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 March 31, 2019
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)
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Florida |
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03-0300793 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Stock, $0.01 par value |
BXG |
New York Stock Exchange |
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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 ☐ |
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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 May 1, 2019, there were 74,445,923 shares of the registrant’s common stock, $.01 par value, outstanding.
BLUEGREEN VACATIONS CORPORATION
FORM 10-Q TABLE OF CONTENTS
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Page |
Item 1. |
3 | |
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3 | |
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4 | |
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6 | |
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7 | |
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9 | |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26 |
Item 3. |
46 | |
Item 4. |
47 | |
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Item 1. |
48 | |
Item 1A. |
48 | |
Item 6. |
49 | |
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50 |
2
BLUEGREEN VACATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
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||||||
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March 31, |
December 31, |
||||
|
2019 |
2018 |
||||
ASSETS |
||||||
Cash and cash equivalents |
$ |
189,875 |
$ |
219,408 | ||
Restricted cash ($20,714 and $28,400 in VIEs at March 31, 2019 |
||||||
and December 31, 2018, respectively) |
44,285 | 53,726 | ||||
Notes receivable, net ($318,111 and $341,975 in VIEs |
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at March 31, 2019 and December 31, 2018, respectively) |
435,629 | 439,167 | ||||
Inventory |
342,386 | 334,149 | ||||
Prepaid expenses |
17,948 | 10,097 | ||||
Other assets |
48,931 | 49,796 | ||||
Operating lease assets - See Note 7 |
24,031 |
— |
||||
Intangible assets, net |
61,577 | 61,845 | ||||
Loan to related party |
80,000 | 80,000 | ||||
Property and equipment, net |
102,431 | 98,279 | ||||
Total assets |
$ |
1,347,093 |
$ |
1,346,467 | ||
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LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||
Liabilities |
||||||
Accounts payable |
$ |
16,169 |
$ |
19,515 | ||
Accrued liabilities and other |
80,827 | 80,364 | ||||
Operating lease liabilities - See Note 7 |
25,263 |
— |
||||
Deferred income |
17,051 | 16,522 | ||||
Deferred income taxes |
93,337 | 91,056 | ||||
Receivable-backed notes payable - recourse |
74,744 | 76,674 | ||||
Receivable-backed notes payable - non-recourse (in VIEs) |
363,183 | 382,257 | ||||
Lines-of-credit and notes payable |
125,436 | 133,391 | ||||
Junior subordinated debentures |
71,504 | 71,323 | ||||
Total liabilities |
867,514 | 871,102 | ||||
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Commitments and Contingencies - See Note 10 |
||||||
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Shareholders' Equity |
||||||
Common stock, $.01 par value, 100,000,000 shares authorized; 74,445,923 |
||||||
shares issued and outstanding at March 31, 2019 and December 31, 2018 |
744 | 744 | ||||
Additional paid-in capital |
270,369 | 270,369 | ||||
Retained earnings |
161,139 | 158,641 | ||||
Total Bluegreen Vacations Corporation shareholders' equity |
432,252 | 429,754 | ||||
Non-controlling interest |
47,327 | 45,611 | ||||
Total shareholders' equity |
479,579 | 475,365 | ||||
Total liabilities and shareholders' equity |
$ |
1,347,093 |
$ |
1,346,467 |
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)
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For the Three Months Ended |
|||||
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March 31, |
|||||
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2019 |
2018 |
||||
Revenue: |
||||||
Gross sales of VOIs |
$ |
62,884 |
$ |
64,160 | ||
Provision for loan losses |
(11,153) | (8,019) | ||||
Sales of VOIs |
51,731 | 56,141 | ||||
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||||||
Fee-based sales commission revenue |
45,212 | 45,854 | ||||
Other fee-based services revenue |
29,568 | 28,024 | ||||
Cost reimbursements |
20,236 | 16,200 | ||||
Interest income |
22,008 | 21,122 | ||||
Other income, net |
89 | 181 | ||||
Total revenue |
168,844 | 167,522 | ||||
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||||||
Costs and expenses: |
||||||
Cost of VOIs sold |
3,848 | 1,812 | ||||
Cost of other fee-based services |
22,868 | 17,411 | ||||
Cost reimbursements |
20,236 | 16,200 | ||||
Selling, general and administrative expenses |
90,214 | 93,549 | ||||
Interest expense |
9,506 | 7,767 | ||||
Total costs and expenses |
146,672 | 136,739 | ||||
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Income before non-controlling interest and |
||||||
provision for income taxes |
22,172 | 30,783 | ||||
Provision for income taxes |
5,303 | 7,201 | ||||
Net income |
16,869 | 23,582 | ||||
Less: Net income attributable to |
1,716 | 2,607 | ||||
Net income attributable to Bluegreen |
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Vacations Corporation shareholders |
$ |
15,153 |
$ |
20,975 | ||
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Comprehensive income attributable to |
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Bluegreen Vacations Corporation |
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shareholders |
$ |
15,153 |
$ |
20,975 | ||
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4
BLUEGREEN VACATIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
(In thousands, except per share data)
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For the Three Months Ended |
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March 31, |
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2019 |
2018 |
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Earnings per share attributable to |
$ |
0.20 |
$ |
0.28 | ||
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Weighted average number of common shares |
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Basic and diluted |
74,446 | 74,734 | ||||
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Cash dividends declared per share |
$ |
0.17 |
$ |
0.15 |
See accompanying Notes to Consolidated Financial Statements - Unaudited.
5
BLUEGREEN VACATIONS CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(In thousands)
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Equity Attributable |
||||||||||||||||
Common |
Total |
Common |
Additional |
Retained |
Equity |
||||||||||||
74,445,923 |
Balance at December 31, 2018 |
$ |
475,365 |
$ |
744 |
$ |
270,369 |
$ |
158,641 |
$ |
45,611 | ||||||
— |
Net income |
16,869 |
— |
— |
15,153 | 1,716 | |||||||||||
— |
Dividends to shareholders |
(12,655) |
— |
— |
(12,655) |
— |
|||||||||||
74,445,923 |
Balance at March 31, 2019 |
$ |
479,579 |
$ |
744 |
$ |
270,369 |
$ |
161,139 |
$ |
47,327 |
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Equity Attributable |
||||||||||||||||
Common |
Total |
Common |
Additional |
Retained |
Equity |
||||||||||||
74,734,455 |
Balance at December 31, 2017 |
$ |
433,654 |
$ |
747 |
$ |
274,366 |
$ |
115,520 |
$ |
43,021 | ||||||
— |
Net income |
23,582 |
— |
— |
20,975 | 2,607 | |||||||||||
— |
Dividends to shareholders |
(11,210) |
— |
— |
(11,210) |
— |
|||||||||||
74,734,455 |
Balance at March 31, 2018 |
$ |
446,026 |
$ |
747 |
$ |
274,366 |
$ |
125,285 |
$ |
45,628 |
See accompanying Notes to Consolidated Financial Statements - Unaudited.
6
BLUEGREEN VACATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
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For the Three Months Ended |
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March 31, |
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2019 |
2018 |
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Operating activities: |
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Net income |
$ |
16,869 |
$ |
23,582 | ||
Adjustments to reconcile net income to net cash provided |
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by operating activities: |
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Depreciation and amortization |
4,486 | 3,946 | ||||
Loss on disposal of property and equipment |
10 |
— |
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Provision for loan losses |
11,145 | 8,006 | ||||
Provision for deferred income taxes |
2,281 | 3,247 | ||||
Changes in operating assets and liabilities: |
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Notes receivable |
(7,607) | (5,264) | ||||
Prepaid expenses and other assets |
(9,131) | (5,177) | ||||
Inventory |
(8,237) | (9,673) | ||||
Accounts payable, accrued liabilities and other, and |
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deferred income |
1,126 | (5,204) | ||||
Net cash provided by operating activities |
10,942 | 13,463 | ||||
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Investing activities: |
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Purchases of property and equipment |
(7,507) | (5,462) | ||||
Net cash used in investing activities |
(7,507) | (5,462) | ||||
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Financing activities: |
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Proceeds from borrowings collateralized |
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by notes receivable |
13,487 | 25,761 | ||||
Payments on borrowings collateralized by notes receivable |
(34,968) | (33,947) | ||||
Payments under line-of-credit facilities and notes payable |
(8,168) | (16,487) | ||||
Payments of debt issuance costs |
(105) | (98) | ||||
Dividends paid |
(12,655) | (11,210) | ||||
Net cash used in financing activities |
(42,409) | (35,981) | ||||
Net decrease in cash and cash equivalents |
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and restricted cash |
(38,974) | (27,980) | ||||
Cash, cash equivalents and restricted cash at beginning of period |
273,134 | 243,349 | ||||
Cash, cash equivalents and restricted cash at end of period |
$ |
234,160 |
$ |
215,369 |
7
BLUEGREEN VACATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
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For the Three Months Ended |
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March 31, |
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2019 |
2018 |
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Supplemental schedule of operating cash flow information: |
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Interest paid, net of amounts capitalized |
$ |
8,271 |
$ |
6,685 | ||
Income taxes paid |
$ |
812 |
$ |
4,182 |
See accompanying Notes to Consolidated Financial Statements - Unaudited.
8
BLUEGREEN VACATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. Organization and Basis of Financial Statement 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 financial information furnished herein reflects 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 months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 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, 2018, included in our Annual Report on Form 10-K filed with the SEC on March 8, 2019.
Our Business
We are a leading vacation ownership company that markets and sells vacation ownership interests (“VOIs”) and manages resorts in popular 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). We market, sell and manage VOIs in resorts, which are generally located in popular, high-volume, “drive-to” vacation destinations, including Orlando, Las Vegas, Myrtle Beach, Charleston and New Orleans, among others. Through our points-based system, the approximately 217,000 owners in our Vacation Club have the flexibility to stay at units available at any of our resorts and have access to over 11,000 other hotels and resorts through partnerships and exchange networks. The resorts in which we market, sell or manage VOIs were either developed or acquired by us, or were developed and are owned by third parties. We earn fees for providing sales and marketing services to third party developers. We also earn fees by providing management services to the Vacation Club and homeowners’ associations (“HOAs”), mortgage servicing, VOI title services, reservation services, and construction design and development services. In addition, we provide financing to qualified VOI purchasers, which generates significant interest income.
We 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 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
9
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. Recently Issued Accounting Pronouncements
Adopted Accounting Standards
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20. This standard requires assets and liabilities to be recognized on the balance sheet of a lessee for the rights and obligations created by leases of assets. For income statement purposes, the standard retains a dual model which requires leases to be classified as either operating or finance based on criteria that are largely similar to those previously required by lease accounting standards, Topic 840, but without explicit bright lines. This standard also requires extensive quantitative and qualitative disclosures, including significant judgments made by management in applying the standard, intended to provide greater insight into the amount, timing, and uncertainty of cash flows arising from leases.
We adopted this standard on January 1, 2019 and applied the transition guidance as of the date of adoption under the current period adjustment method. As a result, we recognized right-of-use assets and lease liabilities associated with our leases on January 1, 2019, with no cumulative-effect adjustment to the opening balance of accumulated earnings, while the comparable prior periods in our financial statements will continue to be reported in accordance with Topic 840, including the disclosures required by Topic 840.
The new standard includes a number of optional practical expedients under the transition guidance. We elected the package of practical expedients which allowed us to not reassess prior conclusions about lease identification, lease classification, and initial direct costs. We also made accounting policy elections by class of underlying asset to not apply the recognition requirements of the standard to leases with terms of 12 months or less and to not separate non-lease components from lease components. Consequently, each separate lease component and the associated non-lease components are accounted for as a single lease component for lease classification, recognition, and measurement purposes.
Upon adoption of the standard, we recognized an operating lease liability of $26.5 million and an operating lease asset of $25.6 million. The difference between the operating lease liability and operating lease asset primarily reflects the reclassification of accrued and prepaid straight-line rent from accrued liabilities and prepaid expenses to the operating lease assets in our consolidated balance sheet. The implementation of the standard did not have a material impact on our consolidated statements of income and comprehensive income or cash flows. See Note 7: Leases for additional information regarding the accounting for lease contracts.
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” (“ASU 2016-13”), which introduces an approach of estimating credit losses on certain types of financial instruments based on expected losses. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan losses. Further, public entities will be required 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. We are currently evaluating the impact that ASU 2016-13 may have on our consolidated financial statements.
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3. Revenue From Contracts with Customers
The table below sets forth our disaggregated revenue by segment from contracts with customers. We operate our business in the following two segments: (i) Sales of VOIs and financing; and (ii) Resort operations and club management. Please refer to Note 13: Segment Reporting below for more details related to our segments.
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For the Three Months Ended |
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March 31, |
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2019 |
2018 |
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(in thousands) |
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Sales of VOIs (1) |
$ |
51,731 |
$ |
56,141 | ||
Fee-based sales commission revenue (1) |
45,212 | 45,854 | ||||
Resort and club management revenue (2) |
25,436 | 23,952 | ||||
Cost reimbursements (2) |
20,236 | 16,200 | ||||
Title fees (1) |
2,728 | 2,689 | ||||
Other revenue (2) |
1,404 | 1,383 | ||||
Revenue from customers |
146,747 | 146,219 | ||||
Interest income (1) |
22,008 | 21,122 | ||||
Other income, net |
89 | 181 | ||||
Total revenue |
$ |
168,844 |
$ |
167,522 |
(1) Included in our sales of VOIs and financing segment described in Note 13: Segment Reporting.
(2) Included in our resort operations and club management segment described in Note 13: Segment Reporting.
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4. Notes Receivable
The table below provides information relating to our notes receivable and our allowance for loan losses as of March 31, 2019 and December 31, 2018 (dollars in thousands):
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As of |
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March 31, |
December 31, |
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2019 |
2018 |
||||
Notes receivable secured by VOIs: |
||||||
VOI notes receivable - non-securitized |
$ |
150,421 |
$ |
124,642 | ||
VOI notes receivable - securitized |
421,309 | 447,850 | ||||
|
571,730 | 572,492 | ||||
Allowance for loan losses - non-securitized |
(33,628) | (28,258) | ||||
Allowance for loan losses - securitized |
(103,198) | (105,875) | ||||
VOI notes receivable, net |
$ |
434,904 |
$ |
438,359 | ||
Allowance as a % of VOI notes receivable |
24% | 23% | ||||
|
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Notes receivable secured by homesites: (1) |
||||||
Homesite notes receivable |
805 | 898 | ||||
Allowance for loan losses |
(80) | (90) | ||||
Homesite notes receivable, net |
$ |
725 |
$ |
808 | ||
Allowance as a % of homesite notes receivable |
10% | 10% | ||||
Total notes receivable: |
||||||
Gross notes receivable |
$ |
572,535 |
$ |
573,390 | ||
Allowance for loan losses |
(136,906) | (134,223) | ||||
Notes receivable, net |
$ |
435,629 |
$ |
439,167 | ||
Allowance as a % of gross notes receivable |
24% | 23% |
(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% at both March 31, 2019 and December 31, 2018. All of our VOI loans bear interest at fixed rates. The weighted-average interest rate charged on our notes receivable secured by VOIs was 15.1% at both March 31, 2019 and December 31, 2018. Our VOI notes receivable are generally secured by property located in Florida, Missouri, Nevada, South Carolina, Tennessee, and Wisconsin.
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 Three Months Ended |
|||||
|
March 31, |
|||||
|
2019 |
2018 |
||||
Balance, beginning of period |
$ |
134,223 |
$ |
123,791 | ||
Provision for loan losses |
11,145 | 8,006 | ||||
Less: Write-offs of uncollectible receivables |
(8,462) | (9,100) | ||||
Balance, end of period |
$ |
136,906 |
$ |
122,697 |
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 we do not believe that there are significant concentrations of credit risk with any individual counterparty or groups of counterparties. In estimating loan losses, we do not use a single primary indicator of credit quality but instead evaluate our VOI notes receivable based upon a
12
static pool analysis that incorporates the aging 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 of the borrower at the time of origination, were as follows:
|
As of |
||||
|
March 31, |
December 31, |
|||
|
2019 |
2018 |
|||
FICO Score |
|||||
700+ |
57.00 |
% |
57.00 |
% |
|
600-699 |
39.00 | 39.00 | |||
<600 |
3.00 | 3.00 | |||
No Score (1) |
1.00 | 1.00 | |||
Total |
100.00 |
% |
100.00 |
% |
(1) VOI notes receivable attributable to borrowings without a FICO score are primarily related to foreign borrowers.
The following table shows the delinquency status of our VOI notes receivable as of March 31, 2019 and December 31, 2018 (in thousands):
|
||||||
|
As of |
|||||
|
March 31, |
December 31, |
||||
|
2019 |
2018 |
||||
Current |
$ |
538,368 |
$ |
541,783 | ||
31-60 days |
5,328 | 5,783 | ||||
61-90 days |
4,511 | 4,516 | ||||
Over 91 days (1) |
23,523 | 20,410 | ||||
Total |
$ |
571,730 |
$ |
572,492 |
(1) |
Includes $17.4 million and $14.3 million as of March 31, 2019 and December 31, 2018, 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. |
5. 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 March 31, 2019, we were in compliance with all material terms under our securitization transactions, and no trigger events had occurred.
13
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 and 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. Voluntary repurchases and substitutions by us of defaulted notes for the three months ended March 31, 2019 and 2018 were $2.1 million and $1.7 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 |
|||||
|
March 31, |
December 31, |
||||
|
2019 |
2018 |
||||
|
||||||
Restricted cash |
$ |
20,714 |
$ |
28,400 | ||
Securitized notes receivable, net |
318,111 | 341,975 | ||||
Receivable backed notes payable - non-recourse |
363,183 | 382,257 |
The restricted cash and the securitized notes receivable balances disclosed in the table above are restricted to satisfy obligations of the VIEs.
6. Inventory
Our VOI inventory consists of the following (in thousands):
|
||||||
|
As of |
|||||
|
March 31, |
December 31, |
||||
|
2019 |
2018 |
||||
|
||||||
Completed VOI units |
$ |
237,389 |
$ |
237,010 | ||
Construction-in-progress |
31,847 | 26,587 | ||||
Real estate held for future development |
73,150 | 70,552 | ||||
Total |
$ |
342,386 |
$ |
334,149 |
7. Leases
We are the lessee under various operating leases for certain sales offices, call centers, office space, equipment and vehicles. Some leases include one or more options to renew, with renewal terms that can be extended for one year or more, and the exercise of such renewal options is either at our discretion or the discretion of the lessor, as determined by the respective lease. Certain of our lease agreements include rental payments based on a percentage of sales generated at the location, and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain residual value guarantees or restrictive covenants which we believe to be material.
We recognize operating lease assets and operating lease liabilities associated with lease agreements with an initial
14
term of greater than 12 months, while lease agreements with an initial term of 12 months or less are not recorded in our consolidated balance sheet. We generally do not include lease payments associated with renewal options that are exercisable at our discretion in the measurement of our operating lease assets and liabilities as we are not reasonably certain that such option will be exercised. The table below sets forth information regarding our lease agreements with an initial term of greater than 12 months (dollars in thousands):
|
As of |
|||
|
March 31, |
|||
|
2019 |
|||
Operating Lease Asset |
$ |
24,031 | ||
Operating Lease Liability |
25,263 | |||
Weighted Average Lease Term (in years) (1) |
4.3 | |||
Weighted Average Discount Rate (2) |
5.30 |
% |
(1) |
Our weighted average lease term excludes one real estate lease that expires in May 2056. |
(2) |
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future lease payments. To estimate incremental borrowing rates, we consider various factors, including the rates applicable to our recently issued debt and credit facilities and prevailing financial market conditions. We use the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date. |
We generally recognize lease costs associated with our operating leases on a straight-line basis over the lease term, while variable lease payments that do not depend on an index or rate are recognized as variable lease costs in the period in which the obligation for those payments is incurred. The table below sets forth information regarding our lease costs which are reflected in selling, general and administrative expenses in our consolidated statement of income and comprehensive income for the three months ended March 31, 2019:
|
For the Three Months Ended |
||
|
March 31, |
||
|
2019 |
||
Fixed rental costs |
$ |
2,122 | |
Short-term lease cost |
1,170 | ||
Variable lease cost |
599 | ||
Total operating lease costs |
$ |
3,891 | |
|
The table below sets forth information regarding the maturity of our operating lease liabilities (in thousands):
As of March 31, |
Operating Leases |
||
2019 |
$ |
6,496 | |
2020 |
5,050 | ||
2021 |
4,646 | ||
2022 |
4,365 | ||
2023 |
2,675 | ||
After 2023 |
12,416 | ||
Total lease payments |
$ |
35,648 | |
Less: Interest |
10,385 | ||
Present value of operating lease liabilities |
25,263 | ||
|
Upon the adoption of the new lease accounting standard on January 1, 2019 (as described in Note 2 above), we recognized an operating lease liability of $26.5 million and an operating lease asset of $25.6 million. The difference between the operating lease liability and operating lease asset primarily reflects the reclassification of accrued and prepaid straight-line rent from accrued liabilities and prepaid expenses to the operating lease assets in our consolidated
15
balance sheet. Included in our consolidated statement of cash flows under operating activities was $1.7 million of cash paid for lease expenses for the three months ended March 31, 2019. During the three months ended March 31, 2019, we did not enter into any new leases with a term greater than 12 months.
8. Debt
Lines-of-Credit and Notes Payable
We have outstanding borrowings with various financial institutions and other lenders. Financial data related to our lines of credit and notes payable (other than receivable-backed notes payable, which are discussed below) as of March 31, 2019 and December 31, 2018, were as follows (dollars in thousands):
|
||||||||||||||||
|
As of |
|||||||||||||||
|
March 31, 2019 |
December 31, 2018 |
||||||||||||||
|
Balance |
Interest |
Carrying |
Balance |
Interest |
Carrying |
||||||||||
|
||||||||||||||||
2013 Notes Payable |
$ |
22,500 |
5.50% |
$ |
22,963 |
$ |
28,125 |
5.50% |
$ |
22,878 | ||||||
Fifth Third Bank Note Payable |
3,772 |
5.49% |
7,847 | 3,834 |
5.34% |
7,892 | ||||||||||
NBA Éilan Loan |
23,591 |
5.74% |
35,267 | 25,603 |
5.60% |
35,615 | ||||||||||
Fifth Third Syndicated LOC |
55,000 |
5.24% |
94,774 | 55,000 |
5.27% |
92,415 | ||||||||||
Fifth Third Syndicated Term |
22,031 |
5.25% |
29,811 | 22,500 |
5.37% |
27,724 | ||||||||||
Unamortized debt issuance costs |
(1,458) |
— |
— |
(1,671) |
— |
— |
||||||||||
Total |
$ |
125,436 |
$ |
190,662 |
$ |
133,391 |
$ |
186,524 |
There were no new debt issuances or significant changes related to the above listed lines-of-credit or notes payable during the three ended months March 31, 2019. See Note 9 to our Consolidated Financial Statements included in our 2018 Annual Report on Form 10-K for additional information regarding the lines-of-credit and notes payable.
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Receivable-Backed Notes Payable
Financial data related to our receivable-backed notes payable facilities was as follows (dollars in thousands):
|
||||||||||||||||
|
As of |
|||||||||||||||
|
March 31, 2019 |
December 31, 2018 |
||||||||||||||
|
Debt |
Interest |
Principal |
Debt |
Interest |
Principal |
||||||||||
|
||||||||||||||||
Receivable-backed notes |
||||||||||||||||
Liberty Bank Facility |
$ |
19,766 |
5.50% |
$ |
24,730 |
$ |
17,654 |
5.25% |
$ |
22,062 | ||||||
NBA Receivables Facility |
43,255 |
5.25% |
53,130 | 48,414 |
5.27% |
57,805 | ||||||||||
Pacific Western Facility |
11,723 |
5.50% |
15,185 | 10,606 |
5.52% |
13,730 | ||||||||||
Total |
74,744 | 93,045 | 76,674 | 93,597 | ||||||||||||
|
||||||||||||||||
Receivable-backed notes |
||||||||||||||||
KeyBank/DZ Purchase Facility |
$ |
7,297 |
5.23% |
$ |
8,754 |
$ |
— |
--- |
$ |
— |
||||||
Quorum Purchase Facility |
36,824 |
4.75-5.50% |
41,867 | 40,074 |
4.75-5.50% |
45,283 | ||||||||||
2012 Term Securitization |
13,059 |
2.94% |
15,237 | 15,212 |
2.94% |
16,866 | ||||||||||
2013 Term Securitization |
24,633 |
3.20% |
27,411 | 27,573 |
3.20% |
29,351 | ||||||||||
2015 Term Securitization |
40,262 |
3.02% |
44,697 | 44,230 |
3.02% |
47,690 | ||||||||||
2016 Term Securitization |
60,460 |
3.35% |
69,442 | 63,982 |
3.35% |
72,590 | ||||||||||
2017 Term Securitization |
78,718 |
3.12% |
91,712 | 83,513 |
3.12% |
95,877 | ||||||||||
2018 Term Securitization |
108,259 |
4.02% |
122,187 | 114,480 |
4.02% |
125,916 | ||||||||||
Unamortized debt issuance costs |
(6,329) |
--- |
— |
(6,807) |
--- |
— |
||||||||||
Total |
363,183 | 421,307 | 382,257 | 433,573 | ||||||||||||
Total receivable-backed debt |
$ |
437,927 |
$ |
514,352 |
$ |
458,931 |
$ |
527,170 |
There were no new debt issuances or significant changes related to the above listed facilities during the three months ended March 31, 2019. See Note 9 to our Consolidated Financial Statements included in our 2018 Annual Report on Form 10-K for additional information regarding the receivable-backed notes payable facilities.
17
Junior Subordinated Debentures
Financial data relating to our junior subordinated debentures was as follows (dollars in thousands):
|
|||||||||||
Trust |
Carrying Value |
Initial |
Issue |
Interest Rate |
Interest |
Maturity |
Carrying Value |
||||
|
|||||||||||
BST I |
$ |
14,937 |
$ |
696 |
3/15/2005 |
3-month LIBOR |
7.49% |
3/30/2035 |
$ |
14,900 | |
BST II |
16,730 | 774 |
5/4/2005 |
3-month LIBOR |
7.60% |
7/30/2035 |
16,688 | ||||
BST III |
6,771 | 310 |
5/10/2005 |
3-month LIBOR |
7.60% |
7/30/2035 |
6,755 | ||||
BST IV |
9,959 | 464 |
4/24/2006 |
3-month LIBOR |
7.44% |
6/30/2036 |
9,933 | ||||
BST V |
9,959 | 464 |
7/21/2006 |
3-month LIBOR |
7.44% |
9/30/2036 |
9,933 | ||||
BST VI |
13,148 | 619 |
2/26/2007 |
3-month LIBOR |
7.55% |
4/30/2037 |
13,114 | ||||
|
$ |
71,504 |
$ |
3,327 |
$ |
71,323 |
(1) |
Amounts include purchase accounting adjustments which reduced the total carrying value by $39.3 million and $39.5 million as of March 31, 2019 and December 31, 2018, respectively. |
(2) |
Initial Equity in Trust is recorded as part of other assets in the unaudited Consolidated Balance Sheets. |
As of March 31, 2019, we were in compliance with all financial debt covenants under our debt instruments. As of March 31, 2019, we had availability of approximately $191.1 million under our receivable-backed purchase and credit facilities, inventory lines of credit and corporate credit line, subject to eligible collateral and the terms of the facilities, as applicable.
9. Fair Value of Financial Instruments
ASC 820 Fair Value Measurements and Disclosures (Topic 820) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
|
|
Level 1: |
Unadjusted quoted prices in active markets for identical assets or liabilities |
|
|
Level 2: |
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability |
|
|
Level 3: |
Unobservable inputs for the asset or liability |
18
The carrying amounts of financial instruments included in the consolidated financial statements and their estimated fair values are as follows (in thousands):
|
||||||||||||
|
As of March 31, 2019 |
As of December 31, 2018 |
||||||||||
Carrying |