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EX-31.1 - EX-31.1 - BBX CAPITAL CORPbbx-20160930xex31_1.htm

 





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, 2016

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 [    ]

Non-accelerated filer [   ]

Smaller reporting company [ X   ]



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, 2016

Class A Common Stock, par value $0.01 per share

16,483,866

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

3-29 



 

 



Condensed Consolidated Statements of Financial Condition - September  30, 2016 and December 31,



    2015 – Unaudited

 



 

 



Condensed Consolidated Statements of Operations and Comprehensive Income - For the Three



  and Nine Months Ended September  30, 2016 and 2015 - Unaudited

 



 

 



Condensed Consolidated Statements of Total Equity - For the Nine Months Ended September 30, 2016 



  and 2015 - Unaudited

 



 

 



Condensed Consolidated Statements of Cash Flows - For the Nine Months Ended September  30, 2016



 and 2015 - Unaudited

 



 

 



Notes to Condensed Consolidated Financial Statements - Unaudited

7-29 



 

 

Item 2.

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

30-40 



 

 

Item 4.

Controls and Procedures

40 



 

 

Part II.

OTHER INFORMATION

 



 

 

Item 1.

Legal Proceedings

41 



 

 

Item 1A.

Risk Factors

42 



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42 



 

 

 

 

Item 6.

Exhibits

43 



 

 



Signatures

44 



 



 

 


 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION-UNAUDITED 





 

 

 

 



 

 

 

 



 

September 30,

 

December 31,

(In thousands, except share data)

 

2016

 

2015

ASSETS

 

 

 

 

Cash and cash equivalents

$

120,266 

 

69,040 

Restricted cash and time deposits

 

350 

 

2,651 

Loans held-for-sale

 

 -

 

21,354 

Loans receivable, net

 

28,616 

 

34,035 

Trade receivables, net of allowance for bad debts of $190 in 2016 and $404 in 2015

 

14,823 

 

13,732 

Real estate held-for-investment

 

21,720 

 

31,290 

Real estate held-for-sale

 

35,729 

 

46,338 

Investments in unconsolidated real estate joint ventures

 

43,318 

 

42,962 

Investment in Woodbridge Holdings, LLC

 

78,152 

 

75,545 

Properties and equipment

 

24,523 

 

18,083 

Inventories

 

18,189 

 

16,347 

Goodwill

 

7,601 

 

7,601 

Other intangible assets

 

7,823 

 

8,211 

Other assets

 

6,102 

 

6,316 

Total assets

$

407,212 

 

393,505 

LIABILITIES AND EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable

$

9,739 

 

11,059 

Notes payable, net of debt issuance costs 

 

15,547 

 

21,385 

Principal and interest advances on residential loans

 

8,255 

 

10,356 

Other liabilities

 

15,716 

 

14,726 

Total liabilities

 

49,257 

 

57,526 

Commitments and contingencies (Note 10)

 

 

 

 

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 16,422,743 and 16,199,145 shares

 

164 

 

162 

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

 

352,584 

 

350,878 

Accumulated earnings (deficit)

 

2,578 

 

(16,622)

Accumulated other comprehensive income

 

737 

 

384 

Total BBX Capital Corporation shareholders' equity

 

356,065 

 

334,804 

Noncontrolling interest

 

1,890 

 

1,175 

Total equity

 

357,955 

 

335,979 

Total liabilities and equity

$

407,212 

 

393,505 



 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited







 

3


 

 









BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - UNAUDITED 





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months

 

For the Nine Months



 

Ended September 30,

 

Ended September 30,

(In thousands)

 

2016

 

2015

 

2016

 

2015

Revenues:

 

 

 

 

 

 

 

 

Trade sales

$

22,078 

 

21,537 

 

64,290 

 

60,655 

Interest income

 

1,321 

 

2,720 

 

3,301 

 

5,628 

Net gains (losses) on the sales of assets

 

5,034 

 

(145)

 

5,326 

 

15,296 

Income from real estate operations

 

312 

 

851 

 

2,278 

 

2,790 

Other

 

959 

 

572 

 

2,220 

 

1,490 

     Total revenues

 

29,704 

 

25,535 

 

77,415 

 

85,859 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of goods sold

 

16,674 

 

16,186 

 

50,680 

 

44,216 

Interest expense

 

(128)

 

 

 -

 

193 

Real estate operating expenses

 

484 

 

1,003 

 

2,323 

 

3,048 

Recoveries from loan losses, net

 

(10,944)

 

(4,427)

 

(18,979)

 

(14,856)

Asset (recoveries) impairments, net

 

(30)

 

274 

 

1,692 

 

(1,599)

Selling, general and administrative expenses

 

16,837 

 

19,398 

 

50,699 

 

49,424 

      Total costs and expenses

 

22,893 

 

32,439 

 

86,415 

 

80,426 

Equity in earnings of Woodbridge Holdings, LLC

 

10,307 

 

10,306 

 

22,101 

 

5,941 

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

 

4,480 

 

(158)

 

5,793 

 

(753)

Foreign exchange gain (loss)

 

 

(236)

 

325 

 

(635)

Income before income taxes

 

21,603 

 

3,008 

 

19,219 

 

9,986 

Provision (benefit) for income taxes

 

 

(31)

 

 

(250)

Net income

 

21,598 

 

3,039 

 

19,214 

 

10,236 

Net loss (earnings) attributable to noncontrolling interest

 

101 

 

77 

 

(14)

 

(1,948)

Net income attributable to BBX Capital Corporation

$

21,699 

 

3,116 

 

19,200 

 

8,288 



 

 

 

 

 

 

 

 

Basic earnings per share

$

1.32 

 

0.19 

 

1.17 

 

0.51 

Diluted earnings per share

$

1.26 

 

0.18 

 

1.12 

 

0.50 



 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

16,397 

 

16,175 

 

16,395 

 

16,173 



 

 

 

 

 

 

 

 

Diluted weighted average number of common and common

 

 

 

 

 

 

 

 

 equivalent shares outstanding

 

17,270 

 

16,852 

 

17,067 

 

16,692 



 

 

 

 

 

 

 

 

Net income

$

21,598 

 

3,039 

 

19,214 

 

10,236 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

568 

 

121 

 

378 

 

220 

Unrealized (losses) gains on securities available for sale

 

(9)

 

 -

 

47 

 

 -

Other comprehensive income, net of tax

 

559 

 

121 

 

425 

 

220 

Comprehensive income

 

22,157 

 

3,160 

 

19,639 

 

10,456 

Net losses (earnings) attributable to noncontrolling interest

 

101 

 

77 

 

(14)

 

(1,948)

Foreign currency translation adjustments attributable

 

 

 

 

 

 

 

 

to noncontrolling interest

 

108 

 

(23)

 

72 

 

(42)

Total comprehensive income attributable to BBX

 

 

 

 

 

 

 

 

 Capital Corporation

$

22,366 

 

3,214 

 

19,697 

 

8,466 





See Notes to Condensed Consolidated Financial Statements - Unaudited



 

 

 

 

 

 

 

 

 



4


 

 

 



BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF TOTAL EQUITY 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 - UNAUDITED 







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Shares of

 

 

 

 

 

 

 

 



Class A

 

 

 

 

Accumulated

 

 

 



Common

 

 

Additional

Accumulated

Other

BBX Capital

Non-

 



Stock

 

Common

Paid-in

Earnings

Comprehensive

Corporation

Controlling

Total

(In thousands)

Outstanding

 

Stock

Capital

(Deficit)

Income

Equity

Interest

Equity

Balance, December 31, 2014

15,977 

$

162  347,937  (38,396) 85  309,788  1,492  311,280 

Net income

 -

 

 -

 -

8,288 

 -

8,288  1,948  10,236 

Other comprehensive income

 -

 

 -

 -

 -

178  178  42  220 

Noncontrolling interest contributions

 -

 

 -

 -

 -

 -

 -

(2,268) (2,268)

Repurchase and retirement of Class A common shares

(160)

 

(2) (2,527)

 -

 -

(2,529)

 -

(2,529)

Share based compensation expense

382 

 

3,827 

 -

 -

3,831 

 -

3,831 

Balance, September 30, 2015

16,199 

$

164  349,237  (30,108) 263  319,556  1,214  320,770 



 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

16,199 

$

164  350,878  (16,622) 384  334,804  1,175  335,979 

Net income

 -

 

 -

 -

19,200 

 -

19,200  14  19,214 

Other comprehensive income

 -

 

 -

 -

 -

353  353  72  425 

Noncontrolling interest contributions

 -

 

 -

 -

 -

 -

 -

664  664 

Transfer of interest in subsidiary

 -

 

 -

35 

 -

 -

35  (35)

 -

Repurchase and retirement of Class A common shares

(158)

 

(2) (3,246)

 

 -

(3,248)

 -

(3,248)

Share based compensation expense

382 

 

4,917 

 -

 -

4,921 

 -

4,921 

Balance, September 30, 2016

16,423 

$

166  352,584  2,578  737  356,065  1,890  357,955 



See Notes to Condensed Consolidated Financial Statements - Unaudited

 

5


 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED



 

 

 

 



 

 

 

 



 

For the Nine Months



 

Ended September 30,

(In thousands)

 

2016

 

2015

Net cash used in operating activities

$

(5,666)

 

(13,211)

Investing activities:

 

 

 

 

Proceeds from redemptions and maturities of tax certificates

 

347 

 

188 

Decrease (increase) in restricted cash and time deposits

 

1,306 

 

(2,649)

Investments in securities

 

(571)

 

 -

Net repayments of loans receivable

 

42,025 

 

27,035 

Proceeds from the sale of loans receivable

 

 -

 

89 

Additions to real estate held-for-investment

 

(2,042)

 

(15,692)

Additions to real estate held-for-sale

 

(277)

 

 -

Purchases of real estate held-for-sale

 

 -

 

(10,667)

Proceeds from sales of real estate held-for-sale

 

20,788 

 

35,770 

Purchases of properties and equipment

 

(1,916)

 

(2,292)

Proceeds from sales of properties and equipment

 

 -

 

314 

Investment in unconsolidated real estate joint ventures

 

(2,353)

 

(2,690)

Investment in Woodbridge Holdings, LLC

 

 -

 

(11,385)

Return of Woodbridge Holdings, LLC investment

 

 -

 

14,781 

Return of unconsolidated real estate joint ventures investment

 

4,388 

 

 -

Increase in other intangible assets

 

(540)

 

 -

Acquisitions of businesses, net of cash acquired

 

 -

 

(10)

Net cash provided by investing activities

 

61,155 

 

32,792 

Financing activities:

 

 

 

 

Repayment of BB&T preferred interest in FAR, LLC

 

 -

 

(12,348)

Proceeds from notes payable 

 

327 

 

4,997 

Repayment of notes payable to related parties

 

 -

 

(11,750)

Repayment of notes payable

 

(5,254)

 

(1,112)

Payments for debt issuance costs

 

 -

 

(48)

Noncontrolling interest contributions

 

664 

 

 -

Noncontrolling interest distributions

 

 -

 

(2,268)

Net cash used in financing activities

 

(4,263)

 

(22,529)

Increase (decrease) in cash and cash equivalents

 

51,226 

 

(2,948)

Cash and cash equivalents at the beginning of period

 

69,040 

 

58,819 

Cash and cash equivalents at the end of period

$

120,266 

 

55,871 



 

 

 

 

Cash paid for:

 

 

 

 

Interest on borrowings

$

365 

 

915 

Income taxes payments, net

 

 -

 

49 

Supplementary disclosure of non-cash investing and

 

 

 

 

financing activities:

 

 

 

 

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

 

 

 

 

withholding tax obligation

 

3,248 

 

2,529 

Loans receivable transferred to real estate

 

 

 

 

held-for-sale or real estate held-for-investment

 

4,612 

 

2,987 

Change in accumulated other comprehensive income

 

425 

 

220 

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

 

11,582 

 

38,707 

Transfer of real estate-held-for-sale to properties and equipment

 

6,557 

 

 -

Transfer of loans held-for-sale to loans receivable, net

 

16,078 

 

7,365 

Repayment of note payable with restricted time deposit

 

995 

 

 -

Fair value of net assets acquired in connection with business acquisitions

 

 -

 

1,683 

Issuance of notes payable to acquire businesses

 

 -

 

(1,389)





See Notes to Condensed Consolidated Financial Statements - Unaudited



 

6


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 



1.  Presentation of Interim Financial Statements

Basis of Financial Statement Presentation  BBX Capital Corporation together with its subsidiaries is referred to herein as “BBX Capital”, “we”, “us,” or “our” and is referred to herein without its subsidiaries as “BBX Capital Corporation”. BBX Capital is a Florida-based company involved in the acquisition, development, ownership and management of and investments in real estate and real estate development projects as well as operating businesses.  Prior to the sale of BankAtlantic to BB&T Corporation (“BB&T”) on July 31, 2012, BBX Capital Corporation was a bank holding company and its principal asset was the ownership of BankAtlantic.  The principal assets of BBX Capital currently consist of its 46% equity interest in Woodbridge Holdings, LLC (“Woodbridge”), investments in real estate joint ventures and operating businesses,  and legacy loans and real estate assets transferred to BBX Capital in connection with the sale of BankAtlantic.  

In April 2013, BBX Capital acquired a 46% equity interest in 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 190,000 owners.  BFC Financial Corporation (“BFC”), the controlling shareholder of BBX Capital, owns the remaining 54% of Woodbridge (see Note 2 - Investment in Woodbridge Holdings, LLC). 

In October 2013, Renin Holdings, LLC (“Renin”), a 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.

In December 2013, a wholly-owned subsidiary of BBX Capital, BBX Sweet Holdings, LLC, acquired Hoffman’s Chocolates (“Hoffman’s”).  Hoffman’s is a manufacturer of gourmet chocolates, with retail locations in South Florida.   



Subsequent to January 2014, BBX Sweet Holdings acquired manufacturers in the chocolate and candy industries serving wholesalers, boutique retailers, big box chains, department stores, national resort properties, corporate customers and private label brands.  The companies acquired were Williams and Bennett, Helen Grace Chocolates (“Helen Grace”), Jer’s Chocolates (“Jer’s”), Anastasia Confections (“Anastasia”) and Kencraft Confections, LLC (“Kencraft”).  In May 2015, BBX Sweet Holdings acquired a controlling interest in Droga Chocolates, LLC.  BBX Sweet Holdings has a 75% equity interest in Droga and Droga products are manufactured at the Kencraft facility.



In September 2016, BBX Capital entered into an area development agreement with MOD Super Fast Pizza, LLC with a goal of opening 50 MOD Super Fast Pizza franchise locations throughout Florida over the next seven years.  

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 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. The percentage of total common equity represented by Class A and Class B common stock was 99% and 1%, respectively, at September 30, 2016.  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 at any time at BFC’s discretion.



On September 30, 2016, 381,622 shares of restricted Class A common stock units granted to executive officers in September 2012 and September 2014 vested.  BBX Capital repurchased and retired an aggregate of 158,024 shares of the executive officers’ Class A common stock to satisfy the $3.2 million withholding tax obligations associated with the vesting of these shares. Between October 1, 2016 and October 5, 2016 104,872 shares of restricted Class A common stock units granted to executive officers in September 2015 vested.  BBX Capital repurchased and retired an aggregate of 43,749 shares of the executive officers’ Class A common stock to satisfy the $0.9 million withholding tax obligations associated with the vesting of these shares.

   

BBX Capital entered into a definitive merger agreement (the “Merger Agreement”) with BFC and BBX Merger Subsidiary LLC, a newly formed wholly owned subsidiary of BFC (“Merger Sub”) on July 27, 2016 and amended on October 20, 2016. The Merger Agreement provides for BBX Capital Corporation 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 has been approved by a special committee comprised of BBX Capital Corporation’s independent directors as well as the full boards of directors of both BFC and BBX Capital Corporation, each share of BBX Capital’s Class A Common Stock outstanding immediately prior to the effective time of the Merger (other than shares of BBX Capital’s Class A Common Stock held by BFC and shares of BBX Capital’s Class A Common Stock as

7


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

to which appraisal rights are exercised and perfected in accordance with Florida law) will be converted into the right to receive, at the election of the holder, 5.4 shares of BFC’s Class A Common Stock or $20.00 in cash for each share of BBX Class A Common Stock held by them.  BBX Capital’s shareholders will have the right to elect to receive all cash, all stock, or a combination of cash and stock in exchange for their shares. Each option to acquire shares of BBX Capital’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 of 5.4 shares of BFC’s Class A Common Stock for each share of BBX Capital’s Class A Common Stock subject to the option and the exercise price of the option will be divided by 5.4. In addition, each share of BBX Capital’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 of 5.4 shares of BFC’s Class A Common Stock for each share of BBX Capital’s Class A Common Stock subject to the award.  Consummation of the Merger is subject to certain closing conditions, including, without limitation, (i) the approval of the Merger Agreement by (a) holders of shares of BBX Capital’s Class A Common Stock and Class B Common Stock representing a majority of the votes entitled to be cast on the Merger Agreement, and  (b) holders of a majority of the shares of BBX Capital’s Class A Common Stock voted on the Merger Agreement other than shares held by BFC and its affiliates and (ii) unless waived by BFC and BBX Capital, any litigation or threatened litigation against BFC or BBX Capital Corporation or their affiliates relating to the Merger shall be resolved to the satisfaction of BFC and BBX Capital Corporation or the holders of at least 2,250,000 shares of BBX Capital’s Class A Common Stock shall execute a waiver and release irrevocably waiving the right to participate in, or receive any proceeds from, any shareholder class action lawsuit relating to the Merger and releasing BFC, BBX Capital and their affiliates from any claims arising out of the Merger Agreement other than with respect to appraisal rights or the right to receive the Merger consideration. Pursuant to the Merger Agreement, BFC has agreed to vote all of BBX Capital’s Class A Common Stock and Class B Common Stock owned by it in favor of the Merger Agreement. Accordingly, approval of the Merger Agreement with respect to the combined vote of the holders of BBX Capital’s Class A Common Stock and Class B Common Stock described under clause (i)(a) above is assured. There is no assurance that the approval of the unaffiliated shareholders will be received. The Merger is also conditioned, unless waived, on holders of not more than 150,000 shares of BBX Capital’s Class A Common Stock exercising appraisal rights and the absence of any “Material Adverse Effect” (as defined in the Merger Agreement)  with respect to either BFC or BBX Capital. The Merger is not subject to a financing condition. There is no assurance that the conditions to completing the Merger will be satisfied or waived, or that the Merger will be otherwise consummated in the anticipated time frame, on the proposed terms, or at all.



A lawsuit seeking to establish a class of BBX Capital’s shareholders and challenging the Merger is pending in the 17th Judicial Circuit in and for Broward County, Florida. The lawsuit alleges, among other things, that the proposed Merger consideration undervalues BBX Capital and is unfair to BBX Capital’s public shareholders and that BBX Capital’s directors and BFC breached certain fiduciary duties to BBX Capital’s public shareholders. The lawsuit seeks to enjoin the Merger or, if it is completed, to rescind the Merger or recover relief as determined by the court. BFC and BBX Capital believe that the lawsuit is without merit and intend to vigorously defend the action. See Note 10 and “Part II, Item 1 – Legal Proceedings” of this report for additional information regarding this lawsuit.  BFC and BBX Capital have also received letters threatening additional litigation relating to the Merger.



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



The accompanying unaudited condensed consolidated financial statements of BBX Capital have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they 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 (consisting only of normal recurring adjustments) as are necessary for a fair statement of BBX Capital's condensed consolidated statement of financial condition at September 30, 2016, the condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2016 and 2015, and the condensed consolidated statements of total equity and statements of cash flows for the nine months ended September 30, 2016 and 2015. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of results of operations that may be expected for the subsequent interim period during 2016 or for the year ended December 31, 2016.  The condensed 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, 2015.

Basic earnings per share excludes dilution and is computed by dividing net income attributable to BBX Capital by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential

8


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

dilution that could occur if options to issue common shares were exercised or restricted stock units of BBX Capital were to vest. In calculating diluted earnings per share, net income attributable to BBX Capital is divided by the weighted average number of common shares. Options and restricted stock units 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, 2016, options to acquire 6,614 shares of Class A common stock were anti-dilutive and excluded from diluted earnings per share.  During the three and nine months ended September 30, 2015, options to acquire 10,323 shares of Class A common stock were anti-dilutive and excluded from diluted earnings per share.



Recently Adopted Accounting Pronouncements



As of January 1, 2016, BBX Capital adopted Accounting Standards Update (“ASU”) Number 2015-03 –– Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs as amended by ASU 2015-15.  ASU 2015-03 requires debt issuance costs related to recognized debt liabilities to be presented in the statement of financial condition as a direct deduction from the debt liability rather than an asset. However, ASU 2015-03 also permits presentation of debt issuance costs on line-of-credit arrangements as assets. Accordingly, as of September 30, 2016, approximately $23,000 of deferred debt issuance costs was presented as a direct deduction within Notes Payable on BBX Capital's Condensed Consolidated Statement of Financial Condition. Additionally, BBX Capital reclassified $36,000 of deferred debt issuance costs from Other Assets to Notes Payable as of December 31, 2015. Debt issuance costs for line-of-credit arrangements of $257,000 and $306,000 were included in other assets in BBX Capital’s Condensed Consolidated Statement of Financial Condition as of September 30, 2016 and December 31, 2015, respectively.



As of January 1, 2016, BBX Capital adopted ASU 2015-02 – Amendments to the Consolidation Analysis (Topic 810). ASU 2015-02 changed the manner in which a reporting entity assesses one of the five characteristics that determines if an entity is a variable interest entity.  In particular, when decision-making over the entity’s most significant activities has been outsourced, the update changes how a reporting entity assesses if the equity holders at risk lack decision making rights. The update also introduces a separate analysis specific to limited partnerships and similar entities for assessing if the equity holders at risk lack decision making rights.  The adoption of this update on January 1, 2016 did not have a material impact on BBX Capital’s consolidated financial statements.



New Accounting Pronouncements:



The FASB has recently issued the following accounting pronouncements and guidance relevant to the preparation of BBX Capital’s financial statements. (See BBX Capital’s Annual Report on Form 10-K for the year ended December 31, 2015 for accounting pronouncements issued prior to March 31, 2016 relevant to BBX Capital’s operations):



Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. This ASU presents guidance on the classification of certain cash receipts and payments with the objective of reducing the existing diversity in current practice. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted in any interim or annual period.  BBX Capital is currently evaluating the requirements of this update and has not yet determined its impact on BBX Capital’s consolidated financial statements.



Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. The ASU changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded.  The ASU sets forth a “current expected credit loss” (CECL) model which requires BBX Capital to measure expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years BBX Capital is currently evaluating the requirements of this update and has not yet determined the impact it may have on its consolidated financial statements.



Accounting Standards Update (ASU) No. 2016-09 – Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting.  This update simplifies various aspects related to how share-based payments are accounted for and presented in the financial statements including income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016 and interim periods within the reporting period.  Early adoption is permitted in any interim or annual period.  The adoption of this update is not expected to have a material impact on BBX Capital’s consolidated financial statements.



9


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

Accounting Standards Update (ASU) No.  2016-07 –– Investments – Equity Method and Joint Ventures (Topic 323) – Simplifying the Transition to the Equity Method of Accounting. This update eliminates retroactive adjustments for an investment that qualifies for the use of the equity method as a result of an increase in the level of ownership interest associated with an existing investment.  The amendment requires that the equity method investor add the cost of acquiring the additional interest to the current investment and adopt the equity method on the date that the investment becomes qualified for equity method accounting. The amendments in this update are effective for fiscal years beginning after December 15, 2016.  Early adoption is permitted.  The adoption of this update is not expected to have a material impact on BBX Capital’s consolidated financial statements.



Accounting Standards Update (ASU) No. 2014-09 –  Revenue Recognition (Topic 606): Revenue from Contracts with Customers. This guidance is intended to improve the financial reporting requirements for revenue from contracts with customers by providing a principle based approach. It also requires disclosures designed to enable readers of financial statements to better understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Further, in March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net), in April and May 2016, the FASB issued ASU 2016-10 and 2016-12, respectively, Revenue from Contracts with Customers (Topic 606) and also in May 2016 the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivative and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-19. These updates clarify implementation guidance on the related topic. The accounting guidance updates will replace most existing revenue recognition guidance in GAAP. The standard is effective for annual and interim reporting periods beginning after December 15, 2017.  Earlier adoption is permitted only for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  BBX Capital is currently evaluating the requirements of these updates and has not yet determined their impact on its consolidated financial statements. 



 

2.    Investment in Woodbridge Holdings, LLC



On April 2, 2013, BBX Capital 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 majority member of Woodbridge. Since BFC is the majority owner of Woodbridge, BBX Capital’s investment in Woodbridge is accounted for under the equity method. In connection with BBX Capital’s investment in Woodbridge, BBX Capital and BFC entered into an Amended and Restated Operating Agreement of Woodbridge, which sets forth BBX Capital’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 BBX Capital’s and BFC’s percentage equity interests in Woodbridge.



The following is activity related to BBX Capital’s investment in Woodbridge, which is accounted for under the equity method (in thousands):









 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30,

 

September 30,



 

2016

 

2015

 

2016

 

2015



 

 

 

 

 

 

 

 

Investment in Woodbridge - beginning of period

$

76,631 

 

62,496 

 

75,545 

 

73,026 

Additional investment in Woodbridge

 

 -

 

11,385 

 

 -

 

11,385 

Equity in earnings of Woodbridge

 

10,307 

 

10,306 

 

22,101 

 

5,941 

Dividends received from Woodbridge

 

(8,786)

 

(14,557)

 

(19,494)

 

(20,722)

Investment in Woodbridge - end of period

$

78,152 

 

69,630 

 

78,152 

 

69,630 



10


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

The Condensed Consolidated Statements of Financial Condition as of the dates indicated of Woodbridge were as follows (in thousands):









 

 

 

 



 

 

 

 



 

As of



 

September 30,

 

December 31,



 

2016

 

2015

Assets

 

 

 

 

Cash and restricted cash

$

182,831 

 

172,758 

Notes receivable, net

 

424,533 

 

415,598 

Notes receivable from related parties

 

80,000 

 

80,000 

Inventory of real estate

 

227,688 

 

220,211 

Properties and equipment, net

 

71,815 

 

71,937 

Intangible assets, net

 

61,806 

 

61,977 

Other assets

 

66,976 

 

61,794 

  Total assets

$

1,115,649 

 

1,084,275 

Liabilities and Equity

 

 

 

 

Accounts payable, accrued liabilities and other

$

123,679 

 

113,473 

Deferred tax liabilities, net

 

140,261 

 

110,202 

Notes payable

 

488,245 

 

503,521 

Junior subordinated debentures

 

151,976 

 

150,485 

  Total liabilities

 

904,161 

 

877,681 

  Total Woodbridge members' equity

 

169,063 

 

163,397 

Noncontrolling interest

 

42,425 

 

43,197 

  Total equity

 

211,488 

 

206,594 

  Total liabilities and equity

$

1,115,649 

 

1,084,275 





The Condensed Consolidated Statements of Operations of Woodbridge were as follows (in thousands):











 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30,

 

September 30,



 

2016

 

2015

 

2016

 

2015

Total revenues

$

180,633 

 

175,861 

 

495,724 

 

458,365 

Total costs and expenses

 

143,009 

 

135,766 

 

411,703 

 

405,811 

Other income

 

926 

 

1,089 

 

1,075 

 

3,278 

Income before taxes

 

38,550 

 

41,184 

 

85,096 

 

55,832 

Provision for income taxes

 

14,369 

 

15,048 

 

30,473 

 

33,575 

Net income

 

24,181 

 

26,136 

 

54,623 

 

22,257 

Net income attributable to noncontrolling interest

 

(1,775)

 

(3,732)

 

(6,578)

 

(9,343)

Net income attributable to Woodbridge

 

22,406 

 

22,404 

 

48,045 

 

12,914 

BBX Capital 46% equity in earnings of Woodbridge

$

10,307 

 

10,306 

 

22,101 

 

5,941 









 





11


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

3.  Investments in Unconsolidated Real Estate Joint Ventures



BBX Capital had the following investments in unconsolidated real estate joint ventures (in thousands):





 

 

 

 



 

 

 

 



 

September 30,

 

December 31,

Investment in unconsolidated real estate joint ventures

 

2016

 

2015

Altis at Kendall Square, LLC

$

705 

 

764 

Altis at Lakeline - Austin Investors LLC

 

5,201 

 

5,210 

New Urban/BBX Development, LLC

 

903 

 

864 

Sunrise and Bayview Partners, LLC

 

1,566 

 

1,577 

Hialeah Communities, LLC

 

2,947 

 

4,569 

PGA Design Center Holdings, LLC

 

1,857 

 

1,911 

CCB Miramar, LLC

 

875 

 

875 

Centra Falls, LLC

 

706 

 

727 

The Addison on Millenia Investment, LLC

 

5,868 

 

5,778 

BBX/S Millenia Blvd Investments, LLC

 

4,983 

 

4,905 

Altis at Bonterra - Hialeah, LLC

 

17,375 

 

15,782 

Altis at Shingle Creek Manager, LLC

 

332 

 

 -

Investments in unconsolidated real estate joint ventures

$

43,318 

 

42,962 



BBX Capital’s investments in unconsolidated real estate joint ventures are accounted for as variable interest entities.



The amount of interest capitalized in investments in unconsolidated real estate joint ventures associated with joint venture real estate development activities for the three and nine months ended September 30, 2016 was $275,000 and $608,000, respectively, and for the three and nine months ended September 30, 2015 was $131,000 and $359,000, respectively.



BBX Capital received $5.0 million and $6.6 million of distributions from unconsolidated real estate joint ventures for the three and nine months ended September 30, 2016, respectively.



The condensed Statements of Operations for the three and nine months ended September 30, 2016 and 2015 for all the above listed equity method joint ventures in the aggregate was as follows (in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30,

 

September 30,



 

2016

 

2015

 

2016

 

2015

Total revenues

$

11,726 

 

1,051 

 

17,980 

 

2,088 

Total costs and expenses

 

(4,109)

 

(1,075)

 

(9,136)

 

(3,463)

Net earnings (loss)

$

7,617 

 

(24)

 

8,844 

 

(1,375)

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

$

4,480 

 

(158)

 

5,793 

 

(753)



See Note 6 to the Consolidated Financial Statements included in BBX Capital’s Annual Report on Form 10-K for the year ended December 31, 2015 for information on investments in BBX Capital’s unconsolidated real estate joint ventures.













12


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

4.  Loans Held-for-Sale and Loans Receivable



BBX Capital’s loans held-for-sale and loans receivable portfolios consisted of the following components (in thousands):



 

 

 

 



 

 

 

 



 

September 30,

 

December 31,



 

2016

 

2015



 

 

 

 

Loans held-for-sale

$

 -

 

21,354 



 

 

 

 

Commercial non-real estate

$

1,190 

 

11,250 

Commercial real estate

 

7,879 

 

16,294 

Small business

 

2,645 

 

4,054 

Consumer

 

1,907 

 

2,368 

Residential

 

14,995 

 

69 

         Loans receivable, net

$

28,616 

 

34,035 



As of September 30, 2016, foreclosure proceedings were in-process on $10.2 million of residential loans and $0.3 million of consumer loans.



Loans held-for-sale are reported at the lower of cost or fair value measured on an aggregate basis.  As of December 31, 2015 the lower of cost or fair value adjustment on loans held-for-sale was $1.6 million. BBX Capital transfers loans from held-for-sale to loans receivable when, based on the current economic environment and related market conditions, it has the intent to hold those loans for the foreseeable future. As of June 30, 2016, based on then current market conditions and an evaluation of the residential loan portfolio, BBX Capital transferred residential loans held-for-sale with aggregate unpaid principal balances, net of charge-offs, of $17.3 million from loans held-for-sale to loans receivable. The lower of cost or fair value of the residential loans on the transfer date was $16.1 million. Any difference between the lower of cost or fair value of the loan and the unpaid principal balance net of charge-offs was recognized as a discount.



The total discount on loans receivable was $3.6 million and $3.3 million as of September 30, 2016 and December 31, 2015, respectively.  



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





 

 

 

 



 

 

 

 



 

September 30,

 

December 31,

Loan Class

 

2016

 

2015

Commercial non-real estate

$

1,190 

 

1,250 

Commercial real estate

5,952 

 

9,639 

Small business

 

2,645 

 

4,054 

Consumer

 

1,809 

 

2,368 

Residential

 

13,569 

 

69 

Total nonaccrual loans

$

25,165 

 

17,380 



13


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

An age analysis of the past due recorded investment in loans receivable as of September  30, 2016 and December 31, 2015 was as follows (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Total



 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

September 30, 2016

 

Past Due

 

Past Due

 

or More (1)

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

 -

 

 -

 

330 

 

330 

 

860 

 

1,190 

Commercial real estate

 

 -

 

 -

 

3,986 

 

3,986 

 

3,893 

 

7,879 

Small business

 

68 

 

 -

 

56 

 

124 

 

2,521 

 

2,645 

Consumer

 

 -

 

12 

 

557 

 

569 

 

1,338 

 

1,907 

Residential

 

520 

 

22 

 

10,302 

 

10,844 

 

4,151 

 

14,995 

Total

$

588 

 

34 

 

15,231 

 

15,853 

 

12,763 

 

28,616 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Total



 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

December 31, 2015

 

Past Due

 

Past Due

 

or More (1)

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

 -

 

 -

 

329 

 

329 

 

10,921 

 

11,250 

Commercial real estate

 

 -

 

 -

 

3,986 

 

3,986 

 

12,308 

 

16,294 

Small business:

 

 -

 

205 

 

 -

 

205 

 

3,849 

 

4,054 

Consumer

 

316 

 

138 

 

562 

 

1,016 

 

1,352 

 

2,368 

Residential

 

 -

 

24 

 

42 

 

66 

 

 

69 

Total

$

316 

 

367 

 

4,919 

 

5,602 

 

28,433 

 

34,035 



 (1)  BBX Capital had no loans that were 90 days or more past due and still accruing interest as of September 30, 2016 and December 31, 2015.



The activity in the allowance for loan losses for the three and nine months ended September  30, 2016 and 2015 was as follows (in thousands): 



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months

 

For the Nine Months



 

Ended September 30,

 

Ended September 30,

Allowance for Loan Losses:

2016

 

2015

 

2016

 

2015

Beginning balance

$

 -

 

172 

 

 -

 

977 

    Charge-offs :

 

(48)

 

(97)

 

(144)

 

(993)

     Recoveries :

 

10,992 

 

4,352 

 

19,123 

 

14,872 

     Provision :

 

(10,944)

 

(4,427)

 

(18,979)

 

(14,856)

Ending balance

$

 -

 

 -

 

 -

 

 -

Ending balance individually evaluated for impairment

$

 -

 

 -

 

 -

 

 -

Ending balance collectively evaluated for impairment

 

 -

 

 -

 

 -

 

 -

Total

$

 -

 

 -

 

 -

 

 -

Loans receivable:

 

 

 

 

 

 

 

 

Ending balance individually evaluated for impairment

$

22,356 

 

14,475 

 

22,356 

 

14,475 

Ending balance collectively evaluated for impairment

 

6,260 

 

13,225 

 

6,260 

 

13,225 

Total

$

28,616 

 

27,700 

 

28,616 

 

27,700 

Proceeds from loan sales

$

 -

 

 -

 

 -

 

89 

Transfer from loans held-for-sale

$

 -

 

 -

 

16,078 

 

7,365 



Impaired Loans -  Loans are considered impaired when, based on current information and events, BBX Capital believes it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impairment is evaluated based on past due status for consumer and residential loans.  Impairment is evaluated for commercial and small business loans based on past payment history, financial strength of the borrower or guarantors, and cash flow associated with the collateral or business.  Collateral dependent impaired loans are charged down to the fair value of collateral less cost to sell. Interest payments on impaired loans are recognized on a cash basis as interest income.  Impaired loans, or portions thereof, are charged off when deemed uncollectible. 



14


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

Impaired loans as of September 30, 2016 and December 31, 2015 were as follows (in thousands):





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

As of September 30, 2016

 

As of December 31, 2015



 

 

Unpaid

 

 

 

Unpaid

 



 

Recorded

Principal

Related

 

Recorded

Principal

Related



 

Investment

Balance

Allowance

 

Investment

Balance

Allowance



 

 

 

 

 

 

 

 

Total with allowance recorded

$

 -

 -

 -

 

 -

 -

 -

Total with no allowance recorded

 

25,338  42,086 

 -

 

17,380  30,212 

 -

Total

$

25,338  42,086 

 -

 

17,380  30,212 

 -



Average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2016 were as follows (in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30, 2016

 

September 30, 2016



 

Average Recorded

Interest Income

 

Average Recorded

Interest Income



 

Investment

Recognized

 

Investment

Recognized

Total with allowance recorded

$

 -

 -

 

 -

 -

Total with no allowance recorded

 

25,731  189 

 

24,573  566 

Total

$

25,731  189 

 

24,573  566 



Average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2015 were as follows (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30, 2015

 

September 30, 2015



 

Average Recorded

Interest Income

 

Average Recorded

Interest Income



 

Investment

Recognized

 

Investment

Recognized

Total with allowance recorded

$

 -

 -

 

45 

Total with no allowance recorded

 

21,015  271 

 

23,367  974 

Total

$

21,015  271 

 

23,412  977 

Impaired loans without valuation allowances represent loans that were written-down to the fair value of the collateral less cost to sell, loans in which the collateral value less cost to sell was greater than the carrying value of the loan, loans in which the present value of the cash flows discounted at the loans’ effective interest rate was equal to or greater than the carrying value of the loans, or loans that were collectively measured for impairment.



BBX Capital had no commitments to lend additional funds on impaired loans as of September 30, 2016.







5.  Real Estate Held-for-Investment and Real Estate Held-for-Sale



While BBX Capital has in the past acquired certain real estate parcels, BBX Capital’s real estate has been primarily acquired through foreclosures, settlements, or deeds in lieu of foreclosure.  Upon acquisition, real estate is classified as real estate held-for-sale or real estate held-for-investment. Real estate is classified as held-for-sale when the property is available for immediate sale in its present condition, management commits to a plan to sell the property, an active program to locate a buyer has been initiated, the property is being marketed at a price that is reasonable in relation to its current fair value and it is likely that a sale will be completed within one year. When the property does not meet the real estate held-for-sale criteria, the real estate is classified as held-for-investment.



15


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

The following table presents real estate held-for-sale grouped in the following classifications (in thousands):





 

 

 

 



 

 

 

 



 

As of



 

September 30, 2016

 

December 31, 2015

Real estate held-for-sale

 

 

 

 

Land

$

30,111 

 

25,994 

Rental properties

 

1,748 

 

17,162 

Residential single-family

 

3,840 

 

2,924 

Other

 

30 

 

258 

Total real estate held-for-sale

$

35,729 

 

46,338 



The following table presents real estate held-for-investment grouped in the following classifications (in thousands):





 

 

 

 



 

 

 

 



 

As of



 

September 30, 2016

 

December 31, 2015

Real estate held-for-investment

 

 

 

 

Land

$

20,830 

 

30,369 

Other

 

890 

 

921 

Total real estate held-for-investment

$

21,720 

 

31,290 





The amount of interest capitalized to land held-for-investment associated with real estate development improvements for the three and nine months ended September 30, 2015 was $275,000 and $706,000, respectively.  There was no interest capitalized to land held-for-investment for the three or nine months ended September 30, 2016.



The following table presents the activity in real estate held-for-sale and held-for-investment for the three and nine months ended September 30, 2016 (in thousands):

   



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30, 2016

 

September 30, 2016



 

Real Estate

 

Real Estate



 

Held-for-Sale

 

Held-for-Investment

 

Held-for-Sale

 

Held-for-Investment

Beginning of period, net

$

32,854 

 

30,046 

 

46,338 

 

31,290 

Acquired through foreclosure

 

949 

 

 -

 

4,612 

 

 -

Transfers

 

8,542 

 

(8,542)

 

11,582 

 

(11,582)

Transfers to property and equipment

 

 -

 

 -

 

(6,557)

 

 -

Improvements

 

52 

 

226 

 

277 

 

2,042 

Accumulated depreciation

 

 -

 

(10)

 

 -

 

(30)

Sales

 

(6,528)

 

 -

 

(17,635)

 

 -

Impairments, net

 

(140)

 

 -

 

(2,888)

 

 -

End of period, net

$

35,729 

 

21,720 

 

35,729 

 

21,720 





16


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

The following table presents the activity in real estate held-for-sale and held-for-investment for the three and nine months ended September 30, 2015 (in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30, 2015

 

September 30, 2015



 

Real Estate

 

Real Estate



 

Held-for-Sale

 

Held-for-Investment

 

Held-for-Sale

 

Held-for-Investment

Beginning of period, net

$

38,626 

 

83,974 

 

41,733 

 

76,552 

Acquired through foreclosure

 

560 

 

 -

 

2,987 

 

 -

Transfers

 

35,135 

 

(35,135)

 

38,707 

 

(38,707)

Purchases

 

 -

 

 -

 

10,667 

 

 -

Improvements

 

 -

 

4,910 

 

 -

 

16,398 

Accumulated depreciation

 

 -

 

(132)

 

 -

 

(377)

Sales

 

(1,136)

 

 -

 

(20,541)

 

 -

Impairments, net

 

(546)

 

(117)

 

(914)

 

(366)

End of period, net

$

72,639 

 

53,500 

 

72,639 

 

53,500 





The following table presents the real estate held-for-sale valuation allowance activity for the three and nine months ended September 30, 2016 and 2015 (in thousands):





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30,

 

September 30,



 

2016

 

2015

 

2016

 

2015

Beginning of period

$

6,917 

 

2,532 

 

4,400 

 

2,940 

Transfer to held-for-investment

 

 -

 

 -

 

 -

 

(93)

Impairments, net (1)

 

140 

 

546 

 

2,888 

 

844 

Sales

 

(43)

 

(110)

 

(274)

 

(723)

End of period

$

7,014 

 

2,968 

 

7,014 

 

2,968 

(1)

Tax certificate impairments are not included

  

  

  



6.   Inventories



Inventories were as follows (in thousands):





 

 

 

 



 

 

 

 



 

September 30,

 

December 31,



 

2016

 

2015

Raw materials

$

5,376 

 

5,822 

Paper goods and packaging materials

 

3,032 

 

4,504 

Finished goods

 

9,781 

 

6,021 

Total

$

18,189 

 

16,347 



Inventories consisted of  $10.6 million at Renin and $7.6 million at BBX Sweet Holdings as of September 30, 2016, and $8.4 million at Renin and $7.9 million at BBX Sweet Holdings as of December 31, 2015.  Shipping and handling fees billed to the customers were recorded as trade sales and shipping and handling fees paid by BBX Capital were recorded as selling, general, and administrative expenses.  Included in BBX Capital’s Condensed Consolidated Statements of Operations as selling, general, and administrative expenses for the three and nine months ended September 30, 2016 were $1.4 million and $3.9 million, respectively, of costs associated with shipping goods to customers. Included in BBX Capital’s Condensed 

17


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

Consolidated Statements of Operations as selling, general, and administrative expenses for the three and nine months ended September  30, 2015  were $1.4 million and $3.9 million, respectively, of costs associated with shipping goods to customers.    



Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first out method.  In valuing inventory, BBX Capital makes assumptions regarding the reserves required for excess and obsolete inventory based on judgments and estimates formulated from available information. BBX Capital’s estimates for excess and obsolete inventory are based on historical and forecasted usage. Inventory is also examined for upcoming expiration and reserves  are recorded where appropriate. Reserves for lower of cost or market value for expiring, shrinkage and excess and obsolete inventory were $2.6 million and $1.1 million as of September 30, 2016 and December 31, 2015, respectively, and included in costs of goods sold was $238,000  and $3.4 million of inventory write-downs for the three and nine months ended September 30, 2016, respectively.    

 



 

7.   Related Parties



BBX Capital, BFC and Bluegreen are entities under common control. The controlling shareholder of BBX Capital and Bluegreen is BFC.  Shares of BFC’s capital stock representing a majority of the voting power are owned or controlled by Alan Levan, BBX Capital’s Chairman until December 23, 2015 and Jack Abdo, BBX Capital’s Vice Chairman. Alan Levan was also previously chairman of BFC and Bluegreen. Mr. Abdo currently serves as Vice Chairman of BFC and Acting Chairman of Bluegreen. Alan Levan is currently a non-executive employee of Bluegreen, BBX Capital and BFC.  Mr. Jarett Levan, son of Alan Levan, is currently serving as BBX Capital’s acting CEO and Chairman.  BBX Capital, BFC and Bluegreen share certain office premises and employee services, pursuant to the agreements described below.



Effective December 1, 2012, BBX Capital entered into an agreement with BFC pursuant to which BBX Capital provides office facilities to BFC and is reimbursed by BFC based on cost. BFC also provides risk management services to BBX Capital and BFC is reimbursed by BBX Capital based on cost.  During the three and nine months ended September 30, 2015, BBX Capital’s employees were provided health insurance under policies maintained by Bluegreen for which Bluegreen was reimbursed at cost. Beginning January 1, 2016, BBX Capital employees have been provided health insurance through health insurance policies maintained by BBX Capital.



The table below shows the effect of these related party agreements and arrangements on BBX Capital’s Condensed Consolidated Statements of Operations for the three and nine months ended September  30, 2016 and 2015 (in thousands):





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30,

 

September 30,



 

2016

 

2015

 

2016

 

2015

Other revenues

$

101 

 

105 

 

298 

 

300 

Expenses:

 

 

 

 

 

 

 

 

 Employee compensation and benefits

 

 -

 

(328)

 

 -

 

(809)

 Other - back-office support

 

(54)

 

(74)

 

(146)

 

(157)

Net effect of affiliate transactions

 

 

 

 

 

 

 

 

 before income taxes

$

47 

 

(297)

 

152 

 

(666)



As disclosed in Note 2, on April 2, 2013, BBX Capital 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 of the publicly held shares of Bluegreen. BFC holds the remaining 54% of Woodbridge.  BBX Capital contributed $60 million in cash and issued to Woodbridge an $11.75 million note payable in connection with BBX Capital’s acquisition of its 46% equity interest in Woodbridge.  During September 2015, in connection with the settlement of the Bluegreen shareholder litigation, the $11.75 million Woodbridge note payable was paid-in-full.  During the three month periods ended September 30,  2016 and 2015,  BBX Capital recognized $0 and $124,000, respectively, of interest expense in connection with the Woodbridge note payable. During the nine month periods ended September 30,  2016 and 2015,  BBX Capital recognized $0 and $420,000, respectively, of interest expense in connection with the Woodbridge note payable.



On May 8, 2015, BFC, BBX, Woodbridge, Bluegreen and their respective subsidiaries entered into an “Agreement to Allocate Consolidated Income Tax Liability and Benefits” pursuant to which, among other customary terms and conditions, the parties agreed to file consolidated federal tax returns. The parties will calculate their respective income tax liabilities and attributes as if each of them were a separate filer.  If any tax attributes are used by another party to the

18


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

agreement to offset its tax liability, the party providing the benefit will receive an amount for the tax benefits realized.  There were no tax sharing agreement payments or receipts during the three and nine months ended September 30, 2016 and 2015, respectively. 



On July 27, 2016, BBX Capital entered into the Merger Agreement with BFC and a wholly-owned subsidiary of BFC which provides for BBX Capital to merge with and into the BFC subsidiary and become a wholly-owned subsidiary of BFC.  See Note 1 for a description of the Merger Agreement.

 





8.   Segment Reporting



The information provided for segment reporting is based on internal reports utilized by management. Results of operations are reported through three reportable segments: BBX, Renin and Sweet Holdings.



The BBX reportable segment activities consist of managing its commercial loan portfolio and real estate properties, the portfolio of charged off loans, its investment in Woodbridge and investments in real estate joint ventures.  The activities of managing the commercial loan portfolios included renewing, modifying, collecting, extending, refinancing and making protective advances on these loans, as well as managing and liquidating real estate properties acquired through foreclosure.



The Renin reportable segment consists of the activities of Renin. Total revenues for the Renin reportable segment include $7.0 million and $5.7 million of trade sales to two major customers and their affiliates for the three months ended September 30, 2016 and 2015, respectively.  Renin’s revenues generated outside of the United States totaled $5.0 million and $5.5 million for the three months ended September 30, 2016 and 2015, respectively.   Total revenues for the Renin reportable segment include $18.3 million and $18.6 million of trade sales to two major customers and their affiliates for the nine months ended September 30, 2016 and 2015, respectively. Renin’s revenues generated outside of the United States totaled $16.1 million and $17.0 million for the nine months ended September 30, 2016 and 2015, respectively.  Renin’s properties and equipment located outside the United States totaled $1.2 million as of September 30, 2016 and as of December 31, 2015.

The Sweet Holdings reportable segment consists of the activities of the acquired operating businesses of Hoffman’s, Williams & Bennett, Jer’s, Helen Grace,  Anastasia, Droga and Kencraft for the three and nine months ended September  30, 2016 and the three months ended September 30, 2015.  Kencraft was acquired on April 1, 2015 and Droga was acquired in May 2015. The activities of Kencraft and Droga are included in Sweet Holdings operating results from the respective dates of acquisition.



In June 2016, the Jer’s sales office and distribution facilities were closed and relocated to Kencraft’s facilities in Utah.  The relocation resulted in the termination of key employees including a sales representative and the President of Jer’s.  Based on the changes in circumstances, management performed an impairment analysis on Jer’s long-lived assets consisting of trademarks, customer relationships and properties and equipment. As a result, BBX Capital recognized an impairment loss of  $423,000 included in selling, general and administrative expenses in BBX Capital’s Condensed Consolidated Statements of Operations for the nine months ended September 30, 2016. 

The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies.  Intersegment transactions are eliminated in consolidation.  Certain intercompany management fees and interest income/expense for prior periods have been reclassified to conform to the 2016 presentation.

Depreciation and amortization consist of depreciation on properties and equipment and amortization of leasehold improvements, intangible assets and deferred financing costs.



BBX Capital evaluates segment performance based on segment net income after tax. The tables below provide segment information for the three and nine months ended September  30, 2016 and 2015 (in thousands):









19


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Adjusting

 

 



 

 

 

 

 

 

 

and

 

 



 

 

 

 

 

Sweet

 

Elimination

 

Segment

For the Three Months Ended:

 

BBX

 

Renin

 

Holdings

 

Entries

 

Total

September 30, 2016:

 

 

 

 

 

 

 

 

 

 

Interest income

$

1,313 

 

 -

 

 

 -

 

1,321 

Other revenues

 

6,304 

 

15,624 

 

6,455 

 

 -

 

28,383 

Total revenues

 

7,617 

 

15,624 

 

6,463 

 

 -

 

29,704 

Interest expense

 

 -

 

(62)

 

(86)

 

276 

 

128 

Recoveries from loan losses, net

 

10,944 

 

 -

 

 -

 

 -

 

10,944 

Asset impairments

 

30 

 

 -

 

 -

 

 -

 

30 

Other costs and expenses

 

(8,925)

 

(15,926)

 

(9,144)

 

 -

 

(33,995)

Total costs and expenses

 

2,049 

 

(15,988)

 

(9,230)

 

276  (1) (22,893)

Equity in earnings of unconsolidated companies

 

14,787 

 

 -

 

 -

 

 -

 

14,787 

Foreign exchange gain

 

 -

 

 

 -

 

 -

 

Segment income (loss) before income taxes

 

24,453 

 

(359)

 

(2,767)

 

276 

 

21,603 

Provision  for income tax

 

 

 -

 

 

 -

 

Net income (loss)

$

24,451 

 

(359)

 

(2,770)

 

276 

 

21,598 

Total assets

$

675,641 

 

27,632 

 

38,542 

 

(334,603)

 

407,212 

Equity method investments

 

 

 

 

 

 

 

 

 

 

 included in total assets

$

121,470 

 

 -

 

 -

 

 -

 

121,470 

Expenditures for segment assets

$

112 

 

57 

 

241 

 

 -

 

410 

Depreciation and amortization

$

279 

 

168 

 

506 

 

 -

 

953 



(1)

Includes a reconciling item of $276,000 associated with capitalized interest on real estate development and joint venture activities in excess of interest expense incurred in the BBX reportable segment for the three months ended September 30, 2016.



20


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Adjusting

 

 



 

 

 

 

 

 

 

and

 

 



 

 

 

 

 

Sweet

 

Elimination

 

Segment

For the Nine Months Ended:

 

BBX

 

Renin

 

Holdings

 

Entries

 

Total

September 30, 2016:

 

 

 

 

 

 

 

 

 

 

Interest income

$

3,293 

 

 -

 

 

 -

 

3,301 

Other revenues

 

9,817 

 

45,922 

 

18,375 

 

 -

 

74,114 

Total revenues

 

13,110 

 

45,922 

 

18,383 

 

 -

 

77,415 

Interest expense

 

(2)

 

(204)

 

(402)

 

608 

 

 -

Recoveries from loan losses, net

 

18,979 

 

 -

 

 -

 

 -

 

18,979 

Asset impairments

 

(1,692)

 

 -

 

 -

 

 -

 

(1,692)

Other costs and expenses

 

(28,345)

 

(45,589)

 

(29,768) (2)

 -

 

(103,702)

Total costs and expenses

 

(11,060)

 

(45,793)

 

(30,170)

 

608  (1) (86,415)

Equity in earnings of unconsolidated companies

 

27,894 

 

 -

 

 -

 

 -

 

27,894 

Foreign exchange gain

 

 -

 

325 

 

 -

 

 -

 

325 

Segment income (loss) before income taxes

 

29,944 

 

454 

 

(11,787)

 

608 

 

19,219 

Provision for income tax

 

 

 -

 

 

 -

 

Net income (loss)

$

29,942 

 

454 

 

(11,790)

 

608 

 

19,214 

Expenditures for segment assets

$

601 

 

330 

 

985 

 

 -

 

1,916 

Depreciation and amortization

$

712 

 

501 

 

1,445 

 

 -

 

2,658 



(1)

Includes a reconciling item of $608,000 associated with capitalized interest on real estate development and joint venture activities in excess of interest expense incurred in the BBX reportable segment for the nine months ended September 30, 2016.

(2)

Included in Sweet Holdings “other costs and expenses” were $3.4 million of inventory writedowns as well as $0.4 million of intangible asset impairments and $0.4 million of contract termination costs associated with the closing and relocation of the Jer’s sales office and distribution facilities





21


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Adjusting

 

 



 

 

 

 

 

 

 

and

 

 



 

 

 

 

 

Sweet

 

Elimination

 

Segment

For the Three Months Ended:

 

BBX

 

Renin

 

Holdings

 

Entries

 

Total

September 30, 2015:

 

 

 

 

 

 

 

 

 

 

Interest income

$

2,720 

 

 -

 

 -

 

 -

 

2,720 

Revenues

 

1,273 

 

14,463 

 

7,079 

 

 -

 

22,815 

Total revenues

 

3,993 

 

14,463 

 

7,079 

 

 -

 

25,535 

Interest expense

 

 -

 

(74)

 

(213)

 

282 

 

(5)

Recoveries from loan losses, net

 

4,427 

 

 -

 

 -

 

 -

 

4,427 

Asset impairments, net

 

(274)

 

 -

 

 -

 

 -

 

(274)

Other costs and expenses

 

(12,471)

 

(14,523)

 

(9,593)

 

 -

 

(36,587)

Total costs and expenses

 

(8,318)

 

(14,597)

 

(9,806)

 

282  (1) (32,439)

Equity in earnings of unconsolidated companies

 

10,148 

 

 -

 

 -

 

 -

 

10,148 

Foreign exchange loss

 

 -

 

(236)

 

 -

 

 -

 

(236)

Segment income (loss) before income taxes

 

5,823 

 

(370)

 

(2,727)

 

282 

 

3,008 

Provision (benefit) for income tax

 

48 

 

(5)

 

(74)

 

 -

 

(31)

Net income (loss)

$

5,775 

 

(365)

 

(2,653)

 

282 

 

3,039 

Total assets

$

636,785 

 

23,169 

 

37,286 

 

(306,622)

 

390,618 

Equity method investments

 

 

 

 

 

 

 

 

 

 

 included in total assets

$

86,866 

 

 -

 

 

 -

 

86,867 

Expenditures for segment assets

$

939 

 

33 

 

556 

 

 -

 

1,528 

Depreciation and amortization

$

283 

 

147 

 

446 

 

 -

 

876 





(1)

Includes a reconciling item of $282,000 associated with capitalized interest on real estate development and joint venture activities in excess of interest expense incurred in the BBX reportable segment for the three months ended September 30, 2015.



22


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Adjusting and

 

 



 

 

 

 

 

Sweet

 

Elimination

 

Segment

For the Nine Months Ended:

 

BBX

 

Renin

 

Holdings

 

Entries

 

Total

September 30, 2015:

 

 

 

 

 

 

 

 

 

 

Interest income

$

5,628 

 

 -

 

 -

 

 -

 

5,628 

Revenues

 

19,571 

 

43,419 

 

17,241 

 

 -

 

80,231 

Total revenues

 

25,199 

 

43,419 

 

17,241 

 

 -

 

85,859 

Interest expense

 

(72)

 

(223)

 

(542)

 

644 

 

(193)

Recoveries from loan losses, net

 

14,857 

 

 -

 

(1)

 

 -

 

14,856 

Asset recoveries, net

 

1,599 

 

 -

 

 -

 

 -

 

1,599 

Other costs and expenses

 

(31,131)

 

(43,591)

 

(21,966)

 

 -

 

(96,688)

Total costs and expenses

 

(14,747)

 

(43,814)

 

(22,509)

 

644  (1) (80,426)

Equity in earnings of unconsolidated companies

 

5,188 

 

 -

 

 -

 

 -

 

5,188 

Foreign exchange loss

 

 -

 

(635)

 

 -

 

 -

 

(635)

Segment income (loss) before income taxes

 

15,640 

 

(1,030)

 

(5,268)

 

644 

 

9,986 

Provision (benefit) for income tax

 

53 

 

(5)

 

(298)

 

 -

 

(250)

Net income (loss)

$

15,587 

 

(1,025)

 

(4,970)

 

644 

 

10,236 

Expenditures for segment assets

$

968 

 

67 

 

1,146 

 

 -

 

2,181 

Depreciation and amortization

$

824 

 

447 

 

1,335 

 

 -

 

2,606 



1)

Includes a reconciling item $644,000 associated with capitalized interest on real estate development and joint venture activities in excess of interest expense incurred in the BBX reportable segment for the nine months ended September 30, 2015

 

 

 













23


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

9.  Fair Value Measurement



There were no assets or liabilities measured at fair value on a recurring basis in BBX Capital’s financial statements as of September 30, 2016 and December 31, 2015.



The following table presents major categories of assets measured at fair value on a non-recurring basis as of September 30, 2016 (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

 

Fair Value Measurements Using

 



 

Carrying

Quoted prices in

Significant

 

Total



 

Amount

Active Markets

Other

Significant

Impairments (1)



 

As of

for Identical

Observable

Unobservable

For the Nine



 

September 30,

Assets

Inputs

Inputs

Months Ended

Description

 

2016

(Level 1)

(Level 2)

(Level 3)

September 30, 2016

Loans measured for

 

 

 

 

 

 

impairment using the fair value

 

 

 

 

 

 

of the underlying collateral

$

5,759 

 -

 -

5,759  101 



 

 

 

 

 

 

Impaired real estate held-for-sale

 

4,292 

 -

 -

4,292  2,596 

Total

$

10,051 

 -

 -

10,051  2,697 



(1)

Total impairments represent the amount of losses recognized during the nine months ended September 30, 2016 on assets that were held and measured at fair value as of September 30, 2016.



Quantitative information about significant unobservable inputs within Level 3 on major categories of assets measured on a non-recurring basis is as follows (dollars in thousands):







 

 

 

 

 



 

 

 

 

 

As of September 30, 2016

 

Fair

Valuation

Unobservable

 

Description

 

Value

Technique

Inputs

Range (Average) (1)(2)

Loans measured for

 

 

 

 

 

impairment using the fair value

 

 

Fair Value of

Discount Rates and Appraised

 

of the underlying collateral

$

5,759 

Collateral

Value less Cost to Sell

$0.1 - $0.7 million ($0.3 million)



 

 

 

 

 

Impaired real estate

 

 

Fair Value of

 

 

held-for-sale

 

4,292 

Property

Asset Purchase Agreements

$0.3 - $1.5 million ($0.8 million)

Total

$

10,051 

 

 

 



(1)  Range and average appraised values were reduced estimated by costs to sell.

(2)  Average was computed by dividing the aggregate amounts by the number of loans or real estate properties.



24


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

The following table presents major categories of assets measured at fair value on a non-recurring basis as of September 30, 2015 (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

 

Fair Value Measurements Using

 



 

Carrying

Quoted prices in

Significant

 

Total



 

Amount

Active Markets

Other

Significant

Impairments (1)



 

As of

for Identical

Observable

Unobservable

For the Nine



 

September 30,

Assets

Inputs

Inputs

Months Ended

Description

 

2015

(Level 1)

(Level 2)

(Level 3)

September 30, 2015

Loans measured for

 

 

 

 

 

 

impairment using the fair value

 

 

 

 

 

 

of the underlying collateral

$

186 

 -

 -

186  120 

Impaired real estate held-for-sale

 

 

 

 

 

 

and held-for-investment

 

1,612 

 -

 -

1,612  1,046 

Impaired loans held-for-sale

 

4,759 

 -

 -

4,759  207 

Total

$

6,557 

 -

 -

6,557  1,373 



(1) Total impairments represent the amount of losses recognized during the nine months ended September 30, 2015 on assets that were held and measured at fair value as of September 30, 2015.



Quantitative information about significant unobservable inputs within Level 3 on major categories of assets measured on a non-recurring basis is as follows (dollars in thousands):







 

 

 

 

 



 

 

 

 

 

As of September 30, 2015

 

Fair

Valuation

Unobservable

 

Description

 

Value

Technique

Inputs

Range (Average) (1)(2)

Loans measured for impairment

 

 

 

Discount Rates and

 

using the fair value of the

 

 

Fair Value of

Appraised Value

 

underlying collateral

$

186 

Collateral

less Cost to Sell

$0.3 million ($0.3 million)



 

 

 

 

 

Impaired real estate held-for-

 

 

Fair Value of

Discount Rates and Appraised

 

sale and held-for-investment

 

1,612 

Property

Value less Cost to Sell

$0.4 - $0.7 million ($0.5 million)



 

 

Fair Value of

Discount Rates and Appraised

 

Impaired loans held-for-sale

 

4,759 

Collateral

Value less Cost to Sell

$0.1  -$0.5 million ($0.2 million)

Total

$

6,557 

 

 

 



(1)  Range and average appraised values were reduced by estimated costs to sell.

(2)  Average was computed by dividing the aggregate appraisal amounts by the number of appraisals.



There were no material liabilities measured at fair value on a non-recurring basis in BBX Capital’s financial statements as of September 30, 2016 or December 31, 2015.



Loans Measured For Impairment



Impaired loans are generally valued based on the fair value of the underlying collateral less cost to sell as the majority of BBX Capital’s loans are collateral dependent. The fair value of BBX Capital’s loans may significantly increase or decrease based on changes in property values.  BBX Capital primarily uses third party appraisals to assist in measuring non-homogenous impaired loans and broker price opinions to assist in measuring homogenous impaired loans. The appraisals generally use the market or income approach valuation technique and use market observable data to formulate an estimate of the fair value of the loan’s collateral. However, the appraiser uses professional judgment in determining the fair value of the collateral, and BBX Capital may also adjust these values for changes in market conditions subsequent to the appraisal date. When current appraisals are not available for certain loans, BBX Capital uses its judgment on market conditions to adjust the most current appraisal. As a consequence, the calculation of the fair value of the collateral is considered a Level 3 input. BBX Capital generally recognizes impairment losses based on third party broker price opinions when impaired homogenous loans become 120 days delinquent. These third party valuations from real estate professionals

25


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

also use Level 3 inputs in determining fair values. The observable market inputs used to fair value loans include comparable property sales, rent rolls, market capitalization rates on income producing properties, risk adjusted discount rates and foreclosure time frames and exposure periods. 



Real Estate Held-for-Sale and Held-for-Investment



Real estate is generally valued using third party appraisals or broker price opinions. These appraisals generally use the market or income approach valuation techniques and use market observable data to formulate an estimate of the fair value of the properties. The market observable data typically consists of comparable property sales, rent rolls, market capitalization rates on income producing properties and risk adjusted discount rates.   The above inputs are considered Level 3 inputs as the appraiser uses professional judgment in the calculation of the fair value of the properties.



The following table presents the fair value of BBX Capital’s consolidated financial instruments as of September 30, 2016:







 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

Fair Value Measurements Using



 

Carrying

 

Quoted prices in

 

 



 

Amount

Fair Value

Active Markets

Significant

Significant



 

As of

As of

for Identical

Other Observable

Unobservable

(in thousands)

 

September 30,

September 30,

Assets

Inputs

Inputs

Description

 

2016

2016

(Level 1)

(Level 2)

(Level 3)

Financial assets:

 

 

 

 

 

 

Cash and cash equivalents

$

120,266  120,266  120,266 

 -

 -

Loans receivable

 

28,616  31,176 

 -

 -

31,176 

Restricted cash and time deposits at financial institutions

 

350  350  350 

 -

 -

Financial liabilities:

 

 

 

 

 

 

Notes payable

 

15,547  15,751 

-

 -

15,751 

Principal and interest advances on residential loans

 

8,255  7,814 

 -

 -

7,814 

The following table presents the fair value of BBX Capital’s consolidated financial instruments as of December 31, 2015:





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

Fair Value Measurements Using



 

Carrying

 

Quoted prices in

 

 



 

Amount

Fair Value

Active Markets

Significant

Significant



 

As of

As of

for Identical

Other Observable

Unobservable

(in thousands)

 

December 31,

December 31,

Assets

Inputs

Inputs

Description

 

2015

2015

(Level 1)

(Level 2)

(Level 3)

Financial assets:

 

 

 

 

 

 

Cash and cash equivalents

$

69,040  69,040  69,040 

 -

 -

Loans receivable including loans held-for-sale, net

 

55,389  63,668 

 -

 -

63,668 

Restricted cash and time deposits at financial institutions

 

2,651  2,651  2,651 

 -

 -

Financial liabilities:

 

 

 

 

 

 

Notes payable

 

21,385  21,514 

-

 -

21,514 

Principal and interest advances on residential loans

 

10,356  9,630 

 -

 -

9,630 





Management has made estimates of fair value that it believes to be reasonable. However, because there is no active market for many of these financial instruments, management has derived the fair value of the majority of these financial

26


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

instruments using the income approach technique with Level 3 unobservable inputs. Management estimates used in net present value financial models rely on assumptions and judgments regarding issues where the outcome is unknown and actual results or values may differ significantly from these estimates. BBX Capital’s fair value estimates do not consider the tax effect that would be associated with the disposition of the assets or liabilities at their fair value estimates.  As such, BBX Capital may not receive the estimated value upon sale or disposition of the asset or pay the estimated value upon disposition of the liability in advance of its scheduled maturity.



Fair values are estimated for loan portfolios with similar financial characteristics. Loans are segregated by category, and each loan category is further segmented by delinquency categories.



The fair value of loans is calculated by using an income approach with Level 3 inputs.  The fair value of loans is estimated by discounting forecasted cash flows using estimated market discount rates that reflect the interest rate and credit risk inherent in the loan portfolio. Management assigns a credit risk premium and an illiquidity adjustment to these loans based on delinquency status.  The fair value of collateral dependent loans is estimated using an income approach with Level 3 inputs utilizing the fair value of the collateral adjusted for operating and selling expenses and discounted over the estimated holding period based on the market risk inherent in the property.  



The fair value of notes payables and principal and interest advances on residential loans were measured using the income approach with Level 3 inputs obtained by discounting the forecasted cash flows based on estimated market rates.

 



10.  Commitments and Contingencies



BBX Capital guarantees certain obligations of its wholly-owned subsidiaries and unconsolidated real estate joint ventures as described below:

During the year ended December 31, 2014, the Sunrise and Bayview Partners, LLC joint venture owned 50% by Procacci Bayview, LLC and 50% by BBX Capital refinanced its land acquisition loan with a financial institution.  BBX Capital provided the financial institution with a guarantee of 50% of the outstanding balance of the joint venture’s loan which had an outstanding balance of $5.0 million as of September 30, 2016.

In July 2014, BBX Capital entered into the Hialeah Communities joint venture with CC Bonterra to develop approximately 394 homes in a portion of the newly proposed Bonterra community in Hialeah, Florida. BBX Capital 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 March 2015, the joint venture refinanced the $8.3 million mortgage loan as part of a $31.0 million acquisition and development loan.  In March 2016, the loan was modified reducing the loan balance from $31.0 million to $26.5 million. BBX Capital is a guarantor of up to $5.3 million of the joint venture’s $26.5 million acquisition and development loan.

BBX Capital is a guarantor on a $5.5 million note payable of Anastasia owed to the seller. The Anastasia note payable is also secured by the common stock of Anastasia.  In October 2016, BBX Capital made a $2.0 million scheduled principal payment and the outstanding principal balance of the note payable to Anastasia was reduced to $3.5 million.



On August 7, 2015, BBX Sweet Holdings entered into a Loan and Security Agreement and related agreements with Iberiabank, which provides for borrowings of up to $5.0 million on a revolving basis. The outstanding availability of the Iberiabank facility was $5.0 million as of September 30, 2016.  In February 2016, BBX Sweet Holdings executed Addendum No. 1 to the Iberiabank Loan and Security Agreement. The addendum replaced the debt service coverage financial covenant with a working capital to debt ratio financial covenant. The facility is secured by the assets of BBX Sweet Holdings and its subsidiaries and is guaranteed by BBX Capital. BBX Sweet Holdings was in compliance with the debt financial covenants as of September 30, 2016.

BBX Sweet Holdings and BBX Capital are guarantors of a $1.6 million note payable of Hoffman’s owed to Centennial Bank.  This note is secured by $2.1 million of properties and equipment.

In connection with the Kencraft acquisition, BBX Sweet Holdings issued a $400,000 note payable maturing on April 1, 2017 to the seller.  BBX Capital is the guarantor on this note payable.



BBX Capital and its consolidated subsidiaries are parties to lawsuits as plaintiff or defendant involving its collections, lending and prior period tax certificate activities. Although BBX Capital believes it has meritorious defenses in all current legal actions, the outcome of litigation and the ultimate resolution are uncertain and inherently difficult to predict.

27


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 



Reserves are accrued for matters in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The actual costs of resolving these legal claims may be substantially higher or lower than the amounts accrued for these claims.  There were no reserves accrued as of September 30, 2016.



In certain matters, BBX Capital is unable to estimate the loss or reasonable range of loss until additional developments in the case provide information sufficient to support an assessment of the loss or range of loss. Frequently in these matters the claims are broad and the plaintiffs have not quantified or factually supported the claim.    



BBX Capital believes that liabilities arising from litigation discussed below, in excess of the amounts currently accrued, if any, are not expected to have a material impact on BBX Capital’s financial statements. However, due to the significant uncertainties involved in these legal matters, BBX Capital may incur losses in excess of accrued amounts and an adverse outcome in these matters could be material to the BBX Capital’s consolidated financial statements. 



The discussion below does not include litigation relating to companies which are not consolidated into BBX Capital’s financial statements, including Woodbridge and Bluegreen. 



The following is a description of certain ongoing or recently concluded litigation matters: 



Securities and Exchange Commission Complaint 



In early 2012, the SEC brought suit against BBX Capital and Alan B. Levan, BBX Capital’s then-serving Chairman and Chief Executive Officer, alleging disclosure and accounting violations arising from public disclosures published in, or for the fiscal year ended, December 31, 2007. The case is styled In re: Securities and Exchange Commission v. BankAtlantic Bancorp, Inc. and Alan B. Levan. Prior to trial, the district court entered two summary judgments, one finding as a matter of fact that three sentences in an earnings conference call on July 25, 2007 were false, and the other striking a reliance on accountants defense. On December 15, 2014, the jury rendered a verdict finding in favor of BBX Capital and Mr. Alan Levan on all of the claims but the two tied to the pretrial summary judgments. Following the trial, the district court entered a final judgment (i) barring Mr. Alan Levan from serving as an officer or director of any SEC reporting company for two years commencing on December 23, 2015, (ii) imposing monetary penalties of $4,550,000 against BBX Capital and $1,300,000 against Mr. Alan Levan; and (iii) permanently restraining BBX Capital and Mr. Alan Levan from violating securities laws. As a result of the court’s decision, effective December 23, 2015, Mr. Alan Levan resigned as Chairman and Chief Executive Officer of BBX Capital, as Chairman, Chief Executive Officer and President of BFC, and as a director of BBX Capital and BFC. BBX Capital and Mr. Alan Levan appealed the district court’s judgment to the Eleventh Circuit Court of Appeals. On September 28, 2016, the Eleventh Circuit Court of Appeals reversed the pretrial summary judgments and set aside the judgment of the district court. The reversal, once final, will terminate the financial penalties and set aside the two year officer and director bar imposed against Mr. Alan Levan. The court remanded the case for a new trial on the two claims stripped of the summary judgments. The SEC has the right to seek a retrial of the two claims. The order entered by the Eleventh Circuit Court of Appeals will not be final until the time to file motions for rehearing expire or any filed motions for rehearing are denied. Once the decision is final, it is expected that Mr. Alan Levan will be re-appointed as Chairman, Chief Executive Officer and President of BFC and as Chairman and Chief Executive Officer of BBX Capital. Mr. Alan Levan continues to serve BFC and BBX Capital in a non-executive capacity as Founder and strategic advisor to each company’s board of directors.



New Jersey Tax Sales Certificates Antitrust Litigation

 

On December 21, 2012, plaintiffs filed an Amended Complaint in an existing purported class action filed in Federal District Court in New Jersey adding BBX Capital and Fidelity Tax, LLC, a wholly owned subsidiary of CAM, among others as defendants.  The class action complaint is brought on behalf of a class defined as “all persons who owned real property in the State of New Jersey and who had a Tax Certificate issued with respect to their property that was purchased by a Defendant during the Class Period at a public auction in the State of New Jersey at an interest rate above 0%.”  Plaintiffs alleged that beginning in January 1998 and at least through February 2009, the Defendants were part of a statewide conspiracy to manipulate interest rates associated with tax certificates sold at public auction from at least January 1, 1998, through February 28, 2009. During this period, Fidelity Tax was a subsidiary of BankAtlantic.  Fidelity Tax was contributed to CAM in connection with the sale of BankAtlantic in the BB&T Transaction. BBX Capital and Fidelity Tax filed a Motion to Dismiss in March 2013 and on October 23, 2013, the Court granted the Motion to Dismiss and dismissed the Amended Complaint with prejudice as to certain claims, but without prejudice as to plaintiffs’ main antitrust claim.  BBX Capital reached an agreement to settle the action for $400,000 and the court approved the settlement in September 2016.







28


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 



Litigation Regarding Proposed Merger



On August 10, 2016, Shiva Stein filed a lawsuit against BFC, Merger Sub, BBX Capital and the members of BBX Capital’s board of directors, which seeks to establish a class of BBX Capital’s shareholders and challenges the currently proposed Merger pursuant to which BBX Capital would merge with and into a wholly-owned subsidiary of BFC.  This action, styled Shiva Stein, on behalf of herself and all others similarly situated, v. BBX Capital Corp., John E. Abdo, Norman H. Becker, Steven M. Coldren, Willis N. Holcombe, Jarett S. Levan, Anthony P. Segreto, Charlie C. Winningham, II, BFC Financial Corporation and BBX Merger Subsidiary LLC, Case No. CACE16014713, was filed in the Circuit Court of the 17​th Judicial Circuit in and for Broward County, Florida. The plaintiff asserts that the proposed Merger consideration undervalues BBX Capital and is unfair to BBX Capital’s public shareholders, that the sales process was unfair and that BBX Capital’s directors breached their fiduciary duties of care, loyalty and candor owed to the public shareholders of BBX Capital because, among other reasons, they failed to take steps to maximize the value of BBX Capital to its public shareholders and instead diverted consideration to themselves. The lawsuit also alleges that BFC, as the controlling shareholder of BBX Capital, breached its fiduciary duties of care, loyalty and candor owed to the public shareholders of BBX Capital by utilizing confidential, non-public information to formulate the Merger consideration and not acting in the best interests of BBX Capital’s public shareholders. In addition, the lawsuit includes a cause of action against BBX Capital, BFC and Merger Sub for aiding and abetting the alleged breaches of fiduciary duties. The lawsuit requests that the court grant an injunction blocking the proposed Merger or, if the proposed Merger is completed, rescind the transaction or award damages as determined by the court.  BFC and BBX Capital believe that the lawsuit is without merit and intend to vigorously defend the action.



A second lawsuit which sought to challenge the merger and included many of the same claims as set forth in the Stein action described above was filed in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida during September 2016. This lawsuit was dismissed with prejudice during October 2016.



BBX Capital and BFC have also received threats of additional litigation relating to the proposed Merger.







11Subsequent Event



BBX Capital obtained entitlements to develop raw land in St Johns County, Florida into 1,476 finished lots which will comprise the Beacon Lake Community.  BBX Capital acquired the undeveloped property through foreclosure and intends to sell the finished lots to home builders. The Meadow View at Twin Creeks Community Development District (“CDD”) was formed by St. Johns County in connection with the issuance of community development bonds to fund infrastructure improvements in the Beacon Lake Community.  In November 2016, the CDD issued $21.4 million of bonds.  The CDD bonds are secured by a lien on the property and are repaid through special assessments on the property. The CDD bonds are nonrecourse to BBX Capital.  The carrying value of the property was $9.7 million as of September 30, 2016.





 

29


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

 







Item 2MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The objective of the following discussion is to provide an understanding of the financial condition and results of operations of BBX Capital Corporation and its subsidiaries for the three and nine months ended September 30, 2016. 



This document contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. All opinions, forecasts, projections, future plans or other statements, other than statements of historical fact, are forward-looking statements. Forward-looking statements may include words or phrases such as “plans,” “believes,” “will,” “expects,” “anticipates,” “intends,” “estimates,” “our view,” “we see,” “would” and words and phrases of similar import. The forward looking statements in this document are also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements are based largely on management’s expectations and are subject to a number of risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. There is no assurance that such expectations will prove to be correct. Future results could differ materially as a result of a variety of risks and uncertainties.



These risks and uncertainties include, but are not limited to:

·

the impact of economic, competitive and other factors affecting BBX Capital and its assets, including the impact of decreases in real estate values on BBX Capital’s business, the value of BBX Capital’s assets, the ability of BBX Capital’s borrowers to service their obligations and the value of collateral securing BBX Capital’s loans;

·

the risk of loan losses and the risks of additional charge-offs, impairments and required increases in BBX Capital’s allowance for loan losses and trade receivables;

·

the risk of loss of significant customers or key personnel in our operating companies;

·

the risk of losses associated with excess and obsolete inventory and the risks of additional required reserves for lower of cost or market value losses in inventory; 

·

the risk that the SEC may seek a rehearing of the Eleventh Circuit Court of Appeals ruling that set aside the judgment and penalties imposed by the district court in connection with the action brought by the SEC against BBX Capital and Alan B. Levan, BBX Capital’s former Chairman and Chief Executive Officer;

·

the risk that the SEC prevails in a rehearing or a new trial and BBX Capital’s insurance carrier seeks to obtain reimbursement of the amounts it previously advanced to BBX Capital in connection with the action brought by the SEC against BBX Capital and Alan B. Levan;

·

adverse conditions in the stock market, the public debt market and other financial and credit markets and the impact of such conditions on BBX Capital’s activities;

·

the risk that the assets retained by BBX Capital as part of the sale of BankAtlantic to BB&T may not be monetized at the values currently ascribed to them and the risks associated with the impact of periodic valuation of BBX Capital’s assets for impairment.    



In addition, this document contains forward looking statements relating to BBX Capital’s ability to successfully implement its currently anticipated business plans, which may not be realized as anticipated, if at all, and BBX Capital’s current and anticipated investments in operating businesses and franchises may not achieve the returns anticipated or may not be profitable, including the risks associated with the operations and activities of:

·

BBX Capital’s investment in Bluegreen (through Woodbridge),

·

BBX Sweet Holdings’ acquisitions of Hoffman’s, Williams & Bennett, Jer’s Chocolates, Droga Chocolates, Helen Grace Chocolates, Anastasia Confections and Kencraft,

·

BBX Capital’s anticipated investments in MOD Super Fast Pizza franchise locations, and

·

BBX Capital’s acquisition with BFC of Renin.



This document also contains forward looking statements relating to BBX Capital’s investments in real estate developments, either directly or through joint ventures.  These risks include:

·

exposure to downturns in the real estate and housing markets;

·

exposure to risks associated with real estate development activities;

·

risks associated with obtaining necessary zoning and entitlements;

·

risks that BBX Capital’s joint venture partners may not fulfill their obligations and concentration risks associated with entering into numerous joint ventures with one joint venture partner;

·

risk of reliance on third party developers or joint venture partners to complete real estate projects, and

·

risks that the projects will not be developed as anticipated or be profitable. 





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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 



BBX Capital’s investment in Woodbridge, which owns Bluegreen Corporation, exposes BBX Capital to:

·

risks relating to Bluegreen’s business and Bluegreen’s ability to pay dividends to Woodbridge and in turn Woodbridge’s ability to pay dividends to BBX Capital, and

·

risks inherent in the vacation ownership industry, including risks associated with regulatory compliance and customer complaints and other risks which are identified in BFC’s Annual Report on Form 10-K filed on March 15, 2016 with the SEC and available on the SEC’s website at www.sec.gov. 



BBX Sweet Holdings acquisitions and BBX Capital’s acquisition of the assets of Renin Corp exposes BBX Capital to the risks of their respective businesses, which include:

·

the amount and terms of indebtedness associated with the acquisitions and operations which may impact BBX Capital’s financial condition and results of operations and limit BBX Capital’s activities;

·

the failure of the companies to meet financial covenants and that BBX Capital may be required to make further capital contributions or advances to the acquired companies;

·

the risk of commodity price volatility;

·

the risk that the integration of these operating businesses may not be completed effectively or on a timely basis;

·

the risk that BBX Capital may not realize any anticipated benefits or profits from these acquisitions; and

·

Renin’s operations expose BBX Capital to foreign currency exchange risk of the U.S. dollar compared to the Canadian dollar and Great Britain pound. 



Past performance and perceived trends may not be indicative of future results.  In addition to the risks and factors identified above, reference is also made to other risks and factors detailed in BBX Capital’s Annual Report on Form 10-K, for the year ended December 31, 2015.  BBX Capital cautions that the foregoing factors are not exclusive. 



Critical Accounting Policies

Management views critical accounting policies as accounting policies that are important to the understanding of BBX Capital’s financial statements and also involve estimates and judgments about inherently uncertain matters. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated statements of financial condition and assumptions that affect the recognition of income and expenses on the Consolidated Statements of Operations for the periods presented. Actual results could differ significantly from those estimates. Significant estimates that are particularly susceptible to significant change in subsequent periods relate to the determination of the allowance for loan losses, including the valuation of collateral dependent loans, the valuation of loans held-for-sale, the impairment of long-lived assets including amortizable intangible assets, real estate held-for-sale and real estate held-for-investment, the determination of lower of cost or market for inventories, the valuation of assets acquired and liabilities assumed in the acquisition of a business, the amount of the deferred tax asset valuation allowance, accounting for uncertain tax positions and accounting for contingencies. The three accounting policies that BBX Capital has identified as critical accounting policies are allowance for loan losses, inventory reserves and impairment of long-lived assets. For a more detailed discussion of these critical accounting policies see “Critical Accounting Policies” appearing in BBX Capital’s Annual Report on Form 10-K for the year ended December 31, 2015.

BBX Capital’s Business Strategy

Since the sale of BankAtlantic in July 2012, BBX Capital has been repositioning its business, monetizing its legacy portfolios of loans and real estate, and pursuing its goal of transitioning into a growth business by focusing on real estate opportunities and acquiring operating businesses. 

The majority of BBX Capital’s assets do not generate income on a regular or predictable basis. Recognizing the nature of BBX Capital’s assets, BBX Capital’s goal is to build long-term value as opposed to focusing on quarterly or annual earnings.  While capital markets generally encourage short term results, BBX Capital’s objective continues to be long term growth as measured by increases in book value per share over time. Further, BBX Capital does not expect to generate significant revenue from the legacy BankAtlantic assets until the assets are monetized through repayments or transactions involving the sale, joint venture or development of the underlying real estate. BBX Capital is currently utilizing the cash flow from the monetization of its assets and dividends from Woodbridge to pay operating expenses and to invest in income producing real estate, real estate developments, real estate joint ventures and operating businesses. While there is no assurance it will be successful, BBX Capital is seeking to manage its cash needs and the timing of monetizing its existing assets with new investments to maximize its returns. In some cases, this may involve immediate sale and in other cases a longer term hold or development (either directly or through a joint venture).  BBX Capital may also consider transactions

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

involving its investments in operating businesses, including Renin and BBX Sweet Holdings, and BBX Capital may in connection with BBX Capital’s investment with BFC in Woodbridge pursue transactions involving Bluegreen, either directly or indirectly through a transaction involving Woodbridge, to monetize all or a portion of BBX Capital’s investment in Woodbridge. Such transactions may include pursuing a future sale or spin-off of a company or other transactions involving public or private issuances of a company’s debt or equity securities which might result in the ownership of less than 100% of an entity.  BBX Capital is also engaged in land entitlement activities and land development projects on certain properties that BBX Capital acquired through foreclosure. These projects have included or may include in the future selling or leasing the improved properties to third parties or entering into joint ventures with developers for the development of residential and commercial real estate projects involving the contribution of properties by BBX Capital as well as potential cash investments in projects.  BBX Capital has also pursued potential investments in joint venture real estate projects that include real estate held by a joint venture partner or property acquired from unrelated parties.  As a result of the substantial decline in real estate values during the recession, the majority of BBX Capital’s non-performing commercial real estate loans and foreclosed real estate were written down in prior periods to the then prevailing estimated fair values of the collateral less costs to sell.  BBX Capital has seen significant improvements generally in real estate markets and believes that the prior estimated fair values of the underlying collateral securing certain of BBX Capital’s commercial real estate loans and BBX Capital’s real estate carrying values may be below current market values.  Additionally, the recovery in the real estate market has favorably affected the financial condition of BBX Capital’s borrowers and BBX Capital is aggressively pursuing its borrowers and/or guarantors in order to maximize recoveries through cash settlements, loan workout arrangements or participation interests in the development or performance of the collateral.  If BBX Capital is successful in its efforts, BBX Capital expects to recognize gains to the extent that the amounts it collects exceed the carrying value of its commercial loans and foreclosed real estate and expects that these gains will be reflected in an increase in BBX Capital’s shareholders’ equity in the long term.  Due to the nature of these activities however, BBX Capital does not expect to generate revenues or earnings on a predictable or consistent basis and BBX Capital may continue to experience current losses from these investments with an anticipated goal of building long term value.  Accordingly, BBX Capital expects the results of its operations to vary significantly on a quarterly basis and BBX Capital may experience losses in future periods.  



Consolidated Results of Operations

BBX Capital conducts its operations through three reportable segments, BBX, Renin and Sweet Holdings



BBX Reportable Segment  - The BBX reportable segment consists of the activities associated with managing its commercial loan portfolio, real estate properties and portfolio of charged off loans retained as part of the sale of BankAtlantic to BB&T and managing its investments in Woodbridge and in real estate joint ventures. 



Renin Reportable Segment - The Renin reportable segment consists of the activities of Renin Holdings, LLC and its subsidiaries (“Renin”).  Renin manufactures interior closet doors, wall décor, hardware and fabricated glass products and its distribution channels include big box and independent home improvement retailers, builders, other manufacturers and specialty retail outlets primarily in North America. Renin is headquartered in Brampton, Ontario and has two manufacturing, assembly and distribution facilities located in Brampton, Ontario and Tupelo, Mississippi.  BBX Capital owns 81% of Renin and BFC owns the remaining 19%.



Sweet Holdings Reportable Segment - The Sweet Holdings reportable segment consists of the activities of acquired operating businesses in the candy and confection industry including the activities of Hoffman’s, Jer’s, Williams & Bennett, Helen Grace, Anastasia, Kencraft and Droga.  Kencraft was acquired on April 1, 2015 and Droga was acquired in June 2015 and their results are included from the respective dates of acquisition.   



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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

Income before provision (benefit) for income taxes for each of BBX Capital’s reportable segments was as follows (in thousands):











 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months

 

For the Nine Months



 

Ended September 30,

 

Ended September 30,



 

2016

2015

Change

 

2016

2015

Change

BBX

$

24,453  5,823  18,630 

 

29,944  15,640  14,304 

Renin

 

(359) (370) 11 

 

454  (1,030) 1,484 

Sweet Holdings

 

(2,767) (2,727) (40)

 

(11,787) (5,268) (6,519)

Adjusting and reconciling items (1)

 

276  282  (6)

 

608  644  (36)

Income before provision (benefit)

 

 

 

 

 

 

 

 

  for income taxes

 

21,603  3,008  18,595 

 

19,219  9,986  9,233 

Provision (benefit) for income taxes (2)

 

(31) 36 

 

(250) 255 

Net income

$

21,598  3,039  18,559 

 

19,214  10,236  8,978 



(1)

Represents capitalized interest on real estate development and joint venture activities in excess of interest expense incurred in the BBX reportable segment. 

(2)

Benefit for income taxes for the three and nine months ended September 30, 2015 resulted from acquisition related measurement adjustments.



 

BBX Reportable Segment Results of Operations



The following table is a condensed income statement summarizing the results of operations of the BBX reportable segment for the three and nine months ended September 30, 2016 and 2015 (in thousands):



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months

 

For the Nine Months



 

Ended September 30,

 

Ended September 30,



 

2016

2015

Change

 

2016

2015

Change

Interest income

 $

1,313  2,720  (1,407)

 

3,293  5,628  (2,335)

Net gains (losses) on sales of assets

 

5,034  (145) 5,179 

 

5,326  15,296  (9,970)

Income from real estate operations

 

312  851  (539)

 

2,278  2,790  (512)

Other revenues

 

958  567  391 

 

2,213  1,485  728 

Total revenues

 

7,617  3,993  3,624 

 

13,110  25,199  (12,089)

Interest expense

 

-

-

-

 

72  (70)

Real estate operating expenses

 

484  1,003  (519)

 

2,323  3,048  (725)

Recoveries from loan losses, net

 

(10,944) (4,427) (6,517)

 

(18,979) (14,857) (4,122)

Asset impairments (recoveries), net

 

(30) 274  (304)

 

1,692  (1,599) 3,291 

Selling, general and administrative expenses

 

8,441  11,468  (3,027)

 

26,022  28,083  (2,061)

Total costs and expenses

 

(2,049) 8,318  (10,367)

 

11,060  14,747  (3,687)

Equity in earnings of Woodbridge Holdings, LLC

 

10,307  10,306 

 

22,101  5,941  16,160 

Equity in net earnings (losses) of unconsolidated joint ventures

 

4,480  (158) 4,638 

 

5,793  (753) 6,546 

Income before income taxes

 

24,453  5,823  18,630 

 

29,944  15,640  14,304 

Provision for income taxes

 

48  (46)

 

53  (51)

BBX segment net income

 $

24,451  5,775  18,676 

 

29,942  15,587  14,355 



Total Revenues

The decrease in interest income during the three and nine months ended September 30, 2016 compared to the same 2015 periods resulted primarily from $1.1 million and $2.2 million, respectively, of interest income received from non-

33


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

accrual commercial loans during the 2015 periods and lower consumer, residential and small business loan interest income recognized during the 2016 periods associated with the amortization of loan balances in the portfolios.   

Gains on sales of assets during the three months ended September 30, 2016 resulted primarily from a $3.5 million gain on the sale of two commercial land parcels and the recognition of a $1.6 million deferred gain associated with property contributed to a joint venture during the second quarter of 2014. The remaining gains on the sales of assets resulted primarily from sales of residential foreclosed properties.

The losses on the sales of assets during the three months ended September 30, 2015 were associated with the sales of residential properties. 

The decrease in gains on the sales of assets during the nine months ended September 30, 2016 compared to the same 2015 period resulted primarily from gains associated with the sales of two properties located in West Palm Beach, Florida during the nine months ended September 30, 2015. One of the properties, which was purchased by JRG/BBX Development joint venture for $10.8 million, was sold to a third party developer for $20.0 million. The other property, which was acquired by BBX through foreclosure and had a $3.2 million carrying value at the date of sale, sold for $11.0 million.  BBX recognized a gain of $15.5 million in connection with these sales.

Income and expenses from real estate operations consisted of rental income and expenses associated with foreclosed properties.  The decline in income and expenses from real estate operations for the three and nine months ended September 30, 2016 compared to the same 2015 periods resulted primarily from the transfer in June 2016 of a residential rental property to properties and equipment.

Included in other revenues during the three and nine months ended September 30, 2016 were $327,000 and $1.2 million, respectively, of revenues from a public storage operating facility and $101,000 and $298,000, respectively, of office facilities revenues from BFC for use of its office space. In June 2016 a student housing facility was transferred from real estate held for sale to property and equipment.  Included in other revenues for the three and nine months ended September 30, 2016 was $279,000 of rental revenues from the student housing facility.

Other revenues during the three and nine months ended September 30, 2015 consisted mainly of $388,000 and $1.0 million, respectively, of income associated with the public storage operating facility and $105,000 and $300,000, respectively, of office facilities revenues from BFC. 

Recoveries from Loan Losses

Recoveries from loan losses during the three and nine months ended September 30, 2016 resulted primarily from settlements on charged off loans and recoveries from the charged off loan portfolio.  Recoveries from loan settlements for the three and nine months ended September 30, 2016 were $10.1 million and $16.2 million, respectively.  Recoveries from the charged off loan portfolio for the three and nine months ended September 30, 2016 were $0.8 million and $2.5 million, respectively.  BBX recoveries from loan losses during the 2016 and 2015 periods were generated by legacy loans and due to the nature of these collection activities and the declining balances of legacy loans it is not expected that BBX will generate recoveries consistent with historical amounts. 

Recoveries from loan settlements and the charged off loan portfolio for the three months ended September 30, 2015 were $3.4 million and $800,000, respectivelyRecoveries from commercial loan settlements and the charged off loan portfolio for the nine months ended September 30, 2015 were $8.8 million and $3.8 million, respectively.



Asset Impairments/Recoveries



Asset recoveries during the three months ended September 30, 2016 primarily resulted from tax certificate recoveries partially offset by a $140,000 impairment on commercial land held for sale.



Asset impairments during the nine months ended September 30, 2016 resulted primarily from impairments on real estate held for sale properties based on updated valuations reflecting executed sales contracts and reductions in listing prices.



Asset impairments during the three months ended September 30, 2015 resulted primarily from valuation allowance adjustments of $660,000 on foreclosed commercial real estate properties resulting from updated valuations partially offset by recoveries associated with short sales and payoffs of residential loans held-for-sale.



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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

Asset impairments during the nine months ended September 30, 2015 resulted primarily from recoveries of previously written down loans from short sales and payoffs of residential and small business loans held-for-sale partially offset by valuation allowance adjustments of $1.3 million on foreclosed real estate properties resulting from updated valuations.



Selling, General and Administrative Expenses

The $3.0 million and $2.1 million decrease in selling, general and administrative expenses for the three and nine months ended September 30, 2016, respectively, compared to the same 2015 periods resulted primarily from a $3.6 million civil penalty assessed in the final judgment in the SEC action recognized during the 2015 periods partially offset by higher compensation costs  during the 2016 periods in connection with higher share based compensation expenses associated with the issuance of restricted stock units in September 2015, severance costs and higher salaries and bonuses. The higher salaries were due mainly to new hires and the severance costs resulted from a change in management at an operating property.

Equity in Net Earnings and Losses of Woodbridge

BBX recognized equity in earnings of Woodbridge during the three and nine months ended September 30, 2016 of $10.3 million and $22.1 million, respectively, compared to equity in earnings of Woodbridge of $10.3 million and $5.9 million, respectively, during the comparable 2015 periods.  Woodbridge’s equity earnings for the nine months ended September 30, 2015 included a $36.5 million charge for settlement of the litigation brought by Bluegreen’s former shareholders related to Woodbridge’s April 2013 acquisition of Bluegreen.  As BBX has a 46% ownership interest in Woodbridge, the $36.5 million settlement reduced BBX’s equity in earnings of Woodbridge by $16.8 million for the nine months ended September 30, 2015.  The remaining activity of Woodbridge for the three and nine months ended September 30, 2016 and 2015 consists primarily of the operations of Bluegreen.

Bluegreen’s net income was $24.4 million and $56.0 million, respectively, for the three and nine months ended September 30, 2016 compared to $27.0 million and $60.9 million, respectively, during the comparable 2015 periods. The lower Bluegreen net income for the nine months ended September 30, 2016 compared to the same 2015 period resulted primarily from special bonuses totaling $10.0 million paid during the second quarter of 2016. The special bonuses were paid to certain Bluegreen employees and BBX Capital’s Chief Financial Officer, who was previously an employee of Bluegreen.  There were no special bonuses paid during the 2015 nine month period. The special bonuses were partially offset by increased system-wide sales of vacation ownership interests (“VOIs”) during the 2016 periods. The increase in system-wide sales of VOIs resulted primarily from an increase in the number of total tours, which included an increase in new prospect tours, and an increase in the average sales price per transaction. In addition, during the third quarter of 2016, Bluegreen increased the selling price of VOIs by 5%, resulting in an increase to estimated total gross margins to be generated on the sale of VOI inventory.  Under the relative sales value method prescribed for timeshare developers to relieve the cost of VOI inventory, changes to the estimate of gross margin expected to be generated on the sale of VOI inventory are recognized on a retrospective basis in earnings.  Accordingly, during the third quarter of 2016 Bluegreen recognized a benefit to cost of VOIs sold of $5.6 million ($3.4 million, net of tax).  



Equity in Net Earnings and Losses of Unconsolidated Real Estate Joint Ventures

BBX recognized equity in net income of unconsolidated joint ventures of $4.5 million and $5.8 million during the three and nine months ended September 30, 2016, respectively, and net losses of $158,000 and $753,000 during the three and nine months ended September 30, 2015, respectively. The unconsolidated real estate joint ventures are generally real estate joint ventures that develop properties for residential and commercial use. The equity in earnings for the three and nine months ended September 30, 2016 reflect earnings from the closings of single-family homes at two joint ventures.  During the three and nine months ended September 30, 2015 the joint ventures were in the construction phases and the losses represented primarily marketing and management fees. 



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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

Renin Reportable Segment Results of Operations 



The following table is a condensed income statement summarizing the results of operations of the Renin reportable segment for the three and nine months ended September 30, 2016 and 2015 (in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months

 

For the Nine Months



 

Ended September 30,

 

Ended September 30,



 

2016

2015

Change

 

2016

2015

Change

Trade sales

$

15,624  14,463  1,161 

 

45,922  43,419  2,503 

Cost of goods sold

 

(11,510) (10,606) (904)

 

(33,551) (32,312) (1,239)

Gross margin

 

4,114  3,857  257 

 

12,371  11,107  1,264 

Interest expense

 

62  74  (12)

 

204  223  (19)

Selling, general and administrative expenses

 

4,416  3,917  499 

 

12,038  11,279  759 

(Gain) loss on foreign currency exchange

 

(5) 236  (241)

 

(325) 635  (960)

Total costs and expenses

 

4,473  4,227  246 

 

11,917  12,137  (220)

Income (loss) before income taxes

 

(359) (370) 11 

 

454  (1,030) 1,484 

Benefit for income taxes

 

 -

(5)

 

 -

(5)

Net income (loss)

$

(359) (365)

 

454  (1,025) 1,479 

Gross margin percentage

%

26.33  26.67  (0.34)

 

26.94  25.58  1.36 

SG&A as a percent of trade sales

%

28.26  27.08  1.18 

 

26.21  25.98  0.24 

Trade sales increased for the three and nine months ended September 30, 2016 compared to the same 2015 periods due mainly to higher sales of barn door products. The improvement in the gross margin percentage for the nine months ended September 30, 2016 compared to the same 2015 period resulted primarily from increased sales of higher margin barn door products compared to lower margin wall décor products. The increase in trade sales was partially offset by the discontinuation of the wall décor product with a major customer during the third quarter of 2015.

During the three and nine months ended September 30, 2016, Renin experienced higher selling, general and administrative expenses associated with hiring new management level employees and increased severance costs as well as increased consulting and maintenance expenditures designed to enhance the product development cycle and improve manufacturing efficiencies. Renin’s new members of management include its CEO hired in June 2015, Vice President of Sales hired in September 2015 and its CFO hired in April 2016. The above increases in selling, general and administrative expenses were partially offset by lower selling and marketing expenses. 

The foreign currency exchange gains or losses for the three and nine months ended September 30, 2016 and 2015 resulted from increases or decreases in value of the Canadian dollar compared to the U.S. dollar. 



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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

Sweet Holdings Results of Operations 



The following table is a condensed income statement summarizing the results of operations of the Sweet Holdings reportable segment for the three and nine months ended September 30, 2016 and 2015 (in thousands):







 

 

 

 

 

 

 

 



 

For the Three Months

 

For the Nine Months



 

Ended September 30,

 

Ended September 30,



 

2016

2015

Change

 

2016

2015

Change

Trade sales

$

6,463  7,079  (616)

 

18,383  17,241  1,142 

Cost of goods sold

 

(5,164) (5,580) 416 

 

(17,129) (11,904) (5,225)

Gross margin

 

1,299  1,499  (200)

 

1,254  5,337  (4,083)

Interest expense

 

86  213  (127)

 

402  542  (140)

Selling, general and administrative expenses

 

3,980  4,013  (33)

 

12,639  10,063  2,576 

Total costs and expenses

 

4,066  4,226  (160)

 

13,041  10,605  2,436 

Loss before income taxes

 

(2,767) (2,727) (40)

 

(11,787) (5,268) (6,519)

Provision (benefit) for income taxes

 

(74) 77 

 

(298) 301 

Net loss

$

(2,770) (2,653) (117)

 

(11,790) (4,970) (6,820)

Gross margin percentage

%

20.10  21.18  (1.08)

 

6.82  30.96  (24.13)

SG&A as a percent of trade sales

%

61.58  56.69  4.89 

 

68.75  58.37  10.39 





The decrease in trade sales for the three months ended September 30, 2016 compared to the same 2015 period resulted primarily from lower trade sales at Jer’s, and Williams and Bennett partially offset by higher trade sales at Kencraft and Droga as well as higher trade sales at Hoffman’s associated with the opening of new retail stores. 

The increase in trade sales for the nine months ended September 30, 2016 compared to the same 2015 period resulted primarily from higher trade sales at Kencraft and Droga as Kencraft was acquired on April 1, 2015 and Droga was acquired on June 1, 2015. 

The lower gross margin and gross margin percentage for the three months ended September 30, 2016 compared to the same 2015 period resulted primarily from higher trade sales discounts and promotions, as Sweet Holdings is seeking to expand its points of distribution. Inventory markdowns were approximately $0.2 million during the three months ended September 30, 2016 and related primarily to obsolete packaging inventory at Hoffman’s.  Inventory markdowns were approximately $0.6 million during the three months ended September 30, 2015 and related primarily to Helen Grace obsolete inventory.

The lower gross margin and gross margin percentage for the nine months ended September 30, 2016 compared to the same 2015 period resulted primarily from approximately $3.4 million of inventory markdowns during the nine months ended September 30, 2016 which related primarily to excess and obsolete inventory compared to $0.6 million of inventory markdowns during the nine months ended September 30, 2015. 

The decline in interest expense for the three and nine months ended September 30, 2016 compared to the same 2015 periods resulted from a $5.0 million principal paydown of the Iberiabank revolving line of credit in July 2016. 

The lower selling, general and administrative expenses for the three months ended September 30, 2016 compared to the same 2015 period reflects the closing of the Jer’s offices in California in June 2016 partially offset by higher compensation, hiring and severance costs associated with hiring industry professionals to integrate and reposition the businesses.  

The higher selling, general and administrative expenses for the nine months ended September 30, 2016 compared to the same 2015 period reflects a charge for approximately $0.8 million associated with the closing and relocation of Jer’s sales office and distribution facilities to Kencraft’s facilities in Utah, and costs to enter into new sales channels. Also contributing to the increase in selling, general and administrative expenses for the nine months ended September 30, 2016 compared to the same 2015 period was on-going costs to integrate companies and facilities acquired during the years ended December 31, 2014 and 2015 and higher compensation and consulting expense.  The increased compensation expense related to employee severance costs, the hiring of a Vice President of Operations, Vice President of Finance and recruitment

37


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

expenses related to the hiring of a BBX Sweet Holdings CEO in October 2016 as well as new hires in the sales and marketing departments. Selling, general and administrative expenses were also impacted by higher marketing, advertising, compensation and occupancy costs associated with Hoffman’s retail store expansion initiatives.  Further, expenses are being incurred at the Sweet Holdings reportable segment in connection with the opening of additional retail stores and the costs associated with the consolidation of the operations of acquired businesses. It is anticipated that the segment will continue to experience losses as the segment incurs expenses associated with these activities and the continued growth of the segment.

 





38


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

BBX Capital Consolidated Financial Condition

BBX Capital’s total assets as of September 30, 2016 were $407.2 million compared to $393.5 million as of December 31, 2015.  The changes in the components of total assets from December 31, 2015 to September 30, 2016 are summarized below:

·

Increase in cash resulting primarily from Woodbridge and joint venture dividends, repayments of loans receivable and proceeds from the sales of real estate held-for-sale partially offset by cash used in operating businesses and corporate overhead, 

·

Decrease in restricted cash associated with land development activities and the repayment of a note payable with the restricted time deposit securing the note payable,

·

Lower loans receivable and loans held-for-sale balances due to $22.2 million of loan repayments and $4.6 million of loans transferred as a result of foreclosure to real estate held-for-sale,  

·

Higher trade receivables due to increased Renin trade receivables associated with installation projects where Renin receives payment upon project completion partially offset by lower Sweet Holdings trade receivables primarily reflecting trade sales seasonality,      

·

Decrease in real estate held-for-sale primarily from the sale of $17.6 million of real estate, transfer of a $6.6 million student housing facility to properties and equipment and impairments of $2.9 million partially offset by the transfer of $11.6 million of real estate held-for-investment to real estate held-for-sale due to land entitlements received on a property and real estate acquired through foreclosure,

·

Increase in investment in unconsolidated real estate joint ventures reflecting $5.8 million of joint venture equity earnings and $2.4 million of additional investments partially offset by $7.8 million of joint ventures dividends,  

·

Increase in investment in Woodbridge reflecting $22.1 million of equity in earnings partially offset by $19.5 million of dividends,

·

Increase in properties and equipment associated with the transfer of a student housing facility to properties and equipment from real estate held-for-sale and the opening of Hoffman’s retail stores,

·

Increase in inventory resulting primarily from increased Renin inventory partially offset by $3.4 million of Sweet Holdings inventory write-downs, and

·

Decrease in other intangible assets resulting primarily from a $0.4 million impairment in connection with the relocation of the Jer’s sales office and distribution facility to Kencraft and amortization partially offset by a $0.5 million area development fee paid to the MOD Super Fast Pizza franchisor.  



BBX Capital's total liabilities at September 30, 2016 were $49.3 million compared to $57.5 million at December 31, 2015.  The changes in the components of total liabilities from December 31, 2015 to September 30, 2016 are summarized below:



·

Decrease in accounts payable resulting primarily from seasonality,

·

Decrease in notes payable associated with a $5.0 million pay-down of the Iberiabank revolving line-of-credit and the repayment of a $1.0 million note payable with a restricted time deposit partially offset by additional borrowings at Renin, 

·

Decrease in principal and interest advances on residential loans due to loan and real estate liquidations, and

·

Increase in other liabilities associated with the retirement of Class A Common Stock in connection with BBX Capital’s share based compensation withholding tax obligation. 



Liquidity and Capital Resources 

BBX Capital’s current assets at September 30, 2016 consisted of cash, inventory and trade receivables aggregating $130.3 million. This does not include $23.0 million of current assets held in Renin. BBX Capital had $17.3 million of current liabilities as of September 30, 2016. This does not include $9.9 million of current liabilities of Renin.  BBX Capital’s principal sources of liquidity are its cash holdings, funds obtained from scheduled payments on loans, loan recoveries, sales of its loans, loan payoffs, sales of real estate held-for-sale, income from income producing real estate, revenues from BBX Sweet Holdings’ operations and dividends received from Woodbridge and BBX Capital’s investments in real estate joint ventures. Management believes that BBX Capital has sufficient liquidity to fund operations for the foreseeable future.



BBX Capital expects that it will receive dividends from time to time from its 46% ownership interest in Woodbridge. During the nine months ended September 30, 2016, BBX Capital received $19.5 million of dividends from Woodbridge. Distributions must be declared by Woodbridge and approved in advance by both BFC and BBX Capital.  Dividends from Woodbridge will be dependent on and subject to Bluegreen’s results of operations and cash flows, as well as restrictions contained in Bluegreen’s debt facilities. As a consequence, BBX Capital may not receive dividends from Woodbridge consistent with prior periods or in the time frames or amounts anticipated, or at all. BBX Capital may also

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

receive funds from BFC in connection with its tax sharing agreement to the extent BFC utilizes BBX Capital’s tax benefits in BFC’s consolidated tax return.  BBX Capital also expects to obtain funds in subsequent periods from cash flows on its loans, real estate and investments in unconsolidated real estate joint ventures.  BBX Capital also may seek to obtain funds through borrowings or the issuance of equity securities. BBX Capital anticipates utilizing these funds for general corporate purposes, including selling, general and administrative expenses, loan servicing costs, real estate operating expenses, Renin and BBX Sweet Holdings operating expenses and, to the extent of available liquidity, to pursue its business strategy of investing, directly or through joint ventures, in real estate (which may include the acquisition and/or development of real estate) and operating businesses.  BBX Sweet Holdings currently intends to continue to pursue acquisitions in the candy and confections industry and BBX Capital may also pursue acquisitions in other industries.



BBX Capital has entered into an area development agreement with MOD Super Fast Pizza Franchising, LLC with the goal of developing 50 or more MOD locations throughout Florida over the next seven years, including the major metropolitan markets of Miami, Fort Lauderdale, Palm Beach, Orlando and Tampa. MOD is a national franchisor with 160 MOD locations across 18 states and the United Kingdom.



A significant source of BBX Capital’s liquidity is the liquidation of loans and real estate, recoveries from the charged off loan portfolio, cash proceeds from the contribution of properties to real estate joint ventures, dividends from joint ventures and dividends from Woodbridge.  During the nine months ended September 30, 2016, the proceeds from principal repayments and recoveries from the charged off loan portfolio and sales of real estate were approximately $42.0 million and $20.4 million, respectively. During the nine months ended September 30, 2015, the proceeds from principal repayments of loans and sales of real estate were approximately $27.0 million and $25.1 million, respectively. During the nine months ended September 30, 2015, the Company received $20.7 million of dividends from Woodbridge. There is no assurance that BBX Capital will realize proceeds from these sources in future periods in similar amounts or on similar timeframes.



BBX Capital’s Consolidated Contractual Obligations as of September 30, 2016 were (in thousands):







 

 

 

 

 

 



 

Payments Due by Period



 

 

Less than

 

 

After 5

Contractual Obligations

 

Total

1 year

1-3 years

4-5 years

years

Operating lease obligations

$

18,470  3,220  6,240  4,443  4,567 

Notes payable (1)

 

15,672  2,711  11,373 

 -

1,588 

Other obligations

 

250  120  130 

 -

 -

Total contractual cash obligations

$

34,392  6,051  17,743  4,443  6,155 



(1)

Amounts represent scheduled principal payments and do not include interest payments.



Notes payable as of September 30, 2016 consisted of a term loan and revolving credit advances of Renin with an aggregate balance of $8.2 million, $5.8 million of promissory notes, including promissory notes representing holdback amounts, issued by BBX Sweet Holdings in connection with its acquisitions, and a term loan and revolving line-of-credit of BBX Sweet Holdings with aggregate balances of $1.6 million.  Additionally, BBX Sweet Holdings had $5.0 million of available borrowings under its Iberiabank revolving credit facility as of September 30, 2016.



BBX Capital guarantees certain obligations of its wholly-owned subsidiaries and unconsolidated real estate joint ventures, which are not included in the contractual obligations table above, and also guarantees certain of the obligations in the above table.  See Note 10 Commitments and Contingencies to the “Notes to Condensed Consolidated Financial Statements - Unaudited”, for a discussion of BBX Capital’s contingent obligations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures



As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September  30, 2016 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.



Changes in Internal Control over Financial Reporting



There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2016 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.  







PART II - OTHER INFORMATION



Item 1.  Legal Proceedings.



Except as described below, there have been no material changes in our legal proceedings from those disclosed in the “Legal Proceedings” section of our Annual Report in Form 10-K for the year ended December 31, 2015.



Shiva Stein, on behalf of herself and all others similarly situated, v. BBX Capital Corp., John E. Abdo, Norman H. Becker, Steven M. Coldren, Willis N. Holcombe, Jarett S. Levan, Anthony P. Segreto, Charlie C. Winningham, II, BFC Financial Corporation and BBX Merger Subsidiary LLC, Case No. CACE16014713, Circuit Court of the 17​th Judicial Circuit in and for Broward County, Florida.



On August 10, 2016, Shiva Stein filed a lawsuit against BFC, Merger Sub, BBX Capital and the members of BBX Capital’s board of directors, which seeks to establish a class of BBX Capital’s shareholders and challenges the currently proposed Merger of BBX Capital with and into a wholly owned subsidiary of BFC.  The plaintiff asserts that the proposed Merger consideration undervalues BBX Capital and is unfair to BBX Capital’s public shareholders, that the sales process was unfair and that BBX Capital’s directors breached their fiduciary duties of care, loyalty and candor owed to the public shareholders of BBX Capital because, among other reasons, they failed to take steps to maximize the value of BBX Capital to its public shareholders and instead diverted consideration to themselves. The lawsuit also alleges that BFC, as the controlling shareholder of BBX Capital, breached its fiduciary duties of care, loyalty and candor owed to the public shareholders of BBX Capital by utilizing confidential, non-public information to formulate the Merger consideration and not acting in the best interests of BBX Capital’s public shareholders. In addition, the lawsuit includes a cause of action against BBX Capital, BFC and Merger Sub for aiding and abetting the alleged breaches of fiduciary duties. The lawsuit requests that the court grant an injunction blocking the proposed Merger or, if the proposed Merger is completed, rescind the transaction or award damages as determined by the court.  BFC and BBX Capital believe that the lawsuit is without merit and intend to vigorously defend the action.



A second lawsuit which sought to challenge the merger and included many of the same claims as set forth in the Stein action described above was filed in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida during September 2016. This lawsuit was dismissed with prejudice during October 2016.



Securities and Exchange Commission v. BankAtlantic Bancorp, Inc. and Alan B. Levan, Case No. 12-60082-CV-SCOLA, United States District Court, Southern District of Florida

   

On January 18, 2012, the SEC brought an action in the United States District Court for the Southern District of Florida against BBX Capital and Alan B. Levan, BBX Capital’s then-serving Chairman and Chief Executive Officer, alleging that they violated securities laws by not timely disclosing known adverse trends in BBX Capital’s commercial real estate loans, selectively disclosing problem loans and engaging in improper accounting treatment of certain specific loans which may have resulted in a material understatement of its net loss in BBX Capital’s Annual Report on Form 10-K for the year ended December 31, 2007. Further, the complaint alleged that Mr. Alan B. Levan intentionally misled investors in related earnings calls. The Court denied summary judgment as to most issues, but granted the SEC’s motion for partial summary judgment that certain statements in one of Alan Levan’s answers on a July 25, 2007 investor conference call were false.  On December 15, 2014, after a six-week trial, the jury found in favor of BBX Capital and Alan B. Levan with respect to the disclosures made during an April 2007 earnings conference call and in BBX Capital’s quarterly reports on Form 10-Q for the 2007 first and second quarters, but found that they had engaged in an act of fraud or deceit toward shareholders or prospective investors by making materially false statements knowingly or with severe recklessness (1) with respect to three statements in the July 25, 2007 conference call referenced above, and (2) in their decision to sell certain loans in the fourth quarter of 2007 and failing to classify the loans as held-for sale in the 2007 Annual Report on Form 10-K.  The jury also found that Mr. Alan B. Levan made or caused to be made false statements to the independent accountants regarding the held for sale issue. 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

   

The SEC sought a final judgment: (i) permanently barring Mr. Alan B. Levan from serving as an officer or director of any SEC reporting company; (ii) imposing civil penalties of $5.2 million against BBX Capital and $1.56 million against Mr. Alan B. Levan; and (iii) permanently restraining BBX Capital and Mr. Alan B. Levan from violating securities laws.  On September 24, 2015, the court entered a final judgment denying the SEC’s request for a permanent bar from Mr. Alan B. Levan serving as an officer or director of any public company, but instead ordered Mr. Alan B. Levan barred from serving as an officer or director of any public company for a period of two years commencing on December 23, 2015. As a result of the court’s decision, on December 23, 2015, Mr. Alan B. Levan resigned as Chairman and Chief Executive Officer of BBX Capital, as Chairman, Chief Executive Officer and President of BFC, and as a director of BBX Capital and BFC.  The court also imposed monetary penalties of $4,550,000 against BBX Capital and $1,300,000 against Mr. Alan B. Levan.    As a result of the bar order, Mr. Alan B. Levan resigned as Chairman and Chief Executive Officer of BBX Capital, as Chairman, Chief Executive Officer and President of BFC, and as a director of BBX Capital and BFC.  Mr. Alan B. Levan continues to serve BFC and BBX Capital in a non-executive capacity as Founder and strategic advisor to each company’s board of directors.



On September 28, 2016, the Eleventh Circuit Court of Appeals reversed the pretrial summary judgment described above and set aside the judgment of the district court.  The reversal, once final, will terminate the financial penalties and set aside the two year officer and director bar imposed against Mr. Alan B. Levan.  The court remanded the case for a new trial on the two claims stripped of the summary judgment. The SEC has the right to seek a retrial of the two claims. The order entered by the Eleventh Circuit Court of Appeals will not be final until the time to file motions for rehearing expire or any filed motions for rehearing are denied. Once the decision is final, it is expected that Mr. Alan B. Levan will be re-appointed as Chairman, Chief Executive Officer and President of BFC and as Chairman and Chief Executive Officer of BBX Capital. 





Item 1ARisk Factors.



There have been no material changes from the risk factors disclosed in the “Risk Factors” section of BBX Capital’s Annual Report on Form 10-K for the year ended December 31, 2015



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On September 30, 2016, certain employees of the Company surrendered to the Company a total of 158,024 shares of BBX Capital’s Class A Common Stock as payment in satisfaction of tax withholding obligations relating to the vesting on that date of certain previously reported restricted stock awards granted to the employees. Further information is set forth in the table below:



Period

(a) Total Number of Shares Purchased

(b) Average Price Paid per Share

(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs

July 1 – July 31, 2016

-

$ -

-

 

N/A

August 1 – August 31, 2016

-

$ -

-

 

N/A

September 1 –

September 30, 2016

158,024

$ 20.56

-

 

N/A

 





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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 



Item 6Exhibits



Exhibit 2.1Agreement and Plan of Merger, dated as of July 27, 2016, by and among BFC Financial Corporation, BBX Merger Subsidiary LLC and BBX Capital Corporation (incorporation by reference to Exhibit 2.1 to BBX Capital’s Current Report on Form 8-K, filed with the SEC on July 28, 2016)



Exhibit 2.2 Letter Agreement, dated October 20, 2016, amending the Agreement and Plan of Merger, dated as of July 27, 2016, by and among BFC Financial Corporation, BBX Merger Subsidiary LLC and BBX Capital Corporation (incorporated by reference to Exhibit 2.1 to BBX Capital’s Current Report on Form 8-K, filed with the SEC on October 20, 2016)

Exhibit 31.1Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101Interactive Data Files

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

Signatures



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.







 

 

BBX Capital Corporation



 

 

November 8, 2016 

By

/s/Jarett S. Levan

    Date

 

Jarett S. Levan



 

Acting Chairman of the Board



 

and Chief Executive Officer; President 



 

 

November 8, 2016 

By:

/s/Raymond S. Lopez

    Date

 

Raymond S. Lopez



 

Executive Vice President,



 

Chief Financial Officer



44