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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

 

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission files number     001-13133

BBX CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Florida

(State or other jurisdiction of

incorporation or organization)

65-0507804

(I.R.S. Employer

Identification No.)

 

401 East Las Olas Boulevard Suite 800

Fort Lauderdale, Florida

(Address of principal executive offices)

33301

(Zip Code)

 

(954) 940-4000

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.   [X] YES   [   ] NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   [X] YES   [   ] NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer [   ]

Accelerated filer [ X  ]

Non-accelerated filer [   ]

Small reporting company [      ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   [   ] YES   [X] NO

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

 

 

Title of Each Class

Outstanding at November 3, 2014

Class A Common Stock, par value $0.01 per share

17,368,606

Class B Common Stock, par value $0.01 per share

    195,045

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

Page

Part I.

FINANCIAL INFORMATION

 

 

 

 

Reference

 

 

 

 

 

Item 1.

Financial Statements

3-40

 

 

 

 

Consolidated Statements of Financial Condition - September 30, 2014 and December 31,

 

  2013 - Unaudited

 

 

 

 

 

Consolidated Statements of Operations - For the Three and Nine Months Ended

 

 September 30, 2014 and 2013 - Unaudited

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) - For the Three and Nine Months

 

 Ended September 30, 2014 and 2013 - Unaudited

 

 

 

 

 

Consolidated Statements of Total Equity - For the Nine Months Ended September 30, 2014 2014

 

 2014 and 2013 - Unaudited

 

 

 

 

 

Consolidated Statements of Cash Flows - For the Nine Months Ended September 30,

 

 2014 and 2013 - Unaudited

 

 

 

 

 

Notes to Consolidated Financial Statements - Unaudited

8-40

 

 

 

Item 2.

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

41-60

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

60 

 

 

 

Item 4.

Controls and Procedures

61 

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 1A.

Legal Proceedings

62-63

 

 

 

Item 1A.

Risk Factors

63 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64 

 

 

 

Item 6.

Exhibits

64 

 

 

 

 

Signatures

65 

 

 

 

 

 

 

 

 

 


 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION-UNAUDITED 

 

 

 

 

 

 

 

 

 

 

 

 

 

September

 

December 31,

(In thousands, except share data)

 

2014

 

2013

ASSETS

 

 

 

 

Cash and interest bearing deposits in banks ($3,557 and $8,686 in Variable Interest Entities ("VIE"))

$

56,624 

 

43,138 

Loans held for sale ($36,545 and $53,846 in VIE)

 

36,545 

 

53,846 

Loans receivable, net of allowance for loan losses of $2,632 and $2,713 ($19,922 and $56,170, net of allowance of $2,632 and $1,759 in VIE)

 

28,271 

 

72,226 

Trade receivables, net of allowance for bad debts

 

11,130 

 

7,520 

Real estate held for investment ($19,542 and $15,836 in VIE)

 

73,700 

 

107,336 

Real estate held for sale ($14,133 and $23,664 in VIE)

 

48,268 

 

33,971 

Investment in unconsolidated real estate joint ventures

 

9,707 

 

1,354 

Investment in Woodbridge Holdings, LLC

 

77,214 

 

78,573 

Properties and equipment, net ($7,645 and $7,899 in VIE)

 

15,410 

 

14,824 

Inventories

 

14,868 

 

9,155 

Goodwill and other intangible assets

 

5,365 

 

2,686 

Other assets ($1,563 and $2,413 in VIE)

 

4,973 

 

6,518 

        Total assets

$

382,075 

 

431,147 

LIABILITIES AND EQUITY

 

 

 

 

Liabilities:

 

 

 

 

BB&T preferred interest in FAR, LLC ($14,171 and $68,517 in VIE)

$

14,171 

 

68,517 

Notes payable to related parties

 

11,750 

 

21,662 

Notes payable

 

8,580 

 

9,034 

Principal and interest advances on residential loans ($10,960 and $11,252 in VIE)

 

10,960 

 

11,252 

Other liabilities ($1,693 and $1,103 in VIE)

 

25,614 

 

17,116 

        Total liabilities

 

71,075 

 

127,581 

Commitments and contingencies (Note 13)

 

 

 

 

Equity:

 

 

 

 

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

 

 

 

 

   none issued and outstanding    

 

 -

 

 -

Class A common stock, $.01 par value, authorized 25,000,000

 

 

 

 

   shares; issued and outstanding 15,977,322 and 15,778,088 shares

 

160 

 

158 

Class B common stock, $.01 par value, authorized 1,800,000

 

 

 

 

   shares; issued and outstanding 195,045 and 195,045 shares

 

 

Additional paid-in capital

 

345,775 

 

345,300 

Accumulated deficit

 

(36,340)

 

(43,091)

Accumulated other comprehensive income

 

59 

 

13 

Total BBX Capital Corporation shareholders' equity

 

309,656 

 

302,382 

Noncontrolling interest

 

1,344 

 

1,184 

Total equity

 

311,000 

 

303,566 

        Total liabilities and equity

$

382,075 

 

431,147 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

 

 

 

 

 

 

 

 

 

3

 


 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

(In thousands, except share and per share data)

 

2014

 

2013

 

2014

 

2013

Revenues:

 

 

 

 

 

 

 

 

Trade sales

$

18,168 

 

 -

 

50,839 

 

 -

Interest income

 

1,120 

 

2,541 

 

4,178 

 

7,959 

Net gains on the sales of assets

 

1,031 

 

912 

 

4,908 

 

5,168 

Income from real estate operations

 

1,509 

 

703 

 

4,475 

 

3,133 

Other

 

388 

 

1,502 

 

1,877 

 

2,381 

     Total revenues

 

22,216 

 

5,658 

 

66,277 

 

18,641 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of goods sold

 

13,060 

 

 -

 

36,606 

 

 -

BB&T's priority return in FAR distributions

 

105 

 

783 

 

658 

 

2,702 

Interest expense

 

238 

 

336 

 

1,197 

 

839 

Real estate operating expenses

 

1,436 

 

1,172 

 

4,927 

 

3,640 

Selling, general and administrative expenses

 

10,189 

 

8,341 

 

33,614 

 

23,184 

       Total costs and expenses

 

25,028 

 

10,632 

 

77,002 

 

30,365 

Equity earnings in Woodbridge Holdings, LLC

 

7,635 

 

8,183 

 

21,965 

 

11,625 

Equity earnings in unconsolidated real estate joint ventures

 

(205)

 

 -

 

(237)

 

 -

(Provision for) recoveries from loan losses

 

(656)

 

4,433 

 

2,638 

 

3,502 

Asset impairments, net

 

(5,926)

 

73 

 

(7,151)

 

(5,069)

Income (loss) before income taxes

 

(1,964)

 

7,715 

 

6,490 

 

(1,666)

Provision for income taxes

 

 -

 

20 

 

 

20 

Net income (loss)

 

(1,964)

 

7,695 

 

6,484 

 

(1,686)

Less: net loss attributable to non-controlling interest

 

66 

 

 -

 

267 

 

 -

Net income (loss) attributable to BBX Capital Corporation

$

(1,898)

 

7,695 

 

6,751 

 

(1,686)

Basic earnings (loss) per share

$

(0.12)

 

0.49 

 

0.42 

 

(0.11)

Diluted earnings (loss) per share

$

(0.12)

 

0.47 

 

0.40 

 

(0.11)

Basic weighted average number of common

 

 

 

 

 

 

 

 

 shares outstanding

 

16,007,445 

 

15,806,836 

 

15,999,696 

 

15,799,315 

Diluted weighted average number of common and

 

 

 

 

 

 

 

 

common equivalent shares outstanding

 

16,007,445 

 

16,525,013 

 

16,773,27016,773,394 

 

15,799,315 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

4

 


 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

(In thousands, except share and per share data)

 

2014

 

2013

 

2014

 

2013

Net income (loss)

$

(1,964)

 

7,695 

 

6,484 

 

(1,686)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

14 

 

 -

 

56 

 

 -

Comprehensive income (loss)

 

(1,950)

 

7,695 

 

6,540 

 

(1,686)

Less: net loss attributable to non-controlling interest

 

66 

 

 -

 

267 

 

 -

 Foreign currency translation adjustments attributable to non-controlling interest

 

(2)

 

 -

 

(10)

 

 -

Total comprehensive income (loss) attributable to BBX Capital Corporation

$

(1,886)

 

7,695 

 

6,797 

 

(1,686)

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

 

 

5

 


 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF TOTAL EQUITY 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 - UNAUDITED 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Additional

 

Other

BBX Capital

Non-

 

 

 

Common

Paid-in

(Accumulated

Comprehensive

Corporation

Controlling

Total

(In thousands)

 

Stock

Capital

Deficit)

Income

Equity

Interest

Equity

BALANCE, DECEMBER 31, 2012

$

157 
331,097 
(90,930)

 -

240,324 

 -

240,324 

Net loss

 

 -

 -

(1,686)

 -

(1,686)

 -

(1,686)

Investment in Woodbridge Holdings, LLC

 

 -

13,337 

 -

 -

13,337 

 -

13,337 

Repurchase and retirement of Class A common shares

 

(1)
(1,646)

 -

 -

(1,647)

 -

(1,647)

Share based compensation expense

 

1,668 

 -

 -

1,672 

 -

1,672 

BALANCE, SEPTEMBER 30, 2013

$

160 
344,456 
(92,616)

 -

252,000 

 -

252,000 

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2013

$

160 
345,300 
(43,091)
13 
302,382 
1,184 
303,566 

Net income

 

 -

 -

6,751 

 -

6,751 
(267)
6,484 

Noncontrolling interest distributions

 

 -

 -

 -

 -

 -

(157)
(157)

Noncontrolling interest contributions

 

 -

 -

 -

 -

 -

574 
574 

Other comprehensive income

 

 -

 -

 -

46 
46 
10 
56 

Repurchase and retirement of Class A common shares

 

(1)
(2,020)

 

 

(2,021)

 

(2,021)

Share based compensation expense

 

2,495 

 -

 -

2,498 

 -

2,498 

BALANCE, SEPTEMBER 30, 2014

$

162 
345,775 
(36,340)
59 
309,656 
1,344 
311,000 

 

See Notes to Consolidated Financial Statements - Unaudited

 

 

 

 

 

 

 

 

6

 


 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months

 

 

Ended September 30,

(In thousands)

 

2014

 

2013

Net cash provided by (used in) operating activities

$

6,543 

 

(7,057)

Investing activities:

 

 

 

 

Proceeds from redemption of tax certificates

 

549 

 

1,967 

Purchase of tax certificates

 

 -

 

(31)

Proceeds from sales of tax certificates

 

 -

 

928 

Proceeds from maturities of interest bearing deposits

 

 -

 

496 

Repayments of loans, net

 

34,942 

 

83,380 

Proceeds from the sales of loans transferred to held for sale

 

9,497 

 

1,100 

Additions to real estate 

 

(1,128)

 

 -

Proceeds from sales of real estate

 

21,662 

 

25,226 

Proceeds from the contribution of real estate to unconsolidated real estate joint ventures

 

6,966 

 

 -

Purchases of properties and equipment

 

(525)

 

(76)

Proceeds from sales of properties and equipment

 

53 

 

 -

Investments in unconsolidated real estate joint ventures

 

(4,431)

 

(1,300)

Investment in Woodbridge Holdings, LLC

 

 -

 

(60,404)

Return of Woodbridge Holdings, LLC investment

 

1,359 

 

4,972 

Cash paid for acquisitions, net of cash acquired

 

(4,499)

 

 -

Net cash provided by investing activities

 

64,445 

 

56,258 

Financing activities:

 

 

 

 

Repayment of notes payable

 

(849)

 

 -

Deferred financing fees

 

(316)

 

 -

Repayments of notes payable to related parties

 

(3,267)

 

 -

Proceeds from notes payable to related parties

 

859 

 

 -

Repayment of BB&T preferred interest in FAR, LLC

 

(54,346)

 

(86,231)

Noncontrolling interest contributions

 

574 

 

 -

Noncontrolling interest distributions

 

(157)

 

 -

Net cash used in financing activities

 

(57,502)

 

(86,231)

Increase (decrease) in cash and cash equivalents

 

13,486 

 

(37,030)

Cash and cash equivalents at the beginning of period

 

43,138 

 

62,377 

Cash and cash equivalents at end of period

$

56,624 

 

25,347 

Cash paid for:

 

 

 

 

Interest paid

$

1,739 

 

3,394 

Income tax payments (refund)

 

 -

 

20 

Supplementary disclosure of non-cash investing and

 

 

 

 

 financing activities:

 

 

 

 

Retirement of Class A Common Stock in connection with share based compensation withholding tax obligation

 

2,021 

 

1,647 

Loans and tax certificates transferred to real estate held-for-investment or real estate held-for-sale

 

20,450 

 

30,855 

Loans transferred to properties and equipment

 

 -

 

12,834 

Refinance of notes payable to related parties

 

(7,475)

 

 -

Increase in notes payable associated with refinance of notes payable to related parties

 

7,475 

 

 -

Issuance of notes payable to purchase properties and equipment

 

21 

 

 -

Transfer from real estate-held-for-investment to real estate-held-for-sale

 

26,730 

 

 -

Tax certificates transferred to tax certificates held for sale

 

 -

 

494 

Notes payable issued in connection with the investment in Woodbridge Holdings, LLC

 

 -

 

11,750 

Increase in additional paid-in-capital associated with the investment in Woodbridge Holdings, LLC

 

 -

 

13,337 

Loans receivable transferred to loans held-for-sale

 

2,299 

 

-

Loans receivable transferred from loans held-for-sale

 

-

 

(1,312)

Real estate held-for-investment transferred to investment in real estate joint ventures

 

1,920 

 

 -

Change in accumulated other comprehensive income

 

56 

 

 -

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

 

 

 

7

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

1.  Presentation of Interim Financial Statements

Basis of Financial Statement Presentation BBX Capital Corporation (formerly BankAtlantic Bancorp, Inc.) together with its subsidiaries is referred to herein as “the Company”, “we”, “us,” or “our” and is referred to herein without its subsidiaries as the “Parent Company” or “BBX Capital”. BBX Capital was organized under the laws of the State of Florida in 1994. We are involved in the ownership, financing, acquisition, development and management of real estate and real estate related assets, and we are also involved in  the investment in or acquisition of operating businesses. 

In April 2013, BBX Capital acquired a 46% equity interest in Woodbridge Holdings, LLC (“Woodbridge”).  Woodbridge’s principal asset is its ownership of Bluegreen Corporation and its subsidiaries (“Bluegreen”). Bluegreen manages, markets and sells the Bluegreen Vacation Club, a points-based, deeded vacation ownership plan with more than 180,000 owners.  BFC Financial Corporation (“BFC”), the controlling shareholder of the Company, owns the remaining 54% of Woodbridge (see Note 3 Investment in Woodbridge Holdings, LLC). 

In October 2013, Renin Holdings, LLC (“Renin”), a newly formed joint venture owned 81% by BBX Capital and 19% by BFC, acquired substantially all of the assets and certain liabilities of Renin Corp. (“the Renin Transaction”).  Renin manufactures interior closet doors, wall décor, hardware and fabricated glass products. Renin is headquartered in Canada and has two manufacturing, assembly and distribution facilities in Canada and the United States and a distribution facility in the United Kingdom.

In December 2013, BBX Sweet Holdings, LLC (“BBX Sweet Holdings”), a wholly-owned subsidiary of BBX Capital, acquired the outstanding equity interests in Hoffman’s Chocolates and its subsidiaries Boca Bons, LLC and S&F Good Fortunes, LLC (collectively, “Hoffman’s”).  Hoffman’s is a manufacturer of gourmet chocolates, with four retail locations in South Florida. In January 2014, BBX Sweet Holdings acquired Williams & Bennett, a Florida based manufacturer of quality chocolate products.  In July 2014, BBX Sweet Holdings acquired Jer’s Chocolates, a California based distributor of peanut butter chocolate products internationally and in the United States and Helen Grace Chocolates, a California based manufacturer of premium chocolate confections, chocolate bars, chocolate candies and truffles.  In October 2014, BBX Sweet Holdings acquired Anastasia Confections Inc., an Orlando, Florida based manufacturer of gourmet candy and chocolate gift products (see Note 2 Acquisitions).  

The Company 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 53% of the combined voting power of the Class A common stock and the Class B common stock. Class B common stock represents the remaining 47% of the combined vote. BFC currently owns 100% of the Company’s Class B common stock and 51% of the Company’s outstanding Class A common stock resulting in BFC owning 51% of the Company’s aggregate outstanding common stock and 72% of the voting power of the Company’s common stock. The percentage of total common equity represented by Class A and Class B common stock was 99% and 1% at September 30, 2014, respectively. The fixed voting percentages will be eliminated, and shares of Class B common stock will be entitled to only one vote per share from and after the date that BFC or its affiliates no longer own in the aggregate at least 97,523 shares of Class B common stock (which is one-half of the number of shares it now owns). Class B common stock is convertible into Class A common stock on a share for share basis.

In September 2014, the Company’s Board of Directors’ approved a share repurchase program and authorized management, at its discretion, to repurchase up to $20 million of BBX Capital’s Class A Common Stock from time to time, subject to market conditions and other factors considered by management to be appropriate at the time of repurchase.  

On September 30, 2014, 282,602 shares of restricted Class A common stock granted to executive officers in September 2012 vested.  The Company repurchased and retired 115,866 shares of the executive officers’ Class A common stock to satisfy the $2.0 million withholding tax obligations associated with the vesting of these shares.  

In October 2014, the Company’s Compensation Committee of the Board of Directors’ granted 396,082 restricted shares of the Company’s Class A Common stock to its executive officers under the Company’s 2014 Stock Incentive Plan.  These  restricted Class A common shares had a $6.6 million fair value on the grant date and vest ratably each September 30th over a four year period.  The Company recognizes the compensation costs based on the straight-line method over the four year vesting period. 

8

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

In May 2013, BBX Capital entered into a definitive merger agreement (the “Merger Agreement”) with BFC and BBX Merger Sub, LLC, a newly formed wholly owned subsidiary of BFC (“Merger Sub”). The Merger Agreement provides for BBX Capital to merge with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving company of the Merger and a wholly owned subsidiary of BFC. Under the terms of the Merger Agreement, which was approved by a special committee comprised of the Company’s independent directors (the “Special Committee”) as well as the full boards of directors of both BFC and the Company, the Company’s shareholders (other than BFC and shareholders of the Company who exercise and perfect their appraisal rights in accordance with Florida law) will be entitled to receive 5.39 shares of BFC’s Class A Common Stock in exchange for each share of the Company’s Class A Common Stock that they hold at the effective time of the Merger (as such exchange ratio may be adjusted in accordance with the terms of the Merger Agreement, the “Exchange Ratio”). Each option to acquire shares of the Company’s Class A Common Stock that is outstanding at the effective time of the Merger, whether or not then exercisable, will be converted into an option to acquire shares of BFC’s Class A Common Stock and be subject to the same terms and conditions as in effect at the effective time of the Merger, except that the number of shares which may be acquired upon exercise of the option will be multiplied by the Exchange Ratio and the exercise price of the option will be divided by the Exchange Ratio. In addition, each share of the Company’s Class A Common Stock subject to a restricted stock award outstanding at the effective time of the Merger will be converted into a restricted share of BFC’s Class A Common Stock and be subject to the same terms and conditions as in effect at the effective time of the Merger, except that the number of shares subject to the award will be multiplied by the Exchange Ratio. The Merger Agreement was approved by the Company’s shareholders and by BFC’s shareholders on April 29, 2014. Consummation of the Merger is subject to certain closing conditions, including, without limitation, BFC’s Class A Common Stock being approved for listing on a national securities exchange (or interdealer quotation system of a registered national securities association) at the effective time of the Merger and the absence of any “Material Adverse Effect” (as defined in the Merger Agreement) with respect to either the Company or BFC.  Pursuant to the terms of the merger agreement, because the merger was not consummated by April 30, 2014, either BFC or BBX Capital may terminate the merger agreement at any time.  It is not currently expected that the merger will be consummated prior to the first quarter of 2015.

BBX Capital’s principal asset until July 31, 2012 was its ownership of BankAtlantic and its subsidiaries (“BankAtlantic”).  BankAtlantic was a federal savings bank headquartered in Fort Lauderdale, Florida and provided traditional retail banking services and a wide range of commercial banking products and related financial services through a broad network of community branches located in Florida.  On November 1, 2011, the Company entered into a definitive agreement to sell BankAtlantic to BB&T Corporation (“BB&T”), which agreement was amended on March 13, 2012 (“the Agreement”).  On July 31, 2012, BBX Capital completed the sale to BB&T of all of the issued and outstanding shares of capital stock of BankAtlantic (the stock sale and related transactions described herein are collectively referred to as the “BB&T Transaction”). Pursuant to the terms of the Agreement, prior to the closing of the BB&T Transaction, BankAtlantic formed two wholly-owned subsidiaries, BBX Capital Asset Management, LLC (“CAM”) and Florida Asset Resolution Group, LLC (“FAR”).  BankAtlantic contributed to FAR certain performing and non-performing loans, tax certificates and real estate that had an aggregate carrying value on BankAtlantic’s Balance Sheet of approximately $346 million as of July 31, 2012 (the date the BB&T Transaction was consummated).  FAR assumed all liabilities related to these assets.  BankAtlantic also contributed approximately $50 million in cash to FAR on July 31, 2012 and thereafter distributed all of the membership interests in FAR to the Company.  At the closing of the BB&T Transaction, the Company transferred to BB&T 95% of the outstanding preferred membership interests in FAR in connection with BB&T’s assumption of the Company’s $285.4 million in principal amount of outstanding trust preferred securities (“TruPS”) obligations. The Company continues to hold the remaining 5% of FAR’s preferred membership interests. Under the terms of the Amended and Restated Limited Liability Company agreement of FAR, which was entered into by the Company and BB&T at the closing, BB&T will hold its 95% preferred interest in the net cash flows of FAR until such time as it has recovered $285 million in preference amount plus a priority return of LIBOR + 200 basis points per annum on any unpaid preference amount. At that time, BB&T’s interest in FAR will terminate, and the Company will thereafter be entitled to any and all residual proceeds from FAR through its ownership of FAR’s Class R units. It is expected that the assets (other than cash) contributed to FAR will be monetized over a period of seven years, or longer provided BB&T’s preference amount is repaid within such seven-year period. The Company entered into an incremental $35 million guarantee in BB&T’s favor to further assure BB&T’s recovery of the $285 million preferred interest within seven years. BB&T’s preferred interest in FAR as of September 30, 2014 had been reduced through cash distributions to $14.2 million. 

 

Prior to the closing of the BB&T Transaction, BankAtlantic contributed approximately $82 million in cash to CAM and certain non-performing commercial loans, commercial real estate and previously written-off assets that had an aggregate carrying value on BankAtlantic’s balance sheet of $125 million as of July 31, 2012.  CAM assumed all liabilities related to

9

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

these assets.  Prior to the closing of the BB&T Transaction, BankAtlantic distributed all of the membership interests in CAM to the Company. CAM remains a wholly-owned subsidiary of the Company. 

 

The Company’s consolidated financial statements have been prepared on a going concern basis, which reflects the realization of assets and the repayments of liabilities in the normal course of business.

 

All significant inter-company balances and transactions have been eliminated in consolidation.  Throughout this document, the term “fair value” in each case is an estimate of fair value as discussed herein.

 

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) as are necessary for a fair statement of the Company's consolidated financial condition at September 30, 2014, the consolidated results of operations and consolidated statement of comprehensive income for the three and nine months ended September 30, 2014 and 2013, and the consolidated total equity and cash flows for the nine months ended September 30, 2014 and 2013.  The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of results of operations that may be expected for the subsequent interim period during 2014 or for the year ended December 31, 2014.  The consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the consolidated financial statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

Certain amounts for prior years have been reclassified to conform to the revised financial statement presentation for 2014.

Basic earnings per share excludes dilution and is computed by dividing net income attributable to the Company by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if options to issue common shares were exercised or restricted common stock of the Company were to vest. In calculating diluted earnings per share, net income attributable to the Company is divided by the weighted average number of common shares. Options and restricted stock are included in the weighted average number of common shares outstanding based on the treasury stock method, if dilutive.  During the three and nine months ended September 30, 2014 options to acquire 15,481 shares of Class A common stock were anti-dilutive.  During the three months ended September 30, 2014, 995,202 outstanding restricted Class A Common Stock awards were anti-dilutive.  During the three and nine months ended September 30, 2013 options to acquire 25,195 shares of Class A common stock and outstanding restricted stock Class A Common Stock awards in the amount of 880,302 shares were anti-dilutive.

The Company follows the equity method of accounting to record its investments in Woodbridge and real estate joint ventures in which it has the ability to significantly influence the decisions of the joint venture and to record its investment in variable interest entities in which it is not the primary beneficiary. Under the equity method, an investment is shown on the Statement of Financial Condition of an investor as a single amount and an investor’s share of earnings or losses from its investment is shown in the Statement of Operations as a single amount.  The investment is initially measured at cost and adjusted for the investor’s share of the earnings or losses of the investee as well as dividends received from the investee.  The investor recognizes its share of the earnings or losses of the investee in the periods for which they are reported by the investee in its financial statements rather than in the period in which an investee declares a dividend. 

Goodwill and other intangible assets consisted of $0.5 million of goodwill associated with the Williams & Bennett acquisition, and $4.8 million of other identifiable intangible assets including trade names, customer relationships and lease premiums acquired in connection with the Renin Transaction and the BBX Sweet Holdings acquisitions (see Note 2 Acquisitions)

Goodwill is recorded at the acquisition date of a business.  Annually, goodwill is assessed for qualitative factors to determine whether it is necessary to perform a goodwill impairment test. Goodwill testing is a two-step process. The first step of the goodwill impairment test is used to identify potential impairment. This step compares the fair value of a reporting unit with its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired and the second step of the impairment test is not necessary. If the fair value of the reporting unit is less than the carrying value, then the second step of the test is used to measure the amount of goodwill impairment, if any, in the reporting unit. This step compares the current implied goodwill in the reporting unit to its carrying amount. If the carrying amount of the goodwill exceeds the implied goodwill, impairment is recorded for the excess. The implied goodwill is determined in the same manner as the amount of goodwill recognized in a business combination is determined.

10

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The trade names, customer relationship and lease premium intangible assets were initially recorded at fair value and are amortized on a straight-line basis over their estimated useful lives which are generally twenty years for trade names, ten years for customer relationships and over the remaining lease term for lease premiums. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  The impairment test compares the fair value of the intangible asset with the carrying value. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in the amount of the excess carrying amount 

 

New Accounting Pronouncements:

 

The FASB has issued the following accounting pronouncements and guidance relevant to the Company’s operations:

 

Update Number 2014-15 – Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  This update provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  The guidance requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in United States auditing standards.  The standard is effective for annual and interim reporting periods beginning after December 15, 2016.  Early application is permitted.  The adoption of this update is not expected to have an impact on the Company’s financial statements.

 

Update Number 2014-09 – Revenue from Contracts with Customers – (Topic 606). This update applies to all companies that enter into contracts with customers to transfer goods or services and is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and entities have the choice to apply this update either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying this update at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company's consolidated financial statements.

 

Update Number 2014-08 – Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity - (Topic 360 and Topic 205). This update changes the criteria for reporting discontinued operations and requires additional disclosures about discontinued operations and the disposal of individually significant disposals that do not qualify for discontinued operations presentation in the financial statements.  This update is effective for annual and interim periods beginning after December 15, 2014. The adoption of this update is not currently expected to have a material impact on the Company’s financial statements.

 

Update Number 2014-04 – Receivables - (Topic 310-40):  Troubled Debt Restructurings by Creditors. This update provides guidance on when a creditor should derecognize a consumer mortgage loan and recognize a foreclosed asset upon taking physical possession of residential real property collateralizing a consumer mortgage loan. A creditor is considered to have received physical possession of residential real property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. This update is effective for annual and interim periods beginning after December 15, 2014.  The Company does not believe that this update will have a material impact on its financial statements.

 

Liquidity Considerations

 

The Company’s cash was $52.9 million at September 30, 2014. This amount does not include $3.5 million and $0.2 million of cash held in FAR and Renin, respectively.  The Company had $9.8 million of current liabilities as of September 30, 2014.  The Company’s principal source of liquidity is its cash holdings, funds obtained from payments on and sales of its loans, loan payoffs, sales of real estate, income from income producing real estate, and distributions received from FAR and Woodbridge. While FAR is consolidated in the Company’s financial statements, the cash held in FAR and generated from

11

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

its assets will be used primarily to pay FAR’s operating expenses and to pay BB&T’s 95% preferred membership interest and the related priority return and will generally not be available for distribution to the Company until the BB&T preferred membership interest is repaid. The balance of BB&T’s preferred membership interest in FAR was approximately $14.2 million at September 30, 2014. Dividends from Woodbridge will be dependent on and subject to Bluegreen’s results of operations, cash flows and the business of Bluegreen as well as restrictions contained in Bluegreen’s debt facilities and the outcome of pending legal proceedings against Bluegreen.

 

BBX Capital does not expect its investments in Renin or BBX Sweet Holdings to be a source of liquidity for the foreseeable future. Based on current and expected liquidity needs and sources, the Company expects to be able to meet its liquidity needs over the next twelve months. 

 

 

2.  Acquisitions

 

 

In July 2014, BBX Sweet Holdings acquired Jer’s Chocolates (“Jer’s”), a California based distributor of peanut butter chocolate products internationally and in the United States and in a separate transaction, BBX Sweet Holdings acquired Helen Grace Chocolates (“Helen Grace”), a California based manufacturer of premium chocolate confections, chocolate bars, chocolate candies and truffles.

 

 In January 2014, BBX Sweet Holdings acquired Williams & Bennett, including its other brand Big Chocolate Dipper. Williams & Bennett is headquartered in Boynton Beach, Florida and is a manufacturer of chocolate products serving boutique retailers, big box chains, department stores, national resort properties, corporate customers, and private label brands. 

 

The following tables summarize the fair value of the assets acquired and liabilities assumed and the net cash outflows from the Williams & Bennett, Jer’s, and Helen Grace acquisitions at the acquisition dates (in thousands):

 

 

 

 

 

 

 

Fair value of identifiable assets

 

 

acquired and liabilities assumed:

 

 

Trade receivables

$

49 

Inventories

 

3,224 

Properties and equipment

 

1,157 

Other intangible assets

 

2,374 

Other assets

 

406 

Note payable

 

(186)

Other liabilities

 

(522)

Fair value of identifiable net assets

 

6,502 

Goodwill

 

543 

Purchase consideration

 

5,213 

Bargain purchase gain

$

(1,832)

 

 

 

Purchase consideration

$

5,213 

Holdback Amounts

 

(750)

Discount on Holdback Amount

 

36 

Net cash outflows from acquisition

$

4,499 

 

 

 

 

The purchase consideration for the acquisition of the assets and assumption of certain liabilities of Helen Grace was less than the fair value of the net assets acquired and resulted in a bargain purchase gain of $1.8 million.  This gain was recognized in the Company’s consolidated statements of operations in selling, general and administrative expenses.  Management believes that it was able to acquire Helen Grace for a bargain purchase price because Helen Grace was a distressed company.  

 

The aggregate trade sales for Williams & Bennett, Jer’s and Helen Grace included in the Company’s statement of operations for the three months ended September 30, 2014 was $2.4 million.

12

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

The aggregate earnings for Williams & Bennett, Jer’s and Helen Grace included in the Company’s statement of operations for the three months ended September 30, 2014 was $1.9 million. 

 

The aggregate trade sales for Williams & Bennett, Jer’s and Helen Grace included in the Company’s statement of operations for the nine months ended September 30, 2014 was $4.0 million.

 

The aggregate earnings for Williams & Bennett, Jer’s and Helen Grace included in the Company’s statement of operations for the nine months ended September 30, 2014 was $1.6 million.

 

Included in aggregate earnings in the Company’s statements of operations for the three and nine months ended September 30, 2014 was the Helen Grace $1.8 million bargain purchase gain. 

 

In October 2014, BBX Sweet Holdings acquired the outstanding common shares of Anastasia Confections (“Anastasia”), a premium confections company founded in 1984. Headquartered in an 80,000 square foot production facility in Orlando, Florida, Anastasia manufactures gourmet coconut and chocolate candy, salt water taffy, and other chocolate gift products.  The purchase consideration of $11.5 million consisted of $4.0 million of cash at closing and a promissory note of $7.5 million, bearing interest at 5%, with four annual installments of principal and interest due from 2015 to 2018. The promissory note is guaranteed by BBX Capital.

 

Certain business combination disclosures required by Topic 805-10-50-2 for the Anastasia acquisition, such as the fair value of the net assets acquired and the supplemental pro forma information, were not available at the date of filing.  The Company engaged valuation firms to provide estimates of the fair value of the assets acquired and liabilities assumed and the valuation reports were not completed as of the filing date.  Also, the seller needed additional time to provide the financial information requested by the Company to prepare the supplemental pro forma information.  The estimates of the fair value of the assets acquired and liabilities assumed as well as the supplemental pro forma information will be disclosed in a subsequent filing.

 

The Company incurred $0.1 million and $0.3 million of acquisition related costs in connection with the above acquisitions during the three and nine months ended September 30, 2014.  The acquisition related costs were recognized in selling, general and administrative expenses in the Company’s statements of operations for the three and nine months ended September 30, 2014.

 

 

3.    Investment in Woodbridge Holdings, LLC

 

On April 2, 2013, the Company invested $71.75 million in Woodbridge in exchange for a 46% equity interest in Woodbridge. The investment was made in connection with Woodbridge’s acquisition on April 2, 2013 of the publicly held shares of Bluegreen. BFC holds the remaining 54% of Woodbridge’s outstanding equity interests and is the managing member of Woodbridge. Since BFC is the majority owner of Woodbridge and the managing member, the Company’s investment in Woodbridge is accounted for under the equity method.  The Company’s investment in Woodbridge consisted of $60.4 million in cash (including $0.4 million in transaction costs) and a promissory note in Woodbridge’s favor in the principal amount of $11.75 million. In connection with the Company’s investment in Woodbridge, the Company and BFC entered into an Amended and Restated Operating Agreement of Woodbridge, which sets forth the Company’s and BFC’s respective rights as members of Woodbridge and provides, among other things, for unanimity on certain specified “major decisions” and for distributions to be made on a pro rata basis in accordance with the Company’s and BFC’s percentage equity interests in Woodbridge.

 

 

13

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

The following are the adjustments to the investment in Woodbridge under the equity method for the three and nine months ended September 30, 2014 and for the three months ended September 30, 2013 and from the date of investment (April 2, 2013) through September 30, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine

 

From April 2, 2013

 

Ended September 30,

 

Months Ended

 

Through

 

 

2014

 

2013

 

September 30, 2014

 

September 30, 2013

 

 

 

 

 

 

 

 

 

Cash to Woodbridge

$

 -

 

 -

 

 -

 

60,404 

Note payable to Woodbridge

 

 -

 

 -

 

 -

 

11,750 

Increase in additional paid-in capital

 

 -

 

 -

 

 -

 

13,337 

Investment in Woodbridge

 

78,057 

 

80,140 

 

78,573 

 

85,491 

Equity earnings in Woodbridge

 

7,635 

 

8,183 

 

21,965 

 

11,625 

Dividends received from Woodbridge

 

(8,478)

 

(7,804)

 

(23,324)

 

(16,597)

Investment in Woodbridge

$

77,214 

 

80,519 

 

77,214 

 

80,519 

 

 

The condensed Statements of Financial Condition as of the dates indicated of Woodbridge Holdings, LLC were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2014

 

2013

Assets

 

 

 

 

Cash and restricted cash

$

221,597 

 

224,104 

Notes receivable, net

 

448,284 

 

467,319 

Inventory of real estate

 

196,527 

 

204,256 

Intangible assets

 

63,970 

 

64,142 

Other assets

 

137,445 

 

126,494 

  Total assets

$

1,067,823 

 

1,086,315 

Liabilities and Equity

 

 

 

 

Accounts payable, accrued liabilities and other

$

107,165 

 

116,956 

Deferred tax liabilities, net

 

108,482 

 

76,726 

Notes payable

 

489,258 

 

537,500 

Junior subordinated debentures

 

149,374 

 

147,431 

  Total liabilities

 

854,279 

 

878,613 

  Total Woodbridge members' equity

 

167,026 

 

169,981 

Noncontrolling interest

 

46,518 

 

37,721 

  Total equity

 

213,544 

 

207,702 

  Total liabilities and equity

$

1,067,823 

 

1,086,315 

 

14

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The condensed Statements of Operations of Woodbridge Holdings, LLC were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine

 

From April 2, 2013

 

 

Ended September 30,

 

Months Ended

 

Through

 

 

2014

 

2013

 

September 30, 2014

 

September 30, 2013

Total revenues

$

163,273 

 

148,281 

 

443,810 

 

280,157 

Total costs and expenses

 

132,261 

 

115,420 

 

357,456 

 

230,801 

Other income

 

483 

 

388 

 

1,860 

 

746 

Income from continuing operations before taxes

 

31,495 

 

33,249 

 

88,214 

 

50,102 

Provision for income taxes

 

11,136 

 

11,532 

 

31,722 

 

17,072 

Income from continuing operations

 

20,359 

 

21,717 

 

56,492 

 

33,030 

(Loss) income from discontinued operations, net of tax

 

(2)

 

(192)

 

55 

 

(270)

Net income

 

20,357 

 

21,525 

 

56,547 

 

32,760 

Net income attributable to noncontrolling interest

 

(3,759)

 

(3,735)

 

(8,797)

 

(7,487)

Net income attributable to Woodbridge

 

16,598 

 

17,790 

 

47,750 

 

25,273 

BBX Capital 46% equity earnings in Woodbridge

$

7,635 

 

8,183 

 

21,965 

 

11,625 

 

 

 

4.  Consolidated Variable Interest Entities

 

 

FAR

 

In consideration for BB&T assuming BBX Capital’s $285.4 million in principal amount of TruPS in connection with the sale of BankAtlantic, BB&T received from BBX Capital at the closing of the BB&T Transaction a 95% preferred membership interest in the net cash flows of FAR (Class A Units in FAR) which it will hold until such time as it has recovered $285 million in preference amount plus a priority return of LIBOR + 200 basis points per annum. At that time, BB&T’s interest in FAR will terminate, and BBX Capital, which holds the remaining 5% of the Class A Units and 100% of the Class R units, will thereafter be the sole member of FAR and be entitled to any and all residual proceeds.  FAR’s assets were expected to be monetized over a period of seven years, or longer provided BB&T’s preference amount is repaid within such seven-year period. BBX Capital provided BB&T with an incremental $35 million guarantee to further support BB&T’s recovery within seven years of the $285 million preference amount. At September 30, 2014, BB&T’s preferred interest in FAR had been paid down to approximately $14.2 million. 

 

BBX Capital’s variable interests in FAR include its 5% preferred membership interest in the cash flows of FAR, rights to all residual cash flows after satisfaction of the preferred membership interests, and the incremental guarantee issued to BB&T. CAM also services approximately $20.1 million of FAR commercial loans and has a right of first refusal to acquire certain FAR commercial loans. CAM is entitled to purchase certain commercial loans on a basis established in FAR’s operating agreement.

 

The Company analyzed FAR’s amended and restated limited liability agreement and determined that it was the primary beneficiary and therefore should consolidate FAR in its financial statements. This conclusion was based primarily on the determination that the Company has the obligation to absorb losses and the right to receive any appreciation of the assets of FAR through its rights to the residual cash flows of FAR and its obligation under the incremental $35 million guarantee to BB&T supporting the repayment of BB&T’s preferred interest in FAR. Also contributing to the Company’s determination that it was the primary beneficiary of FAR was its ability to direct the activities relating to the commercial loans that it services, its ability to purchase certain commercial loans and its right of first refusal in connection with the disposition of certain commercial loans.

 

15

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

BB&T’s preferred equity interest in FAR only entitles it to a $285 million preference amount plus the related priority return. Based on the amended and restated limited liability agreement, FAR is required to make quarterly distributions or more frequently as approved by FAR’s Board of Managers, of excess cash flows from its operations and the orderly disposition of its assets to redeem the preferred membership interests. As such, the Class A units are considered mandatorily redeemable and are reflected as debt obligations in the Company’s Consolidated Statement of Financial Condition and the priority return is considered interest expense in the Company’s Consolidated Statements of Operations.  

 

The activities of FAR are governed by an amended and restated limited liability agreement which grants the Board of Managers decision-making authority over FAR. The Board has four members, two members elected by the Company and two members elected by BB&T. The approval of an issue before the Board requires three of the members’ approval. Members designated by BB&T must resign from the Board upon the redemption of its preferred membership interest in FAR.

 

The carrying amount of the assets and liabilities of FAR and the classification of these assets and liabilities in the Company’s Statement of Financial Condition was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

September 30,

December 31,

 

 

2014

2013

Cash and interest bearing deposits in banks

 $

3,509 
8,388 

Loans held for sale

 

36,545 
53,846 

Loans receivable, net

 

19,922 
56,170 

Real estate held-for-investment

 

19,042 
15,509 

Real estate held-for-sale

 

14,133 
23,664 

Properties and equipment, net

 

7,645 
7,899 

Other assets

 

1,188 
2,413 

        Total assets

 $

101,984 
167,889 

BB&T preferred interest in FAR, LLC

$

14,171 
68,517 

Other liabilities

 

12,605 
12,343 

       Total liabilities

$

26,776 
80,860 

 

Until BB&T’s preference amount is repaid, the proceeds from the monetization of FAR’s assets are restricted to payments of expenses, including the priority return and estimated working capital requirements of FAR, and the repayment of FAR’s preferred membership interests. FAR anticipates making quarterly distributions. As such, the Company will receive 5% of the net cash flows from the monetization of FAR’s assets, net of expenses. FAR finances its activities through revenues from principal and interest payments received and the monetization of its assets.

 

BBX Capital’s maximum loss exposure in FAR if all of FAR’s assets were deemed worthless would have been $89.4 million as of September 30, 2014, including the incremental guarantee in favor of BB&T for repayment of the $14.2 million balance of its preferred membership interest. 

 

JRG/BBX Development, LLC (“North Flagler”)

 

In October 2013, an indirect wholly-owned subsidiary of BBX Capital entered into the North Flagler joint venture with JRG USA, and in connection with the formation of the joint venture JRG USA assigned to the joint venture a contract to purchase for $10.8 million a 4.5 acre real estate parcel overlooking the Intracoastal Waterway in West Palm Beach Florida and we invested $0.5 million of cash.  This joint venture is seeking to expand land entitlements and is currently working to amend the current zoning designation and increase the parcel’s residential height restrictions with a view to increasing the value of the parcel.  We are entitled to receive 80% of any joint venture distributions until we recover our capital investment and then will be entitled to receive 70% of any joint venture distributions thereafter. We are the managing member and have control of all aspects of the operations of the joint venture. 

 

16

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The Company analyzed North Flagler’s operating agreement and determined that we are the primary beneficiary of the joint venture and therefore should consolidate North Flagler in our financial statements. This conclusion was based primarily on the determination that the Company absorbs 80% of the losses, is entitled to 70% of the profits and controls all aspects of North Flagler’s operations.

 

The carrying amount of the assets and liabilities of North Flagler and the classification of these assets and liabilities in the Company’s Statement of Financial Condition was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

December 31,

 

 

2014

2013

Cash and interest bearing deposits in banks

$

48 
298 

Real estate held-for-investment

 

500 
327 

Other assets

 

375 

 -

Total assets

$

923 
625 

Other liabilities

$

48 
12 

Noncontrolling interest

$

132 
135 

 

BBX Capital’s maximum loss exposure in North Flagler if all of North Flagler’s assets were deemed worthless would have been $743,000 as of September 30, 2014.

 

 

 

5.  Investments in Unconsolidated Real Estate Joint Ventures

 

 

The Company had the following investments in unconsolidated real estate joint ventures (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

December 31,

 

 

2014

2013

Altis at Kendall Square, LLC

$

1,164 
1,300 

New Urban/BBX Development, LLC

 

(11)
54 

Sunrise and Bayview Partners, LLC

 

1,745 

 -

Hialeah Communities, LLC

 

4,860 

 -

PGA Design Center Holdings, LLC

 

1,949 

 -

Investments in unconsolidated real estate joint ventures

$

9,707 
1,354 

 

Altis at Kendall Square, LLC (“Kendall Commons”)

 

In March 2013, the Company invested $1.3 million in a joint venture to develop 321 apartment units. The Company is entitled to receive 13% of the joint venture distributions until a 15% internal rate of return has been attained and then the Company will be entitled to receive 9.75% of any joint venture distributions thereafter.

 

The Company analyzed the amended and restated operating agreement of Kendall Commons and determined that we are not the primary beneficiary and therefore the investment in the real estate joint venture is accounted for under the equity method of accounting.  This conclusion was based primarily on the determination that the Company only has limited protective rights under the operating agreement, is not the manager of the joint venture and the manager of the joint venture is entitled to 83% of the joint venture’s distributions. 

New Urban/BBX Development, LLC (“Village at Victoria Park”)

 

17

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

In December 2013, the Company entered into a joint venture agreement with New Urban Communities to develop 2 acres of vacant land located near downtown Fort Lauderdale, Florida as 30 single-family homes. The closing of the joint venture was subject to obtaining third party acquisition, development and construction financing. The Company and New Urban Communities each have a 50% membership interest in the joint venture and New Urban Communities serves as the developer and the manager. 

 

In April 2014, the joint venture obtained an acquisition, development and construction loan from a financial institution and the Company and New Urban Communities each contributed $692,000 to the joint venture as a capital contribution. The joint venture purchased the two acre site from the Company for $3.6 million consisting of $1.8 million in cash (less $0.2 million in selling expenses) and a $1.6 million promissory note.  The promissory note bears interest at 8% per annum and is subordinated to the financial institution acquisition, development and construction loan.  The Company recognized a partial gain of $188,000 on the sale of the vacant land to the joint venture.

 

The Company analyzed the Village at Victoria Park’s operating agreement and determined that we are not the primary beneficiary and therefore the investment in the real estate joint venture was accounted for under the equity method of accounting.  This conclusion was based primarily on the determination that New Urban Communities has the power to direct activities of the joint venture that most significantly affect the joint venture’s performance as it is the developer and manager of the project. Additionally, New Urban Communities also receives significant benefits from the joint venture in excess of its 50% membership interest in the form of development and administrative fees.    

 

Sunrise and Bayview Partners

 

In June 2014, the Company entered into a joint venture agreement with an affiliate of Procacci Development Corporation (“PDC”) and the Company and PDC each contributed $1.8 million in the Sunrise and Bayview Partners joint venture.  The Company and PDC each have a 50% interest in the joint venture.  In July 2014, the joint venture borrowed $5.0 million from PDC and acquired for $8.0 million three acres of real estate in Fort Lauderdale, Florida from an unrelated third party. The property is improved with an approximate 84,000 square foot office building along with a convenience store and gas station.   The joint venture refinanced the PDC borrowings with a financial institution and the Company provided the financial institution with a guarantee of 50% of the outstanding balance of the joint venture’s $5.0 million loan. 

 

The Company analyzed the Sunrise and Bayview Partners operating agreement and determined that we are not the primary beneficiary and therefore the investment in the real estate joint venture was accounted for under the equity method of accounting.  This conclusion was based primarily on the determination that PDC has the power to direct activities of the joint venture that most significantly affect the joint venture’s performance as it is managing the property, including locating  tenants, executing leases, collecting rent payments and conducting development activities. Additionally, PDC also receives significant benefits from the joint venture in excess of its 50% membership interest in the form of development and property management fees. 

 

PGA Design Center Holdings, LLC (“PGA Design Center”)

 

In December 2013, the Company purchased for $6.1 million a commercial property with three existing buildings consisting of 145,000 square feet of mainly furniture retail space. In January 2014, the Company entered into a joint venture with Stiles Development, and in connection with the formation of the joint venture, the Company sold the commercial property to the joint venture in exchange for $2.9 million in cash and a 40% interest in the joint venture. The joint venture intends to seek governmental approvals to change the use of a portion of the property from retail to office and subsequently sell or lease the property. The property contributed to the joint venture excluded certain residential development entitlements with an estimated value of $1.2 million which were transferred to adjacent parcels owned by the Company.

   The Company analyzed the PGA Design Center’s operating agreement and determined that we are not the primary beneficiary and therefore the investment in the real estate joint venture was accounted for under the equity method of accounting.  This conclusion was based primarily on the determination that Stiles Development has a 60% interest in the joint venture and is also the managing member. As such, Stiles Development is the joint venture member that has the majority of the power to direct the activities of the joint venture that most significantly impact its economic performance and through its 60% membership interest has the obligation to absorb the majority of the losses and the right to receive the majority of the benefits of the joint venture.

 

18

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

Hialeah Communities, LLC 

In July 2014, the Company entered into a joint venture agreement with CC Bonterra to develop approximately 394 homes in a portion of the newly proposed Bonterra community in Hialeah Florida. The Company transferred approximately 50 acres of land at an agreed upon value of approximately $15.6 million subject to an $8.3 million mortgage which was assumed by the joint venture.  In exchange, the Company received $2.2 million in cash and a joint venture interest with an agreed upon assigned initial capital contribution value of $4.9 million. The Company is entitled to receive 57% of the joint venture distributions until it receives its aggregate capital contributions plus a 9% per annum return on capital.  Any distributions thereafter are shared 45% by the Company and 55% by CC Bonterra.  The Company contributes 57% of the capital and remains liable as a co-borrower on the $8.3 million mortgage that was assumed by the joint venture. The Company recognized a partial gain of $229,000 on the transfer of the land to the joint venture.

 

The Company analyzed the Hialeah Communities operating agreement and determined that it is not the primary beneficiary and therefore the investment in the real estate joint venture was accounted for under the equity method of accounting.  This conclusion was based primarily on the determination that CC Bonterra as the managing member and developer of the homes has the power to direct activities of the joint venture that most significantly affect the joint venture’s performance.     Additionally, CC Bonterra also receives significant benefits from the joint venture in excess of its 43% membership interest in the form of development and administrative fees as wells as 55% of  joint venture profits.

 

In September 2014, the Company contributed additional capital to the joint venture of $1.8 million with CC Bonterra contributing $1.4 million.  The joint venture advanced $2.3 million of the funds to a wholly-owned subsidiary of the Company and purchased property adjacent to the project for $0.9 million.  The wholly-owned subsidiary of the Company used the funds received from the joint venture to purchase additional property adjacent to the project.      

 

 

 

 

 

6.  Loans Held-for-Sale

 

 

Loans held-for-sale were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2014

 

2013

Residential 

$

28,171 

 

38,223 

First-lien consumer

 

 -

 

4,176 

Second-lien consumer

 

2,299 

 

 -

Small business

 

6,075 

 

11,447 

Total loans held-for-sale

$

36,545 

 

53,846 

 

Loans held-for-sale are reported at the lower of cost or fair value.  The Company transfers loans to held-for-sale when, based on the current economic environment and related market conditions, it does not have the intent to hold those loans for the foreseeable future.  The Company transfers loans previously held-for-sale to loans held-for-investment at the lower of cost or fair value on the transfer date.  All loans held-for-sale at September 30, 2014 and December 31, 2013 were owned by FAR.

 

In September 2014, FAR, based on current market conditions, decided to sell its performing second-lien consumer loans.  The Company charged down these loans $2.7 million to fair value and transferred the loans to held-for-sale in the aggregate amount of $2.3 million.

 

In July 2014, the Company received net proceeds from the sales of its first-lien consumer loan portfolio and residential loans of approximately $3.2 million and $6.3 million, respectively.  Included in net gains on the sales of assets for the three and nine months ended September 30, 2014 was a $0.6 million gain from the sale of these loans.

 

 

 

19

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

7.  Loans Receivable

 

 

The loan portfolio consisted of the following components (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2014

 

2013

Commercial non-real estate

$

1,345 

 

3,331 

Commercial real estate

 

27,143 

 

62,937 

Consumer 

 

2,415 

 

8,618 

Residential

 

 -

 

53 

         Total gross loans

 

30,903 

 

74,939 

Adjustments:

 

 

 

 

 Premiums, discounts and net deferred fees

 

 -

 

 -

 Allowance for loan  losses

 

(2,632)

 

(2,713)

         Loans receivable -- net

$

28,271 

 

72,226 

The recorded investment (unpaid principal balance less charge-offs and deferred fees) of non-accrual loans receivable was (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

Loan Class

 

2014

 

2013

Commercial non-real estate

$

1,345 

 

3,331 

Commercial real estate

16,677 

 

45,540 

Consumer

 

2,031 

 

2,972 

Residential

 

 -

 

53 

Total nonaccrual loans

$

20,053 

 

51,896 

An age analysis of the past due recorded investment in loans receivable as of September 30, 2014 and December 31, 2013 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

September 30, 2014

 

Past Due

 

Past Due

 

or More (1)

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

 -

 

 -

 

330 

 

330 

 

1,015 

 

1,345 

Commercial real estate:

 

 -

 

 -

 

5,458 

 

5,458 

 

21,685 

 

27,143 

Consumer

 

 -

 

297 

 

1,979 

 

2,276 

 

139 

 

2,415 

Residential:

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Total

$

 -

 

297 

 

7,767 

 

8,064 

 

22,839 

 

30,903 

 

 

20

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

December 31, 2013

 

Past Due

 

Past Due

 

or More (1)

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

 -

 

 -

 

2,269 

 

2,269 

 

1,062 

 

3,331 

Commercial real estate:

 

 -

 

 -

 

22,729 

 

22,729 

 

40,208 

 

62,937 

Consumer

 

317 

 

293 

 

2,480 

 

3,090 

 

5,528 

 

8,618 

Residential:

 

 -

 

 -

 

53 

 

53 

 

 -

 

53 

Total

$

317 

 

293 

 

27,531 

 

28,141 

 

46,798 

 

74,939 

 

(1)  The Company had no loans that were past due greater than 90 days and still accruing as of September 30, 2014 or December 31, 2013.

 

The activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2014 was as follows (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

Commercial

Real

Small

 

 

 

 

 

Non-Real Estate

Estate

Business

Consumer

Residential

Total

Allowance for Loan Losses:

 

 

 

 

 

 

Beginning balance

$

 -

115 

 -

1,766 

 -

1,881 

    Charge-offs :

 

 

(134)

 -

(2,966)
(4)
(3,104)

     Recoveries :

 

26 
1,974 
80 
961 
158 
3,199 

     Provision:

 

(26)
(239)
(80)
1,155 
(154)
656 

Ending balance

$

 -

1,716 

 -

916 

 -

2,632 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

 -

1,607 

 -

 -

 -

1,607 

Ending balance collectively

 

 

 

 

 

 

 

 evaluated for impairment

 

 -

109 

 -

916 

 -

1,025 

Total

$

 -

1,716 

 -

916 

 -

2,632 

Loans receivable:

 

 

 

 

 

 

 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

1,345 
16,675 

 -