Bluegreen Vacations Holding Corp - Quarter Report: 2014 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC  20549

 

FORM 10-Q

 

 

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarter Ended June 30, 2014

 

[   ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number

001-09071

 

BFC Financial Corporation

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Not Applicable

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES [X]NO [   ]

 

Indicate by check mark whether the registrant has submitted electronically 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).

 

YES [X]NO [   ]

 

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

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YES [   ]NO [ X ]

 

The number of shares outstanding of each of the registrant’s classes of common stock as of August 4, 2014 is as follows:

 

Class A Common Stock of $.01 par value, 76,701,334 shares outstanding.
Class B Common Stock of $.01 par value, 7,510,894 shares outstanding.

 

 

 

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PART I – FINANCIAL INFORMATION

 

Item 1.  FINANCIAL STATEMENTS

 

 

 

 

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BFC Financial Corporation

Notes to Consolidated Financial Statements - Unaudited

 

 

1.    Presentation of Interim Financial Statements

 

Basis of Financial Statement Presentation

 

The accompanying unaudited consolidated financial statements of BFC Financial Corporation (“BFC” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” “our,” or the “Company”) have been prepared in accordance with generally accepted accounting principles (“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 consolidated financial statements contain all adjustments, which include normal recurring adjustments, as are necessary for a fair statement of the consolidated financial condition of BFC at June 30, 2014; the consolidated results of operations and comprehensive income (loss) of BFC for the three and six months ended June 30, 2014 and 2013; changes in consolidated equity of BFC for the six months ended June 30, 2014; and the consolidated cash flows of BFC for the six months ended June 30, 2014 and 2013. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or any other future period.  These unaudited consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “Annual Report”).  All significant inter-company balances and transactions have been eliminated in consolidation.  As used throughout this document, the term “fair value” reflects the Company’s estimate of fair value as discussed herein.  Certain amounts for prior periods have been reclassified to conform to the current period’s presentation.

 

BFC is a Florida-based holding company whose principal holdings include an approximately 52% equity interest in BBX Capital Corporation (formerly BankAtlantic Bancorp, Inc.) and its subsidiaries (“BBX Capital”).  BBX Capital is a Florida-based company involved in the ownership, financing, acquisition, development and management of real estate, including through real estate joint ventures, and investments in middle market operating businesses.  BFC’s principal holdings also include its interest in Woodbridge Holdings, LLC (“Woodbridge”), which is owned 54% by BFC and 46% by BBX Capital.  Woodbridge owns 100% of Bluegreen Corporation and its subsidiaries (“Bluegreen”), a sales, marketing and management company focused on the vacation ownership industry.  BFC also holds interests in other investments and subsidiaries as described herein.  The Company reports the results of its continuing operations through four segments: Bluegreen Resorts; BBX; Florida Asset Resolution Group; and Renin.

 

On July 31, 2012, BBX Capital completed the sale to BB&T Corporation (“BB&T”) of all of the issued and outstanding shares of capital stock of BankAtlantic, the former wholly-owned banking subsidiary of BBX Capital (the stock sale and related transactions are referred to in this report as the “BankAtlantic Sale” or the “BB&T Transaction”).  The BankAtlantic Sale was consummated pursuant to the terms of a definitive agreement, dated November 1, 2011, between BBX Capital and BB&T, as amended on March 13, 2012 (the “BB&T Agreement”). The March 13, 2012 amendment amended the previously contemplated terms of the transaction to, among other things, provide for the assumption by BB&T of BBX Capital’s $285.4 million in principal amount of then-outstanding trust preferred securities (“TruPS”) obligations. 

 

Pursuant to the BB&T Agreement, prior to the closing of the BankAtlantic Sale, BankAtlantic formed two wholly-owned subsidiaries, BBX Capital Asset Management, LLC (“CAM”) and Florida Asset Resolution Group, LLC (“FAR”). BankAtlantic contributed to FAR certain performing and non-performing loans, tax certificates, and real estate owned that had an aggregate carrying value on BankAtlantic’s Consolidated Statement of Financial Condition of approximately $346 million as of July 31, 2012 (the date the BB&T Transaction was consummated).  FAR assumed all liabilities related to these assets. BankAtlantic also contributed approximately $50 million in cash to FAR on July 31, 2012 and thereafter distributed all of the membership interests in FAR to BBX Capital.  At the closing of the BankAtlantic Sale, BBX Capital transferred to BB&T 95% of the outstanding preferred membership interests in FAR in connection with BB&T’s assumption of BBX Capital’s $285.4 million in principal amount of outstanding TruPS obligations. BBX Capital continues to hold the remaining 5% of FAR’s preferred membership interests.  BB&T will hold its 95% preferred interest in the net cash flows of FAR until such time as it has recovered $285 million in preference amount plus a priority return of LIBOR + 2.00% per annum on any unpaid preference amount.  At that time, BB&T’s interest in FAR will terminate, and BBX Capital will thereafter own 100% of FAR through its ownership of FAR’s Class R units.  BBX Capital entered into an incremental $35 million guarantee in BB&T’s favor to further assure BB&T’s recovery of the $285 million preferred interest within seven years.  At June

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30, 2014, BB&T’s preferred interest in FAR had been reduced through cash distributions to approximately $27 million. 

 

Prior to the closing of the BankAtlantic Sale, BankAtlantic contributed approximately $82  million in cash to CAM and certain non-performing commercial loans, commercial real estate and previously written off assets that had an aggregate carrying value on BankAtlantic’s Consolidated Statement of Financial Condition of $125 million as of July 31, 2012.  CAM assumed all liabilities related to these assets.  Prior to the closing of the BankAtlantic Sale, BankAtlantic distributed all of the membership interests in CAM to BBX Capital.  CAM remains a wholly-owned subsidiary of BBX Capital.

 

GAAP requires that BFC consolidate the financial results of the entities in which it has controlling interests, including BBX Capital, Woodbridge and Bluegreen.  As a consequence, the assets and liabilities of all such entities are presented on a consolidated basis in BFC’s financial statements. However, except as otherwise noted, the debts and obligations of the consolidated entities, including BBX Capital, Woodbridge, and Bluegreen, are not direct obligations of BFC and are non-recourse to BFC. Similarly, the assets of those entities are not available to BFC absent a dividend or distribution from those entities (and, in the case of Bluegreen, a subsequent dividend or distribution by Woodbridge). The recognition by BFC of income from controlled entities is determined based on the total percent of economic ownership in those entities, as described above.

 

 

BFC and BBX Capital- Acquisition of Renin Corporation

 

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

 

BBX Capital- Acquisition of Hoffman’s Chocolates and Williams and Bennett 

 

On December 10, 2013, BBX Capital, through its wholly owned subsidiary BBX Sweet Holdings, LLC (“BBX Sweet Holdings”), acquired Hoffman’s Chocolates and its subsidiaries Boca Bons and Good Fortunes (collectively, “Hoffman’s”).  Hoffman’s provides premier chocolate products with a product line of over 70 varieties of confections.  Hoffman’s currently operates 4 retail stores in South Florida. 

 

On January 13, 2014, BBX Sweet Holdings acquired Williams & Bennett, including its other brand Big Chocolate Dipper. Williams & Bennett is headquartered in Boynton Beach, Florida and is a manufacturer of quality chocolate products serving boutique retailers, big box chains, department stores, national resort properties, corporate customers, and private label brands.  The fair value of the identifiable net assets acquired was $2.1 million, which included $1.5 million of other intangible assets, $1.1 million of inventory and $0.7 million of liabilities assumed.    

 

BBX Capital Merger Agreement 

 

On May 7, 2013, BFC, BBX Merger Sub, LLC, a wholly-owned acquisition subsidiary of BFC (“BBX Merger Sub”), and BBX Capital entered into a merger agreement pursuant to which, subject to the terms and conditions of the agreement, BBX Capital will merge with and into BBX Merger Sub, with BBX Merger Sub continuing as the surviving company 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’s independent directors as well as the full boards of directors of both BFC and BBX Capital,  BBX Capital shareholders (other than BFC and shareholders of BBX Capital who exercise and perfect their appraisal rights in accordance with Florida law) will be entitled to receive 5.39 shares of BFC’s Class A Common Stock in exchange for each share of BBX Capital’s Class A Common Stock that they hold at the effective time of the merger (the “Exchange Ratio”). 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 and the exercise price of the option will be divided by the Exchange Ratio. 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.  

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At special meetings of the companies’ shareholders held on April 29, 2014, the shareholders of both BFC and BBX Capital approved the merger.  However, consummation of the merger remains subject to certain other closing conditions, including, without limitation, BFC’s Class A Common Stock being approved for listing on a national securities exchange (or interdealer quotation system of a registered national securities association) at the effective time of the merger and the absence of any “Material Adverse Effect” (as defined in the merger agreement) with respect to either BBX Capital or BFC. 

 

BFC has been advised by the NYSE and NASDAQ that, subject to a change in their position in the future, they would not consider approval of any application for listing of BFC’s Class A Common Stock prior to the resolution of the currently pending litigation brought by the SEC against BBX Capital and its Chairman, who also serves as BFC’s Chairman. See Note 11 for additional information regarding this litigation.  Accordingly, BFC has not yet filed an application for the listing of its Class A Common Stock and may or may not do so depending on whether a national securities exchange or qualified inter-dealer quotation system indicates an application could be considered for approval prior to resolution of the litigation. The pendency of the SEC action and delays in resolving the action have had the effect of delaying any listing of BFC’s Class A Common Stock. Pursuant to the terms of the merger agreement, because the merger was not consummated by April 30, 2014, either BFC or BBX may terminate the merger agreement at any time.  It is not currently expected that the merger will be consummated prior to the first quarter of 2015.

 

A consolidated purported class action lawsuit is pending in the 17th Judicial Circuit in and for Broward County, Florida, which seeks to enjoin the merger or, if it is completed, to recover relief as determined by the presiding court.  BFC and BBX Capital believe that the lawsuit is without merit and intend to vigorously defend the action.

 

Woodbridge Acquisition of Bluegreen

 

On April 2, 2013, Bluegreen merged with a wholly-owned subsidiary of Woodbridge in a cash merger transaction (sometimes hereinafter referred to as the “Bluegreen merger” or the “Bluegreen cash merger”).  Pursuant to the terms of the merger agreement, Bluegreen’s shareholders (other than Woodbridge) received consideration of $10.00 in cash for each share of Bluegreen’s common stock that they held at the effective time of the merger, including unvested restricted shares. In addition, each option to acquire shares of Bluegreen’s common stock that was outstanding at the effective time of the merger, whether vested or unvested, was canceled in exchange for a cash payment to the holder in an amount equal to the excess, if any, of the $10.00 per share merger consideration over the exercise price per share of the option. The aggregate merger consideration was approximately $149.2 million.  As a result of the merger, Bluegreen, which was the surviving corporation of the merger, became a wholly-owned subsidiary of Woodbridge.  Prior to the merger, Woodbridge, which was a wholly-owned subsidiary of BFC at that time, owned approximately 54% of Bluegreen’s outstanding common stock.

 

In connection with the financing of the merger, BFC and Woodbridge entered into a Purchase Agreement with BBX Capital on April 2, 2013 (the “Purchase Agreement”).  Pursuant to the terms of the Purchase Agreement, BBX Capital invested $71.75 million in Woodbridge in connection with the closing of the merger in exchange for a 46% equity interest in Woodbridge. BFC continues to hold the remaining 54% of Woodbridge’s outstanding equity interests. BBX Capital’s investment in Woodbridge consisted of $60 million in cash, which was utilized to pay a portion of the aggregate merger consideration, and a promissory note in Woodbridge’s favor in the principal amount of $11.75 million (the “Note”). The Note has a term of five years, accrues interest at a rate of 5% per annum and provides for payments of interest only on a quarterly basis during the term of the Note, with all outstanding amounts being due and payable at the end of the five-year term. During 2013, BBX Capital paid to Woodbridge a total of approximately $441,000 of interest on the Note.  During the six months ended June 30, 2014, Woodbridge recognized approximately $294,000 of interest on the Note. In connection with BBX Capital’s investment in Woodbridge, BFC and BBX Capital entered into an Amended and Restated Operating Agreement of Woodbridge, which sets forth BFC’s and BBX Capital’s respective rights as members of Woodbridge and provides for, among other things, unanimity on certain specified “major decisions” and for distributions by Woodbridge to be made on a pro rata basis in accordance with BFC’s and BBX Capital’s respective percentage equity interests in Woodbridge. During the six months ended June 30, 2014, Bluegreen paid a total of $33.5 million in cash dividends to Woodbridge, and Woodbridge has declared and paid cash dividends totaling $32.3 million, which were allocated pro rata among BFC and BBX Capital based on their percentage ownership interests in Woodbridge ($17.4 million to BFC and $14.9 million to BBX Capital). During 2013, Bluegreen paid a total of $47.0 million in cash dividends to Woodbridge, and Woodbridge declared and paid cash dividends totaling $44.3 million, which were allocated pro rata among BFC and BBX Capital based on their percentage ownership interests in Woodbridge ($23.9 million to BFC and $20.4 million to BBX Capital).

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On March 26, 2013, Bluegreen issued $75 million of senior secured notes (the “2013 Notes Payable”) in a private transaction, the proceeds of which, together with approximately $14 million of Bluegreen’s unrestricted cash, were utilized in connection with the funding of the $149.2 million merger consideration indicated above. See Note 10 for additional information regarding the 2013 Notes Payable.

 

Two consolidated class action lawsuits relating to the Bluegreen merger remain pending.  The plaintiffs in these actions have asserted that the consideration received by Bluegreen’s minority shareholders in the merger was inadequate and unfair, and are seeking to recover damages in connection with the merger. The Company believes that these lawsuits are without merit and intends to vigorously defend the actions.  See Note 11 for additional information regarding these actions.

 

 

Subsequent Events

 

BBX Sweet Holdings Acquisitions

 

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

 

BBX Capital’s Joint Venture with Bonterra

 

In July 2014, BBX Capital entered into a joint venture agreement with CC Devco Homes 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 exchange, BBX Capital received a joint venture interest and $2.2 million in cash. BBX Capital is entitled to receive 45% of the joint venture distributions and BBX Capital initially contributed 57% of the capital. BBX Capital continues to be liable for the $8.3 million mortgage that was assumed by the joint venture.

 

 

2.    Liquidity 

 

BFC

 

As of June 30, 2014 and December 31, 2013, BFC and its wholly-owned subsidiaries had cash, cash equivalents and short-term investments of approximately $22.8 million and $15.5 million, respectively. 

 

Except as otherwise noted, the debts and obligations of BBX Capital, Woodbridge and Bluegreen are not direct obligations of BFC and generally are non-recourse to BFC.  Similarly, the assets of those entities are not available to BFC absent a dividend or distribution from those entities (and, in the case of Bluegreen, a subsequent dividend or distribution by Woodbridge). BFC’s principal sources of liquidity are its available cash and short-term investments and dividends from its subsidiaries.  BFC expects to receive dividends from Woodbridge and utilize such dividends to fund its current and future operations and investments.  However, as described below, dividend payments are dependent on a number of factors and may be subject to limitations outside of BFC’s control.

 

We expect to use our available funds to fund operations and meet our obligations.  We may also use available funds to make additional investments in the companies within our consolidated group, invest in real estate based opportunities and middle market operating businesses, such as the investment we made in Renin during October 2013, or invest in other opportunities and/or repurchase shares of our common stock pursuant to our share repurchase program.  On September 21, 2009, our board of directors approved a share repurchase program which authorizes the repurchase of up to 20,000,000 shares of Class A Common Stock and Class B Common Stock at an aggregate cost of up to $10 million.  The share repurchase program replaced our $10 million repurchase program that our board of directors approved in October 2006 which placed a limitation on the number of shares which could be repurchased under the program at 1,750,000 shares of Class A Common Stock.  The program authorizes management, at its discretion, to repurchase shares from time to time subject to market conditions and other factors considered by management.    There were no shares repurchased under the share repurchase program during the six months ended June 30, 2014 or the year ended December 31, 2013. 

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BFC has not received cash dividends from BBX Capital since March 2009. Prior to its deregistration as a savings and loan holding company following the sale of BankAtlantic during July 2012, the payment of dividends by BBX Capital was subject to the oversight of the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and was restricted by the terms of the indentures governing BBX Capital’s TruPS due to the deferral of interest payments thereunder.  While these restrictions no longer apply, BBX Capital has indicated that it expects to utilize its available cash to pursue opportunities in accordance with its business and investment strategies and has no current plans to pay cash dividends to its shareholders.  BBX Capital will only pay dividends if and when declared by its board of directors, a majority of whom are independent directors under the listing standards of the NYSE.    

 

Furthermore, certain of Bluegreen’s credit facilities contain terms which could limit the payment of cash dividends and Bluegreen may only pay dividends subject to such restrictions as well as the declaration of dividends by its board of directors.  In addition, Woodbridge, as the parent company of Bluegreen, is entitled to 100% of all dividends paid by Bluegreen and any subsequent dividend or distribution by Woodbridge requires the approval of the boards of directors of both BBX Capital and BFC. BBX Capital and BFC own 46% and 54%, respectively, of Woodbridge.

 

During the six months ended June 30, 2014, Bluegreen paid a total of $33.5 million in cash dividends to Woodbridge. During 2014, Woodbridge declared and paid cash dividends totaling approximately $32.3 million, which were allocated pro rata among BFC and BBX Capital based on their percentage ownership interests in Woodbridge ($17.4 million to BFC and $14.9 million to BBX Capital).  During 2013, Bluegreen paid a total of $47.0 million in cash dividends to Woodbridge, and Woodbridge paid cash dividends totaling $44.3 million, which were allocated pro rata among BFC and BBX Capital based on their percentage ownership interests in Woodbridge ($23.9 million to BFC and $20.4 million to BBX Capital).

 

We believe that our current financial condition and credit relationships, together with anticipated cash flows from other sources of funds, including potential dividends from Woodbridge, will allow us to meet our anticipated liquidity needs. If those sources of funds are not sufficient to meet our liquidity needs, we might seek to liquidate some of our investments or fund operations with the proceeds from additional equity or debt financings.  In addition to the foregoing, we may also seek to raise any necessary funds through the incurrence of long-term secured or unsecured indebtedness.  However, these alternatives may not be available to us on attractive terms, or at all.  The inability to raise any necessary funds through the sources discussed above would have a material adverse effect on the Company’s business, results of operations and financial condition.

 

Woodbridge

 

Woodbridge, at its parent company level, had cash and cash equivalents totaling approximately $0.6  million at June 30, 2014.  Woodbridge’s principal sources of liquidity are its cash holdings and dividend distributions received from Bluegreen.  As previously described, during the six months ended June 30, 2014, Bluegreen paid a total of $33.5 million in cash dividends to Woodbridge, and during 2014, Woodbridge declared and paid cash dividends totaling approximately $32.3 million, which were allocated pro rata among BFC and BBX Capital based on their percentage ownership interests in Woodbridge ($17.4 million to BFC and $14.9 million to BBX Capital).

 

On September 21, 2009, BFC consummated its merger with Woodbridge Holdings Corporation (“WHC”). Pursuant to the merger, WHC merged with and into Woodbridge, which was a wholly-owned subsidiary of BFC at that time.  The shareholders of WHC at the effective time of the merger (other than BFC) were entitled to receive 3.47 shares of BFC’s Class A Common Stock in exchange for each share of WHC’s Class A Common Stock that they owned.  Under Florida law, holders of WHC’s Class A Common Stock who did not vote to approve the merger and properly asserted and exercised their appraisal rights with respect to their shares (“Dissenting Holders”) are entitled to receive a cash payment in an amount equal to the fair value of their shares as determined in accordance with the provisions of Florida law in lieu of the shares of BFC’s Class A Common Stock that they would otherwise have been entitled to receive.  Dissenting Holders, who collectively held approximately 4.2 million shares of WHC’s Class A Common Stock, rejected Woodbridge’s offer of $1.10 per share and requested payment for their shares based on their respective fair value estimates of WHC’s Class A Common Stock.  In accordance with Florida law, Woodbridge thereafter commenced legal proceedings relating to the appraisal process.  In December 2009, a $4.6 million liability was recorded based on Woodbridge’s $1.10 per share offer to the Dissenting Holders, with a corresponding reduction to additional paid-in capital.  On July 5, 2012, the presiding court in the appraisal rights action determined the fair value of the Dissenting Holders’ shares to be $1.78 per share and awarded legal and other costs in favor of the Dissenting Holders.  As a result, the $4.6 million liability was increased to approximately $7.5 million (with a corresponding reduction to additional paid in capital of $2.8 million) during the quarter ended September 30, 2012

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to account for the per share value awarded.   On March 11, 2013, the court awarded legal fees and pre and post judgment interest to the Dissenting Holders for a total award to the Dissenting Holders of approximately $11.9 million (including the $7.5 million based on the $1.78 per share value determination).  As a result, the liability was increased by approximately $4.4 million during the fourth quarter of 2012.  Woodbridge has appealed the court’s ruling with respect to its fair value determination and the award of legal fees and costs.  On April 5, 2013, Woodbridge posted a $13.4 million bond in connection with the appeal.  The outcome of the appeal is uncertain. 

 

Bluegreen 

 

Bluegreen had cash and cash equivalents totaling $147.6 million at June 30, 2014. Bluegreen believes that its existing cash, anticipated cash generated from operations, anticipated future permitted borrowings under existing or proposed credit facilities and anticipated future sales of notes receivable under the purchase facilities and one or more replacement facilities it may put in place will be sufficient to meet its anticipated working capital, capital expenditure and debt service requirements for the foreseeable future.  Subject to the successful implementation of ongoing strategic initiatives and the availability of credit, Bluegreen will continue its efforts to renew, extend or replace any credit and receivables purchase facilities that have expired or that will expire in the near term.  Bluegreen may, in the future, also obtain additional credit facilities and may issue corporate debt or equity securities.  Any debt incurred or issued by Bluegreen may be secured or unsecured, bear interest at fixed or variable rates and may be subject to such terms as the lender may require.  Bluegreen’s efforts to renew or replace the credit facilities or receivables purchase facilities which have expired or which are scheduled to expire in the near term may not be successful, and sufficient funds may not be available from operations or under existing, proposed or future revolving credit or other borrowing arrangements or receivables purchase facilities to meet its cash needs, including debt service obligations.  To the extent Bluegreen is not able to sell notes receivable or borrow under such facilities, its ability to satisfy its obligations would be materially adversely affected.

 

BBX Capital

 

BBX Capital had cash of $45.0 million as of June 30, 2014, which does not include $2.7 million and $0.2 million of cash held in FAR and Renin, respectively.  BBX Capital had  $4.7 million of current liabilities as of June 30, 2014.  BBX Capital’s principal source of liquidity is its cash holdings, funds obtained from payments on and sales of its loans, loan payoffs, sales of real estate, income from income producing real estate, and distributions received from FAR and Woodbridge.  While FAR is consolidated in BFC and BBX Capital’s financial statements, the cash held in FAR and generated by its assets will be used primarily to pay FAR’s operating expenses and to pay BB&T’s 95% preferred membership interest and the related priority return to BB&T and will generally not be available for distribution to BBX Capital, until the BB&T preferred membership interest is repaid.  The balance of BB&T’s preferred interest in FAR was approximately $27.0  million and $16.4 million at June 30, 2014 and July 31, 2014, respectively.  BBX Capital does not expect its investments in Renin or BBX Sweet Holdings to be a source of liquidity for the foreseeable future.  Based on current and expected liquidity needs and sources, BBX Capital expects to be able to meet its liquidity needs over the next twelve months. 

 

 

3.    Fair Value Measurement 

 

Assets and liabilities on a recurring basis

 

There were no significant assets or liabilities measured at fair value on a recurring basis in the Company’s financial statements as of June 30, 2014 or December 31, 2013.

 

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Assets on a non-recurring basis

 

The following table presents major categories of assets measured at fair value on a non-recurring basis as of June 30, 2014 (in thousands):

 

 

 

 

 

 

Quantitative information about significant unobservable inputs within Level 3 on major categories of assets measured at fair-value on a non-recurring basis as of June 30, 2014 is as follows (Fair Value in thousands):

 

 

 

 

 

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The following table presents major categories of assets measured at fair value on a non-recurring basis as of June 30, 2013 (in thousands):

 

 

 

 

 

Quantitative information about significant unobservable inputs within Level 3 on major categories of assets measured at fair value on a non-recurring basis as of June 30, 2013 was as follows (Fair Value in thousands):

 

 

 

 

 

Liabilities on a non-recurring basis

 

There were no significant liabilities measured at fair value on a non-recurring basis in the Company’s financial statements as of June 30, 2014 or December 31, 2013.

 

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 as its loans are primarily secured by real estate.  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.  These 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 or properties, 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.  BBX Capital generally recognizes impairment losses on homogeneous loans based on third party broker price opinions when impaired homogenous loans become 120 days

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delinquent.  These third party valuations from real estate professionals 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.  As a consequence, the calculation of the fair value of the collateral is considered a  Level 3 input.

 

Impaired 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 approach valuation technique 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.  However, the appraisers or brokers use professional judgment in determining the fair value of the properties and BBX Capital may also adjust these values for changes in market conditions subsequent to the valuation date.  As a consequence of using appraisals, broker price opinions and adjustments to appraisals, the calculation of the fair values of the properties is considered a Level 3 input.    

 

Loans Held for Sale

 

Loans held for sale are valued using an income approach with Level 3 inputs as market quotes or sale transactions of similar loans are generally not available.  The fair value is estimated by discounting forecasted cash flows, using a discount rate that reflects the risks inherent in the loans held for sale portfolio.  For non-performing loans held for sale, the forecasted cash flows are based on the estimated fair value of the collateral less cost to sell adjusted for foreclosure expenses and other operating expenses of the underlying collateral until foreclosure or sale. 

 

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Financial Disclosures about Fair Value of Financial Instruments

 

The following tables present information for financial instruments at June 30, 2014 and December 31, 2013 (in thousands):

 

 

 

 

 

 

 

Management of each of the BFC, BBX Capital and Bluegreen 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, the fair value of certain of these financial instruments has been derived using the income approach technique with Level 3 unobservable inputs.  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.  These fair value estimates do not consider the tax effect that would be associated with the disposition of

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the assets or liabilities at their fair value estimates.  As such, the estimated value upon sale or disposition of the asset may not be received and the estimated value upon disposition of the liability in advance of its scheduled maturity may not be paid.

 

Fair values are estimated for loan portfolios with similar financial characteristics.  Loans are segregated by category, and each loan category is further segmented into performing and non-performing categories.  The fair value of BBX Capital’s performing loans is calculated using an income approach with Level 3 inputs by discounting forecasted cash flows using estimated market discount rates that reflect the interest rate and credit risk inherent in the loan portfolio.  BBX Capital’s management assigns a credit risk premium and an illiquidity adjustment to these loans based on delinquency status.  The fair value of non-performing 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 Bluegreen’s notes receivable is estimated using Level 3 inputs and is based on estimated future cash flows considering contractual payments and estimates of prepayments and defaults, discounted at a market rate.

 

BB&T’s preferred interest in FAR is considered an adjustable rate debt security.  The fair value of this security is calculated using the income approach with Level 3 inputs and was obtained by discounting forecasted cash flows by risk adjusted market interest rate spreads to the LIBOR swap curve.  The market spreads were obtained from reference data in secondary institutional markets. 

 

The amounts reported in the consolidated statements of financial condition relating to Bluegreen’s notes and mortgage notes payable and other borrowings, including receivable-backed notes payable, that provide for variable interest rates approximate the estimated fair values.  The fair value of Bluegreen’s fixed rate receivable-backed notes payable was determined using Level 3 inputs by discounting the net cash outflows estimated to be used to repay the debt.  These obligations are to be satisfied using the proceeds from the consumer loans that secure the obligations.  The fair value of BBX Capital’s notes payable is measured using the income approach with Level 3 inputs obtained by discounting the forecasted cash flows based on estimated market rates.

 

The fair value of junior subordinated debentures is estimated using Level 3 inputs based on the contractual cash flows discounted at a market rate or based on market price quotes from the over-the-counter bond market.

 

 

4.    Variable Interest Entities

 

Bluegreen

 

Bluegreen sells VOI notes receivable through special purpose finance entities. These transactions are generally structured as non-recourse to Bluegreen, with the exception of one securitization transaction (the “Legacy Securitization”) entered into in 2010 which was guaranteed by Bluegreen and repaid in full on April 24, 2014 (See Note 10 below and Note 11 to the consolidated financial statements included in BFC’s Annual Report for further information regarding the Legacy Securitization).  These transactions are generally designed to provide liquidity for Bluegreen and transfer the economic risks and certain of the benefits of the notes receivable to third-parties.  In a securitization, various classes of debt securities are issued by the special purpose finance entities that are generally collateralized by a single tranche of transferred assets, which consist of VOI notes receivable.  Bluegreen services the securitized notes receivable for a fee pursuant to servicing agreements negotiated with third parties, which contain terms and conditions which Bluegreen believes generally reflect market conditions at the time of the securitizations.

 

With each securitization, Bluegreen generally retains a portion of the securities.  Under these arrangements, the cash payments received from obligors on the receivables sold are generally applied monthly to pay fees to service providers, make interest and principal payments to investors, and fund required reserves, if any, with the remaining balance of such cash retained by Bluegreen; however, to the extent the portfolio of receivables fails to satisfy specified performance criteria (as may occur due to an increase in default rates or credit loss severity) or other trigger events occur, the funds received from obligors are distributed on an accelerated basis to investors.  Depending on the circumstances and the transaction, the application of the accelerated payment formula may be permanent or temporary until the trigger event is cured.  As of June 30, 2014, Bluegreen was in compliance with all applicable terms under its securitization transactions, and no triggering events were in effect.

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In accordance with applicable accounting guidance for the consolidation of VIEs, Bluegreen analyzes its variable interests, which may consist of loans, servicing rights, guarantees, and equity investments, to determine if an entity in which Bluegreen has a variable interest is a variable interest entity. Bluegreen’s analysis includes both quantitative and qualitative reviews.  Bluegreen bases its quantitative analysis on the forecasted cash flows of the entity, and bases its qualitative analysis on the design of the entity, its organizational structure, including decision-making ability, and relevant financial agreements.  Bluegreen also uses qualitative analysis to determine if Bluegreen must consolidate a variable interest entity as the primary beneficiary.  In accordance with applicable accounting guidance currently in effect, Bluegreen has determined these securitization entities to be VIEs of which Bluegreen is the primary beneficiary and, therefore, consolidates the entities into its financial statements.  As previously described, BFC consolidates Bluegreen and its consolidated subsidiaries and VIEs into BFC’s financial statements.

 

Under the terms of certain of Bluegreen’s timeshare note sales, Bluegreen has the right to repurchase or substitute a limited amount of defaulted mortgage notes receivable for new notes receivable at the outstanding principal balance plus accrued interest or, in certain facilities, at 24% of the original sale price associated with the VOI which collateralizes the defaulted mortgage notes receivable.  Voluntary repurchases and substitutions by Bluegreen of defaulted notes receivable during the six months ended June 30, 2014 and 2013 were $2.8 million and $4.3  million, respectively.  Bluegreen’s maximum exposure to loss relating to non-recourse securitization entities is the difference between the outstanding VOI notes receivable and the notes payable, plus cash reserves and any additional residual interest in future cash flows from collateral.

 

Information related to the assets and liabilities of Bluegreen’s VIEs included in BFC’s consolidated statements of financial condition is set forth below (in thousands):

 

 

 

 

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

 

BBX Capital

 

FAR

 

In consideration for BB&T assuming BBX Capital’s $285.4 million in principal amount of TruPS in connection with the sale of BankAtlantic, BB&T received from BBX Capital at the closing of the BB&T Transaction a 95% preferred membership interest in the net cash flows of FAR until such time as it has recovered $285 million in preference amount plus a priority return of LIBOR + 2.00% per annum.  At that time, BB&T’s interest in FAR will terminate, and BBX Capital, which holds the remaining 5% preferred membership interest in the net cash flows of FAR, will thereafter own 100% of FAR.  BBX Capital provided BB&T with an incremental $35 million guarantee to further assure BB&T’s recovery of the $285 million preference amount within seven years.  At June 30, 2014, and July 31, 2014, BB&T’s preferred interest in FAR has been reduced to approximately $27.0 million and $16.4 million, respectively. 

 

BBX Capital’s variable interests in FAR include its 5%  preferred membership interest in the cash flows of FAR, rights to all residual cash flows after satisfaction of the preferred membership interests, and the incremental $35 million guarantee in favor of BB&T.  BBX Capital also services approximately $13.0 million of FAR’s commercial loans, and has a right of first refusal to acquire certain FAR commercial loans.  BBX Capital is entitled to purchase certain commercial loans on a basis established in FAR’s amended and restated limited liability company operating agreement. 

 

BBX Capital determined that it was the primary beneficiary of FAR and therefore should consolidate FAR in its financial statements.  This conclusion was based primarily on the determination that BBX Capital has the right to receive any appreciation of the assets of FAR through its rights to the residual cash flows of FAR and has the

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obligation to absorb losses as well as its obligations under the incremental $35 million guarantee to BB&T assuring the repayment of BB&T’s preferred interest in FAR.  Also contributing to BBX Capital’s determination that it was the primary beneficiary of FAR was its ability to direct the activities relating to the commercial loans that it services, its ability to purchase certain commercial loans and its right of first refusal in connection with the disposition of certain commercial loans.

 

BB&T’s preferred equity interest in FAR only entitles it to a $285 million preference amount plus the related priority return.  Pursuant to the amended and restated limited liability company operating agreement, FAR is required to make quarterly distributions, or more frequent distributions as approved by FAR’s Board of Managers, of excess cash flows from its operations and the orderly disposition of its assets to redeem the preferred membership interests in FAR.  As such, the Class A units, which represent the preferred interest in FAR, are considered mandatorily redeemable and are reflected as debt obligations in the consolidated statements of financial condition and the priority return is considered interest expense in the consolidated statements of operations. 

 

The activities of FAR are governed by the amended and restated limited liability company operating agreement, which grants the Board of Managers decision-making authority over FAR.  The Board of Managers has four members, two members elected by BBX Capital and two members elected by BB&T.  Any action on matters before the Board of Managers requires the approval of at least three of the members.  The members designated by BB&T must resign from the Board of Managers upon the full redemption of its preferred interest in FAR.

 

The carrying amount of assets and liabilities of FAR and the classification of these assets and liabilities in BFC’s consolidated statements of financial condition as of June 30, 2014 and December 31, 2013 was as follows (in thousands):

 

 

 

 

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

 

BBX Capital’s maximum loss exposure in FAR if all of FAR’s assets were deemed worthless would have been $111 million as of June 30, 2014, consisting of a loss of $84  million in net assets and the incremental guarantee in favor of BB&T for repayment of the $27  million balance of the preference amount.

 

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

 

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

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of any joint venture distributions thereafter.  BBX Capital’s indirect wholly-owned subsidiary is the managing member and has control of all aspects of the operations of the joint venture. 

 

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

 

The carrying amount of the assets and liabilities of North Flagler and the classification of these assets and liabilities in the statement of financial condition was as follows (in thousands):

 

 

 

 

BBX Capital’s maximum loss exposure in North Flagler if all of North Flagler’s assets were deemed worthless would have been $  $675,000 as of June 30, 2014.

 

 

5.     BBX Capital’s Loans Held-for-Sale

 

BBX Capital’s loans held-for-sale were as follows (in thousands):

 

 

 

 

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

 

In July 2014, BBX Capital received net proceeds of approximately $9.6 million from the sale of its first-lien consumer loan portfolio and $5.3 million of its residential loans.

 

 

 

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6.    BBX Capital’s Loans Receivable

 

BBX Capital’s loan portfolio consisted of the following (in thousands):

 

 

 

BBX Capital segregates its loan portfolio into four segments in order to determine its allowance for loan losses. BBX Capital’s loan segments are: residential loans, commercial real estate loans, commercial non-real estate loans and consumer loans.  BBX Capital’s loan segments are described below:

 

Commercial non-real estate loans - generally represent business loans secured by the receivables, inventory, equipment, and/or general corporate assets of the business.

 

Commercial real estate -  represents loans for acquisition, development and construction of various types of properties including residential, office buildings, retail shopping centers, and other non-residential properties.

 

Consumer loans - consists of loans to individuals originated through BankAtlantic’s branch network. The majority of consumer loans are home equity lines of credit secured primarily by a second mortgage on the primary residence of the borrower, located in Florida.  First lien consumer loans were transferred to loans held-for-sale as of December 31, 2013.

 

Residential – represents loans secured by one to four dwelling units. This loan segment is further divided into interest only loans and amortizing loans. Interest-only residential loans require the borrower to make monthly payments of interest-only for a fixed period of time and become fully amortizing thereafter.  Amortizing residential loans require the borrower to make monthly principal and interest payments through maturity.  Residential loans, except for two loans in the final stages of foreclosure, were transferred to loans held-for-sale as of December 31, 2013.

 

All of BBX Capital’s small business loans were reclassified to loans held-for-sale as of September 30, 2012.  As a consequence, small business loans are measured based on the lower of cost or fair value and not included in BBX Capital’s allowance for loan losses.

 

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

 

 

 

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

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

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The activity in BBX Capital’s allowance for loan losses by portfolio segment for the three months ended June 30, 2013 was as follows (in thousands):

 

 

 

 

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The activity in BBX Capital’s allowance for loan losses by portfolio segment for the six months ended June 30, 2014 was as follows (in thousands):

 

 

 

 

The activity in BBX Capital’s allowance for loan losses by portfolio segment for the six months ended June 30, 2013 was as follows (in thousands):

 

 

 

 

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Impaired Loans – BBX Capital’s 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.  For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructured agreement.  Impairment is evaluated based on past due status for consumer and residential loans.  Impairment is evaluated as part of BBX Capital’s on-going credit monitoring process for commercial loans which results in the evaluation for impairment of substandard loans.  Factors considered in determining if a loan is impaired are past payment history, financial strength of the borrower or guarantors, and cash flow associated with the collateral or business.  If a loan is impaired, a specific valuation allowance is established, if necessary, based on the present value of estimated future cash flows using the loan’s existing interest rate or based on the fair value of the loan.  Collateral dependent impaired loans are charged down to the fair value of collateral less cost to sell.  Interest payments on impaired loans for all loan classes are recognized on a cash basis, unless collectability of the principal and interest amount is probable, in which case interest is recognized on an accrual basis.  Impaired loans, or portions thereof, are charged off when deemed uncollectible.    

 

BBX Capital’s impaired loans as of June 30, 2014 and December 31, 2013 were as follows (in thousands):

 

 

 

 

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Average recorded investment and interest income recognized on BBX Capital’s impaired loans for the three and six months ended June 30, 2014 were (in thousands):

 

 

 

 

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Average recorded investment and interest income recognized on BBX Capital’s impaired loans for the three and six months ended June 30, 2013 were (in thousands):

 

 

 

 

Impaired loans without specific 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 monitors impaired collateral dependent loans and performs an impairment analysis on these loans quarterly.  Generally, a full appraisal is obtained when a real estate loan is initially evaluated for impairment and an updated full appraisal is obtained within one year from the prior appraisal date, or earlier if management deems it appropriate based on significant changes in market conditions.  In instances where a property is in the process of foreclosure, an updated appraisal may be postponed beyond one year, as an appraisal is required on the date of foreclosure; however, such loans remain subject to quarterly impairment analyses and adjustments.  Included in total impaired loans as of June 30, 2014 were $18.9 million of collateral dependent loans, which were measured for impairment using current appraisals.    

 

BBX Capital had no commitments to lend additional funds on impaired loans as of June 30, 2014.

 

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Troubled Debt Restructured Loans

 

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions, principal forgiveness, restructuring amortization schedules, extending loan maturities, deferring loan payments until the loan maturity date and other actions intended to minimize potential losses.  The majority of concessions for consumer loans have involved changing monthly payments from interest and principal payments to interest only payments or deferring several monthly loan payments until the loan maturity date.  Commercial real estate and non-real estate loan concessions were primarily interest rate reductions to below market interest rates and extensions of maturity dates based on the risk profile of the loan.  Residential loan concessions primarily have involved reductions of monthly payments through extensions of the amortization period and/or deferral of monthly payments.

 

Consumer and residential troubled debt restructured loans had no financial statement effect as the affected loans were generally on non-accrual status and measured for impairment before the restructuring.  The financial statement effects of commercial troubled debt restructured loans was the establishment of specific valuation allowances, if any, in place of the general allowance for those loans that had not already been placed on nonaccrual status.  There was an impact to the allowance for loan losses associated with loans for which concessions were made, as the concessions generally resulted from the expectation of slower future cash flows.

 

There were  no troubled debt restructurings during the three and six months ended June 30, 2014 or 2013.  There were  no loans modified in troubled debt restructurings since January 1, 2013 through June 30, 2014 that experienced a payment default during the three and six months ended June 30, 2014. There were  no loans modified in troubled debt restructurings since January 1, 2012 through June 30, 2013 that experienced a payment default during the three and six months ended June 30, 2013.

 

 

7.     Bluegreen’s Notes Receivable

 

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

 

 

 

 

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The table above includes notes receivable deemed to have been acquired by BFC, indirectly through Woodbridge, in connection with Woodbridge’s November 2009 acquisition of approximately 7.4 million additional shares of Bluegreen’s Common Stock, which resulted in BFC, indirectly through Woodbridge, holding a controlling interest in Bluegreen.  In accordance with applicable accounting guidance, “Loans and Debt Securities Acquired with Deteriorated Credit Quality”, BFC elected to recognize interest income on these notes receivable using the expected cash flows method. BFC treated expected prepayments consistently in determining cash flows expected to be collected, such that the non-accretable difference was not affected and the difference between actual prepayments and expected prepayments will not affect the non-accretable difference.  The assumption for prepayment rates was derived from Bluegreen’s historical performance information for its off-balance sheet securitizations and ranges from  4% to 9%.  As of June 30, 2014 and December 31, 2013, the outstanding contractual unpaid principal balance of the acquired notes was $94.2  million and $112.1 million, respectively. During June 2013, management revised its assumptions used in the calculation of cash flows expected to be collected on the acquired notes resulting in a $5.7 million impairment charge which was recorded as a valuation allowance. As of June 30, 2014 and December 31, 2013, the carrying amount of the acquired notes, net of a valuation allowance of $5.7 million at each date, was $85.9  million and $100.1 million, respectively.

 

The carrying amount of the acquired notes is included in the balance sheet amounts of notes receivable at June 30, 2014 and December 31, 2013. The following is a reconciliation of accretable yield as of June 30, 2014 and December 31, 2013 (in thousands):

 

 

 

 

The weighted-average interest rate on Bluegreen’s notes receivable was 15.9% and 15.8%  at June 30, 2014 and December 31, 2013, respectively.  All of Bluegreen’s VOI notes receivable bear interest at fixed rates.  The weighted-average interest rate charged on loans secured by VOIs was 16.0% and 15.9%  as of June 30, 2014 and December 31, 2013, respectively.   The majority of Bluegreen’s notes receivable secured by homesites, which were excluded from Bluegreen’s May 2012 sale of substantially all of the assets of its Bluegreen Communities division, bear interest at variable rates.  The weighted-average interest rate charged on loans secured by homesites was  7.6% and 7.7% as of June 30, 2014 and December 31, 2013, respectively.

 

Bluegreen’s notes receivable are carried at amortized cost less an allowance for credit losses.  Interest income is suspended, and previously accrued but unpaid interest income is reversed, on all of Bluegreen’s delinquent notes receivable when principal or interest payments are more than three months contractually past due and interest income is not resumed until such loans are less than three months past due.  As of June 30, 2014 and December 31, 2013, $10.9 million and $11.3 million, respectively, of Bluegreen’s VOI notes receivable were more than three months past due and accordingly, consistent with Bluegreen’s policy, were not accruing interest income.  After 120 days, Bluegreen’s VOI notes receivable are generally written off against the allowance for credit loss.

 

Credit Quality for Financial Receivables and Allowance for Credit Losses

 

Bluegreen holds large amounts of homogeneous VOI notes receivable and assesses uncollectibility based on pools of receivables. In estimating future credit losses, Bluegreen’s management does not use a single primary indicator of credit quality but instead evaluates its VOI notes receivable based upon a combination of factors, including a static pool analysis, the aging of the respective receivables, current default trends and prepayment rates by origination year, as well as the FICO® scores of the borrowers.

 

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The table below sets forth the activity in Bluegreen’s allowance for credit losses (including homesite notes receivable) for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

 

 

 

The following table shows the delinquency status of Bluegreen’s VOI notes receivable as of June 30, 2014 and December 31, 2013 (in thousands): 

 

 

 

 

 

 

8.     Inventory

 

Inventory consisted of the following (in thousands):

 

 

 

The Company’s inventory is primarily comprised of Bluegreen’s completed VOIs, Bluegreen’s VOIs under construction and land held by Bluegreen for future vacation ownership development.  Bluegreen reviews real estate held for future vacation ownership development for impairment under applicable accounting guidelines, which require that such properties be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable.  No impairment charges were recorded with respect to the inventory held by Bluegreen Resorts, the operating segment which comprises all of Bluegreen’s continuing operations, during the three or six months ended June 30, 2014 or 2013.

 

Interest capitalized to VOI inventory during the three and six months ended June 30, 2014 and 2013 was insignificant.  The interest expense reflected in the consolidated financial statements is net of capitalized interest.

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As of June 30, 2014, other inventory was comprised of approximately $10.9 million in raw materials, work in process and finished goods related to Renin and BBX Sweet Holdings.  Other inventory is measured at the lower of cost, determined on a first-in, first-out basis, or market.  Cost includes all costs of conversions, including materials, direct labor, production overhead and amortization of equipment.  Raw materials are stated at the lower of cost, determined on a first-in, first-out basis, or market determined by reference to replacement cost.

 

 

9.    Real Estate Held-For-Sale and Real Estate Held-For-Investment

 

Substantially all of BBX Capital’s real estate has been acquired through foreclosure, settlements, or deeds in lieu of foreclosure.  Upon acquisition by BBX Capital, 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, BBX Capital’s 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.

 

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

 

 

 

 

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

 

 

 

 

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The following table presents the activity in real estate held-for-sale and held-for-investment for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

 

 

 

 

 

 

 

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10.     Debt

 

Notes and Mortgage Notes Payable and Other Borrowings

 

The table below sets forth information regarding the lines-of-credit and notes payable facilities of Bluegreen (other than receivable-backed notes payable) and notes payable of BBX Capital as of June 30, 2014 and December 31, 2013 (dollars in thousands):

 

 

 

 

 

Bluegreen 

 

Bluegreen has outstanding borrowings with various financial institutions and other lenders, which have been used to finance the acquisition and development of Bluegreen’s inventory and to fund Bluegreen’s operations. Additional information regarding each of Bluegreen’s lines of credit and notes payable facilities set forth above is included in Note 11 of BFC’s Annual Report.  Bluegreen had no new debt issuances and there were  no significant changes related to its lines–of-credit and notes payable (other than receivable-backed notes payable, as described below) during the six months ended June 30, 2014.  Bluegreen was in compliance with all applicable debt covenants under its debt instruments as of June 30, 2014.

 

BBX Capital 

 

New debt and significant changes related to BBX Capital’s notes payable during the six months ended June 30, 2014 are as follows:

 

On October 30, 2013, Renin which is owned  81% by BBX Capital and 19% by BFC, through newly formed acquisition subsidiaries acquired substantially all of the assets of Renin Corp. and its subsidiaries (the “Renin Acquisition”).  Bluegreen Specialty Finance, LLC, a subsidiary of Bluegreen, funded approximately $9.4 million of the transaction consideration in a term loan and revolver facility (the “Renin Loan”).  The Renin Loan included a $3.0 million term loan and provided for additional borrowings of up to $9 million on a revolving basis, of which $10.5 million in the aggregate was borrowed by Renin.  Amounts outstanding under the Renin Loan bore interest at

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a fixed rate of 7.25% per annum and were collateralized by substantially all of the assets of Renin.  Because both Renin and Bluegreen are consolidated in BFC’s financial statements, the Renin Loan was eliminated in consolidation.

 

On June 11, 2014, Renin entered into a credit agreement with Wells Fargo Capital Finance Corporation (“Lender”).  Under the terms and conditions of the Credit Agreement, the Lender made a $1.5 million term loan to Renin.  The Credit Agreement also includes a revolving advance facility pursuant to which the Lender agreed to make loans to Renin on a revolving basis up to a maximum of approximately $18 million or, if lesser, the Borrowing Base (as defined in the Credit Agreement), subject to the Borrowers’ compliance with the terms and conditions of the Credit Agreement, including certain specific financial covenants.  Upon execution of the Credit Agreement and funding of the term loan, the Lender also made loans to Renin in the aggregate amount of approximately $6.5 million under the revolving advance facility.  Amounts outstanding under the term loan and revolving advance facility bear interest at the Canadian Prime Rate or the daily three month LIBOR rate plus a margin specified in the Credit Agreement at various rates from 0.5% to 3.25% per annum.  The loans are collateralized by all of Renin’s assets.  The term loan and borrowings under the revolving advance facility mature on June 11, 2019.  The approximate $8.0 million of financing received by Renin from the Lender, together with pro rata capital contributions to Renin from BBX Capital and BFC of $2,025,000 and $475,000, respectively, were utilized to repay in full the Renin Loan.

 

Receivable-Backed Notes Payable

 

The table below sets forth information regarding Bluegreen’s receivable-backed notes payable facilities (dollars in thousands):

 

 

 

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New debt issuances and significant changes related to Bluegreen’s receivable-backed notes payable facilities during 2014 include: 

 

Legacy Securitization.  On April 24, 2014, Bluegreen paid in full the notes payable issued in connection with the Legacy Securitization.  Accordingly, Bluegreen wrote off the related unamortized discounts and debt issuance costs of approximately $754,000.

 

BB&T/DZ Purchase Facility. In accordance with the terms of Bluegreen’s timeshare notes receivable purchase facility with Branch Banking and Trust Company and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main (the “BB&T/DZ Purchase Facility”), the maximum outstanding financings increased from $20 million at December 31, 2013 to $80 million on April 1, 2014.  Availability under the BB&T/DZ Purchase Facility is on a revolving basis through December 17, 2014, and amounts financed are secured by timeshare receivables at an advance rate of 70%, subject to eligible collateral and other terms of the facility, which Bluegreen believes to be customary for financing arrangements of this type.  

 

Quorum Purchase Facility. In July 2014, the facility was extended and amended pursuant to which Quorum agreed to purchase on a revolving basis through October 31, 2014 eligible timeshare receivables in an amount of up to an aggregate $40.0 million purchase price, pursuant to the terms of the facility and subject to certain conditions precedent.  The terms of the Quorum Purchase Facility reflect an 85% advance rate, and provide for a program fee rate of 5.0% per annum, with respect to any future advances.  Future advances are also subject to a loan purchase fee of 0.5%.  As of June 30, 2014, $10.9 million of the outstanding balance bore interest at a fixed rate of 5.5%, and $10.1 million of the outstanding balance bore interest at a fixed rate of 6.9%.  These amounts and interest rates were not impacted by the July 2014 amendment.  Eligibility requirements for receivables sold include, among others, that the obligors under the timeshare notes receivable sold be members of Quorum at the time of the note sale.  Subject to performance of the collateral, Bluegreen will receive any excess cash flows generated by the receivables transferred to Quorum under the facility (excess meaning after payments of customary fees, interest and principal under the facility) on a pro-rata basis as borrowers make payments on their timeshare loans.

 

GE 2004 Facility.  On May 1, 2014, Bluegreen paid in full the notes payable issued in connection with the GE 2004 Facility.  Accordingly, Bluegreen wrote off the related unamortized debt issuance costs of approximately $171,000.

 

See Note 11 of BFC’s Annual Report for further information with respect to each of the above listed receivable-backed notes payable facilities.

 

Junior Subordinated Debentures 

 

Woodbridge and Bluegreen formed statutory business trusts, each of which issued trust preferred securities and invested the proceeds thereof in Woodbridge’s and Bluegreen’s respective junior subordinated debentures.  These trusts are variable interest entities in which Woodbridge and Bluegreen, respectively, are not the primary beneficiaries as defined by the accounting guidance for the consolidation of variable interest entities. Accordingly, the Company and its subsidiaries do not consolidate the operations of these business trusts; instead, the trusts are accounted for under the equity method of accounting.  Interest on the junior subordinated debentures and distributions on the trust preferred securities are payable quarterly in arrears at the same interest rate.    There were no significant changes related to Woodbridge’s $85.0 million or Bluegreen’s $110.8 million of junior subordinated debentures during the six months ended June 30, 2014.

 

 

11.    Commitments and Contingencies 

 

BFC, Wholly-Owned Subsidiaries, and Woodbridge (Parent Company)

 

A wholly-owned subsidiary of BFC/CCC, Inc. (“BFC/CCC”) has a 50% limited partner interest in a limited partnership that has a 10% interest in a limited liability company that owned an office building in Tampa, Florida. In connection with the purchase of the office building by the limited liability company in June 2007, BFC guaranteed the payment of certain environmental indemnities and specific obligations that were not related to the financial performance of the property up to a maximum of $15.0 million, or $25.0 million in the event of any petition or involuntary proceeding under the U.S. Bankruptcy Code or similar state insolvency laws or in the event of any transfer of interests not in accordance with the loan documents.  BFC and the unaffiliated members also entered into a cross indemnification agreement which limited BFC’s obligations under the guarantee to acts of BFC and its affiliates. No amounts were

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recorded in the Company’s financial statements for the obligations associated with this guarantee based on the potential indemnification by the unaffiliated members and the limit of the specific obligations to non-financial matters.  On February 5, 2014, the office building was sold and BFC/CCC received proceeds from the sale of approximately $215,000.  As a result of the sale, BFC was released from the guarantee and any further obligations associated with the property. At December 31, 2013, the carrying amount of this investment was approximately $229,000, which was included in investments in unconsolidated affiliates as other assets in the Company’s consolidated statement of financial condition. Based on accounting guidance associated with the consolidation of variable interest entities implemented on January 1, 2010, we were not deemed the primary beneficiary of the above-described limited partnership or limited liability company as we did not have the power to direct the activities that could significantly impact the performance of these entities. Accordingly, these entities were not consolidated into our financial statements.

 

In the ordinary course of business, BFC and its subsidiaries are parties to lawsuits as plaintiff or defendant involving its operations and activities. Reserves are accrued for amounts in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated.  As of June 30, 2014 and December 31, 2013, $11.9 million was accrued for pending legal proceedings involving BFC or its wholly-owned subsidiaries, or Woodbridge, at its parent company level (all of which related to the Woodbridge appraisal rights litigation described below).

 

BFC believes that it has meritorious defenses in the pending legal actions and that reasonably possible losses arising from these pending legal matters, in excess of the amounts currently accrued, if any, will not have a material impact on BFC’s financial statements.  However, due to the significant uncertainties involved in these legal matters, BFC may incur losses in excess of amounts accrued and an adverse outcome in these matters could be material to BFC’s financial statements.

 

Woodbridge Holdings, LLC v. Prescott Group Aggressive Small Cap Master Fund, G.P., Cede & Co., William J. Maeck, Ravenswood Investments III, L.P., and The Ravenswood Investment Company, Circuit Court, 17th Judicial Circuit, Broward County, Florida.

 

On September 21, 2009, BFC consummated its merger with WHC.  Pursuant to the merger, WHC merged with and into Woodbridge, which was a wholly-owned subsidiary of BFC at that time.  The shareholders of WHC at the effective time of the merger (other than BFC) were entitled to receive 3.47 shares of BFC’s Class A Common Stock in exchange for each share of WHC’s Class A Common Stock that they owned.  Under Florida law, holders of WHC’s Class A Common Stock who did not vote to approve the merger and who properly asserted and exercised their appraisal rights with respect to their shares are entitled to receive a cash payment in an amount equal to the fair value of their shares (as determined in accordance with the provisions of Florida law) in lieu of the shares of BFC’s Class A Common Stock which they would otherwise have been entitled to receive. In accordance with Florida law, Woodbridge (the successor by merger to WHC) provided written notices and required forms to the dissenting shareholders setting forth, among other things, its determination that the fair value of WHC’s Class A Common Stock immediately prior to the effectiveness of the merger was $1.10 per share. Dissenting shareholders, who collectively held approximately 4.2 million shares of WHC’s Class A Common Stock, rejected Woodbridge’s offer of $1.10 per share and requested payment for their shares based on their respective fair value estimates of WHC’s Class A Common Stock. Under Florida law, Woodbridge thereafter commenced the appraisal rights action.  In December 2009, a $4.6 million liability was recorded with a corresponding reduction to additional paid-in capital representing, in the aggregate, Woodbridge’s offer to the dissenting shareholders.  On July 5, 2012, the presiding court determined the fair value of the dissenting shareholders’ shares of WHC’s Class A Common Stock to be $1.78 per share and awarded legal and other costs in favor of the dissenting shareholders.  As a result, the $4.6 million liability was increased to approximately $7.5 million as of June 30, 2012 (with a corresponding reduction to additional paid in capital of $2.8 million) to account for the per share value awarded.  On March 11, 2013, the court awarded legal fees and pre and post judgment interest to the dissenting shareholders for a total award of approximately $11.9 million (including the $7.5 million based on the $1.78 per share value determination). As a result, the liability was increased by approximately $4.4 million during the fourth quarter of 2012 to $11.9 million as of December 31, 2012.  Woodbridge has appealed the court’s ruling with respect to the fair value determination and the award of legal fees and costs and posted a $13.4 million bond in connection with the appeal.  The outcome of the appeal is uncertain.

 

In re Bluegreen Corporation Shareholder Litigation

 

Between November 16, 2011 and February 13, 2012, seven purported class action lawsuits related to the previously proposed stock-for-stock merger between BFC, which at that time was the sole member of Woodbridge, and Bluegreen were filed against Bluegreen, the members of Bluegreen’s board of directors, BFC and BXG Florida

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Corporation, a wholly-owned subsidiary of Woodbridge formed for purposes of the merger (“BXG Merger Sub”). As described below, four of these lawsuits have been consolidated into a single action in Florida, and the other three lawsuits have been consolidated into a single action in Massachusetts and stayed in favor of the Florida action. Further information regarding each of these lawsuits is set forth below.

 

The four Florida lawsuits, captioned and styled Ronald Kirkland v. Bluegreen Corporation et al. (filed on November 16, 2011); Richard Harriman v. Bluegreen Corporation et al. (filed on November 22, 2011); Alfred Richner v. Bluegreen Corporation et al. (filed on December 2, 2011); and BHR Master Fund, LTD et al. v. Bluegreen Corporation et al. (filed on February 13, 2012), were consolidated into an action styled In Re Bluegreen Corporation Shareholder Litigation. On April 9, 2012, the plaintiffs filed a consolidated amended class action complaint which alleged that the individual director defendants breached their fiduciary duties by (i) agreeing to sell Bluegreen without first taking steps to ensure adequate, fair and maximum consideration, (ii) engineering a transaction to benefit themselves and not the shareholders, and (iii) failing to protect the interests of Bluegreen’s minority shareholders.  In the complaint, the plaintiffs also alleged that BFC breached its fiduciary duties to Bluegreen’s minority shareholders and that BXG Merger Sub aided and abetted the alleged breaches of fiduciary duties by Bluegreen’s directors and BFC.  In addition, the complaint included allegations relating to claimed violations of Massachusetts law.  The complaint sought declaratory and injunctive relief, along with damages and attorneys’ fees and costs.

 

The three Massachusetts lawsuits were filed in the Superior Court for Suffolk County in the Commonwealth of Massachusetts and styled as follows: Gaetano Bellavista Caltagirone v. Bluegreen Corporation et al. (filed on November 16, 2011); Alan W. Weber and J.B. Capital Partners L.P. v. Bluegreen Corporation et al. (filed on November 29, 2011); and Barry Fieldman, as Trustee for the Barry & Amy Fieldman Family Trust v. Bluegreen Corporation et al. (filed on December 6, 2011).   In their respective complaints, the plaintiffs alleged that the individual director defendants breached their fiduciary duties by agreeing to sell Bluegreen without first taking steps to ensure adequate, fair and maximum consideration.  The Fieldman and Weber actions contained the same claim against BFC.  In addition, the complaints included claims that BXG Merger Sub, in the case of the Fieldman action, BFC and BXG Merger Sub, in the case of the Caltagirone action, and Bluegreen, in the case of the Weber action, aided and abetted the alleged breaches of fiduciary duties.  On January 17, 2012, the three Massachusetts lawsuits were consolidated into a single action styled In Re Bluegreen Corp. Shareholder Litigation, which is presently stayed in favor of the Florida action.

 

Following the public announcement of the termination of the stock-for-stock merger agreement and the entry into the Bluegreen-Woodbridge Cash Merger Agreement during November 2012, the plaintiffs in the Florida action filed a motion for leave to file a supplemental complaint in order to challenge the structure of, and consideration received by Bluegreen’s shareholders in, the Bluegreen-Woodbridge Cash Merger.  On November 30, 2012, the Florida court granted the plaintiffs’ motion and the supplemental complaint was deemed filed as of that date.  The supplemental complaint alleges that the merger consideration remained inadequate and continued to be unfair to Bluegreen’s minority shareholders.

 

On January 25, 2013, the plaintiffs in the Florida action filed a Second Amended Class Action Complaint that set forth more fully their challenge to the Bluegreen-Woodbridge Cash Merger.  The Second Amended Class Action Complaint asserts claims for (i) breach of fiduciary duties against the individual director defendants, BFC, and Woodbridge, (ii) aiding and abetting breaches of fiduciary duties against Bluegreen, BFC, Woodbridge, and BXG Merger Sub, and (iii) a violation of the section of the Massachusetts Business Corporation Act regarding the approval of conflict of interest transactions.  During December 2013, class action certification was granted to the plaintiffs in the Florida action.

 

As previously described, the Bluegreen-Woodbridge Cash Merger was consummated on April 2, 2013.  However, the actions related to the transaction remain pending, with the plaintiffs seeking to recover damages in connection with the transaction.  BFC and Bluegreen believe that these lawsuits are without merit and intend to defend against them vigorously.

 

In re BBX Capital Corporation Shareholder Litigation

 

On May 30, 2013, Haim Ronan filed a purported class action against BFC, BBX Merger Sub, BBX Capital and the members of BBX Capital’s board of directors seeking to represent BBX Capital’s shareholders in a lawsuit challenging the currently proposed merger between BFC and BBX Capital. In this action, which is styled Haim Ronan, On Behalf of Himself and All Others Similarly Situated, v. Alan B. Levan, John E. Abdo, Jarett S. Levan, Steven M. Coldren, Bruno L. Di Giulian, Charlie C. Winningham, II, David A. Lieberman, Willis N. Holcombe,

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Anthony P. Segreto, BBX Capital Corporation, BFC Financial Corporation and BBX Merger Sub, LLC and was filed in the Circuit Court of the 17​th Judicial Circuit in and for Broward County, Florida, Mr. Ronan asserted as a cause of action that the individual defendants breached their fiduciary duties of care, loyalty and good faith, in part, by failing to obtain a high enough price for the shares of BBX Capital’s Class A Common Stock to be acquired by BFC in the merger. Mr. Ronan also asserted a cause of action against BFC and BBX Merger Sub for aiding and abetting the alleged breaches of fiduciary duties. Mr. Ronan is seeking an injunction blocking the proposed merger. On May 31, 2013, in an action styled John P. Lauterbach, on Behalf of Himself and All Others Similarly Situated, v. BBX Capital Corporation, John E. Abdo, Norman H. Becker, Steven M. Coldren, Bruno L. Di Giulian, John K. Grelle, Willis N. Holcombe, Alan B. Levan, Jarett S. Levan, David A. Lieberman, Anthony P. Segreto, Charlie C. Winningham II, Seth M. Wise, BFC Financial Corporation and BBX Merger Sub, LLC and filed in the Circuit Court of the 17​th Judicial Circuit in and for Broward County, Florida, John P. Lauterbach filed a purported class action against all of the defendants named in Mr. Ronan’s complaint, challenging the currently proposed merger for substantially the same reasons as set forth in Mr. Ronan’s complaint, but asserting an additional, direct cause of action for breach of fiduciary duties against BFC, Alan B. Levan and John E. Abdo. Mr. Lauterbach also added as defendants Norman H. Becker, who was appointed to BBX Capital’s board of directors on May 7, 2013, as well as Seth M. Wise, who serves as an executive officer and director of BFC and as an executive officer of BBX Capital, and John K. Grelle, who serves as an executive officer of BFC and BBX Capital. On September 4, 2013, the Ronan and Lauterbach actions were consolidated into a single action styled In Re BBX Capital Corporation Shareholder Litigation, with the complaint filed in the Lauterbach action being the operative complaint in the consolidated action. On October 11, 2013, the plaintiffs filed an amended complaint in the consolidated action.  In the amended complaint, which includes the same causes of action set forth in the Lauterbach complaint, the plaintiffs: (i) allege that the merger, including the exchange ratio and other terms and conditions of the merger agreement, is unfair to BBX Capital’s minority shareholders and is the product of unfair dealing on the part of the defendants; (ii) allege that the defendants initiated, timed, negotiated and structured the merger for the benefit of BFC and to the detriment of BBX Capital’s minority shareholders, including that BFC and its and BBX Capital’s management caused BBX Capital to engage in transactions which had the effect of reducing BBX Capital’s intrinsic value; (iii) challenge the independence of the members of BBX Capital’s special committee and the process pursuant to which BBX Capital’s special committee engaged its legal and financial advisors, and negotiated and approved the merger agreement, including limitations on its ability to pursue alternative transactions; (iv) assert that BBX Capital’s shareholders’ rights to appraisal do not constitute an adequate remedy; and (v) allege that the joint proxy statement/prospectus relating to the merger contains material misrepresentations and does not contain adequate disclosure regarding the merger and specifically the value of BBX Capital and the shares of its Class A Common Stock, and fails to provide the plaintiffs and BBX Capital’s minority shareholders the information necessary to determine whether the merger consideration is fair. On November 8, 2013, defendants filed a motion to dismiss the amended complaint arguing that plaintiffs’ remedies were limited to an action for appraisal under Florida law.  On April 8, 2014, the Court denied defendants’ motion to dismiss. On April 11, 2014, plaintiffs filed a motion for class certification.  On April 18, 2014, plaintiffs filed a Second Amended Class Action Complaint.  The Second Amended Class Action Complaint added allegations with respect to BBX Capital’s March 21, 2014 definitive proxy statement.  Specifically, plaintiffs allege that the definitive proxy statement failed to provide full and accurate disclosure regarding: (i) the timing of the merger, (ii) the status of the listing of the shares of BFC’s Class A Common Stock to be issued in the merger; (iii) transactions impacting valuation following the negotiation of the exchange ratio; (iv) the per share value of shares held by BBX Capital’s minority shareholders and (v) the fundamental assumptions underlying the opinion of BBX Capital’s financial advisor.  BFC and BBX Capital believe the claims to be without merit and intend to vigorously defend the action.     

 

Bluegreen 

 

In the ordinary course of its business, Bluegreen becomes subject to claims or proceedings from time to time relating to the purchase, sale, marketing or financing of VOIs or Bluegreen’s other business activities.  Bluegreen is also subject to certain matters relating to its previous Bluegreen Communities’ business, substantially all of the assets of which Bluegreen sold on May 4, 2012.  Additionally, from time to time, Bluegreen becomes involved in disputes with existing and former employees, vendors, taxing jurisdictions and various other parties.  From time to time in the ordinary course of business, Bluegreen also receives individual consumer complaints, as well as complaints received through regulatory and consumer agencies, including Offices of State Attorney Generals.  Bluegreen takes these matters seriously and attempts to resolve any such issues as they arise.  Unless otherwise described below, Bluegreen believes that these claims are routine proceedings incidental to Bluegreen’s business.

 

Reserves are accrued for matters in which Bluegreen’s management believes it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated.  As of June 30, 2014,  $125,000  had been accrued for matters believed by Bluegreen’s management to meet these criteria.  Bluegreen’s management does not believe

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that the aggregate liability relating to known contingencies in excess of the aggregate amounts accrued will have a material impact on Bluegreen’s financial statements.  However, litigation is inherently uncertain and the actual costs of resolving legal claims may be substantially higher than the amounts accrued and may have a material adverse impact on Bluegreen’s or BFC’s financial statements.

 

Bluegreen’s management is not at this time able to estimate a range of reasonably possible losses with respect to matters in which it is reasonably possible that a loss will occur.  In certain matters, Bluegreen’s management is unable to estimate the loss or reasonable range of loss until additional developments 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.

 

Tennessee Tax Audit

 

In 2005, the State of Tennessee Audit Division (the “Division”) audited certain subsidiaries within Bluegreen Resorts for the period from December 1, 2001 through December 31, 2004 (the “Assessment Period”).  On September 23, 2006, the Division issued a notice of assessment for approximately $0.7 million of accommodations tax based on the use of Bluegreen Vacation Club accommodations by Bluegreen Vacation Club members who became members through the purchase of non-Tennessee property.  Bluegreen believed the attempt to impose such a tax was contrary to Tennessee law and vigorously opposed such assessment by the Division.  By letter dated May 25, 2011, the State of Tennessee Department of Revenue issued a decision in which it held that two of the three types of transactions in question were taxable.  The State of Tennessee Department of Revenue confirmed that Bluegreen had already remitted the proper amount of sales tax due on one of the two types of taxable transactions, but took the position that Bluegreen owed a total of $0.7 million in taxes and interest based on the second type of transaction.  On August 1, 2011, Bluegreen filed suit in the Chancery Court of Davidson County, Tennessee for the purpose of invalidating and setting aside the tax assessment made against Bluegreen by the State of Tennessee Department of Revenue.  On December 13, 2013, the Chancery Court ruled that the imposition by the Tennessee Department of Revenue of sales tax for the Assessment Period upon use of Bluegreen Vacation Club accommodations located in Tennessee by Bluegreen Vacation Club members who became members through the purchase of non-Tennessee property was valid.  Bluegreen does not believe this ruling extends beyond the Assessment Period and does not believe the State of Tennessee has the legal right to increase the assessment or apply it to any other time period.  On February 10, 2014, Bluegreen filed its Notice of Appeal with respect to the Chancery Court’s ruling.  Bluegreen subsequently decided not to pursue the appeal and, during May 2014, paid approximately $873,000 to the Tennessee Department of Revenue, representing the amount of the tax assessment and accrued interest plus the Tennessee Department of Revenue’s legal costs related to the litigation, in resolution of the matter.

 

In re Bluegreen Corporation Shareholder Litigation

 

See the above-described class action lawsuits relating to the merger transaction between Woodbridge and Bluegreen.

 

BBX Capital

 

BBX Capital and its 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 matters and the timing of ultimate resolution are inherently uncertain and difficult to predict.

 

BBX Capital’s 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. These accrual amounts as of June 30, 2014 are not material to BBX Capital’s or BFC’s financial statements.  The actual costs of resolving these legal claims may be substantially higher or lower than the amounts accrued for these claims.    

 

A range of reasonably possible losses is estimated for matters in which it is reasonably possible that a loss has been incurred or that a loss is probable but not reasonably estimable.  Management of BBX Capital currently estimates the aggregate range of reasonably possible losses of up to  $4.4  million.  This estimated range of reasonably possible losses represents the estimated possible losses over the life of such legal matters, which may span a currently indeterminable number of years, and is based on information available as of June 30, 2014.  The matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate.  Those matters for which a reasonable estimate is not possible are not included within this estimated range and, therefore, this estimated range does not represent BBX Capital’s maximum loss exposure.

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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.

 

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

 

BBX Capital received notices from BB&T regarding a series of pending and threatened claims asserted against BB&T’s subsidiary, Branch Banking and Trust Company, as successor to BankAtlantic, by certain individuals who purport to have had accounts in their names with BankAtlantic prior to consummation of the sale of BankAtlantic to BB&T.  These third party claims allege wrongful conduct by BankAtlantic in connection with certain alleged unauthorized transactions associated with their accounts.  BB&T’s notice asserts its belief that it may be entitled to indemnification under the BB&T Agreement with respect to such claims as well as another third party claim relating to an action which was recently settled by BB&T.  On July 31, 2014, BBX Capital and BB&T entered into a tolling agreement with respect to the time period within which BB&T may assert a claim for indemnity under the stock purchase agreement with respect to such claims.

 

The following is a description of certain ongoing litigation matters:

 

In re BBX Capital Corporation Shareholder Litigation

 

See the above-described consolidated purported class action lawsuit challenging the currently proposed merger between BFC and BBX Capital. 

 

Securities and Exchange Commission Complaint

 

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 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 alleges that Mr. Alan B. Levan intentionally misled investors in related earnings calls.  The SEC is seeking a finding by the court of violations of securities laws, a permanent injunction barring future violations, civil money penalties and, in the case of Mr. Alan B. Levan, an order barring him from serving as an officer or director of a public company.

 

Discovery in the action is now closed.  The Court has 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.  The grant of partial summary judgment does not resolve any of the SEC’s claims in its favor; with respect to Mr. Alan Levan’s answers on the July 25, 2007 conference call, the jury will still determine issues relating to materiality and scienter.  The case was recently transferred to a new judge and is currently set for trial during the two-week period beginning on November 3, 2014.  BBX Capital believes the claims to be without merit and intends to vigorously defend the action.

 

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 allege 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. 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

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the Amended Complaint with prejudice as to certain claims, but without prejudice as to plaintiffs’ main antitrust claim.  Plaintiffs’ counsel filed a Consolidated Amended Complaint on January 6, 2014.  BBX Capital and Fidelity Tax have moved to dismiss the Consolidated Amended Complaint with prejudice as to all claims, and are awaiting the Court’s decision on the fully-briefed motion.  BBX Capital believes the claims to be without merit and intends to vigorously defend the action.

 

 

12.    Noncontrolling Interests  

 

The following table summarizes the noncontrolling interests in the Company’s subsidiaries at June 30, 2014 and December 31, 2013 (in thousands):    

 

 

 

The following table summarizes the income (loss) recognized with respect to the Company’s subsidiaries attributable to noncontrolling interests for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

 

 

 

 

13.    Segment Reporting 

 

Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly reviewed by the chief operating decision maker in assessing performance and deciding how to allocate resources. Reportable segments consist of one or more operating segments with similar economic characteristics, products and services, production processes, type of customer, distribution system or regulatory environment. 

 

The information provided for segment reporting is based on internal reports utilized by management of the Company and its subsidiaries. The presentation and allocation of assets and results of operations may not reflect the actual economic costs of the segments as standalone businesses. If a different basis of allocation were utilized, the relative contributions of the segments might differ but the relative trends in the segments’ operating results would, in management's view, likely not be impacted.

 

The Company currently reports its results through four  segments: Bluegreen Resorts; FAR; BBX; and Renin. The Company previously had a Real Estate Operations segment which included the subsidiaries through which Woodbridge previously conducted its real estate business activities, all of which have ceased, and the operations of

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Cypress Creek Holdings, which engaged in leasing activities in an office building that it owned prior to its sale of the building during January 2012.  During the first quarter of 2014, management modified its measure of segment operating profit to exclude the remaining operations previously classified within the Real Estate Operations segment. Accordingly, the Company’s segment disclosure has been adjusted to reflect the revised presentation and the results previously included within Real Estate Operations segment have been reclassified to unallocated corporate overhead for all periods presented and are included in the reconciliation of segment amounts to the consolidated amounts.    BFC’s corporate overhead and selling, general and administrative expenses, including the expenses of Woodbridge unrelated to Bluegreen and other real estate related activities, are presented as unallocated corporate overhead and are also included in the reconciliation of segment amounts to the consolidated amounts.

 

The Company evaluates segment performance based on its segment net income (loss).

 

The following summarizes the aggregation of the Company's operating segments into reportable segments:

 

Bluegreen Resorts

 

Bluegreen Resorts, the operating segment relating to Bluegreen’s continuing operations, markets, sells and manages real estate-based VOIs in resorts generally located in popular, high-volume, “drive-to” vacation destinations, which were developed or acquired by Bluegreen or are owned by others in which case Bluegreen Resorts earns fees for providing these services.  Bluegreen Resorts also provides fee-based services, including property association management services, mortgage servicing, VOI title services, reservation services, and construction design and development services. In addition, Bluegreen Resorts provides financing to credit-qualified individual purchasers of VOIs, which provides significant interest income.

 

FAR

 

The FAR reportable segment consists of the activities of BBX Capital associated with overseeing the management and monetization of FAR’s assets with a view to the repayment of BB&T’s preferred interest and maximizing the cash flows of any remaining assets.  

 

BBX

 

The BBX segment includes the results of operations of CAM and BBX Partners, Inc. for the three and six months ended June 30, 2014 and 2013.  BBX’s activities consisted of the activities associated with managing its commercial loan portfolio, real estate properties, and portfolio of charged off loans as well as its investment in Woodbridge and investments in real estate joint ventures.  As both BBX Capital and Woodbridge are consolidated into BFC’s financial statements, BBX Capital’s equity earnings from its investment in Woodbridge are eliminated in consolidation.

 

Renin

 

The Renin reportable segment consists of the activities of Renin, which is owned 81% by BBX Capital and 19% by BFC and was formed during October 2013 in connection with the acquisition at that time of Renin Corp. and its subsidiaries.  The Renin reportable segment includes the results of operations of Renin for the three and six months ended June 30, 2014.

 

Other operations for the three and six months ended June 30, 2014 include the activities of Hoffman’s and Williams & Bennett, which were acquired by BBX Capital during the fourth quarter of 2013 and the first quarter of 2014, respectively.  The results associated with these activities are set forth in the “Other” column on the following pages and are provided in order to reconcile the reportable segments to the consolidated financial statements.