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 |
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59‑2022148 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S Employer Identification No.) |
401 East Las Olas Boulevard, Suite 800 |
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Fort Lauderdale, Florida |
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33301 |
(Address of principal executive office) |
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(Zip Code) |
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(954) 940-4900 |
(Registrant's telephone number, including area code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Class A Common Stock, $.01 par value (including associated Preferred Share Purchase Rights) |
BBX |
New York Stock Exchange |
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X]NO [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES [X]NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] |
Accelerated filer[X] |
Non-accelerated filer [ ] |
Smaller reporting company [ ] |
Emerging growth company [ ] |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [ ]NO [ X ]
The number of shares outstanding of each of the registrant’s classes of common stock as of 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.
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BBX Capital Corporation TABLE OF CONTENTS |
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Part I. |
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Item 1. |
Financial Statements |
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1 | |
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2 | |
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3 | |
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5 | |
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Notes to Condensed Consolidated Financial Statements - Unaudited |
7 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
33 |
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Item 3. |
57 | |
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Item 4. |
57 | |
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Part II. |
OTHER INFORMATION |
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Item 1. |
57 | |
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Item 1A. |
58 | |
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Item 2. |
58 | |
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Item 6. |
59 | |
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60 |
PART I – FINANCIAL INFORMATION
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BBX Capital Corporation |
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Condensed Consolidated Statements of Financial Condition - Unaudited |
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(In thousands, except share data) |
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June 30, 2019 |
December 31, 2018 |
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ASSETS |
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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 |
- |
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Other assets |
132,270 | 124,217 | ||
Total assets |
$ |
1,801,761 | 1,705,020 | |
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LIABILITIES AND EQUITY |
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Liabilities: |
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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 |
- |
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Deferred income taxes |
80,271 | 86,363 | ||
Redeemable 5% cumulative preferred stock of $.01 par value; authorized 15,000 shares; |
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issued and outstanding 10,000 shares in 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) |
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Redeemable noncontrolling interest |
2,102 | 2,579 | ||
Equity: |
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Preferred stock of $.01 par value; authorized 10,000,000 shares |
- |
- |
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Class A Common Stock of $.01 par value; authorized 150,000,000 shares; |
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issued and outstanding 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; |
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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 | |
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See Notes to Condensed Consolidated Financial Statements - Unaudited |
1
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Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited |
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(In thousands, except per share data) |
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For the Three Months Ended June 30, |
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For the Six Months Ended June 30, |
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2019 |
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2018 |
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2019 |
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2018 |
Revenues: |
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Sales of VOIs |
$ |
68,302 |
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68,573 |
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120,033 |
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124,714 |
Fee-based sales commissions |
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55,343 |
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60,086 |
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100,555 |
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105,940 |
Other fee-based services |
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30,703 |
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30,391 |
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60,271 |
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58,415 |
Cost reimbursements |
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17,358 |
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14,059 |
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37,594 |
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30,260 |
Trade sales |
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45,061 |
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43,908 |
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91,045 |
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82,311 |
Sales of real estate inventory |
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424 |
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3,250 |
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4,660 |
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9,659 |
Interest income |
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21,518 |
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20,664 |
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42,933 |
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42,581 |
Net gains on sales of real estate assets |
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9,664 |
|
733 |
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10,996 |
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4,802 |
Other revenue |
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2,960 |
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1,562 |
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4,303 |
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2,611 |
Total revenues |
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251,333 |
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243,226 |
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472,390 |
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461,293 |
Costs and Expenses: |
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Cost of VOIs sold |
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10,572 |
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6,789 |
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14,420 |
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8,601 |
Cost of other fee-based services |
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19,924 |
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16,634 |
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42,792 |
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34,045 |
Cost reimbursements |
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17,358 |
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14,059 |
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37,594 |
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30,260 |
Cost of trade sales |
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30,828 |
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31,171 |
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63,118 |
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59,091 |
Cost of real estate inventory sold |
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- |
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2,381 |
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2,643 |
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6,628 |
Interest expense |
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11,661 |
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10,403 |
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22,809 |
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19,602 |
Recoveries from loan losses, net |
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(1,424) |
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(1,999) |
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(2,385) |
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(6,814) |
Impairment losses |
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2,138 |
|
122 |
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2,756 |
|
356 |
Selling, general and administrative expenses |
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177,968 |
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142,047 |
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299,961 |
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266,935 |
Total costs and expenses |
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269,025 |
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221,607 |
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483,708 |
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418,704 |
Equity in net earnings (losses) of unconsolidated real estate joint ventures |
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8,759 |
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(488) |
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8,742 |
|
792 |
Foreign exchange (loss) gain |
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(29) |
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(37) |
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(24) |
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15 |
(Loss) Income before income taxes |
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(8,962) |
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21,094 |
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(2,600) |
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43,396 |
Benefit (provision) for income taxes |
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1,338 |
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(8,655) |
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(386) |
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(15,255) |
Net (loss) income |
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(7,624) |
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12,439 |
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(2,986) |
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28,141 |
Less: Net income attributable to noncontrolling interests |
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4,024 |
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5,958 |
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7,163 |
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10,518 |
Net (loss) income attributable to shareholders |
$ |
(11,648) |
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6,481 |
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(10,149) |
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17,623 |
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Basic (loss) earnings per share |
$ |
(0.12) |
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0.07 |
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(0.11) |
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0.18 |
Diluted (loss) earnings per share |
$ |
(0.12) |
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0.07 |
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(0.11) |
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0.18 |
Basic weighted average number of common shares outstanding |
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93,207 |
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94,390 |
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93,214 |
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97,007 |
Diluted weighted average number of common and common equivalent shares outstanding |
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93,207 |
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97,779 |
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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 |
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0.020 |
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Net (loss) income |
$ |
(7,624) |
|
12,439 |
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(2,986) |
|
28,141 |
Other comprehensive income (loss), net of tax: |
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Unrealized gain on securities available for sale |
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10 |
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- |
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38 |
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- |
Foreign currency translation adjustments |
|
125 |
|
24 |
|
226 |
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(4) |
Other comprehensive income (loss), net |
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135 |
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24 |
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264 |
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(4) |
Comprehensive (loss) income, net of tax |
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(7,489) |
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12,463 |
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(2,722) |
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28,137 |
Less: Comprehensive income attributable to noncontrolling interests |
|
4,024 |
|
5,958 |
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7,163 |
|
10,518 |
Comprehensive (loss) income attributable to shareholders |
$ |
(11,513) |
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6,505 |
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(9,885) |
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17,619 |
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See Notes to Condensed Consolidated Financial Statements - Unaudited |
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2
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BBX Capital Corporation |
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Condensed Consolidated Statements of Changes in Equity - Unaudited |
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For the Three Months Ended June 30, 2018 and 2019 |
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(In thousands) |
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Shares of |
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Accumulated |
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Common Stock |
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Common |
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Other |
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Outstanding |
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Stock |
Additional |
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Comprehen- |
Total |
Non- |
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Class |
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Class |
Paid-in |
Accumulated |
sive |
Shareholders' |
controlling |
Total |
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|
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 |
- |
- |
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- |
- |
- |
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 | (7) |
|
1 | (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 |
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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 |
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See Notes to Condensed Consolidated Financial Statements - Unaudited |
3
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BBX Capital Corporation |
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Condensed Consolidated Statements of Changes in Equity - Unaudited |
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For the Six Months Ended June 30, 2018 and 2019 |
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(In thousands) |
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Shares of |
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Accumulated |
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Common Stock |
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Common |
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Other |
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Outstanding |
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Stock |
Additional |
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Comprehen- |
Total |
Non- |
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Class |
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Class |
Paid-in |
Accumulated |
sive |
Shareholders' |
controlling |
Total |
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|
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 | (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 |
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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 |
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See Notes to Condensed Consolidated Financial Statements - Unaudited |
4
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|
|
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. |
11
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
12
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 |