SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

 

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

For the quarterly period ended September 30, 2015

OR

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

For the transition period from _______ to _______

Commission files number     001-13133

BBX CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

(954) 940-4000

(Registrant's telephone number, including area code)

Not Applicable

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

 

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

 

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

 

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

 

 

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

 

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

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION-UNAUDITED 

 

 

 

 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - UNAUDITED 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited

 

 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF TOTAL EQUITY 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014 - UNAUDITED 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

 

 

 

 

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1.  Presentation of Interim Financial Statements

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

BBX Capital’s principal asset until July 31, 2012 was its ownership of BankAtlantic and its subsidiaries (“BankAtlantic”).  BankAtlantic was a federal savings bank headquartered in Fort Lauderdale, Florida.  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 stock sale and related transactions described herein are collectively referred to as the “BB&T Transaction”).  Prior to the closing of the BB&T Transaction, BankAtlantic formed two wholly-owned subsidiaries, BBX Capital Asset Management, LLC (“CAM”) and Florida Asset Resolution Group, LLC (“FAR”). 

 

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

 

BankAtlantic also contributed to FAR certain performing and non-performing loans, tax certificates and real estate that had an aggregate carrying value on BankAtlantic’s balance sheet of approximately $346 million as of July 31, 2012.  FAR assumed all liabilities related to these assets.  BankAtlantic also contributed approximately $50 million in cash to FAR on July 31, 2012 and thereafter distributed all of the membership interests in FAR to the Company.  At the closing of the BB&T Transaction, the Company transferred to BB&T 95% of the outstanding preferred membership interests in FAR in connection with BB&T’s assumption of the Company’s $285.4 million in principal amount of outstanding trust preferred securities (“TruPS”) obligations. The Company retained the remaining 5% of FAR’s preferred membership interests. Under the terms of the Amended and Restated Limited Liability Company agreement of FAR entered into by the Company and BB&T at the closing, BB&T was entitled to hold its 95% preferred interest in the net cash flows of FAR until it recovered $285 million in preference amount plus a priority return of LIBOR + 200 basis points per annum on any unpaid preference amount.  On May 6, 2015, BB&T’s preferred interest in FAR was repaid in full and redeemed and FAR became a wholly-owned subsidiary of the Company.

In April 2013, BBX Capital acquired a 46% equity interest in Woodbridge Holdings, LLC (“Woodbridge”).  Woodbridge’s principal asset is its ownership of Bluegreen Corporation and its subsidiaries (“Bluegreen”). Bluegreen manages, markets and sells the Bluegreen Vacation Club, a points-based, deeded vacation ownership plan with more than 190,000 owners.  BFC Financial Corporation (“BFC”), the controlling shareholder of the Company, owns the remaining 54% of Woodbridge (see Note 2  - Investment in Woodbridge Holdings, LLC). 

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

In December 2013, BBX Sweet Holdings, LLC (“BBX Sweet Holdings”), a wholly-owned subsidiary of BBX Capital, acquired the outstanding equity interests in Hoffman’s Chocolates and its subsidiaries Boca Bons, LLC and S&F Good Fortunes, LLC (collectively, “Hoffman’s”).  Hoffman’s is a manufacturer of gourmet chocolates, with retail locations in South Florida. In January 2014, BBX Sweet Holdings acquired Williams and Bennett, a Florida based manufacturer of quality chocolate products.  In July 2014, BBX Sweet Holdings acquired Jer’s Chocolates, a California based distributor of peanut butter chocolate products, and Helen Grace Chocolates, a California based manufacturer of premium chocolate confections, chocolate bars, chocolate candies and truffles.  In October 2014, BBX Sweet Holdings acquired Anastasia Confections Inc. (“Anastasia”), an Orlando, Florida based manufacturer of gourmet candy and chocolate gift products.  In April 2015, BBX Sweet Holdings acquired the assets of Kencraft Confections, LLC (“Kencraft”).  Kencraft is a Utah based manufacturer of hard candies, including lollipops, candy cones, sugar Easter eggs, and icing decorations.  Business combination disclosures required by Topic 805-10-50 for the Kencraft asset acquisition were not included in the Company’s notes to the consolidated financial statements as the Kencraft asset acquisition was not considered material to the Company’s Consolidated Financial Statements.  The Company recognized a $284,000 bargain gain from the acquisition of Kencraft and incurred $159,000 of acquisition related costs.  Additionally, the Company recognized net taxable temporary

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differences from the Kencraft acquisition resulting from the recording for financial statement purposes of identifiable intangible assets in excess of amounts recognized for tax purposes.  As a consequence of recognizing net taxable temporary differences from the Kencraft acquisition, the Company reduced its deferred tax valuation allowance and recognized a $75,000 benefit for income taxes.

The Company obtained additional information in connection with the BBX Sweet Holdings 2014 acquisitions resulting in an increase in taxable temporary differences.  As a consequence, the Company reduced its deferred tax asset valuation allowance recognizing a $224,000 benefit for income taxes during the nine months ended September 30, 2015 with a corresponding increase in goodwill.

On April 30, 2015, BFC purchased 4,771,221 shares of BBX Capital’s Class A common stock through a tender offer and in September 2015, BFC purchased an additional 221,821 shares of BBX Capital’s Class A common stock from its executive officers upon the vesting of restricted stock units.  These share acquisitions increased BFC’s ownership percentage at September 30, 2015 to approximately 81% of the issued and outstanding shares of BBX Capital’s Class A common stock, which together with the shares of BBX Capital’s Class B common stock owned by BFC, represented an approximate 81% equity interest and 90% voting interest in BBX Capital.

BBX Capital has two classes of common stock. Holders of the Class A common stock are entitled to one vote per share, which in the aggregate represents 53% of the combined voting power of the Class A common stock and the Class B common stock. Class B common stock represents the remaining 47% of the combined vote. The percentage of total common equity represented by Class A and Class B common stock was 99% and 1%, respectively, at September  30, 2015.  The fixed voting percentages will be eliminated, and shares of Class B common stock will be entitled to only one vote per share from and after the date that BFC or its affiliates no longer own in the aggregate at least 97,523 shares of Class B common stock (which is one-half of the number of shares it now owns). Class B common stock is convertible into Class A common stock on a share for share basis at any time at BFC’s discretion.  

In September 2015, the Company’s Compensation Committee of the Board of Directors’ granted 419,492 of restricted Class A common stock units to its executive officers under the Company’s 2014 Stock Incentive Plan.  These restricted Class A common shares had a $6.5 million fair value on the grant date and vest ratably in annual installments over 4 years beginning in October.  The Company recognizes the compensation costs based on the straight-line method over the vesting period. 

On September 30, 2015, 381,622 shares of restricted Class A common stock units granted to executive officers in September 2012 and September 2014 vested.  The Company repurchased and retired 159,801 shares of the executive officers’ Class A common stock to satisfy the $2.5 million withholding tax obligations associated with the vesting of these shares in connection with these grants.  

   

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

 

In management's opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) as are necessary for a fair statement of the Company's condensed consolidated statement of financial condition at September  30, 2015, the condensed consolidated statements of operations and condensed consolidated statements of comprehensive income for the three and nine months ended September  30, 2015 and 2014, and the condensed consolidated statements of total equity and statements of cash flows for the nine months ended September  30, 2015 and 2014.  The results of operations for the three and nine months ended September  30, 2015 are not necessarily indicative of results of operations that may be expected for the subsequent interim period during 2015 or for the year ended December 31, 2015.  The condensed consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the consolidated financial statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

Certain amounts for prior periods have been reclassified to conform to the revised financial statement presentation for 2015.

Basic earnings per share excludes dilution and is computed by dividing net income attributable to the Company by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if options to issue common shares were exercised or restricted stock units of the Company were to vest. In calculating diluted earnings per share, net income attributable to the Company is divided by the weighted average number of common shares. Options and restricted stock units are included in the weighted average number of common shares outstanding based on the treasury stock method, if dilutive, respectively.  During the three and nine months ended September  30, 2015, options to acquire 10,323 shares of Class A common stock were anti-dilutive.  During each of the three

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and nine months ended September  30, 2014, options to acquire 15,481 shares of Class A common stock were anti-dilutive.  During the three months ended September 30, 2014 995,202 outstanding restricted Class A common stock were anti-dilutive.

 

New Accounting Pronouncements:

 

The FASB has issued the following accounting pronouncements and guidance relevant to the Company’s operations during 2015 (See the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for accounting pronouncements issued prior to March 16, 2015 relevant to the Company’s operations):

 

Accounting Standards Update Number 2015-16 –– Business Combinations (Topic 805) – Simplifying the Accounting Measurement-Period Adjustments.  This update requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.  The acquirer is required to record, in the same period’s financial statements, the effect on earnings, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  The update requires that the acquirer disclose in the notes or on the face of the income statement the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  The amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  This update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update Number 2015-15 –– Interest – Imputation of Interest (Topic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.  This update amends ASU 2015-03 and permits presentation of debt issuance costs on line-of-credit arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.  This update was effective upon the issuance of the standard and may be applied prospectively.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update Number 2015-11 –– Inventory (Topic 330) – Simplifying the Measurement of Inventory. This update requires that an entity should measure inventory at the lower of cost and net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.   The update was intended to more clearly articulate the requirements for the measurement and disclosure of inventory and not to change current practices.   The update is effective for annual and interim reporting periods beginning after December 15, 2016.  The update should be applied prospectively with early application permitted at the beginning of an interim or annual reporting period.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update Number 2015-05 –– Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.  This update provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract.    The standard is effective for annual and interim reporting periods beginning after December 15, 2015.  Early application is permitted.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update Number 2015-03 –– Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.  This update requires that debt issuance costs related to a recognized debt liability be presented in the Statement of Financial Condition as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The standard is effective for annual and interim reporting periods beginning after December 15, 2015.  Early application is permitted.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update Number 2014-09 – Revenue from Contracts with Customers – (Topic 606).  Accounting Standards Update Number 2014-09 –  Revenue Recognition (Topic 606): Revenue from Contracts with Customers. This guidance is intended to improve the financial reporting requirements for revenue from contracts with customers by providing a principle based approach.  It also requires disclosures designed to enable readers of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. 

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This accounting guidance update will replace most existing revenue recognition guidance in GAAP.  The standard was effective for annual and interim reporting periods beginning after December 15, 2016.  AU 2015-14 deferred the effective date of this update for all entities by one year.   Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  The Company is currently evaluating the requirements of this update and has not yet determined the impact it may have on the Company's consolidated financial statements.

 

 

 

2.    Investment in Woodbridge Holdings, LLC

 

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

 

On June 5, 2015, the parties in the action brought by Bluegreen’s former public shareholders against Bluegreen, the directors of Bluegreen, BFC, Woodbridge, certain directors and officers of BFC and others, challenging the terms of the merger pursuant to which Bluegreen merged into a wholly owned subsidiary of Woodbridge and Bluegreen’s shareholders (other than Woodbridge) were paid $10.00 in cash for each share of Bluegreen’s common stock that they held immediately prior to the effective time of the merger, agreed to a settlement of the litigation.  Pursuant to the settlement, which was finalized during September 2015, Woodbridge paid $36.5 million into a settlement fund for the benefit of former shareholders of Bluegreen whose shares were acquired in connection with the transaction.  BBX Capital repaid in full its $11.75 million promissory note to Woodbridge and BFC and BBX Capital made additional capital contributions to Woodbridge of $13.4 million and $11.4 million, respectively (based on their respective 54% and 46% ownership interests in Woodbridge), to fund the settlement payment. 

 

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The following is activity related to BBX Capital’s investment in Woodbridge, which is accounted for under the equity method, for the three and nine months ended September 30, 2015 and September 30, 2014, respectively (in thousands):

 

 

 

 

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

 

 

 

 

 

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

 

 

 

 

 

(1) Included in costs and expenses for the nine months ended September 30, 2015 was a $36.5 million settlement of the Bluegreen shareholder litigation associated with Woodbridge’s acquisition of Bluegreen’s publicly held shares in April 2013.

 

 

 

3.  Consolidated Variable Interest Entities

 

FAR

 

BB&T’s preferred equity interest in FAR, which was represented by FAR’s Class A units, entitled it to a $285.0 million preference amount plus the related priority return. Based on FAR’s amended and restated limited liability company agreement, FAR was required to make distributions quarterly or more frequently as approved by FAR’s Board of Managers, of excess cash flows from its operations and the orderly disposition of its assets to redeem the preferred membership interests. As such, the Class A units previously were considered mandatorily redeemable and were reflected as debt obligations in the Company’s Consolidated Statement of Financial Condition at December 31, 2014 and the priority return was considered interest expense in the Company’s Consolidated Statements of Operations.  

 

The activities of FAR are governed by an amended and restated limited liability company agreement which grants the Board of Managers decision-making authority over FAR.  Prior to May 6, 2015, the Board had four members, two members elected by the Company and two members elected by BB&T.  Upon redemption of BB&T’s preferred interest in FAR on May 6, 2015, FAR became a wholly-owned subsidiary of BBX Capital and the two Board members designated by BB&T resigned.  FAR was no longer a variable interest entity as of May 6, 2015.

 

 

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The carrying amount of the assets and liabilities of FAR and the classification of these assets and liabilities in the Company’s Statement of Financial Condition at December 31, 2014 was as follows (in thousands):

 

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.  BBX Capital is entitled to receive 80% of any joint venture distributions to the extent of our capital investment and 70% of any joint venture distributions thereafter. We are the managing member and have control of all aspects of the operations of the joint venture. 

 

During 2015, the zoning district surrounding this property was changed to permit up to 15 stories in building height from 4 stories in building height.  In May 2015, the North Flagler joint venture purchased the 4.5 acre parcel for $10.8 million and on the same day sold the property to a third party developer for $20.0 million.  Included in the Company’s Statements of Operation in net gains on sales of assets for the nine months ended September 30, 2015 was a $7.8 million gain on the property sale.  Net sales proceeds in the amount of $2.3 million were distributed to the noncontrolling member.  In October 2015, the JRG/BBX Development joint venture was liquidated and the remaining net assets were distributed to the members.

 

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

 

 

 

 

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4.  Investments in Unconsolidated Real Estate Joint Ventures

 

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

 

 

The amount of interest capitalized in investments in unconsolidated real estate joint ventures associated with joint venture real estate development activities for the three and nine months ended September 30, 2015 was $131,000 and $359,000, respectively.  There was no interest capitalized in investments in unconsolidated real estate joint ventures for the three and nine months ended September 30, 2014.

 

The condensed Statements of Operations for the three and nine months ended September 30, 2015 and 2014 for all the above listed equity method joint ventures in the aggregate was as follows (in thousands):

 

 

Information regarding the Company’s investments in unconsolidated real estate joint ventures entered into during the nine months ended September 30, 2015 are listed below.  See Note 5 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for information on investments in the Company’s other unconsolidated real estate joint ventures entered into before December 31, 2014.

 

CCB Miramar, LLC

 

In May 2015, the Company entered into a joint venture agreement with two separate unaffiliated developers for the acquisition of real estate in Miramar, Florida to construct single-family homes.  BBX Capital contributed $875,000 for a 35% interest in the joint venture and one of the developers contributed to the joint venture a contract to purchase the real estate. The purchase of the real estate is subject to certain closing conditions, including receipt of all necessary entitlements and completion of due diligence by the joint venture.

 

BBX Centra, LLC

In August 2015, BBX Capital and other investors invested in a joint venture with a developer for the development and sale of 89 townhomes in Pembroke Pines, Florida.  BBX Capital contributed $750,000 and is entitled to receive 7.143% of the joint venture distributions until a 12% return on its investment has been attained and then BBX Capital will be entitled to 3.175% of the joint venture distributions thereafter.    

 

 

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5.  Loans Held-for-Sale

 

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

 

Loans held-for-sale are reported at the lower of cost or fair value.  The Company transfers loans to held-for-sale when, based on the current economic environment and related market conditions, it does not have the intent to hold those loans for the foreseeable future.  The Company transfers loans previously held-for-sale to loans held-for-investment at the lower of cost or fair value on the transfer date.  In June 2015, the Company transferred its small business, residential and second-lien consumer loans from loans held-for-sale to loans held-for-investment based on its decision to hold these loans for the foreseeable future as a result of the recent appreciation of real estate values and the forecasted improving economic environment.  As a consequence, $2.4 million, $70,000 and $4.9 million of second-lien consumer, residential and small business loans, respectively, were transferred from loans held-for-sale to loans receivable measured at the lower of cost or fair value on the transfer date.  Any difference between the carrying amount of the loan and its outstanding principal balance was recognized as a discount. Such loans are included in loans receivable, net of the discount on the statement of financial condition as of September 30, 2015. 

 

As of September 30, 2015, foreclosure proceedings were in-process on $14.3 million of residential loans held for sale.

 

 

6.  Loans Receivable

 

The Company’s loans receivable portfolio consisted of the following components (in thousands):

 

As of September  30, 2015, foreclosure proceedings were in-process on $1.2 million of consumer loans.

 

The total discount on loans receivable was $3.5 million and $0 as of September 30, 2015 and December 31, 2014, respectively.

 

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

 

 

An age analysis of the past due recorded investment in loans receivable as of September 30, 2015 and December 31, 2014 was as follows (in thousands):

 

 

(1)  The Company had no loans that were 90 days or more past due and still accruing interest as of September  30, 2015 and December 31, 2014.

 

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The activity in the allowance for loan losses for the three and nine months ended September  30, 2015 and 2014 was as follows (in thousands): 

 

Impaired Loans -  Loans are considered impaired when, based on current information and events, the Company 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 for commercial and small business loans based on past payment history, financial strength of the borrower or guarantors, and cash flow associated with the collateral or business.  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 are recognized on a cash basis as interest income. Impaired loans, or portions thereof, are charged off when deemed uncollectible. 

 

Impaired loans as of September 30, 2015 and December 31, 2014 were as follows (in thousands):

 

 

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

 

 

 

 

Average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2014 were as follows (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 were equal to or greater than the carrying value of the loans, or loans that were collectively measured for impairment.

 

The Company had no commitments to lend additional funds on impaired loans as of September  30, 2015.

 

 

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

 

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

 

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

 

 

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

 

 

 

The amount of interest capitalized in land held-for-investment associated with real estate development improvements for the three and nine months ended September 30, 2015 was $275,000 and $706,000, respectively. There was no interest capitalized in land held for development for the three and nine months ended September 30, 2014.

 

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

 

   

 

 

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

 

 

 

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The following table presents the real estate held-for-sale valuation allowance activity for the three and nine months ended September 30, 2015 and 2014 (in thousands):

 

 

 

 

8.   Inventories

 

Inventories were as follows (in thousands):

 

 

Inventories consisted of $8.7 million for Renin and $9.9 million for BBX Sweet Holdings as of September  30, 2015, and $8.6 million for Renin and $5.9 million for BBX Sweet Holdings as of December 31, 2014.  Included in the Company’s Statements of Operations as selling, general, and administrative expenses for the three and nine months ended September  30, 2015 were $1.4 million and $3.9 million, respectively, of costs associated with shipping goods to customers.    Included in the Company’s Statements of Operations as selling, general, and administrative expenses for the three and nine months ended September  30, 2014 were $1.3 million and $3.7 million, respectively, of costs associated with shipping goods to customers.

 

 

9.  Notes Payable

 

The following notes payable were outstanding as of September 30, 2015 and December 31, 2014 (in thousands): 

 

 

As of September 30, 2015 and December 31, 2014, $200,000 and  $320,000 of unamortized discounts were included in total notes payable, respectively.  

 

Renin is the obligor under the Wells Fargo Capital Finance term loan and revolving advance facility, which bears interest at the Bank Prime Interest Rate or the daily three month LIBOR Interest rate plus a margin specified in the credit

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agreement ranging from 0.5% to 3.25%.  The loans are collateralized by all of Renin’s assets.  Renin was in compliance with the debt covenants of the loans as of September  30, 2015.

 

Repayment of the Anastasia note is guaranteed by BBX Capital and secured by the common stock of Anastasia.

 

On August 7, 2015, BBX Sweet Holdings entered into a Loan and Security Agreement and related agreements, with Iberiabank, which provides for borrowings by BBX Sweet Holdings of up to $5.0 million on a revolving basis.  Amounts borrowed under this facility accrue interest at a floating rate of thirty day LIBOR plus 2.75%.    Payments of interest only are payable monthly. The facility matures, and all outstanding principal and interest will be payable, on July 31, 2017, with one twelve month renewal option at BBX Sweet Holdings’ request, subject to satisfaction of certain conditions. The loan documents include a number of covenants, including financial covenants relating to BBX Sweet Holdings’ debt service coverage ratio.  The facility is secured by the assets of BBX Sweet Holdings and its subsidiaries and is guaranteed by BBX Capital.  BBX Sweet Holdings is using the proceeds of the facility for general corporate purposes.

In October 2014 Hoffman’s, a wholly-owned subsidiary of BBX Sweet Holdings, borrowed $1.7 million from Centennial Bank.  BBX Sweet Holdings and BBX Capital are guarantors of the note. The loan is collateralized by $2.1 million of properties and equipment.

 

In April 2015, a wholly-owned subsidiary of BBX Sweet Holdings borrowed $1.0 million from Centennial Bank in the form of a promissory note in order to partially fund the Kencraft asset acquisition.  The promissory note bears interest at 2.35% per annum and the principal balance is payable on April 1, 2017 or sooner upon demand.  Interest is payable monthly.  The promissory note is secured by a $1.0 million certificate of deposit and a blanket lien on the Kencraft assets acquired.  The $1.0 million time deposit account is included in “Restricted Cash” in the Company’s Consolidated Statement of Financial Condition as of September 30, 2015.  BBX Sweet Holdings was in compliance with the debt covenants of the loan as of September  30, 2015.

 

The Holdback Notes relate to purchase consideration payable in connection with the Hoffman’s, Williams and Bennett and Kencraft acquisitions.  The Hoffman’s and Williams and Bennett notes total $595,000, bear interest at interest rates ranging from 1.65% to 1.93% and mature on December 31, 2015.  The Kencraft $400,000 note bears interest at 6% per annum payable quarterly beginning on July 1, 2015 and matures on April 1, 2017.  The Holdback Notes serve as security for the sellers’ obligations under the respective purchase and sale agreements, including the sellers’ indemnity obligations and performance under each of the seller’s respective non-competition agreements and provide BBX Sweet Holdings with a set-off right.  BBX Capital is the guarantor on BBX Sweet Holdings’ Holdback Notes.

 

 

10.   Related Parties

 

The Company, BFC and Bluegreen are entities under common control. The controlling shareholder of the Company and Bluegreen is BFC.  Shares of BFC’s capital stock representing a majority of the voting power are owned or controlled by the Company’s Chairman and Vice Chairman, both of whom are also executive officers of the Company, executive officers and directors of BFC and Chairman and Vice Chairman, respectively, of Bluegreen. The Company, BFC and Bluegreen share certain office premises and employee services, pursuant to the agreements described below.

 

Effective December 1, 2012, the Company entered into an agreement with BFC under which the Company provides office facilities to BFC and is reimbursed by BFC based on cost. BFC also provides risk management services to the Company and BFC is reimbursed by the Company based on cost. The Company’s employees are provided health insurance under policies maintained by Bluegreen for which Bluegreen is reimbursed at cost. 

 

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The table below shows the effect of these related party agreements and arrangements on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September  30, 2015 and 2014 (in thousands):

 

 

On October 30, 2013, Renin, which is owned 81% by the Company and 19% by BFC, was formed by the Company and BFC to complete the Renin Transaction. Bluegreen funded approximately $9.4 million of the Renin Transaction consideration in the form of a loan and revolver facility and the remaining funds necessary to complete the Renin Transaction were funded by BBX Capital and BFC pro rata in accordance with their percentage equity interests in Renin.  The Bluegreen loan was paid-in-full in June 2014 from the proceeds received from a financing with a financial institution and pro rata capital contributions to Renin from BBX Capital and BFC of $2.0 million and $0.5 million, respectively.  Renin recognized $0 and $307,000 of interest expense under the Bluegreen loan for the three months and nine months ended September  30, 2014, respectively.

 

As disclosed in Note 2, on April 2, 2013, the Company invested $71.75 million in Woodbridge in exchange for a 46% equity interest in Woodbridge. The investment was made in connection with Woodbridge’s acquisition of the publicly held shares of Bluegreen. BFC holds the remaining 54% of Woodbridge.  The Company contributed $60 million in cash and issued to Woodbridge an $11.75 million note payable in connection with the Company’s acquisition of its 46% equity interest in Woodbridge.  During the three month periods ended September  30, 2015 and 2014, the Company recognized $124,000 and $147,000, respectively, of interest expense in connection with the Woodbridge note payable. During the nine month periods ended September  30, 2015 and 2014, the Company recognized $420,000 and $441,000, respectively, of interest expense in connection with the Woodbridge note payable.     During September 2015, in connection with settlement of the Bluegreen shareholder litigation, the $11.75 million Woodbridge note payable was paid-in-full and BBX Capital made an additional investment in Woodbridge of $11.4 million.

 

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

 

The Company will be included in BFC’s consolidated federal tax return; however, income taxes will continue to be recognized by the Company on a separate return basis and any taxable income or loss will be settled with BFC under the tax allocation agreement discussed in the immediately preceding paragraph. The computation of taxable income or refunds, including the effects of AMT, is the same as if the Company was filing its federal tax return with the IRS.  As such, the Company will only consider its operations as sources of taxable income in determining the need for a deferred tax valuation allowance for its deferred tax assets.  As a consequence, the Company will continue to maintain a full deferred tax valuation allowance for its deferred tax assets.

 

 

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11.   Segment Reporting

 

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

 

In prior periods FAR was reported as a separate business segment as its activities were restricted by FAR’s operating agreement to the monetization of FAR’s assets in order to repay BB&T’s preferred membership interest in FAR.  As a result of the redemption of BB&T’s preferred interest in FAR during May 2015, FAR activities are no longer restricted to the monetization of FAR’s assets.  As a consequence, management changed the Company’s internal reporting, combining the operations of FAR into BBX.  As a result of the changes in the internal reports, the FAR reportable segment was consolidated with the BBX reportable segment for all periods presented. 

 

The BBX reportable segment includes the results of operations of CAM, FAR and BBX Partners and the Company’s equity interest in Woodbridge. 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. 

 

The Renin reportable segment consists of the activities of Renin. Total revenues for the Renin reportable segment include $5.7 million and $5.3 million of trade sales to two major customers and their affiliates for the three months ended September 30, 2015 and 2014, respectively.  Renin’s revenues generated outside of the United States totaled $5.5 million and $6.8 million for the three months ended September 30, 2015 and 2014, respectively.  Renin’s properties and equipment located outside the United States totaled $1.2 million and $1.6 million as of September 30, 2015 and December 31, 2014.  Total revenues for the Renin reportable segment include $18.6 million and $15.7 million of trade sales to two major customers and their affiliates for the nine months ended September 30, 2015 and 2014, respectively.  Renin’s revenues generated outside of the United States totaled $17.0 million and $20.1 million for the nine months ended September 30, 2015 and 2014, respectively. 

The Sweet Holdings reportable segment consisted of the activities of Hoffman’s, Williams & Bennett, Jer’s, Helen Grace and Anastasia for the three and nine months ended September  30, 2015 and the activities of Kencraft for the three months ended September 30, 2015 and from April 1, 2015 through September 30, 2015.  The Sweet Holdings reportable segment consisted of the activities of Hoffman’s and Williams & Bennett for the three and nine months ended September  30, 2014 and the activities of Jer’s and Helen Grace from their respective dates of acquisition, July 1, 2014 and July 21, 2014, through September 30, 2014.

The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies.  Intersegment transactions are eliminated in consolidation. 

During the three and nine months ended September  30, 2015, acquisition related costs of $1,000 and $215,000, respectively, incurred in connection with BBX Sweet Holdings’ acquisition activities were included in the results of operations of the BBX reportable segment in costs and expenses compared to $104,000 and $202,000 for the three and nine months ended September 30, 2014, respectively. 

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

 

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The Company evaluates segment performance based on segment net income after tax. The tables below provide segment information for the three and nine months ended September  30, 2015 and 2014 (in thousands)

 

 

 

 

 

 

 

(1)  Includes a reconciling item of $644,000 associated with capitalized interest on real estate development and joint venture activities in excess of interest expense incurred in the BBX reportable segment.

 

 

 

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12.  Fair Value Measurement

 

There were no assets or liabilities measured at fair value on a recurring basis in the Company’s financial statements as of September 30, 2015 and December 31, 2014.

 

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

 

 

 

 

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

 

 

 

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

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

 

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

 

 

(1) Total impairments represent the amount of losses recognized during the nine months ended September  30, 2014 on assets that were held and measured at fair value as of September 30, 2014.

 

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

 

 

 

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

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

 

There were no material liabilities measured at fair value on a non-recurring basis in the Company’s financial statements as of September 30, 2015 and December 31, 2014.

 

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

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observable market inputs used to fair value loans include comparable property sales, rent rolls, market capitalization rates on income producing properties, risk adjusted discount rates and foreclosure time frames and exposure periods. 

 

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

 

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

 

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.

 

The following table presents the fair value of the Company’s financial instruments as of September 30, 2015:

 

 

 

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The following table presents the fair value of the Company’s financial instruments as of December 31, 2014:

 

 

 

Management has made estimates of fair value that it believes to be reasonable. However, because there is no active market for many of these financial instruments, management has derived the fair value of the majority of these financial instruments using the income approach technique with Level 3 unobservable inputs. Management estimates used in net present value financial models rely on assumptions and judgments regarding issues where the outcome is unknown and actual results or values may differ significantly from these estimates. The Company’s fair value estimates do not consider the tax effect that would be associated with the disposition of the assets or liabilities at their fair value estimates.  As such, the Company may not receive the estimated value upon sale or disposition of the asset or pay the estimated value upon disposition of the liability in advance of its scheduled maturity.

 

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

 

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

 

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

 

BB&T’s preferred interest in FAR was considered an adjustable rate debt security.  The fair value of this security was calculated using the income approach with Level 3 inputs.  The fair value 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. 

 

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13.  Commitments and Contingencies

 

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

During the year ended December 31, 2014, the Sunrise and Bayview Partners, LLC joint venture owned 50% by Procacci Bayview, LLC and 50% by a wholly-owned subsidiary of BBX Capital refinanced its land acquisition loan with a financial institution.  BBX Capital provided the financial institution with a guarantee of 50% of the outstanding balance of the joint venture’s loan which had an outstanding balance of $5.0 million as of September  30, 2015.

In July 2014, the Company entered into the Hialeah Communities joint venture with CC Bonterra to develop approximately 394 homes in a portion of the newly proposed Bonterra community in Hialeah, Florida. The Company transferred approximately 50 acres of land at an agreed upon value of approximately $15.6 million subject to an $8.3 million mortgage which was assumed by the joint venture.  In March 2015, the joint venture refinanced the $8.3 million mortgage loan into a $31.0 million acquisition and development loan.  BBX Capital is a guarantor of 26.3% of the joint venture’s $31.0 million acquisition and development loan.

In March 2015, BBX Capital placed $1.3 million in a money market account with a financial institution in order to obtain an irrevocable letter of credit for a wholly-owned subsidiary of CAM.  The letter of credit was to guarantee payment to a third party upon the third party obtaining wetlands permits in connection with a potential development project.  The $1.3 million money market account is included in “Restricted Cash” in the Company’s Consolidated Statement of Financial Condition at September 30, 2015.

 

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

 

Reserves are accrued for matters in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company accrued $4.6 million for these matters as of September  30, 2015. The actual costs of resolving these legal claims may be substantially higher or lower than the amounts accrued for these claims. 

 

In certain matters, we are 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.    

 

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

 

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

 

We have 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 notices assert its belief that it may be entitled to indemnification under the BankAtlantic stock purchase agreement with respect to such claims as well as another third party claim relating to an action which was previously 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 or recently concluded litigation matters:  

 

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

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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 Court denied summary judgment as to most issues, but granted the SEC’s motion for partial summary judgment that certain statements in one of Alan Levan’s answers on a July 25, 2007 investor conference call were false.

 

On December 15, 2014, after a six-week trial, the jury found in favor of BBX Capital and Alan B. Levan with respect to the disclosures made during an April 2007 earnings conference call and in BBX Capital’s quarterly reports on Form 10-Q for the 2007 first and second quarters, but found that they had engaged in an act of fraud or deceit toward shareholders or prospective investors by making materially false statements knowingly or with severe recklessness (1) with respect to three statements in the July 25, 2007 conference call referenced above, and (2) in their decision to sell certain loans in the fourth quarter of 2007 and failing to classify the loans as held-for sale in the 2007 Annual Report on Form 10-K.  The jury also found that Mr. Levan made or caused to be made false statements to the independent accountants regarding the held for sale issue.

 

The SEC sought a final judgment: (i) permanently barring Alan B. Levan from serving as an officer or director of any SEC reporting company; (ii) imposing civil penalties of $5.2 million against BBX Capital and $1.56 million against Alan B. Levan; and (iii) permanently restraining BBX Capital and Alan B. Levan from violating securities laws.  On September 24, 2015, the court entered a final judgment denying the SEC’s request for a permanent bar from Mr. Levan serving as an officer or director of any public company, but instead ordered Mr. Levan barred from serving as an officer or director of any public company for a period of two years commencing on December 23, 2015 (which is the date 90 days after the final judgment order was signed by the court).  The court also imposed monetary penalties against the Company in the amount of $4,550,000 and monetary penalties against Mr. Levan in the amount of $1,300,000.  The Company and Mr. Levan are appealing the final judgment to the Eleventh Circuit Court of Appeals, and on October 27, 2015, Mr. Levan filed a motion with the Eleventh Circuit Court of Appeals to stay the two year bar pending appeal of the court’s decision.  As a result of the court's decision, Mr. Levan will, unless the order is stayed by the appellate court, resign as Chairman and Chief Executive Officer of the Company, as Chairman, Chief Executive Officer and President of BFC, and as a director of the Company and BFC upon the commencement of the bar.

 

On January 14, 2015, the Company received notice from its insurance carrier that, based upon its interpretation of the jury verdict in this action, the carrier does not believe it is obligated to advance further payments towards fees and costs incurred in connection with this action and that it reserves its right to obtain reimbursement of the amounts it previously advanced with respect to this action.  The Company has received legal fee and cost reimbursements from its insurance carrier in connection with this action of approximately $5.8 million.

 

New Jersey Tax Sales Certificates Antitrust Litigation

 

On December 21, 2012, plaintiffs filed an Amended Complaint in an existing purported class action filed in Federal District Court in New Jersey adding BBX Capital and Fidelity Tax, LLC, a wholly owned subsidiary of CAM, among others as defendants.  The class action complaint is brought on behalf of a class defined as “all persons who owned real property in the State of New Jersey and who had a Tax Certificate issued with respect to their property that was purchased by a Defendant during the Class Period at a public auction in the State of New Jersey at an interest rate above 0%.”  Plaintiffs alleged that beginning in January 1998 and at least through February 2009, the Defendants were part of a statewide conspiracy to manipulate interest rates associated with tax certificates sold at public auction from at least January 1, 1998, through February 28, 2009. During this period, Fidelity Tax was a subsidiary of BankAtlantic.  Fidelity Tax was contributed to CAM in connection with the sale of BankAtlantic in the BB&T Transaction. BBX Capital and Fidelity Tax filed a Motion to Dismiss in March 2013 and on October 23, 2013, the Court granted the Motion to Dismiss and dismissed the Amended Complaint with prejudice as to certain claims, but without prejudice as to plaintiffs’ main antitrust claim.  Plaintiffs filed a Consolidated Amended Complaint on January 6, 2014.  While BBX Capital believed the claims to be without merit, BBX Capital reached an agreement to settle the action, subject to court approval. The settlement has been preliminarily approved by the court and the final approval hearing is currently scheduled for the second quarter of 2016.

 

 

14.  Subsequent Events

 

Subsequent events have been evaluated through November XX, 2015, the date of the filing of this document.