UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10-Q



   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2018



OR

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

For the transition period from _________ to _________



Commission file number 001-19292



BLUEGREEN VACATIONS CORPORATION

(Exact name of registrant as specified in its charter)





 

 

 

 



Florida

 

03-0300793

 



(State or other jurisdiction of

 

(I.R.S. Employer

 



incorporation or organization)

 

Identification No.)

 



4960 Conference Way North, Suite 100, Boca Raton, Florida 33431

(Address of principal executive offices) (Zip Code)



Registrant’s telephone number, including area code:  (561) 912-8000



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      No 



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     Yes      No 



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



 

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  



Emerging growth company  



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes      No 



As of November 1, 2018, there were 74,734,455 shares of the registrant’s common stock, $.01 par value, outstanding.




 

BLUEGREEN VACATIONS CORPORATION

FORM 10-Q TABLE OF CONTENTS



 

 



 

Page

PART I

Item 1.

Financial Statements



Consolidated Balance Sheets



Consolidated Statements of Income and Comprehensive Income



Consolidated Statements of Shareholders’ Equity



Consolidated Statements of Cash Flows



Notes to Consolidated Financial Statements

Item 2.

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

33 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

56 

Item 4.

Controls and Procedures

56 



 

 

PART II

Item 1.

Legal Proceedings

57 

Item 1A.

Risk Factors

58 

Item 6.

Exhibits

59 



 

 

SIGNATURES

60 



 

2


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.



BLUEGREEN VACATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share data) 







 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

 

 

*As Adjusted

ASSETS 

 

 

 

 

 

 

Cash and cash equivalents

 

$

195,439 

 

$

197,337 

Restricted cash ($17,081 and $19,488 in VIEs at September 30, 2018

 

 

 

 

 

 

and December 31, 2017, respectively)

 

 

54,892 

 

 

46,012 

Notes receivable, net ($308,221 and $279,188 in VIEs

 

 

 

 

 

 

at September 30, 2018 and December 31, 2017, respectively)

 

 

439,484 

 

 

426,858 

Inventory

 

 

325,532 

 

 

281,291 

Prepaid expenses

 

 

15,733 

 

 

10,743 

Other assets

 

 

70,498 

 

 

52,506 

Intangible assets, net

 

 

61,878 

 

 

61,978 

Loan to related party

 

 

80,000 

 

 

80,000 

Property and equipment, net

 

 

93,536 

 

 

74,756 

Total assets

 

$

1,336,992 

 

$

1,231,481 



 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Accounts payable

 

$

19,822 

 

$

22,955 

Accrued liabilities and other

 

 

94,729 

 

 

77,317 

Deferred income

 

 

15,509 

 

 

16,893 

Deferred income taxes

 

 

91,696 

 

 

88,966 

Receivable-backed notes payable - recourse

 

 

97,770 

 

 

84,697 

Receivable-backed notes payable - non-recourse (in VIEs)

 

 

335,680 

 

 

336,421 

Lines-of-credit and notes payable

 

 

137,834 

 

 

100,194 

Junior subordinated debentures

 

 

71,147 

 

 

70,384 

Total liabilities

 

 

864,187 

 

 

797,827 



 

 

 

 

 

 

Commitments and Contingencies  - See Note 8

 

 

 

 

 

 



 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

Common stock, $.01 par value, 100,000,000 shares authorized; 74,734,455

 

 

 

 

 

 

shares issued and outstanding at September 30, 2018 and December 31, 2017

 

 

747 

 

 

747 

Additional paid-in capital

 

 

274,366 

 

 

274,366 

Retained earnings

 

 

150,062 

 

 

115,520 

Total Bluegreen Vacations Corporation shareholders' equity

 

 

425,175 

 

 

390,633 

Non-controlling interest

 

 

47,630 

 

 

43,021 

Total shareholders' equity

 

 

472,805 

 

 

433,654 

Total liabilities and shareholders' equity

 

$

1,336,992 

 

$

1,231,481 



* See Note 2 for summary of adjustments.



See accompanying Notes to Consolidated Financial Statements - Unaudited

3


 

BLUEGREEN VACATIONS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME (UNAUDITED)

(In thousands, except per share data) 







 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended

 



 

September 30,

 

September 30,

 



 

 

 

 

2017

 

 

 

 

2017

 



 

2018

 

*As Adjusted

 

2018

 

*As Adjusted

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of VOIs

 

$

85,151 

 

$

73,402 

 

$

231,338 

 

$

209,585 

 

Estimated uncollectible VOI notes receivable

 

 

(14,453)

 

 

(10,949)

 

 

(35,926)

 

 

(33,491)

 

Sales of VOIs

 

 

70,698 

 

 

62,453 

 

 

195,412 

 

 

176,094 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Fee-based sales commission revenue

 

 

61,641 

 

 

69,977 

 

 

167,581 

 

 

179,046 

 

Other fee-based services revenue

 

 

31,057 

 

 

27,386 

 

 

89,472 

 

 

83,442 

 

Cost reimbursements

 

 

16,900 

 

 

14,097 

 

 

47,157 

 

 

40,660 

 

Interest income

 

 

21,531 

 

 

21,296 

 

 

63,771 

 

 

65,673 

 

Other income, net

 

 

378 

 

 

 —

 

 

1,269 

 

 

 —

 

Total revenues

 

 

202,205 

 

 

195,209 

 

 

564,662 

 

 

544,915 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of VOIs sold

 

 

11,237 

 

 

6,444 

 

 

19,838 

 

 

11,352 

 

Cost of other fee-based services

 

 

19,937 

 

 

17,182 

 

 

53,983 

 

 

48,663 

 

Cost reimbursements

 

 

16,900 

 

 

14,097 

 

 

47,157 

 

 

40,660 

 

Selling, general and administrative expenses

 

 

112,407 

 

 

114,934 

 

 

315,535 

 

 

312,257 

 

Interest expense

 

 

9,208 

 

 

8,058 

 

 

25,470 

 

 

23,779 

 

Other expense, net

 

 

 —

 

 

119 

 

 

 —

 

 

120 

 

Total costs and expenses

 

 

169,689 

 

 

160,834 

 

 

461,983 

 

 

436,831 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Income before non-controlling interest and

 

 

 

 

 

 

 

 

 

 

 

 

 

  provision for income taxes

 

 

32,516 

 

 

34,375 

 

 

102,679 

 

 

108,084 

 

Provision for income taxes

 

 

8,443 

 

 

12,584 

 

 

24,997 

 

 

38,487 

 

Net income

 

 

24,073 

 

 

21,791 

 

 

77,682 

 

 

69,597 

 

Less: Net income attributable to
  non-controlling interest

 

 

3,585 

 

 

3,251 

 

 

9,509 

 

 

9,418 

 

Net income attributable to Bluegreen

 

 

 

 

 

 

 

 

 

 

 

 

 

 Vacations Corporation shareholders

 

$

20,488 

 

$

18,540 

 

$

68,173 

 

$

60,179 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 Bluegreen Vacations Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 shareholders

 

$

20,488 

 

$

18,540 

 

$

68,173 

 

$

60,179 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

* See Note 2 for summary of adjustments.







4


 

BLUEGREEN VACATIONS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME (UNAUDITED)

(In thousands, except per share data)







 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended

 



 

September 30,

 

September 30,

 



 

 

 

 

2017

 

 

 

 

2017

 



 

2018

 

*As Adjusted

 

2018

 

*As Adjusted

 

Earnings per share attributable to
  Bluegreen Vacations Corporation
  shareholders - Basic and diluted

 

$

0.27 

 

$

0.26 

(1)

$

0.91 

 

$

0.85 

(1)



 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares
  outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

74,734 

 

 

70,998 

(1)

 

74,734 

 

 

70,998 

(1)



 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.15 

 

$

0.28 

(1)

$

0.45 

 

$

0.56 

(1)





* See Note 2 for summary of adjustments.



(1)

The calculation of basic and diluted earnings per share and the cash dividends declared per share for the 2017 periods reflects the stock split effected in connection with our initial public offering during November 2017 as if the stock split was effected on January 1, 2017.



See accompanying Notes to Consolidated Financial Statements - Unaudited.

5


 

BLUEGREEN VACATIONS CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except share data)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Equity Attributable
to Bluegreen Shareholders

 

 

Common
Shares
Issued

  

 

 

Total

 

Common
Stock

 

Additional
Paid-in-
Capital

 

Retained
Earnings

 

Equity

Attributable to

Non-Controlling

Interest

74,734,455 

 

*As adjusted balance at December 31, 2017

 

$

433,654 

 

$

747 

 

$

274,366 

 

$

115,520 

 

$

43,021 

 —

 

Net income

 

 

77,682 

 

 

 —

 

 

 —

 

 

68,173 

 

 

9,509 



 

Member distribution to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

non-controlling interest holder

 

 

(4,900)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,900)

 —

 

Dividends to shareholders

 

 

(33,631)

 

 

 —

 

 

 —

 

 

(33,631)

 

 

 —

74,734,455 

 

Balance at September 30, 2018

 

$

472,805 

 

$

747 

 

$

274,366 

 

$

150,062 

 

$

47,630 



See accompanying Notes to Consolidated Financial Statements - Unaudited.





6


 

BLUEGREEN VACATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)







 

 

 

 

 

 



 

 

 

 

 

 



 

For the Nine Months Ended



 

September 30,



 

2018

 

2017



 

 

 

 

*As Adjusted

Operating activities:

 

 

 

 

 

 

Net income

 

$

77,682 

 

$

69,597 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

 

by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

11,852 

 

 

10,559 

Loss on disposal of property and equipment

 

 

 —

 

 

428 

Provision for loan losses

 

 

35,866 

 

 

32,066 

Provision (benefit) for deferred income taxes

 

 

2,730 

 

 

(5,669)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Notes receivable

 

 

(48,492)

 

 

(29,526)

Prepaid expenses and other assets

 

 

(23,386)

 

 

(17,736)

Inventory

 

 

(23,405)

 

 

(30,707)

Accounts payable, accrued liabilities and other, and

 

 

 

 

 

 

deferred income

 

 

12,895 

 

 

19,677 

Net cash provided by operating activities

 

 

45,742 

 

 

48,689 



 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(24,347)

 

 

(9,380)

Net cash used in investing activities

 

 

(24,347)

 

 

(9,380)



 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

Proceeds from borrowings collateralized

 

 

 

 

 

 

by notes receivable

 

 

114,756 

 

 

170,030 

Payments on borrowings collateralized by notes receivable

 

 

(103,578)

 

 

(164,331)

Proceeds from borrowings collateralized

 

 

 

 

 

 

by line-of-credit facilities and notes payable

 

 

50,042 

 

 

30,000 

Payments under line-of-credit facilities and notes payable

 

 

(36,717)

 

 

(32,968)

Payments of debt issuance costs

 

 

(385)

 

 

(3,217)

Distributions to non-controlling interest

 

 

(4,900)

 

 

(3,920)

Dividends paid

 

 

(33,631)

 

 

(40,000)

Net cash used in financing activities

 

 

(14,413)

 

 

(44,406)

Net increase (decrease) in cash and cash equivalents

 

 

 

 

 

 

and restricted cash

 

 

6,982 

 

 

(5,097)

Cash, cash equivalents and restricted cash at beginning of period

 

 

243,349 

 

 

190,228 

Cash, cash equivalents and restricted cash at end of period

 

$

250,331 

 

$

185,131 

* See Note 2 for summary of adjustments.

7


 

BLUEGREEN VACATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)







 

 

 

 

 

 



 

 

 

 

 

 



 

For the Nine Months Ended



 

September 30,



 

2018

 

2017

Supplemental schedule of operating cash flow information:

 

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

22,437 

 

$

19,715 

Income taxes paid

 

$

22,856 

 

$

41,087 







 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

Acquisition of inventory, property, and equipment for notes payable

 

$

24,258 

 

$

 —



See accompanying Notes to Consolidated Financial Statements - Unaudited.

8


 

BLUEGREEN VACATIONS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

1.  Organization and Basis of Presentation



Bluegreen Vacations Corporation is referred to in this report together with its consolidated subsidiaries as “Bluegreen Vacations,” “Bluegreen,” “the Company,” “we,” “us” and “our”. Bluegreen has prepared the accompanying unaudited consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. 



In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments consisting of normal recurring items necessary for a fair presentation of our financial position, results of operations, and cash flows for the interim periods reported in this Quarterly Report on Form 10-Q. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, actual results could differ from those estimates.  The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or any other future interim or annual periods. The accompanying financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2017, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, 2018.



Initial Public Offering



The initial public offering of our common stock was closed on November 17, 2017.  In the initial public offering, we sold 3,736,723 shares of our common stock at the public offering price of $14.00 per share, less underwriting discounts and commissions. We received net proceeds of approximately $47.3 million from our sale of shares in the initial public offering.  In addition, BBX Capital Corporation (NYSE: BBX) (“BBX Capital”), our sole shareholder prior to the initial public offering, as selling shareholder, sold 3,736,722 shares of our common stock in the initial public offering, including 974,797 shares sold on December 5, 2017 pursuant to the underwriters’ exercise of their option to purchase additional shares, at the public offering price of $14.00 per share, less underwriting discounts and commissions. We did not receive any proceeds from the sale of shares by BBX Capital. BBX Capital continues to own 90% of our outstanding common stock. Our common stock began trading on the New York Stock Exchange (the “NYSE”) on November 17, 2017 under the symbol “BXG.”  In connection with the initial public offering, we effected a 709,977-for-1 stock split. All share and per share amounts herein reflect, or are calculated after giving effect to, such stock split.



Our Business



We are a leading vacation ownership company that markets and sells vacation ownership interests (“VOIs”) and manages resorts in leisure and urban destinations. Our resort network includes 45 Club Resorts (resorts in which owners in the Bluegreen Vacation Club (“Vacation Club”) have the right to use most of the units in connection with their VOI ownership) and 24 Club Associate Resorts (resorts in which owners in our Vacation Club have the right to use a limited number of units in connection with their VOI ownership). Our Club Resorts and Club Associate Resorts are primarily located in popular, high-volume, “drive-to” vacation locations, including Orlando, Las Vegas, Myrtle Beach and Charleston, among others. Through our points-based system, the approximately 216,000 owners in our Vacation Club have the flexibility to stay at units available at any of our resorts and have access to approximately 11,100 other hotels and resorts through partnerships and exchange networks. We have a robust sales and marketing platform supported by exclusive marketing relationships with nationally-recognized consumer brands, such as Bass Pro and Choice Hotels. These marketing relationships drive sales within our core demographic.



Prior to 2009, our vacation ownership business consisted solely of the sale of VOIs in resorts that we developed or acquired (“developed VOI sales”). While we continue to conduct such sales and development activities, we now also derive a significant portion of our revenue from our capital-light business model, which utilizes our expertise and infrastructure to generate both VOI sales and recurring revenue from third parties without the significant capital investment generally associated with the development and acquisition of resorts. Our capital-light business activities include sales of VOIs owned by third-party developers pursuant to which we are paid a commission (“fee-based sales”) and sales of VOIs that we purchase

9


 

under just-in-time (“JIT”) arrangements with third-party developers or from secondary market sources. In addition, we provide resorts and resort developers with other fee-based services, including resort management, mortgage servicing, title services and construction management. We also offer financing to qualified VOI purchasers, which generates significant interest income.



Principles of Consolidation and Basis of Presentation



Our unaudited consolidated financial statements include the accounts of all of our wholly-owned subsidiaries, entities in which we hold a controlling financial interest, including Bluegreen/Big Cedar Vacations, LLC (a joint venture in which we are deemed to hold a controlling financial interest based on our 51% equity interest, our active role as the day-to-day manager of its activities, and our majority voting control of its management committee, (“Bluegreen/Big Cedar Vacations”) and variable interest entities (sometimes referred to herein as “VIEs”) of which we are the primary beneficiary, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Consolidations (Topic 810). We do not consolidate the statutory business trusts formed by us to issue trust preferred securities as these entities represent VIEs in which we are not the primary beneficiary. The statutory business trusts are accounted for under the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.

 

2. Significant Accounting Policies



Reclassification of Prior Period Presentation



Certain amounts for prior periods have been reclassified to conform to the current period presentation. 



Revenue Recognition



Sales of VOIs.  Revenue is recognized for sales of VOIs after control of the VOI is deemed transferred to the customer, which is when the legal rescission period has expired on a binding executed VOI sales agreement and the collectability of the note receivable from the buyer, if any, is reasonably assured.  Transfer of control of the VOI to the buyer is deemed to occur when the legal rescission period expires as the risk and rewards associated with VOI ownership are transferred to the buyer at that time.  We record customer deposits from contracts within the legal rescission period in Restricted cash and Accrued liabilities and other in our Consolidated Balance Sheets as such amounts are refundable until the legal rescission period has expired.  In cases where construction and development of our developed resorts has not been substantially completed, we defer all of the revenues and associated expenses for the sales of VOIs until construction is substantially complete and the resort may be occupied.



We generally, offer qualified purchasers financing for up to 90% of the purchase price of VOIs.  The typical financing provides for a term of ten years and a fixed interest rate, is fully amortizing in equal installments and may be prepaid without penalty.  For sales of VOIs for which we provide financing, we have reduced the transaction price for expected loan losses which we consider to be variable consideration. Our estimates of the variable consideration are based on the results of our static pool analysis, which relies on historical payment data for similar VOI notes receivable. Our policies regarding the estimation of variable consideration on our notes receivable are discussed in further detail under “Notes Receivable” below. VOI Sales where no financing was provided do not have any material significant payment terms. 



Under timeshare accounting rules, rental operations, including accommodations provided through the use of our sampler program, are accounted for as incidental operations whereby incremental carrying costs in excess of incremental revenues are expensed as incurred. During each of the periods presented, our aggregate rental revenue and sampler revenue was less than the aggregate carrying cost of our VOI inventory.  Accordingly, we recorded such revenue as a reduction to the carrying cost of VOI inventory which is included in Cost of other fee-based services in our Consolidated Statements of Income and Comprehensive Income for each period.



Fee-based sales commission revenue.  Fee-based sales commission revenue is recognized when a sales transaction with a VOI purchaser is consummated in accordance with the terms of the fee-based sales agreement with the third-party developer, it is probable that a significant reversal of such revenue will not occur and the related consumer rescission period has expired.



10


 

Other fee-based services revenue and cost reimbursements.  Revenue in connection with our other fee-based services (which are described below) is recognized as follows:



·

Resort and club management revenue and related cost reimbursements are recognized as services are rendered.  These services provided to the resort homeowner associations (“HOAs”) are comprised of day-to-day services to operate the resort, including management services and certain accounting and administrative functions.  Management services provided to the Vacation Club include managing the reservation system and providing owner, billing and collection services.  Our management contracts are typically structured as cost-plus with an initial term of three years and automatic one-year renewals. We believe these services to be a series of distinct goods and services to be accounted for as a single performance obligation over time and recognize revenue as the customer receives the benefits of our services.  We allocate variable consideration to the distinct good or service within the series, such that revenue from management fees and cost reimbursements is recognized in each period as the uncertainty with respect to such variable consideration is resolved.

·

Resort title fee revenue is recognized when escrow amounts are released and title documents are completed.

·

Rental revenues are recognized on a daily basis which is consistent with the period for which the customer benefits from such service.    Revenue from the sampler program is typically recognized within a year from sale as guests complete stays at the resorts.

·

Mortgage servicing revenue is recognized over time as services are rendered.



Our cost of other fee-based services consists of the costs associated with the various activities described above, as well as developer subsidies and maintenance fees on our unsold VOIs.



Interest Income.  We provide financing for a significant portion of sales of our owned VOIs.  We recognize interest income from financing VOI sales on the accrual method as earned based on the outstanding principal balance, interest rate and terms stated in each individual financing agreement.  See “Notes Receivable” below for further discussion of the policies applicable to our VOI notes receivable. 



Revenue disaggregated by category was as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30,

 

September 30,



 

2018

 

2017

 

2018

 

2017



 

 

 

 

 

 

 

 

 

 

 

 

Sales of VOIs (1)

 

$

70,698 

 

$

62,453 

 

$

195,412 

 

$

176,094 

Fee-based sales commission revenue (2)

 

 

61,641 

 

 

69,977 

 

 

167,581 

 

 

179,046 

Resort and club management revenue (2)

 

 

25,744 

 

 

23,170 

 

 

75,257 

 

 

67,857 

Cost reimbursements (2)

 

 

16,900 

 

 

14,097 

 

 

47,157 

 

 

40,660 

Title fees (1)

 

 

3,491 

 

 

2,373 

 

 

9,355 

 

 

10,927 

Other revenue (2)

 

 

1,822 

 

 

1,843 

 

 

4,860 

 

 

4,658 

Revenue from customers

 

 

180,296 

 

 

173,913 

 

 

499,622 

 

 

479,242 

Interest income (1)

 

 

21,531 

 

 

21,296 

 

 

63,771 

 

 

65,673 

Other income, net

 

 

378 

 

 

 —

 

 

1,269 

 

 

 —

Total revenues

 

$

202,205 

 

$

195,209 

 

$

564,662 

 

$

544,915 



(1)

Included in our sales of VOIs and financing segment described in Note 11.

(2)

Included in our resort operations and club management segment described in Note 11.

11


 

Notes Receivable



Our notes receivable are carried at amortized cost less an allowance for loan losses. Interest income is suspended, and previously accrued but unpaid interest income is reversed, on all delinquent notes receivable when principal or interest payments are more than 90 days contractually past due and is not resumed until such loans are less than 90 days past due.  As of September 30, 2018 and December 31, 2017, $17.0 million and $12.9 million, respectively, of our VOI notes receivable were more than 90 days past due, and accordingly, consistent with our policy, were not accruing interest income.  After 120 days, our VOI notes receivable are generally written off against the allowance for loan losses.



To the extent we determine that it is probable that a significant reversal of cumulative revenue recognized may occur, we record an estimate of variable consideration as a reduction to the transaction price of the sales of VOIs until the uncertainty associated with the variable consideration is resolved.  Our estimates of the variable consideration are based on the results of our static pool analysis, which relies on historical payment data for similar VOI notes receivable and tracks uncollectibles for each period’s sales over the entire life of the notes. We also consider whether historical economic conditions are comparable to then current economic conditions, as well as variations in underwriting standards. We review our estimate of variable consideration on at least a quarterly basis.  Loan origination costs are deferred and recognized over the life of the related notes receivable.



Recently Adopted Accounting Pronouncements 



In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (ASC 606)” as subsequently amended (“ASU 2014-09”). ASU 2014-09 replaced numerous requirements in GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers.  The new standard specifies how and when to recognize revenue from contracts with customers by providing a principle-based framework and requires additional disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We adopted the new guidance on January 1, 2018 using the retrospective method and accordingly, prior period results have been adjusted to apply the new standard, as shown below. 



We have elected to use the following practical expedients in connection with our adoption of ASU 2014-09: 



·

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

·

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

·

We expense all marketing and sales costs as they are incurred.

·

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



We do not believe that the use of these practical expedients materially impacted the unaudited consolidated financial statements and disclosures herein.

12


 

The following represents the impact of the adoption of ASU 2014-09 on our consolidated balance sheets as of December 31, 2017 and December 31, 2016 and our consolidated statements of income for the three and nine months ended September 30, 2017 and the years ended December 31, 2017 and 2016 (in thousands, except per share data):







 

 

 

 

 

 

 

 



For the Three Months Ended September 30, 2017



Prior to Adoption

 

New Revenue
Standard
Adjustment

 

As Adjusted

Income Statement:

 

 

 

 

 

 

 

 

Sales of VOIs

$

61,687 

 

$

766 

 

$

62,453 

Cost reimbursements

 

 —

 

 

14,097 

 

 

14,097 

Cost reimbursements

 

 —

 

 

14,097 

 

 

14,097 

Cost of VOIs sold

 

6,284 

 

 

160 

 

 

6,444 

Selling, general and administrative expenses

 

114,637 

 

 

297 

 

 

114,934 

Income before non-controlling interest and provision
  for income taxes

 

34,066 

 

 

309 

 

 

34,375 

Provision for income taxes

 

12,520 

 

 

64 

 

 

12,584 

Net income

 

21,546 

 

 

245 

 

 

21,791 

  Less: Net income attributable to non-controlling interest

 

3,110 

 

 

141 

 

 

3,251 

Net income attributable to Bluegreen Vacations Corporation
  shareholders

$

18,436 

 

$

104 

 

$

18,540 

Basic and diluted earnings per share

$

0.26 

 

$

 —

 

$

0.26 







 

 

 

 

 

 

 

 



For the Nine Months Ended September 30, 2017



Prior to Adoption

 

New Revenue
Standard
Adjustment

 

As Adjusted

Income Statement:

 

 

 

 

 

 

 

 

Sales of VOIs

$

172,839 

 

$

3,255 

 

$

176,094 

Cost reimbursements

 

 —

 

 

40,660 

 

 

40,660 

Cost reimbursements

 

 —

 

 

40,660 

 

 

40,660 

Cost of VOIs sold

 

10,737 

 

 

615 

 

 

11,352 

Selling, general and administrative expenses

 

311,402 

 

 

855 

 

 

312,257 

Income before non-controlling interest and provision
  for income taxes

 

106,299 

 

 

1,785 

 

 

108,084 

Provision for income taxes

 

37,844 

 

 

643 

 

 

38,487 

Net income

 

68,455 

 

 

1,142 

 

 

69,597 

  Less: Net income attributable to non-controlling interest

 

9,398 

 

 

20 

 

 

9,418 

Net income attributable to Bluegreen Vacations Corporation
  shareholders

$

59,057 

 

$

1,122 

 

$

60,179 

Basic and diluted earnings per share

$

0.83 

 

$

0.02 

 

$

0.85 





13


 



 

 

 

 

 

 

 

 



As of and for the Year Ended December 31, 2017



As Previously Reported

 

New Revenue
Standard
Adjustment

 

As Adjusted

Balance Sheet:

 

 

 

 

 

 

 

 

Notes receivable, net

$

431,801 

 

$

(4,943)

 

$

426,858 

Deferred income

 

36,311 

 

 

(19,418)

 

 

16,893 

Deferred income taxes

 

83,628 

 

 

5,338 

 

 

88,966 

Total shareholders' equity

$

424,517 

 

$

9,137 

 

$

433,654 



 

 

 

 

 

 

 

 

Income Statement:

 

 

 

 

 

 

 

 

Sales of VOIs

$

239,662 

 

$

2,355 

 

$

242,017 

Cost reimbursements

 

 —

 

 

52,639 

 

 

52,639 

Cost reimbursements

 

 —

 

 

52,639 

 

 

52,639 

Cost of VOIs sold

 

17,439 

 

 

240 

 

 

17,679 

Selling, general and administrative expenses

 

420,746 

 

 

453 

 

 

421,199 

Income before non-controlling interest and provision
  for income taxes

 

135,336 

 

 

1,662 

 

 

136,998 

Provision (benefit) for income taxes

 

(2,974)

 

 

629 

 

 

(2,345)

Net income

 

138,310 

 

 

1,033 

 

 

139,343 

  Less: Net income attributable to non-controlling interest

 

12,784 

 

 

(24)

 

 

12,760 

Net income attributable to Bluegreen Vacations Corporation
  shareholders

$

125,526 

 

$

1,057 

 

$

126,583 

Basic and diluted earnings per share

$

1.76 

 

$

0.01 

 

$

1.77 







 

 

 

 

 

 

 

 



As of and for the Year Ended December 31, 2016



As Previously Reported

 

New Revenue
Standard
Adjustment

 

As Adjusted

Balance Sheet:

 

 

 

 

 

 

 

 

Notes receivable, net

$

430,480 

 

$

(4,680)

 

$

425,800 

Deferred income

 

37,015 

 

 

(17,493)

 

 

19,522 

Deferred income taxes

 

126,278 

 

 

4,711 

 

 

130,989 

Total shareholders' equity

$

290,208 

 

$

8,103 

 

$

298,311 



 

 

 

 

 

 

 

 

Income Statement:

 

 

 

 

 

 

 

 

Sales of VOIs

$

266,142 

 

$

7,732 

 

$

273,874 

Cost reimbursements

 

 —

 

 

49,557 

 

 

49,557 

Cost reimbursements

 

 —

 

 

49,557 

 

 

49,557 

Cost of VOIs sold

 

27,346 

 

 

1,483 

 

 

28,829 

Selling, general and administrative expenses

 

418,357 

 

 

1,572 

 

 

419,929 

Income before non-controlling interest and provision
  for income taxes

 

124,948 

 

 

4,676 

 

 

129,624 

Provision for income taxes

 

40,172 

 

 

1,448 

 

 

41,620 

Net income

 

84,776 

 

 

3,228 

 

 

88,004 

  Less: Net income attributable to non-controlling interest

 

9,825 

 

 

300 

 

 

10,125 

Net income attributable to Bluegreen Vacations Corporation
  shareholders

$

74,951 

 

$

2,928 

 

$

77,879 

Basic and diluted earnings per share

$

1.06 

 

$

0.04 

 

$

1.10 



14


 

On March 7, 2018, we filed our 2017 Annual Report which included in Item 8 – Note 2 to the consolidated financial statements the expected impacts to the reported results of the retrospective adjustments to our financial statements for the years ended December 31, 2017 and 2016 due to the adoption of ASU 2014-09.  Subsequent to the March 7, 2018 filing date, we revised our calculation of the expected impact of the retrospective adoption of this standard, and the amounts included in the above tables reflect these revisions.  Adoption of the standard related to revenue recognition did not impact our consolidated cash flow statements. 



In January 2017, the FASB issued ASU 2017-01, “Business Combinations – Clarifying the Definition of a Business,” which is intended to clarify the determination of whether a company has acquired or sold a business.  The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill and consolidations, and the standard aims to help entities determine whether transactions should be accounted for as acquisitions or disposals of assets or businesses.  The standard is expected to result in more acquisitions being accounted for as asset purchases instead of business combinations.  The guidance became effective for fiscal years beginning after December 15, 2017.  We adopted this standard on January 1, 2018 using the prospective transition method.  The adoption of this standard resulted in our acquisition of Éilan Hotel & Spa in April 2018 being accounted for as an asset acquisition and consequently, all transaction costs were capitalized as part of the assets acquired.

 

In March 2018, the FASB issued ASU 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” (“ASU 2018-05”). ASU 2018-05 amended ASC Topic 740, “Income Taxes” (“ASC 740”), for the guidance previously provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”), related to the application of ASC 740 in the reporting period in which the U.S. Tax Cuts and Jobs Act (the “Tax Cuts and Jobs Act”) was signed into law. Our adoption of ASU 2018-05 as of March 31, 2018 had no impact on our accounting for income taxes for the nine months ended September 30, 2018. See Note 9 for additional information regarding the accounting for income taxes for the Tax Cuts and Jobs Act.



Future Adoption of Recently Issued Accounting Pronouncements 



The FASB has issued the following accounting pronouncements and guidance relevant to our operations which have not been adopted as of September 30, 2018: 



ASU 2016-02Leases (Topic 842), as subsequently amended by ASU 2018-01 and ASU 2018-11. This standard will require assets and liabilities to be recognized on the balance sheet of a lessee for the rights and obligations created by leases of assets with terms of more than 12 months. For income statement purposes, the standard retained a dual model which requires leases to be classified as either operating or finance based on largely similar criteria to those applied in current lease accounting, but without explicit bright lines. This standard also requires extensive quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing leases.



This standard, which will be effective for us on January 1, 2019, permits two methods of adoption: a modified retrospective transition method or an optional transition method. The modified retrospective transition method applies the standard’s transition guidance as of the beginning of the earliest comparable period presented in an entity’s financial statements, which results in financial statements for current periods that are comparable to the financial statements for the prior periods presented. The optional transition method applies the transition guidance on the date of adoption with a cumulative-effect adjustment to the opening balance of retained earnings. Under this transition method, comparable periods in an entity’s financial statements in the year of adoption would continue to be reported in accordance with Topic 840, including the disclosures of Topic 840.



We expect that the implementation of this new standard will have a material impact on our consolidated financial statements and related disclosures as we had aggregate future minimum lease payments of $40.2 million at September 30, 2018 under our current non-cancelable lease agreements with various expirations dates between 2018 and 2056. We anticipate the recognition of additional assets and corresponding liabilities related to these leases on our consolidated balance sheets.



We anticipate adopting the standard on January 1, 2019 under the optional transition method and, accordingly, will not apply the new guidance in comparable periods presented in our financial statements in the year of adoption. We anticipate electing certain practical expedients available under the transition guidance within the standard, including the package of practical expedients which would allow us to not have to reassess under the new standard prior conclusions about lease identification,

15


 

classification, and initial direct costs. We also expect to make accounting policy elections by class of underlying asset (i) to not apply the recognition requirements of this standard to leases which qualify with a term of twelve months or less and (ii) to not separate non-lease components from lease components. If the election is made to not separate non-lease components from lease components,  each separate lease component and non-lease component associated with that lease component will instead be accounted for as a single lease component for lease classification, recognition, and measurement purposes.



We are currently in the process of evaluating our existing lease portfolio, including accumulating all of the necessary information required to properly account for leases under this standard. Other significant implementation matters include assessing the impact on our internal control over financial reporting and documenting and implementing new processes for accounting for our lease agreements. 



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



3.  Notes Receivable



The table below provides information relating to our notes receivable and our allowance for loan losses as of September 30, 2018 and December 31, 2017 (dollars in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

September 30,

 

December 31,



 

2018

 

2017

Notes receivable secured by VOIs:

 

 

 

 

 

 

VOI notes receivable - non-securitized

 

$

167,717 

 

$

184,971 

VOI notes receivable - securitized

 

 

399,080 

 

 

364,349 



 

 

566,797 

 

 

549,320 

Allowance for loan losses - non-securitized

 

 

(37,341)

 

 

(38,497)

Allowance for loan losses - securitized

 

 

(90,859)

 

 

(85,161)

VOI notes receivable, net

 

$

438,597 

 

$

425,662 

Allowance as a % of VOI notes receivable

 

 

23% 

 

 

23% 



 

 

 

 

 

 

Notes receivable secured by homesites: (1)

 

 

 

 

 

 

Homesite notes receivable

 

 

986 

 

 

1,329 

Allowance for loan losses

 

 

(99)

 

 

(133)

Homesite notes receivable, net

 

$

887 

 

$

1,196 

Allowance as a % of homesite notes receivable

 

 

10% 

 

 

10% 

Total notes receivable:

 

 

 

 

 

 

Gross notes receivable

 

$

567,783 

 

$

550,649 

Allowance for loan losses

 

 

(128,299)

 

 

(123,791)

Notes receivable, net

 

$

439,484 

 

$

426,858 

Allowance as a % of gross notes receivable

 

 

23% 

 

 

22% 



(1)

Notes receivable secured by homesites were originated through a business, substantially all the assets of which were sold by us in 2012.    



The weighted-average interest rate on our notes receivable was 15.1% and 15.3% at September 30, 2018 and December 31, 2017, respectively.  All of our VOI loans bear interest at fixed rates.  The weighted-average interest rate charged on our notes receivable secured by VOIs was 15.2% and 15.3% at September 30, 2018 and December 31, 2017, respectively. 



16


 

Credit Quality for Financed Receivables and the Allowance for Loan Losses



The activity in our allowance for loan losses (including with respect to our homesite notes receivable) was as follows (in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

For the Nine Months Ended



 

September 30,



 

 

2018

 

 

2017

Balance, beginning of period

 

$

123,791 

 

$

120,270 

Provision for loan losses

 

 

35,866 

 

 

32,066 

Less: Write-offs of uncollectible receivables 

 

 

(31,358)

 

 

(31,581)

Balance, end of period

 

$

128,299 

 

$

120,755 



We monitor the credit quality of our receivables on an ongoing basis.  We hold large amounts of homogeneous VOI notes receivable and assess uncollectibility based on pools of receivables as there are no significant concentrations of credit risk with any individual counterparty or groups of counterparties.  In estimating future credit losses, management does not use a single primary indicator of credit quality but instead evaluates our VOI notes receivable based upon a static pool analysis that incorporates the age  of the respective receivables, default trends and prepayment rates by origination year, as well as the FICO scores of the borrowers.



The percentage of gross notes receivable outstanding by FICO score at origination, were as follows:

 





 

 

 

 

 



As of



September 30,

 

December 31,



2018

 

2017

FICO Score

 

 

 

 

 

700+

56.00 

%

 

54.00 

%

600-699

40.00 

 

 

41.00 

 

<600

3.00 

 

 

3.00 

 

No Score (1)

1.00 

 

 

2.00 

 

Total

100.00 

%

 

100.00 

%



(1)

VOI notes receivable without a FICO score are primarily related to foreign borrowers. 



The following table shows the delinquency status of our VOI notes receivable as of September 30, 2018 and December 31, 2017 (in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

September 30,

 

December 31,



 

2018

 

2017

Current

 

$

539,836 

 

$

525,482 

31-60 days

 

 

5,462 

 

 

6,088 

61-90 days

 

 

4,531 

 

 

4,897 

Over 91 days (1)

 

 

16,968 

 

 

12,853 

Total

 

$

566,797 

 

$

549,320 



(1)

Includes $11.6 million and $7.6 million as of September 30, 2018 and December 31, 2017, respectively, related to VOI notes receivable that, as of such date, had defaulted, but the related VOI note receivable balance had not yet been charged off in accordance with the provisions of certain of our receivable-backed notes payable transactions. These VOI notes receivable have been reflected in the allowance for loan losses.

 

17


 

4.  Variable Interest Entities



We sell VOI notes receivable through special purpose finance entities. These transactions are generally structured as non-recourse to us and are designed to provide liquidity for us and to transfer the economic risks and 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. We service the securitized notes receivable for a fee pursuant to servicing agreements negotiated with third parties based on market conditions at the time of the securitization.



In these securitizations, we generally retain a portion of the securities and continue to service the securitized notes receivable. 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 us; however, to the extent the portfolio of receivables fails to satisfy specified performance criteria (as may occur due to, among other things, an increase in default rates or credit loss severity) or other trigger events occur, the funds received from obligors are required to be 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 September 30, 2018, we were in compliance with all material terms under our securitization transactions, and no trigger events had occurred.



In accordance with applicable accounting guidance for the consolidation of VIEs, we analyze our variable interests, which may consist of loans, servicing rights, guarantees, and equity investments, to determine if an entity in which we have a variable interest is a VIE. The analysis includes a review of both quantitative and qualitative factors. We base our quantitative analysis on the forecasted cash flows of the entity.  We base our qualitative analysis on the structure of the entity, including our decision-making ability and authority with respect to the entity, and relevant financial agreements. We also use a qualitative analysis to determine if we must consolidate a VIE as the primary beneficiary. In accordance with applicable accounting guidance, we have determined these securitization entities to be VIEs of which we are the primary beneficiary and, therefore, we consolidate the entities into our financial statements.



Under the terms of certain of our VOI note sales, we have the right to repurchase or substitute a limited amount of defaulted notes for new notes at the outstanding principal balance plus accrued interest.  Our voluntary repurchases and substitutions of defaulted notes during the nine months ended September 30, 2018 and 2017 were $4.4 million and $7.4 million, respectively. Our maximum exposure to loss relating to our 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.



The assets and liabilities of our consolidated VIEs are as follows (in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

September 30,

 

December 31,



 

2018

 

2017



 

 

 

 

 

 

Restricted cash

 

$

17,081 

 

$

19,488 

Securitized notes receivable, net

 

 

308,221 

 

 

279,188 

Receivable backed notes payable - non-recourse

 

 

335,680 

 

 

336,421 



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

 

18


 

5.  Inventory



Our VOI inventory consists of the following (in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

September 30,

 

December 31,



 

2018

 

2017



 

 

 

 

 

 

Completed VOI units

 

$

232,205 

 

$

194,503 

Construction-in-progress

 

 

20,965 

 

 

22,334 

Real estate held for future dev