Quarterly report pursuant to Section 13 or 15(d)

Basis Of Financial Statement Presentation

v3.10.0.1
Basis Of Financial Statement Presentation
6 Months Ended
Jun. 30, 2018
Basis Of Financial Statement Presentation [Abstract]  
Basis Of Financial Statement Presentation

1.    Basis of Financial Statement Presentation



BBX Capital Corporation and its subsidiaries (the “Company” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” or “our,”) is a Florida-based diversified holding company. BBX Capital Corporation as a standalone entity without its subsidiaries is referred to as “BBX Capital.” The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these financial statements do not include all of the information and disclosures required by GAAP for complete financial statements.



In management’s opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which include normal recurring adjustments, that are necessary for a fair statement of the condensed consolidated financial condition of the Company at June 30, 2018; the condensed consolidated results of operations and comprehensive income of the Company for the three and six months ended June 30, 2018 and 2017; the condensed consolidated changes in equity of the Company for the six months ended June 30, 2018; and the condensed consolidated cash flows of the Company for the six months ended June 30, 2018 and 2017.  Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other future period.



These unaudited condensed consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual Report”). 



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



Certain amounts for prior periods have been reclassified to conform to the current period’s presentation. The Company’s adoption of the new revenue recognition accounting standard on a full retrospective basis required the Company to restate certain previously reported results. For further details regarding the impact of adopting new accounting pronouncements, see “Recently Adopted Accounting Pronouncement” section below. In addition, the Company also reclassified $19.5 million of loans receivable to other assets in its condensed consolidated statement of financial condition as of December 31, 2017.



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



Bluegreen is a leading vacation ownership company that markets and sells VOIs and manages resorts in leisure and urban destinations. Bluegreen’s resort network includes 45 Club Resorts (resorts in which owners in the Bluegreen Vacation Club (“Vacation Club”) have the right to use most of the units in connection with their VOI ownership) and 24 Club Associate Resorts (resorts in which owners in Bluegreen’s Vacation Club have the right to use a limited number of units in connection with their VOI ownership). Bluegreen’s Club Resorts and Club Associate Resorts are primarily located in popular, high-volume, “drive-to” vacation locations, including Orlando, Las Vegas, Myrtle Beach and Charleston, among others. Through Bluegreen’s points-based system, the approximately 215,000 owners in Bluegreen’s Vacation Club have the flexibility to stay at units available at any of its resorts and have access to approximately 11,100 other hotels and resorts through partnerships and exchange networks. Bluegreen’s sales and marketing platform is supported by exclusive marketing relationships with nationally-recognized consumer brands, such as Bass Pro and Choice Hotels. These marketing relationships drive sales within Bluegreen’s core demographic.



Prior to 2009, Bluegreen’s vacation ownership business consisted solely of the sale of VOIs in resorts that it developed or acquired. While it continues to conduct sales and development activities, Bluegreen now also derives a significant portion of its revenue from its capital-light business model, which utilizes Bluegreen’s expertise and infrastructure to generate both VOI sales and recurring revenue from third parties without the significant capital investment generally associated with the development and acquisition of resorts. Bluegreen’s capital-light business activities include sales of VOIs owned by third-party developers pursuant to which Bluegreen is paid a commission (“fee-based sales”) and sales of VOIs that it purchases under just-in-time (“JIT”) arrangements with third-party developers or from secondary market sources. In addition, Bluegreen provides resorts and resort developers with other fee-based services, including resort management, mortgage servicing, title services and construction management. Bluegreen also offers financing to qualified VOI purchasers, which generates significant interest income.



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



The Company’s real estate investments include real estate joint ventures and the acquisition, development ownership, financing, and management of real estate. The Company’s investments in middle market operating businesses include Renin Holdings, LLC (“Renin”), a company that manufactures products for the home improvement industry, and investments in confectionery businesses through its wholly-owned subsidiary, BBX Sweet Holdings, LLC (“BBX Sweet Holdings”). The Company’s investments in confectionery businesses include IT’SUGAR, LLC (“IT’SUGAR”), a specialty candy retailer with 96 locations in 26 states and Washington, D.C. that was acquired by BBX Sweet Holdings in June 2017.



BBX Capital has two classes of common stock. Holders of the Class A common stock are entitled to one vote per share, which in the aggregate represents 22% of the combined voting power of the Class A common stock and the Class B common stock. Class B common stock represents the remaining 78% of the combined vote. The percentage of total common equity represented by Class A and Class B common stock was 85% and 15%, respectively, at June 30, 2018.   Class B common stock is convertible into Class A common stock on a share for share basis at any time at the option of the holder.



Recently Adopted Accounting Pronouncements



The Financial Accounting Standards Board (“FASB”) has issued the following Accounting Standards Updates (“ASU”) and guidance relevant to the Company’s operations which were adopted as of January 1, 2018:



ASU No. 2014-09 –  Revenue Recognition (Topic 606): In May 2014, the FASB issued a new standard related to revenue recognition (as subsequently clarified and amended by various ASUs). Under the new standard, revenue is recognized when an entity satisfies a performance obligation by transferring to a customer control over promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.



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



The adoption of the standard affected Bluegreen in the following areas: (i) gross versus net presentation for payroll and insurance premium reimbursements related to resorts managed by Bluegreen and on behalf of third parties and (ii) the timing of the recognition of VOI revenue related to the removal of certain bright line tests regarding the determination of the adequacy of the buyer’s commitment under prior industry-specific guidance. Bluegreen concluded that the recognition of fee-based sales commissions, ancillary revenues, and rental revenues remained materially unchanged.



The adoption of the standard on the Company’s real estate activities results in recognizing revenue sooner for contingent consideration on sales of real estate inventory.



The adoption of the standard did not materially affect revenue recognition associated with the Company’s trade sales. Retail trade sales performance obligations are generally satisfied at the time of the sales transaction as customers of the retail business typically pay in cash at the time of transfer of the promised goods, while wholesale trade sales performance obligations are generally satisfied when the promised goods are shipped by the Company or received by the customer. However, the Company has historically recognized shipping and handling costs in selling, general and administration expenses, and upon the adoption of the standard, the Company began accounting for such costs as a fulfillment cost in cost of trade sales.



The Company has elected to use the following practical expedients in connection with the adoption of ASU 2014-09:



·

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

·

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

·

We expense all marketing and sales costs as incurred;

·

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

·

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

·

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

·

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

·

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

·

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



ASU No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). - This standard provides guidance on the recognition of revenues for the transfer of nonfinancial assets to non-customers. The standard indicates that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a non-customer or counterparty and derecognize each asset when the counterparty obtains control of the asset.



This standard significantly changed the guidance on the transfer of real estate to unconsolidated joint ventures. Under prior guidance, the transfer of real estate to an unconsolidated joint venture was accounted for as a partial sale, resulting in the recognition of a partial gain, and the noncontrolling interest retained was measured at historical cost, resulting in a basis adjustment to the seller’s investment in the joint venture. In addition, the partial gain could be deferred if the sale did not satisfy certain criteria for gain recognition. Under the new standard, the full gain is recognized upon the transfer of control of the real estate to the unconsolidated joint venture, and any noncontrolling interest retained is measured at fair value.  In certain unconsolidated real estate joint ventures, the Company accounted for the transfer of land to such ventures for initial capital contributions as partial sales, resulting in deferred gains and joint venture basis adjustments.



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



The following represents the impact of the adoption of ASU 2014-09 and ASU 2017-05 on our consolidated statements of financial condition as of December 31, 2017 and December 31, 2016 and consolidated statements of operations for the three and six months ended June 30, 2017 and the years ended December 31, 2017 and 2016 (in thousands, except per share data):





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended June 30, 2017



 

As Previously Reported

 

ASU 2014-09 Adjustments

 

ASU 2017-05 Adjustments

 

As Adjusted

Statement of Operations

 

 

 

 

 

 

 

 

Sales of VOIs

$

56,695 

 

2,710 

 

 -

 

59,405 

Cost reimbursements

 

 -

 

11,893 

 

 -

 

11,893 

Cost reimbursements

 

 -

 

11,893 

 

 -

 

11,893 

Cost of VOIs sold

 

1,135 

 

614 

 

 -

 

1,749 

Trade sales

 

28,442 

 

(129)

 

 -

 

28,313 

Net gains on sales of real estate assets

 

1,884 

 

 -

 

 -

 

1,884 

Cost of trade sales

 

20,392 

 

1,907 

 

 -

 

22,299 

Selling, general and administrative expenses

 

136,741 

 

(1,331)

 

 -

 

135,410 

Equity in earnings of unconsolidated real estate joint ventures

 

3,455 

 

 -

 

(368)

 

3,087 

Income before income taxes

 

24,275 

 

1,391 

 

(368)

 

25,298 

(Provision) benefit for income taxes

 

(8,779)

 

(494)

 

142 

 

(9,131)

Net income

 

15,496 

 

897 

 

(226)

 

16,167 

   Less: Net income attributable to non-controlling interests

 

3,415 

 

38 

 

 -

 

3,453 

Net income attributable to shareholders

$

12,081 

 

859 

 

(226)

 

12,714 

Basic earnings per share

$

0.12 

 

 

 

 

 

0.13 

Diluted earnings per share

$

0.11 

 

 

 

 

 

0.12 









 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Six Months Ended June 30, 2017



 

As Previously Reported

 

ASU 2014-09 Adjustments

 

ASU 2017-05 Adjustments

 

As Adjusted

Statement of Operations

 

 

 

 

 

 

 

 

Sales of VOIs

$

111,152 

 

2,489 

 

 -

 

113,641 

Cost reimbursements

 

 -

 

26,563 

 

 -

 

26,563 

Cost reimbursements

 

 -

 

26,563 

 

 -

 

26,563 

Cost of VOIs sold

 

4,453 

 

455 

 

 -

 

4,908 

Trade sales

 

51,955 

 

(303)

 

 -

 

51,652 

Net gains on sales of real estate assets

 

2,179 

 

 -

 

(493)

 

1,686 

Cost of trade sales

 

38,465 

 

3,430 

 

 -

 

41,895 

Selling, general and administrative expenses

 

251,892 

 

(3,176)

 

 -

 

248,716 

Equity in earnings of unconsolidated real estate joint ventures

 

7,169 

 

 -

 

(846)

 

6,323 

Income before income taxes

 

58,000 

 

1,478 

 

(1,339)

 

58,139 

(Provision) benefit for income taxes

 

(21,833)

 

(579)

 

517 

 

(21,895)

Net income

 

36,167 

 

899 

 

(822)

 

36,244 

   Less: Net income attributable to non-controlling interests

 

6,211 

 

(121)

 

 -

 

6,090 

Net income attributable to shareholders

$

29,956 

 

1,020 

 

(822)

 

30,154 

Basic earnings per share

$

0.30 

 

 

 

 

 

0.31 

Diluted earnings per share

$

0.28 

 

 

 

 

 

0.28 













 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

As of and for the Year Ended December 31, 2017



 

As Previously Reported

 

ASU 2014-09 Adjustments

 

ASU 2017-05 Adjustments

 

As Adjusted

Statement of Financial Condition

 

 

 

 

 

 

 

 

Notes receivable, net

$

431,801 

 

(4,943)

 

 -

 

426,858 

Investment in unconsolidated real estate joint ventures

 

47,275 

 

 -

 

3,959 

 

51,234 

Property and equipment, net

 

112,858 

 

(929)

 

 -

 

111,929 

Other assets

 

121,824 

 

929 

 

 -

 

122,753 

Other liabilities

 

103,926 

 

 -

 

(462)

 

103,464 

Deferred income

 

36,311 

 

(19,418)

 

 -

 

16,893 

Deferred income taxes

 

43,093 

 

3,755 

 

1,120 

 

47,968 

Total equity

$

653,501 

 

10,720 

 

3,301 

 

667,522 



 

 

 

 

 

 

 

 

Statement of Operations

 

 

 

 

 

 

 

 

Sales of VOIs

$

239,662 

 

2,355 

 

 -

 

242,017 

Cost reimbursements

 

 -

 

52,639 

 

 -

 

52,639 

Cost reimbursements

 

 -

 

52,639 

 

 -

 

52,639 

Cost of VOIs sold

 

17,439 

 

240 

 

 -

 

17,679 

Trade sales

 

142,798 

 

(713)

 

 -

 

142,085 

Net gains on sales of assets

 

2,442 

 

 -

 

(493)

 

1,949 

Cost of trade sales

 

97,755 

 

8,163 

 

 -

 

105,918 

Selling, general and administrative expenses

 

538,125 

 

(8,423)

 

 -

 

529,702 

Equity in earnings of unconsolidated real estate joint ventures

 

14,483 

 

 -

 

(1,942)

 

12,541 

Income before income taxes

 

93,374 

 

1,662 

 

(2,435)

 

92,601 

Benefit (provision) for income taxes

 

7,223 

 

             954

 

1,525 

 

9,702 

Net income

 

100,597 

 

2,616 

 

(910)

 

102,303 

   Less: Net income attributable to non-controlling interest

 

18,402 

 

(24)

 

 -

 

18,378 

Net income attributable to shareholders

$

82,195 

 

2,640 

 

(910)

 

83,925 

Basic earnings per share

$

0.83 

 

 

 

 

 

0.85 

Diluted earnings per share

$

0.79 

 

 

 

 

 

0.81 









 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

As of and for the Year Ended December 31, 2016



 

As Previously Reported

 

ASU 2014-09 Adjustments

 

ASU 2017-05 Adjustments

 

As Adjusted

Statement of Financial Condition

 

 

 

 

 

 

 

 

Notes receivable, net

$

430,480 

 

(4,680)

 

 -

 

425,800 

Investment in unconsolidated real estate joint ventures

 

43,491 

 

 -

 

5,901 

 

49,392 

Property and equipment, net

 

95,998 

 

(590)

 

 -

 

95,408 

Other assets

 

130,333 

 

590 

 

 -

 

130,923 

Other liabilities

 

95,611 

 

 -

 

(956)

 

94,655 

Deferred income

 

37,015 

 

(17,493)

 

 -

 

19,522 

Deferred income taxes

 

44,318 

 

4,711 

 

2,645 

 

51,674 

Total equity

$

495,454 

 

8,102 

 

4,212 

 

507,768 



 

 

 

 

 

 

 

 

Statement of Operations

 

 

 

 

 

 

 

 

Sales of VOIs

$

266,142 

 

7,732 

 

 -

 

273,874 

Cost reimbursements

 

 -

 

49,557 

 

 -

 

49,557 

Cost reimbursements

 

 -

 

49,557 

 

 -

 

49,557 

Cost of VOIs sold

 

27,346 

 

1,483 

 

 -

 

28,829 

Trade sales

 

95,996 

 

(157)

 

 -

 

95,839 

Net gains on sales of assets

 

6,076 

 

 -

 

(2,274)

 

3,802 

Cost of trade sales

 

74,341 

 

6,022 

 

 -

 

80,363 

Selling, general and administrative expenses

 

516,757 

 

(4,606)

 

 -

 

512,151 

Equity in earnings of unconsolidated real estate joint ventures

 

13,630 

 

 -

 

(1,452)

 

12,178 

Income before income taxes

 

78,036 

 

4,676 

 

(3,726)

 

78,986 

(Provision) benefit for income taxes

 

(36,379)

 

(1,448)

 

1,437 

 

(36,390)

Net income

 

41,657 

 

3,228 

 

(2,289)

 

42,596 

   Less: Net income attributable to non-controlling interest

 

13,295 

 

300 

 

(429)

 

13,166 

Net income attributable to shareholders

$

28,362 

 

2,928 

 

(1,860)

 

29,430 

Basic earnings per share

$

0.33 

 

 

 

 

 

0.34 

Diluted earnings per share

$

0.32 

 

 

 

 

 

0.34 





On March 9, 2018, the Company filed its 2017 Annual Report which included in Item 8 – Note 2 to the consolidated financial statements the expected impacts to reported results of the retrospective adjustments to the Company’s financial statements for the years ended December 31, 2017 and 2016 due to the adoption of ASU 2014-09 and ASU 2017-05. Subsequent to the March 9, 2018 filing date, the Company revised its calculation of the expected impact of the full retrospective adoption of both standards, and the amounts included in the above tables reflect these revisions. The adoption of the new standards had no impact on our consolidated statements of cash flows.



ASU No. 2017-09, Compensation – Stock Compensation (Topic 718).  This update was issued to provide guidance on determining which changes to the terms and conditions of share-based compensation awards require an entity to apply modification accounting under Topic 718.  An entity should apply modification accounting to changes to terms or conditions of a share-based compensation award unless there is no change in the fair value, vesting or classification of the modified award as compared to the original award. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements.



ASU No. 2017-01, Business Combinations - Clarifying the Definition of a Business. This update affects the determination of whether a company has acquired or sold a business. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill and consolidations, and the standard aims to help entities determine whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is expected to result in more acquisitions being accounted for as asset purchases instead of business combinations. The guidance is effective for fiscal years beginning after December 15, 2017.  The Company adopted this standard on January 1, 2018 using the prospective transition method. The adoption of this standard resulted in the Company accounting for Bluegreen’s acquisition of the Éilan Hotel & Spa in April 2018 as an asset acquisition, and consequently, all transaction costs were capitalized as part of the assets acquired.



ASU No. 2016-01 –– Financial Instruments – Overall (Topic 825) – Recognition and Measurement of Financial Assets and Financial Liabilities. This update requires all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) to generally be measured at fair value through earnings and eliminates the available-for-sale classification for equity securities with readily determinable fair values and the cost method for equity investments without readily determinable fair values. However, entities will be able to elect to record equity investments without readily determinable fair values at cost, less impairments. This update also simplifies the impairment assessment for equity investments and requires the use of an exit price when measuring the fair value of financial instruments for disclosure purposes. The amendments in this standard are effective for fiscal years beginning after December 15, 2017. The Company adopted this standard on January 1, 2018 and recognized a cumulative effect adjustment of $0.3 million, net of tax, to accumulated earnings as of January 1, 2018 for equity securities with readily determinable fair values. The statement was adopted prospectively for $2.4 million of equity securities without readily determinable fair values. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements.  



ASU No. 2018-02 –– Income Statement – Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.  This update provides an entity with an option to reclassify to accumulated earnings the stranded tax effects within accumulated other comprehensive income associated with the reduction in the corporate income tax rate from the enactment of the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”). The Company elected to adopt this update as of January 1, 2018 and elected to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act into accumulated earnings as of the adoption date.  The adoption of this statement did not have a material impact on the Company’s consolidated financial statements.



ASU No. 2018-05 –– Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.  This update formally amended ASC Topic 740, Income Taxes (“ASC 740”), for the guidance previously provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”) for the application of ASC 740 in the reporting period in which the Tax Reform Act was signed into law. The Company adopted SAB 118 in the fourth quarter of 2017, and therefore, the Company’s subsequent adoption of ASU 2018-05 in the first quarter of 2018 had no impact on its accounting for income taxes in the first quarter of 2018. See Note 10 for additional information regarding the accounting for income taxes and the Tax Reform Act.



Future Adoption of Recently Issued Accounting Pronouncements



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



ASU No. 2016-02 – Leases (Topic 842),  as subsequently amended by ASU 2018-01 and ASU 2018-11This standard will require assets and liabilities to be recognized on the balance sheet of a lessee for the rights and obligations created by leases of assets with terms of more than 12 months. For income statement purposes, the update retained a dual model, requiring leases to be classified as either operating or finance based on largely similar criteria to those applied in current lease accounting, but without explicit bright lines. This standard also requires extensive quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing leases. This standard will be effective for the Company on January 1, 2019. Entities have the option to adopt the standard under a modified retrospective transition method which applies the transition guidance at the beginning of the earliest period presented or an optional transition method which applies the transition guidance on the date of adoption with a cumulative-effect adjustment to opening balance of retained earnings.  The Company expects that the implementation of this new standard will have a material impact on its consolidated financial statements and related disclosures as the Company has aggregate future minimum lease payments of $148.6 million at June 30, 2018 under its current non-cancelable lease agreements with various expirations dates between 2018 and 2030. The Company anticipates the recognition of additional assets and corresponding liabilities related to these leases on its consolidated statement of financial condition.



The Company is currently in the process of evaluating its existing lease portfolio, including accumulating all of the necessary information required to properly account for leases under this standard. Significant implementation matters include implementing a lease accounting software application, assessing the impact on the Company’s internal control over financial reporting, and documenting and implementing new processes for accounting for its lease agreements under the standard. 



ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard introduces an approach of estimating credit losses on certain types of financial instruments based on expected losses and also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for credit losses. In addition, the standard requires entities to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year). This standard will be effective for the Company on January 1, 2020. Early adoption is permitted beginning on January 1, 2019. The Company is currently evaluating the impact that ASU 2016-13 may have on its consolidated financial statements.