

2,756 

 

356 

Selling, general and administrative expenses

 

177,968 

 

142,047 

 

299,961 

 

266,935 

Total costs and expenses

 

269,025 

 

221,607 

 

483,708 

 

418,704 

Equity in net earnings (losses) of unconsolidated real estate joint ventures

 

8,759 

 

(488)

 

8,742 

 

792 

Foreign exchange (loss) gain

 

(29)

 

(37)

 

(24)

 

15 

(Loss) Income before income taxes

 

(8,962)

 

21,094 

 

(2,600)

 

43,396 

Benefit (provision) for income taxes

 

1,338 

 

(8,655)

 

(386)

 

(15,255)

Net (loss) income

 

(7,624)

 

12,439 

 

(2,986)

 

28,141 

Less: Net income attributable to noncontrolling interests

 

4,024 

 

5,958 

 

7,163 

 

10,518 

Net (loss) income attributable to shareholders

$

(11,648)

 

6,481 

 

(10,149)

 

17,623 



 

 

 

 

 

 

 

 

Basic (loss) earnings per share

$

(0.12)

 

0.07 

 

(0.11)

 

0.18 

Diluted (loss) earnings per share

$

(0.12)

 

0.07 

 

(0.11)

 

0.18 

Basic weighted average number of common shares outstanding

 

93,207 

 

94,390 

 

93,214 

 

97,007 

Diluted weighted average number of common and common equivalent shares outstanding

 

93,207 

 

97,779 

 

93,214 

 

100,194 

Cash dividends declared per Class A common share

$

0.0125 

 

0.010 

 

0.0250 

 

0.020 

Cash dividends declared per Class B common share

$

0.0125 

 

0.010 

 

0.0250 

 

0.020 



 

 

 

 

 

 

 

 

Net (loss) income

$

(7,624)

 

12,439 

 

(2,986)

 

28,141 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Unrealized gain on securities available for sale

 

10 

 

 -

 

38 

 

 -

Foreign currency translation adjustments

 

125 

 

24 

 

226 

 

(4)

Other comprehensive income (loss), net

 

135 

 

24 

 

264 

 

(4)

Comprehensive (loss) income, net of tax

 

(7,489)

 

12,463 

 

(2,722)

 

28,137 

Less: Comprehensive income attributable to noncontrolling interests

 

4,024 

 

5,958 

 

7,163 

 

10,518 

Comprehensive (loss) income attributable to shareholders

$

(11,513)

 

6,505 

 

(9,885)

 

17,619 



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited























 

 

 

 

 

 

 

 

 

 

 

2

 


 

 



 

 

 

 

 

 

 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Changes in Equity - Unaudited

For the Three Months Ended June 30, 2018 and 2019

(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, March 31, 2018

85,709  13,943 

$

857  140  231,783  364,772  1,428  598,980  86,418  685,398 

Net income excluding $45 of loss attributable to redeemable noncontrolling interest

-

-

 

-

-

-

6,481 

-

6,481  6,003  12,484 

Other comprehensive income

-

-

 

-

-

-

-

24  24 

-

24 

Distributions to noncontrolling interests

-

-

 

-

-

-

-

-

-

(1,121) (1,121)

Purchase of noncontrolling interest

-

-

 

-

-

(587)

-

-

(587) 329  (258)

Class A Common Stock cash dividends declared

-

-

 

-

-

-

(826)

-

(826)

-

(826)

Class B Common Stock cash dividends declared

-

-

 

-

-

-

(165)

-

(165)

-

(165)

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

(7)

 

(1)

-

-

-

-

-

-

Issuance of Common Stock from exercise of options

27 

-

 

-

-

245 

-

-

245 

-

245 

Share-based compensation

-

-

 

-

-

3,620 

-

-

3,620 

-

3,620 

Balance, June 30, 2018

79,257  13,936 

$

793  139  175,002  370,262  1,452  547,648  91,629  639,277 



 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

78,379  14,841 

$

784  148  164,733  383,855  1,344  550,864  90,127  640,991 

Net loss excluding $20 of loss attributable to redeemable noncontrolling interest

-

-

 

-

-

-

(11,648)

-

(11,648) 4,044  (7,604)

Repurchase and retirement of common stock

(401)

-

 

(4)

-

(1,879)

-

-

(1,883)

-

(1,883)

Other comprehensive income

-

-

 

-

-

-

-

135  135 

-

135 

Distributions to noncontrolling interests

-

-

 

-

-

-

-

-

-

(1,223) (1,223)

Class A Common Stock cash dividends declared

-

-

 

-

-

-

(982)

-

(982)

-

(982)

Class B Common Stock cash dividends declared

-

-

 

-

-

-

(242)

-

(242)

-

(242)

Share-based compensation

-

-

 

-

-

3,161 

-

-

3,161 

-

3,161 

Balance, June 30, 2019

77,978  14,841 

$

780  148  166,015  370,983  1,479  539,405  92,948  632,353 



 

 

 

 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited









3

 


 

 













 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Changes in Equity - Unaudited

For the Six Months Ended June 30, 2018 and 2019

(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 $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  175,002  370,262  1,452  547,648  91,629  639,277 



 

 

 

 

 

 

 

 

 

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 loss excluding $240 of loss attributable to redeemable noncontrolling interest

-

-

 

-

-

-

(10,149)

-

(10,149) 7,403  (2,746)

Repurchase and retirement of common stock

(401)

-

 

(4)

-

(1,879)

-

-

(1,883)

-

(1,883)

Other comprehensive income

-

-

 

-

-

-

-

264  264 

-

264 

Distributions to noncontrolling interests

-

-

 

-

-

-

-

-

-

(2,443) (2,443)

Class A Common Stock cash dividends declared

-

-

 

-

-

-

(1,971)

-

(1,971)

-

(1,971)

Class B Common Stock cash dividends declared

-

-

 

-

-

-

(484)

-

(484)

-

(484)

Share-based compensation

-

-

 

-

-

6,210 

-

-

6,210 

-

6,210 

Balance, June 30, 2019

77,978  14,841 

$

780  148  166,015  370,983  1,479  539,405  92,948  632,353 



 

 

 

 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited







4

 


 

 















 

 

 

 

 



 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Cash Flows - Unaudited

(In thousands)



 

 

 

 

 



 

 

 

 

 



 

For the Six Months Ended June 30,

 



 

2019

 

2018

 

Operating activities:

 

 

 

 

 

Net (loss) income

$

(2,986)

 

28,141 

 

Adjustment to reconcile net (loss) income to net cash

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

Recoveries from loan losses, net

 

(2,385)

 

(6,814)

 

Provision for notes receivable allowances

 

23,055 

 

21,447 

 

Depreciation, amortization and accretion, net

 

13,691 

 

11,861 

 

Share-based compensation expense

 

6,210 

 

7,072 

 

Net gains on sales of real estate and property and equipment

 

(12,960)

 

(4,895)

 

Equity earnings of unconsolidated real estate joint ventures

 

(8,742)

 

(792)

 

Return on investment in unconsolidated real estate joint ventures

 

8,277 

 

5,071 

 

(Decrease) increase in deferred income tax

 

(5,214)

 

14,753 

 

Impairment losses

 

2,756 

 

356 

 

Interest accretion on redeemable 5% cumulative preferred stock

 

420 

 

649 

 

Increase in notes receivable

 

(24,742)

 

(24,236)

 

Increase in VOI inventory

 

(8,071)

 

(25,770)

 

(Increase) decrease in trade inventory

 

(3,213)

 

2,712 

 

(Increase) decrease in real estate inventory

 

(2,657)

 

5,810 

 

Net change in operating lease asset and operating lease liability

 

1,185 

 

 -

 

Increase in other assets

 

(4,048)

 

(16,812)

 

Increase (decrease) in other liabilities

 

21,718 

 

(5,924)

 

Net cash provided by operating activities

 

2,294 

 

12,629 

 

Investing activities:

 

 

 

 

 

Return of investment in unconsolidated real estate joint ventures

 

14,059 

 

5,713 

 

Investments in unconsolidated real estate joint ventures

 

(13,944)

 

(533)

 

Repayment of loans receivable

 

2,492 

 

17,367 

 

Proceeds from sales of real estate held-for-sale

 

18,966 

 

16,882 

 

Proceeds from sales of property and equipment

 

13,544 

 

569 

 

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

 

(474)

 

(594)

 

Purchases of property and equipment

 

(18,244)

 

(20,073)

 

Decrease in cash from other investing activities

 

(64)

 

(163)

 

Net cash provided by investing activities

 

16,335 

 

19,168 

 



 

 

 

(Continued)

 











5

 


 

 











 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Cash Flows - Unaudited

(In thousands)



 

 

 

 

 



 

 

 

 

 



 

For the Six Months Ended June 30,



 

2019

 

2018

 

Financing activities:

 

 

 

 

 

Repayments of notes payable and other borrowings

 

(117,882)

 

(95,600)

 

Proceeds from notes payable and other borrowings

 

66,224 

 

154,771 

 

Payments for debt issuance costs

 

(149)

 

(770)

 

Payments of interest on redeemable 5% cumulative preferred stock

 

(250)

 

(313)

 

Repurchase and retirement of Class A common stock

 

(1,883)

 

(60,124)

 

Purchase of noncontrolling interest

 

 -

 

(258)

 

Proceeds from the exercise of stock options

 

 -

 

245 

 

Dividends paid on Common Stock

 

(2,099)

 

(1,835)

 

Distributions to noncontrolling interests

 

(2,443)

 

(2,242)

 

Net cash used in financing activities

 

(58,482)

 

(6,126)

 

(Decrease) increase in cash, cash equivalents and restricted cash

 

(39,853)

 

25,671 

 

Cash, cash equivalents and restricted cash at beginning of period 

 

421,097 

 

409,247 

 

Cash, cash equivalents and restricted cash at end of period 

$

381,244 

 

434,918 

 



 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Interest paid on borrowings

$

19,724 

 

17,709 

 

Income taxes paid

 

9,840 

 

1,755 

 

Supplementary disclosure of non-cash investing and financing activities:

 

 

 

 

 

Construction funds receivable transferred to real estate

 

9,183 

 

6,943 

 

Operating lease assets recognized upon adoption of ASC 842

 

113,183 

 

 -

 

Operating lease liability recognized upon adoption of ASU 842

 

123,240 

 

 -

 

Operating lease assets obtained in exchange for new operating lease liabilities

 

20,791 

 

 -

 

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)

 

Reductions 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 developer

 

1,035 

 

2,776 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

Cash and cash equivalents

 

332,871 

 

380,447 

 

Restricted cash

 

48,373 

 

54,471 

 

Total cash, cash equivalents, and restricted cash

$

381,244 

 

434,918 

 



 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited

 









































 

6

 


 

 





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 June  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 June  30, 2019; the condensed consolidated results of operations and comprehensive income of the Company for the three and six months ended June 30, 2019 and 2018; the condensed consolidated changes in equity of the Company for the three and six months ended June  30, 2019 and 2018; and the condensed consolidated cash flows of the Company for the six months ended June  30, 2019 and 2018. Operating results for the three and six months ended June  30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 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, 2018 (the “2018 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 12, 2019. 



The condensed consolidated financial statements include the accounts 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.



Principal Investments



The Company’s principal investments include Bluegreen Vacations Corporation (“Bluegreen” or “Bluegreen Vacations”), BBX Capital Real Estate LLC (“BBX Capital Real Estate”), Renin Holdings, LLC (“Renin”), and 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

7

 


 

 

number of units in connection with their VOI ownership). Bluegreen markets, sells, and manages VOIs in resorts, which are generally located in popular, high-volume, “drive-to” vacation destinations, including Orlando, Las Vegas, Myrtle Beach, Charleston and New Orleans, among others. Through its points-based system, the approximately 217,000 owners in Bluegreen’s Vacation Club have the flexibility to stay at units available at its resorts and have access to over 11,300 other hotels and resorts through partnerships and exchange networks. The 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 services to third party developers. Bluegreen also earns fees for providing management services to the Vacation Club and homeowners’ associations (“HOAs”), mortgage servicing, VOI title services, reservation services, and construction design and development services. In addition, Bluegreen provides financing to qualified VOI purchasers, which generates significant interest income.



BBX 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 also 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. During the three months ended June 30, 2019 and 2018, Renin’s revenues included $7.8 million and $8.3 million, respectively, of gross trade sales to two major customers and their affiliates and $4.5 million and $5.3 million, respectively, of gross trade sales generated outside of the United States. During the six months ended June 30, 2019 and 2018, Renin’s revenues included $19.9 million and $16.8 million, respectively, of gross trade sales to two major customers and their affiliates and $8.9 million and $9.9 million, respectively, of gross trade sales generated outside of the United States.  As of June  30, 2019 and 2018, the net book value of Renin’s properties and equipment located outside of the United States totaled $1.8 million and $2.2 million, respectively.



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 United States.



In addition to its principal investments, the Company has other investments in various operating businesses, including restaurant locations throughout Florida and companies in the confectionery industry.



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, 2019:



ASU No. 2016-02 – Leases (Topic 842). This standard, as subsequently amended and clarified by various ASUs, requires lessees to recognize assets and liabilities for the rights and obligations created by leases of assets. For income statement purposes, the standard retains a dual model which requires leases 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 standard, intended to provide greater insight into the amount, timing, and uncertainty of cash flows arising from leases.



The Company adopted the standard on January 1, 2019 and applied the transition guidance as of the date of adoption under the current-period adjustment method. As a result, the Company recognized right-of-use assets and lease liabilities associated with its leases on January 1, 2019, with a cumulative-effect adjustment to the opening balance of accumulated earnings, while the comparable prior periods in the Company’s financial statements 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

8

 


 

 

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 as a single lease component for lease classification, recognition, and measurement purposes.



Upon adoption of the standard on January 1, 2019, the Company recognized a lease liability of $123.2 million and a right-of-use asset of $113.2 million. The difference between the lease liability and right-of-use asset primarily reflects the reclassification of accrued 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 statement of operations and comprehensive income or statement of cash flows. See Note 12 for additional information regarding the Company’s 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 have not been adopted as of June  30, 2019: 



ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial 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 expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating its 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). 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. The Company is currently evaluating the impact that 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 will be effective for the Company on January 1, 2020. The Company is currently evaluating the impact that ASU 2018-13 may have on its consolidated financial statement footnote disclosures.











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.



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, 2019, 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

9

 


 

 

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 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 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 for the six months ended June 30, 2019 and 2018 were $4.5 million and $3.1 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):







 

 

 

 



 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Restricted cash

$

19,018 

 

28,400 

Securitized notes receivable, net

 

308,042 

 

341,975 

Receivable backed notes payable - non-recourse

 

351,316 

 

382,257 





The restricted cash and the securitized notes receivable balances disclosed in the table above are restricted to satisfy obligations of the VIEs.

 



3.    Notes Receivable



The table below sets forth information relating to Bluegreen’s notes receivable and related allowance for loan losses (in thousands):





 

 

 

 



 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Notes receivable:

 

 

 

 

VOI notes receivable - non-securitized

$

169,531 

 

124,642 

VOI notes receivable - securitized

 

404,147 

 

447,850 

Notes receivable secured by homesites (1)

 

736 

 

898 

Gross notes receivable

 

574,414 

 

573,390 

Allowance for loan losses - non-securitized

 

(37,381)

 

(28,258)

Allowance for loan losses - securitized

 

(96,105)

 

(105,875)

Allowance for loan losses - homesites (1)

 

(74)

 

(90)

Notes receivable, net

$

440,854 

 

439,167 

Allowance as a % of gross notes receivable

 

23% 

 

23% 





(1)

Notes receivable secured by homesites were originated through a business, substantially all the assets of which were sold by Bluegreen in 2012.    



The weighted-average interest rate charged on Bluegreen’s notes receivable was 15.0% and 15.1% at June 30, 2019 and December 31, 2018, respectively. All of Bluegreen’s VOI notes receivable bear interest at fixed rates. Bluegreen’s VOI notes receivable 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 significant concentrations of credit risk with any individual counterparty or groups of

10

 


 

 

counterparties. In estimating loan 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 aging 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):





 

 

 

 



 

For the Six Months Ended



 

June 30,



 

2019

 

2018

Balance, beginning of period

$

134,223 

 

123,791 

Provision for loan losses

 

23,055 

 

21,447 

Write-offs of uncollectible receivables

 

(23,718)

 

(21,633)

Balance, end of period

$

133,560 

 

123,605 



 

 

 

 





The table below sets forth information regarding the percentage of gross notes receivable outstanding by FICO score of the borrower at the time of origination:







 

 

 

 



 

 

 

 



June 30,

 

December 31,

 

FICO Score

2019

 

2018

 

700+

58.00 

%

57.00 

%

600-699

39.00 

 

39.00 

 

<600

2.00 

 

3.00 

 

No score (1)

1.00 

 

1.00 

 

Total

100.00 

%

100.00 

%



(1)

VOI notes receivable attributable to borrowers without a FICO score are primarily related to foreign borrowers.



The table below sets forth information regarding the delinquency status of Bluegreen’s VOI notes receivable (in thousands):





 

 

 

 



 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Current

$

541,778 

 

541,783 

31-60 days

 

5,689 

 

5,783 

61-90 days

 

5,206 

 

4,516 

> 91 days (1)

 

21,005 

 

20,410 

Total

$

573,678 

 

572,492 





(1)

Includes $13.0 million and $14.3 million of VOI notes receivable as of June 30, 2019 and December 31, 2018, respectively, that, as of such date, had defaulted but the related VOI note receivable balance had not yet been charged off in accordance with the provisions of certain of Bluegreen’s receivable-backed notes payable transactions. These VOI notes receivable have been reflected in the allowance for loan losses.

 





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4.     Trade Inventory



The Company’s trade inventory consisted of the following (in thousands):







 

 

 

 



 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Raw materials

$

3,358 

 

2,718 

Paper goods and packaging materials

 

1,185 

 

1,122 

Finished goods

 

18,780 

 

16,270 

Total trade inventory

$

23,323 

 

20,110 









5.     VOI Inventory



Bluegreen’s VOI inventory consisted of the following (in thousands):





 

 

 

 



 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Completed VOI units

$

267,897 

 

237,010 

Construction-in-progress

 

537 

 

26,587 

Real estate held for future VOI development

 

73,786 

 

70,552 

Total VOI inventory

$

342,220 

 

334,149 









6.    Real Estate  



The Company’s real estate consisted of the following (in thousands):







 

 

 

 



 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Real estate held-for-sale:

 

 

 

 

Land

$

11,210 

 

18,439 

Residential single-family

 

756 

 

832 

Other

 

1,058 

 

931 

Total real estate held-for-sale

 

13,024 

 

20,202 

Real estate held-for-investment:

 

 

 

 

Land

 

5,957 

 

10,976 

Total real estate held-for-investment

 

5,957 

 

10,976 

Real estate inventory

 

34,583 

 

23,778 

Total real estate

$

53,564 

 

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 for the three and six months ended June 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 for the three and six months ended June 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 for the three and six months ended June 30, 2019. 



0



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7.     Investments in Unconsolidated Real Estate Joint Ventures 



As of June 30, 2019, the Company had equity interests in unconsolidated real estate joint ventures involved in the development of 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 VIEs. See Note 2 for information regarding the Company’s investments in consolidated VIEs. 



The Company’s investments in unconsolidated real estate joint ventures consisted of the following (in thousands):





 

 

 

 



 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Altis at Lakeline - Austin Investors LLC

$

242 

 

4,531 

Altis at Grand Central Capital, LLC

 

2,635