Basis of Presentation and Significant Accounting Policies
|12 Months Ended|
Dec. 31, 2017
|Basis of Presentation and Significant Accounting Policies [Abstract]|
|Basis of Presentation and Significant Accounting Policies||
2. Basis of Presentation and Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
Our 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.
On November 16, 2009, BBX Capital acquired a controlling interest in us. In connection with the acquisition, our assets and liabilities were measured at fair value as of the date of acquisition.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management evaluates our estimates, including those that relate to the estimated future sales value of inventory; the recognition of revenue, including revenue recognition under the percentage-of-completion method of accounting; our allowance for credit losses; the recovery of the carrying value of real estate inventories; the fair value of assets measured at, or compared to, fair value on a non-recurring basis such as intangible assets and other long-lived assets; the estimate of contingent liabilities related to litigation and other claims and assessments; and deferred income taxes. Management bases its estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions and conditions.
Cash and Cash Equivalents
We generally invest cash in excess of our immediate operating requirements in short-term time deposits and money market instruments, typically with original maturities at the date of purchase of three months or less. We maintain cash and cash equivalents with various financial institutions. These financial institutions are located throughout the United States and Aruba. However, a significant portion of our unrestricted cash is maintained with a single bank and, accordingly, we are subject to credit risk. Periodic evaluations of the relative credit standing of financial institutions maintaining our deposits are performed to evaluate and, if necessary, take actions in an attempt to mitigate credit risk.
Restricted cash consists primarily of customer deposits held in escrow accounts and cash collected on pledged/secured notes receivable not yet remitted to lenders.
Revenue is recorded for the sale of VOIs, net of a provision for credit losses, in accordance with timeshare accounting guidance. In accordance with the requirements of ASC 970, Real Estate (“ASC 970”), we recognize revenue on VOI sales when a minimum of 10% of the sales price has been received in cash (demonstrating the buyer’s commitment), the legal rescission period has expired, collectibility of the receivable representing the remainder of the sales price is reasonably assured and we have completed substantially all of our obligations with respect to any development related to the real estate sold.
We believe that we use a reasonably reliable methodology to estimate the collectibility of the receivables representing the remainder of the sales price of real estate sold. Our policies regarding the estimation of credit losses on our notes receivable are discussed in further detail under “Notes Receivable” below.
Under timeshare accounting rules, the calculation of the adequacy of a buyer’s commitment for the sale of VOIs requires that cash received towards the purchase of VOIs be reduced by the value of certain incentives provided to the buyer at the time of sale. If after considering the value of the incentives provided, the 10% requirement is not met, the VOI sale, and the related cost and direct selling expenses, are deferred until such time that sufficient cash is received from the customer, generally through receipt of mortgage payments, to meet the 10% threshold. Changes to the quantity, type, or value of sales incentives that we provide to buyers of our VOIs may result in additional VOI sales being deferred or extend the period during which a sale is deferred.
In cases where construction and development on our owned resorts has not been substantially completed, we recognize revenue in accordance with the percentage-of-completion method of accounting. Should our estimates of the total anticipated cost of completing any of our projects increase, we may be required to defer a greater amount of revenue or may be required to defer revenue for a longer period of time.
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. Conversely, incremental revenues in excess of incremental carrying costs are recorded as a reduction to the carrying cost of VOI inventory. Incremental carrying costs include costs that have been incurred by us during the holding period of unsold VOIs, such as developer subsidies and maintenance fees on unsold VOI inventory. During each of the years presented, all of our rental revenue and sampler revenue earned was recorded as an offset to cost of other fee-based services, as such amounts were less than the incremental carrying cost.
In addition to sales of VOIs, we also generate revenue from the activities listed below. The table provides a brief description of the applicable revenue recognition policy:
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.
Our notes receivable are carried at amortized cost less an allowance for credit losses. Interest income is suspended, and previously accrued but unpaid interest income is reversed, on all delinquent notes receivable when principal or interest payments are more than 90 days contractually past due and not resumed until such loans are less than 90 days past due. As of December 31, 2017 and December 31, 2016, $12.9 million and $11.4 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 credit loss.
We record an estimate of expected uncollectible VOI notes receivable as a reduction of revenue at the time we recognize a VOI sale. We estimate uncollectible VOI notes receivable in accordance with timeshare accounting rules. Under these rules, the estimate of uncollectibles is based on historical uncollectibles for similar VOI notes receivable. We use a static pool analysis, which tracks uncollectibles for each year’s sales over the entire life of the notes. We also consider whether the historical economic conditions are comparable to current economic conditions, as well as variations in underwriting standards. Additionally, under timeshare accounting rules, no consideration is given for future recoveries of defaulted inventory in the estimate of uncollectible VOI notes receivable. We review our allowance for credit losses on at least a quarterly basis. Loan origination costs are deferred and recognized over the life of the related notes receivable.
Our inventory consists of completed VOIs, VOIs under construction and land held for future VOI development. We carry our completed inventory at the lower of (i) cost, including costs of improvements and amenities incurred subsequent to acquisition, capitalized interest, real estate taxes and other costs incurred during construction, or (ii) estimated fair market value, less costs to sell. VOI inventory and cost of sales are accounted for under timeshare accounting rules, which require the use of a specific method of the relative sales value method for relieving VOI inventory and recording cost of sales. Under the relative sales value method required by timeshare accounting rules, cost of sales is calculated as a percentage of net sales using a cost-of-sales percentage - the ratio of total estimated development costs to total estimated VOI revenue, including the estimated incremental revenue from the resale of VOI inventory repossessed, generally as a result of the default of the related receivable. Also, pursuant to timeshare accounting rules, we do not relieve inventory for VOI cost of sales related to anticipated credit losses. Accordingly, no adjustment is made when inventory is reacquired upon default of the related receivable.
We also periodically evaluate the recoverability of the carrying amount of our undeveloped or under development resort properties in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), which provides guidance relating to the accounting for the impairment or disposal of long-lived assets. No impairment charges were recorded with respect to VOI inventory during any of the periods presented.
Deferred Financing Costs
Deferred financing costs are comprised of costs incurred in connection with obtaining financing from third-party lenders and are presented in our Consolidated Balance Sheets as other assets or as a direct deduction from the carrying value of the associated debt liability. These costs are capitalized and amortized to interest expense over the terms of the related financing arrangements. As of December 31, 2017 and 2016, unamortized deferred financing costs totaled $13.4 million and $13.1 million, respectively. Interest expense from the amortization of deferred financing costs for the years ended 2017, 2016, and 2015 was $3.1 million, $3.1 million and $3.5 million, respectively.
Property and Equipment
Our property and equipment is recorded at acquisition cost. We record depreciation and amortization in a manner that recognizes the cost of its depreciable assets over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of the terms of the underlying leases or the estimated useful lives of the improvements.
We capitalize the costs of software developed for internal use in accordance with the guidance for accounting for costs of computer software developed or obtained for internal use. Capitalization of software developed for internal use commences during the development phase of the project and ends when the asset is ready for its intended use. Software developed or obtained for internal use is generally amortized on a straight-line basis over 3 to 5 years. Internal use software capitalized costs for each of the years ended December 31, 2017, 2016 and 2015 was $5.3 million, $3.3 million and $2.1 million, respectively.
Intangible assets consist of property management contracts with various homeowners associations to manage, service, staff and maintain the property, as well as a lease premium. A majority of our property management contracts have indefinite useful lives and are not amortized, but instead are reviewed for impairment on at least an annual basis, or more frequently if events or changes in circumstances indicate that the related carrying amounts may not be recoverable. We amortize the lease premium straight-line over the remaining life of the lease. We did not record any impairment charges during the years ended December 31, 2017 or 2016.
Impairment of Long-Lived Assets
We evaluate the recoverability of the carrying amounts of our long-lived assets under the guidelines of ASC 360. We review the carrying amounts of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If estimated cash flows are insufficient to recover the investment, an impairment loss is recognized to write-down the carrying value of the asset to the estimated fair value less any costs of disposition.
We defer VOI revenue, net of direct incremental selling expenses, for sales for which the legal rescission period has expired, but the required revenue recognition criteria described above has not been met. Additionally, in connection with our sampler programs, we defer revenue, net of direct incremental selling expenses, for guest stays not yet completed. As of December 31, 2017 and 2016, our deferred income was as follows (in thousands):
Income tax expense is recognized at applicable U.S. or international tax rates. Certain revenue and expense items may be recognized in one period for financial statement purposes and in a different period for income tax purposes. The tax effects of such differences are reported as deferred income taxes. Valuation allowances are recorded for periods in which the realization of deferred tax assets does not meet a more likely than not standard.
On December 22, 2017, the “Tax Cuts and Jobs Act” was signed into law, which changes accounting and disclosures for income taxes as reported under ASC 740-10, “Income Tax”. ASC Topic 740 provides accounting and disclosure guidance on accounting for income taxes under GAAP and addresses the recognition of taxes upon a change in tax laws or tax rates. In addition to changes or limitations to certain tax deductions, the Tax Cut and Jobs Act permanently lowers the federal corporate tax rate to 21% from the existing maximum rate of 35%. During December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have all the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. This standard is effective for us on January 1, 2018; however, as a result of the reduction of the corporate tax rate to 21%, we are required by GAAP to revalue our deferred tax assets and liabilities as of the date of the enactment, and to account for the resulting tax effects accounted for in the reporting period of enactment. We recorded a one-time, after tax benefit of approximately $47.7 million during the fourth quarter of 2017 based on such revaluation of our net deferred tax liability. We have recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Reform Act. This continued analysis and resulting uncertainty, along with many of the changes effected pursuant to the Tax Reform Act, may have an adverse or volatile effect on our tax rate in fiscal years 2018 and beyond, thereby affecting our results of operations. We anticipate our future combined federal and state corporate tax rate to be approximately 26% - 28%, but we will continue to evaluate our estimate as more information about the Tax Cuts and Jobs Act becomes available.
Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing the earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. There were no potentially dilutive common shares outstanding during any of the reporting periods.
We expense advertising costs, which are primarily marketing costs, as incurred. Advertising expense was $147.1 million, $144.4 million, and $123.1 million for the years ended December 31, 2017, 2016 and 2015, respectively, and is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income.
We have entered into marketing arrangements with various third parties. For the years ended December 31, 2017, 2016, and 2015, sales of VOIs to prospects and leads generated by our marketing arrangement with Bass Pro accounted for approximately 15%, 16% and 20%, respectively, of our total VOI sales volume. There can be no guarantee that we will be able to maintain this agreement in accordance with its terms or extend or renew this agreement on similar terms, or at all.
Recently Adopted Accounting Pronouncements
In August 2016, the FASB issued Accounting Standards Update “ASU” 2016-15, “Statement of Cash Flows (Topic 230)– Classifications of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which is intended to clarify the presentation of cash receipts and payments in specific situations. Further in November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)- Restricted Cash” (“ASU 2016-18”), which requires entities to show changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows with a reconciliation to the related captions in the balance sheet. These standards became effective for us on January 1, 2018. Our adoption of ASU 2016-15 and ASU 2016-18 did not have a material impact on our consolidated financial statements and is reflected in the audited Consolidated Financial Statements included herein.
Future Adoption of Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” as subsequently amended (“ASU 2014-09”). ASU 2014-09 specifies how and when to recognize revenue from contracts with customers by providing a principle-based framework. ASU 2014-09 also requires additional disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Entities have the option to apply the new guidance under a full retrospective approach or a modified retrospective approach with the cumulative effect recognized at the date of initial adoption. We adopted the new guidance on January 1, 2018 using the full retrospective method to restate each prior period presented beginning with our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
In preparation for adoption of ASU 2014-09, we analyzed the potential impact that adopting this standard will have on our consolidated financial statements and related disclosures and our business processes, accounting policies and controls and reached conclusions on key accounting assessments related to the standard. We concluded that the new standard will impact the following areas: (i) gross versus net presentation for payroll and insurance premium reimbursements related to resorts managed by us and on behalf of third parties and (ii) the timing of the recognition of VOI revenue related to the removal of certain bright line tests regarding the determination of the adequacy of the buyer’s commitment under existing industry-specific guidance. In addition, we concluded that the recognition of fee-based sales commission revenue, ancillary revenues, and rental revenues will remain materially unchanged.
Adoption of this standard will result in the recognition of additional other fee-based services revenue of $52.6 million and $49.6 million for the years ended December 31, 2017 and 2016, respectively, and an increase in expenses of $53.3 million and $52.6 million for the years ended December 31, 2017 and 2016, respectively, primarily due to the gross presentation for payroll and insurance premiums reimbursements related to resorts managed by us and on behalf of third parties; and the recognition of additional sales of VOIs revenue of $12.6 million and $14.8 million for the years ended December 31, 2017 and 2016, respectively, a decrease in notes receivable, net, of $4.5 million and $4.6 million as of December 31, 2017 and 2016, respectively, a decrease in deferred income of $19.4 million and $17.5 million as of December 31, 2017 and 2016, respectively, and an increase in deferred income taxes of $3.6 million and $4.7 million as of December 31, 2017 and 2016, respectively, due to the timing recognition of VOI revenue related to removal of certain bright line tests regarding the determination of the adequacy of the buyer’s commitment. The cumulative effect impact of adopting the new revenue standard was to increase accumulated retained earnings from the amount originally reported as of January 1, 2016 of $59.8 million to $65.1 million, an adjustment of $5.3 million.
Expected impacts to Reported Results
Adoption of this standard related to revenue recognition is expected to impact our reported results as follows: (in thousands, except per share data):
Adoption of the standard related to revenue recognition will not impact the cash from or used in operating, financing, or investing activities on our consolidated cash flow statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). This update 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 update retained a dual model, requiring 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. ASU 2016-02 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 will be effective for us on January 1, 2019. Early adoption is permitted. We are currently evaluating the impact that ASU 2016-02 may have on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” (“ASU 2016-13”), which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. Further, public entities will need 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 ASU 2016-13 may have on our consolidated financial statements.
The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity.
Reference 1: http://www.xbrl.org/2003/role/presentationRef