UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC  20549

 

FORM 10-K

 

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

 

For the Fiscal Year Ended December 31, 2015

 

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

 

Commission File Number

001-09071

 

BFC Financial Corporation

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

None.

 

Securities registered pursuant to Section 12(g) of the Act:

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YES [  ]  NO [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES [  ]  NO [X]

 

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

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [X]

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

 

Large accelerated filer   [  ]Accelerated filer [X]Non-accelerated filer [  ]    Smaller reporting company [  ]

 

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

On June 30, 2015, the aggregate market value of the registrant’s voting common equity held by non-affiliates was $209.8 million computed by reference to the closing price of the registrant’s Class A Common Stock on such date. The registrant does not have any non-voting common equity.

 

The number of shares outstanding of each of the registrant’s classes of common stock as of March 7, 2016 is as follows:

 

 

Class A Common Stock of $.01 par value, 75,492,819 shares outstanding.
Class B Common Stock of $.01 par value, 13,718,928 shares outstanding.

 

Documents Incorporated by Reference

 

Portions of the registrant’s Definitive Proxy Statement on Schedule 14A relating to the registrant’s 2016 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.

 

 

 

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PART I

 

 

Item 1.  BUSINESS

 

 

The Company

 

BFC Financial Corporation (“BFC” and, unless otherwise indicated or the context otherwise requires, “we”, “us”, “our” or the “Company”) is a Florida-based holding company. BFC’s principal holdings include an approximately 81% equity interest in BBX Capital Corporation (including its subsidiaries, “BBX Capital” and a direct 54% equity interest in Woodbridge Holdings, LLC “Woodbridge”). BBX Capital holds the remaining 46% equity interest in Woodbridge. Woodbridge owns 100% of Bluegreen Corporation (including its subsidiaries, “Bluegreen”). Bluegreen is a sales, marketing and management company focused on the vacation ownership industry. BBX Capital is a Florida-based company involved in the acquisition, development, ownership and management of and investments in real estate and real estate development projects as well as investments in operating businesses. 

 

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

 

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

 

BankAtlantic also contributed to FAR certain performing and non-performing loans, tax certificates and real estate that had an aggregate carrying value on BankAtlantic’s balance sheet of approximately $346 million as of July 31, 2012.  FAR assumed all liabilities related to these assets.  BankAtlantic also contributed approximately $50 million in cash to FAR on July 31, 2012 and thereafter distributed all of the membership interests in FAR to BBX Capital.  At the closing of the BB&T Transaction, BBX Capital transferred to BB&T 95% of the outstanding preferred membership interests in FAR in connection with BB&T’s assumption of BBX Capital’s $285.4 million in principal amount of outstanding trust preferred securities (“TruPS”) obligations. BBX Capital retained the remaining 5% of FAR’s preferred membership interests. Under the terms of the Amended and Restated Limited Liability Company agreement of FAR entered into by BBX Capital and BB&T at the closing, BB&T was entitled to hold its 95% preferred interest in the net cash flows of FAR until it recovered $285 million in preference amount plus a priority return of LIBOR + 2.0% per annum on any unpaid preference amount.  On May 6, 2015, BB&T’s preferred interest in FAR was repaid in full and redeemed and FAR became a wholly-owned subsidiary of BBX Capital.

 

BFC consolidates the financial results of the entities in which it has controlling financial interests, including BBX Capital, Woodbridge, and Bluegreen. As a consequence, the assets and liabilities of all such entities are presented on a consolidated basis in BFC’s financial statements. However, except as otherwise noted, the debts and obligations of the consolidated entities, including BBX Capital, Woodbridge, and Bluegreen, are not direct obligations of BFC and are non-recourse to BFC.  Similarly, the assets of those entities are not available to BFC absent a dividend or distribution from those entities (and, in the case of Bluegreen, a subsequent dividend or distribution by Woodbridge, Bluegreen’s parent company). 

 

Historically, BFC’s business strategy has been to invest in and acquire businesses in diverse industries either directly or through controlled subsidiaries. In recent years, BFC has focused on providing strategic support to its existing investments with a view to the improved performance of the organization as a whole.  Initiatives in furtherance of this strategy include BFC’s purchase of additional shares of BBX Capital’s Class A Common Stock in the tender offer which was completed in April 2015, as described in further detail in Item 8 – Note 1 of this report, and the cash merger consummated in April 2013 pursuant to which Woodbridge acquired all of the outstanding shares of Bluegreen’s common stock not previously owned by Woodbridge. Additionally, we may invest in operating

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businesses and real estate joint ventures for the development of residential and commercial real estate projects, including those in which our affiliates may participate.  In furtherance of this goal or otherwise as part of our business and investment strategy, we expect to evaluate various financing transactions, including debt or equity financings as well as other alternative sources of new capital. BFC’s investments or acquisitions, and the business and investment strategies of BFC’s subsidiaries, may not prove to be successful or even if successful may not initially generate income or may generate income on an irregular basis, and may involve a long term investment. As a result our results of operations may vary significantly on a quarterly basis. BFC may also consider transactions involving the sale of all or a portion of its assets, investments or subsidiaries, including transactions involving BBX Capital or Bluegreen, either directly or indirectly through a transaction involving Woodbridge.  These may include, among other alternatives, a future sale or spin-off or transactions involving public or private issuances of debt or equity securities which might result in a decrease in BFC’s ownership of the companies.  See also, “Part II-Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 

 

Additional Information

 

BFC’s corporate website is www.bfcfinancial.com. BFC’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available free of charge through BFC’s website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. BFC’s website and the information contained on or connected to it are not incorporated into this Annual Report on Form 10-K.

 

 

This document contains forward-looking statements based largely on current expectations of BFC that involve a number of risks and uncertainties. All opinions, forecasts, projections, future plans or other statements, other than statements of historical fact, are forward-looking statements and can be identified by the use of words or phrases such as “plans,” “believes,” “will,” “expects,” “anticipates,” “intends,” “estimates,” “our view,” “we see,” “would” and words and phrases of similar import. The forward looking statements in this document are also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve substantial risks and uncertainties. We can give no assurance that such expectations will prove to have been correct. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained herein. Forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. When considering forward-looking statements, the reader should keep in mind the risks, uncertainties and other cautionary statements made in this report.  The reader should not place undue reliance on any forward-looking statement, which speaks only as of the date made. This document also contains information regarding the past performance of BFC, its subsidiaries and their respective investments and operations, and the reader should note that prior or current performance is not a guarantee or indication of future performance.

 

Some factors which may affect the accuracy of the forward-looking statements apply generally to the industries in which our subsidiaries operate, including the resort development and vacation ownership industries in which Bluegreen operates, and the real estate-related investment, development, and asset management, as well as middle market industries in which BBX Capital operates.  Other factors apply more specifically to BFC, including, but not limited to, the following:

 

 

With respect to Bluegreen, the risks and uncertainties include, but are not limited to:

 

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With respect to BBX Capital, the risks and uncertainties include, but are not limited to:

 

 

In addition, this document contains forward looking statements relating to BBX Capital’s ability to successfully implement its currently anticipated business plans, which may not be realized as anticipated, if at all, and BBX Capital’s current and anticipated investments in operating businesses may not achieve the returns anticipated or may not be profitable, including the risks associated with the operations and activities of:

 

 

This document also contains forward looking statements relating to BBX Capital’s investments in real estate developments, either directly or through joint ventures.  These risks include:

 

 

In addition to the risks and factors identified above, reference is also made to the other risks and factors detailed in this report and the other reports filed by BFC and BBX Capital with the SEC, including those disclosed in the “Risk Factors” section of this report. The Company cautions that the foregoing factors are not exclusive.

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Business Segments

 

BFC currently reports the results of its operations through two reportable segments: Bluegreen and BBX Capital. 

 

Bluegreen Segment

 

Overview

 

Bluegreen is a sales, marketing and management company focused on the vacation ownership industry. Bluegreen, which in prior reports was referred to as Bluegreen Vacations or Bluegreen Resorts, markets, sells and manages vacation ownership interests (“VOIs”) in resorts, which are generally located in popular, “drive-to” vacation destinations, and were either developed or acquired by Bluegreen or developed by others, in which case Bluegreen earns fees for providing these services. Bluegreen also earns fees by providing club and property owner’s association management services, mortgage servicing, VOI title services, reservation services, and construction design and development services. In addition, Bluegreen provides financing to FICO® score-qualified individual purchasers of VOIs, which generates significant interest income for Bluegreen.

 

Industry Overview

 

The resorts component of the leisure industry is serviced primarily by two separate alternatives for overnight accommodations: commercial lodging establishments and vacation ownership resorts. Commercial lodging consists principally of hotels and motels in which a room is rented on a nightly, weekly or monthly basis, or rentals of privately-owned condominium units or homes. For many vacationers, particularly those with families, a lengthy stay at a quality commercial lodging establishment can be expensive, and the space provided to such vacationers by these establishments relative to the cost is often not economical. In addition, room rates at commercial lodging establishments are subject to change periodically and availability is often uncertain.  Bluegreen believes that vacation ownership presents an attractive vacation alternative to commercial lodging.

 

The purchase of a timeshare property typically entitles the buyer to use and occupy a fully-furnished residence, generally for a stated period in perpetuity. Typically, the buyer acquires an ownership interest in the vacation residence, which is often held as a tenant-in-common with other buyers of interests in the vacation residence. However, under a points-based vacation club system, such as the Bluegreen Vacation Club, the members purchase a real estate interest in a specific VOI resort, which is deeded on their behalf into a trust and provides the member with beneficial rights, including an annual or biennial allotment of points that can be used to reserve occupancy at participating resorts. See “Products and Services – Vacation Ownership” below for additional information regarding the Bluegreen Vacation Club and Bluegreen’s points-based system.

 

Bluegreen believes that, in general, Americans desire to take family vacations and that the Bluegreen Vacation Club is positioned to benefit from consumer demand for family vacations. However, economic conditions and other factors may have an adverse effect on the demand for vacations as well as on the vacation ownership industry specifically and on Bluegreen’s operations.

 

Products and Services

 

Vacation Ownership

 

Bluegreen has been involved in the vacation ownership industry since its inception in 1994.  Since Bluegreen’s inception, Bluegreen has generated approximately 535,000 VOI sales transactions, which include over 77,000 VOI sales transactions on behalf of third-parties.  As of December 31, 2015, Bluegreen was selling VOIs in the Bluegreen Vacation Club at 23 sales offices at resorts located in the United States.  VOIs in Bluegreen resorts and those sold by Bluegreen on behalf of third parties typically entitle the buyer to use resort accommodations through an annual or biennial allotment of “points” which represent the buyer’s ownership and beneficial use rights in perpetuity in the Bluegreen Vacation Club (supported by an underlying deeded VOI held in trust for the buyer).  Bluegreen believes the Bluegreen Vacation Club allows its VOI owners to customize their vacation experience in a more flexible manner than traditional fixed-week vacation ownership programs.  Members can use their points to stay in resorts for varying lengths of time starting at a minimum of two nights.  The number of points required for a stay at a resort varies depending on a variety of factors, including the resort location, the size of a unit, the vacation season and the days of the week used.    Under this system, members can select vacations among available resorts according to their schedules, space needs, and available points.  Subject to certain restrictions and fees, members are typically allowed to carry over for one year any unused points and to "borrow" points from the next year.  Bluegreen Vacation Club members may use their points to stay in any of the 66 Bluegreen Vacation Club resorts, as described in further detail below. 

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Bluegreen Vacation Club members may also use their points to take advantage of other vacation options, including an exchange program offered by a third-party world-wide vacation ownership exchange network of approximately 4,500 resorts and other vacation experiences such as cruises and hotel stays.  Additionally, through an alliance with Choice Hotels International, Inc. (NYSE:CHH, “Choice Hotels”), Bluegreen Vacation Club members may enroll in Choice Hotels’ free rewards program, Choice Privileges®.  For a fee, Bluegreen Vacation Club members can convert their Bluegreen Vacation Club points into Choice Privileges® points, which can be used for free nights at Choice hotel locations and other rewards such as gift cards.  Additionally, for a fee, members of the Bluegreen Traveler Plus™ program may use their Bluegreen Vacation Club points for stays in Choice Hotels’ Ascend Hotel Collection® properties, a network of historic and boutique hotels in the United States, Canada, Scandinavia and Latin America, subject to the terms and conditions of the program.  See “VOI Exchange Networks, the Bluegreen Traveler Plus™ Program and Other Strategic Alliances” for additional information regarding vacation options available to Bluegreen Vacation Club members in addition to Bluegreen Vacation Club resorts.

 

The owners of VOIs collectively manage the resort property through nonprofit POAs that are governed by a board of directors or trustees, consisting of representatives of the developer (so long as the developer owns VOIs in the resort or as otherwise provided by law) and owners of VOIs at the resort.  The board of directors hires a management company to which it delegates many of the rights and responsibilities of the POA, including grounds landscaping, security, housekeeping and operating supplies, garbage collection, utilities, insurance procurement, laundry and repairs and maintenance.  Each VOI owner is required to pay a share of the costs of maintaining all of the properties in the Bluegreen Vacation Club system.  These charges generally consist of an annual maintenance fee plus applicable real estate taxes and special assessments, which are assessed on an as-needed basis.  If a VOI owner does not pay such charges, the owner’s use rights may be suspended and ultimately terminated, subject to the lender’s first mortgage lien on the VOI, if any.

 

According to information compiled by various sources, Bluegreen believes its typical customer to be married with children with an average age of 48 and an average household income of approximately $75,000.

 

Capital-Light Business Strategy

 

In addition to Bluegreen’s traditional vacation ownership operations, Bluegreen has in recent years pursued a business strategy, referred to herein as the “capital-light” business strategy, involving activities that typically do not require the significant costs and capital investments generally incurred in connection with the acquisition and development of VOIs under Bluegreen’s traditional vacation ownership business.  Bluegreen believes its capital-light business strategy enables it to leverage its expertise and existing infrastructure in resort management, sales and marketing, mortgage servicing, title services, and construction management to generate recurring revenues from third parties.  As of December 31, 2015, Bluegreen’s capital-light business activities consisted of the following: fee-based sales and marketing arrangements; just-in-time inventory acquisition arrangements; secondary market arrangements; and other fee-based services.  Each of these categories is described below.  

 

Fee-Based Sales and Marketing Arrangements - In 2009, Bluegreen began offering sales and marketing services to third party developers for a fee. Under these arrangements, Bluegreen sells third party VOIs as Bluegreen Vacation Club interests through its distribution network of sales offices, typically on a non-committed basis. Bluegreen seeks to structure its fee for these services to cover its selling and marketing costs, plus an operating profit. Because the completed VOI was built by a third party, Bluegreen is not at risk for the development financing of these projects and Bluegreen has little to no capital requirements. Notes receivable originated in connection with Bluegreen’s sale of third party VOIs under commission-based arrangements are held by the third party developer, and in certain cases, are serviced by Bluegreen for a fee. Bluegreen refers to sales made on behalf of third-party developers as “FBS Sales”.

 

Just-In-Time Arrangements - In 2013, Bluegreen began entering into agreements with third-party developers that allow Bluegreen to buy VOI inventory from time to time in close proximity to the timing of when Bluegreen intends to sell such VOIs.  Bluegreen strives to enter into such arrangements on a non-committed basis, although Bluegreen may engage in committed arrangements under certain circumstances.  Because the completed VOI was built by a third-party, Bluegreen is not at risk for the development financing of these projects.  Unlike FBS Sales, receivables originated in connection with sales of just-in-time inventory are held by Bluegreen.  Sales of inventory acquired through these arrangements are sometimes referred to as “Just-In-Time Sales”.

 

Secondary Market Arrangements - In 2012, Bluegreen began a program to acquire VOI inventory from POAs and other third parties on a non-committed basis, in close proximity to the timing of when Bluegreen intends to sell such VOIs.  Such VOIs are typically obtained by the POAs through foreclosure in connection with maintenance fee defaults, and are generally acquired by Bluegreen at a significant discount.  Sales of inventory acquired through these arrangements are sometimes referred to as “Secondary Market Sales”.

 

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Other Fee-Based Services - Bluegreen also earns fees for providing management services to the Bluegreen Vacation Club and to certain POAs.  In connection with the management services provided to the Bluegreen Vacation Club, Bluegreen manages the club reservation system and provides owner services as well as billing and collection services.  In connection with Bluegreen’s management of POAs, Bluegreen provides day-to-day management services, including oversight of housekeeping services, maintenance, and certain accounting and administrative services.  As of December 31, 2015, Bluegreen provided management services to 46 timeshare resort properties and hotels.  Other fee-based services also include the processing of sales of VOIs through Bluegreen’s wholly-owned title company subsidiary, which earns fees in connection with the closing of the VOI transactions.

 

Bluegreen also generates fee-based income by providing construction design and management services, and mortgage servicing.  

 

Bluegreen’s goal is for the activities associated with its capital-light business strategy to become an increasing portion of its business over time; however, Bluegreen’s efforts to execute its capital-light business strategy may not be successful, and any arrangements entered into may not prove to be profitable.  Further, changes in economic conditions may adversely impact the future results of Bluegreen’s fee-based and other capital-light business activities.

 

Vacation Club Resort Locations

 

Bluegreen Vacation Club resorts are primarily “drive-to” resort destinations.  Bluegreen believes that 85% of its VOI owners live within a 4 hour drive of at least one of its resorts.  Units at most of the Bluegreen Vacation Club resorts typically include a full kitchen, two televisions, and laundry facilities.  Many resorts offer guests a clubhouse (with an indoor or outdoor pool, a game room, exercise facilities and a lounge) and hotel-type staff.  Bluegreen manages certain of the resorts either directly or through a subcontract.

 

The following table lists the Bluegreen Vacation Club resorts:

 

 

 

 

Below is a description of each of the Bluegreen Vacation Club resorts. Certain of the amenities described below for these resorts are separately owned and operated, and may require guests to pay separate fees.

 

Paradise Isle Resort — Gulf Shores, Alabama.  This resort is located in Gulf Shores, across the street from the beach and the Gulf of Mexico.  Amenities include private oceanfront balconies, and an outdoor swimming pool, children’s pool and barbeque grill area.

 

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Shoreline Towers — Gulf Shores, Alabama.  Shoreline Towers is located on the beach in Gulf Shores, overlooking the Gulf of Mexico.  This beachfront resort features two- and three-bedroom suites and offers amenities such as a pool, private balconies, biking and nearby tennis facilities.

 

Cibola Vista Resort and Spa — Peoria, Arizona.  Located between Lake Pleasant and Phoenix, this 248-unit resort offers two outdoor pools and water slides, workout facilities, studios, and one- and two- bedroom suites with kitchens, fireplaces, and Western decor.

 

La Cabana Beach & Racquet Club — Oranjestad, Aruba.  La Cabana Beach & Racquet Club is a 449-suite oceanfront resort that offers one-, two-, and three-bedroom suites, garden suites and penthouse accommodations.  On-site amenities include racquetball, squash, two swimming pools and private beach cabanas.

 

Blue Water Resort at Cable Beach —Nassau, Bahamas.  This oceanfront 35-unit resort, located on Cable Beach in the Nassau suburbs, offers three-bedroom suites and an outdoor pool.

 

The Club at Big Bear Village – Big Bear Lake, California.  This 38-unit resort is located in the mountains of Southern California in Big Bear Lake.  This resort features three- and four bedroom villas and offers amenities such as a heated pool, private fitness center, private balconies, barbeque grill area, and billiards room.

 

The Innsbruck Aspen – Aspen, Colorado.  This 17-unit resort is situated within walking distance of downtown Aspen and the mountain slopes.  This resort features one- and two-bedroom villas and offers amenities such as a heated pool, lounge area, private fitness center, barbeque grill area, valet ski service, on site concierge services and a local shuttle service.

 

Via Roma Beach Resort — Bradenton Beach, Florida.  Featuring one- and two-bedroom suites, this beachfront resort offers amenities such as a heated outdoor swimming pool, hot tub and barbecue grill area.

 

Daytona SeaBreeze™ — Daytona Beach Shores, Florida.  This 80-unit oceanfront resort is located on Daytona Beach, which is known as the “World’s Most Famous Beach.”  Amenities include private ocean-front balconies, a heated outdoor swimming pool, children’s pool, hot tub, fitness center, barbeque grill area and game room.  The resort is located near the world-famous Daytona International Speedway and DAYTONA USA®.  

 

Dolphin Beach Club — Daytona Beach Shores, Florida.  The Dolphin Beach Club is located in Daytona Beach overlooking the Atlantic Ocean.  This resort features contemporary white furnishings, tropical décor, private beachfront balconies and a heated outdoor swimming pool.  Guests can enjoy numerous nearby golf courses or visit Daytona International Speedway.

 

Fantasy Island Resort II — Daytona Beach Shores, Florida.  This resort is situated on Daytona Beach and features units either facing or with views of the ocean.  Amenities include an outdoor heated swimming pool, hot tub and two dry saunas.

 

Mariner’s Boathouse & Beach Resort — Fort Myers Beach, Florida.  Mariner’s Boathouse & Beach Resort is located on the seven-mile long island of Fort Myers Beach, alongside the beaches of the Gulf of Mexico.  The beachfront villas are specially designed to resemble a yacht, and each features a private, screened-in balcony or porch.

 

Tropical Sands Resort — Fort Myers Beach, Florida.  Located on Fort Myers Beach, the Tropical Sands Resort is centered around a sun deck and palm-filled courtyard.  Resort amenities include an outdoor heated pool, concierge and barbecue grill area.

 

Windward Passage Resort — Fort Myers Beach, Florida.  This resort is located in the heart of Fort Myers Beach.  The resort features one- and two-bedroom suites and an outdoor heated swimming pool, hot tub, tennis, basketball, volleyball, an on-site playground and a poolside bar.

 

Gulfstream Manor — Gulfstream, Florida.  Gulfstream Manor is located just south of Palm Beach, near shops, galleries, fine dining and boutiques.  The 23-unit beachfront resort features views of the ocean or courtyard and offers an intimate, small resort experience.

 

Resort Sixty-Six — Holmes Beach, Florida.  The resort is located on Anna Maria Island and overlooks the Gulf of Mexico.  The units at Resort Sixty-Six either overlook the courtyard, or offer views of the Gulf of Mexico.  Resort amenities include an outdoor heated swimming pool, hot tub and barbecue grill area.

 

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The Hammocks at Marathon™ — Marathon, Florida.  The Hammocks at Marathon is located in the Florida Keys, within driving distance of both Miami and Key West, Florida.  This 58-unit waterfront resort offers such amenities as a pool, boat slips, outdoor tiki bar and a variety of water sport recreational vehicle rentals.

 

The Fountains— Orlando, Florida.  This 54-acre, 569-unit resort is located on a lake and is minutes away from Central Florida’s family attractions, including Walt Disney World®, SeaWorld® and Universal Studios Florida®.  Amenities include a clubhouse with a heated indoor/outdoor swimming pool, pool bar, massage room, steam and sauna rooms, family activity room, basketball court, and resort style pool facility.  Domino’s Pizza® and a Benihana® restaurant are also on site. 

 

Lake Eve Resort – Orlando, Florida.  This 176-unit resort is located next to The Fountains and on Lake Eve.  This resort features one, two, and three bedroom suites and is minutes away from many Orlando attractions.

 

Orlando’s Sunshine Resort™ I & II — Orlando, Florida.  Orlando’s Sunshine Resort is located near Wet’n’Wild® water park and Universal Studios Florida®.  This 84-unit property features an outdoor swimming pool, hot tub and tennis courts.

 

Casa del Mar Beach Resort —  Ormond Beach, Florida.  Casa del Mar is a 118-unit oceanfront resort which includes an outdoor pool and miniature golf.  In nearby Daytona Beach, guests can drive on the beach or visit Daytona International Speedway.

 

Outrigger Beach Club — Ormond Beach, Florida.  Steps away from the beach and minutes from Daytona Beach, the Outrigger Beach Club’s design allows all of the resort’s units to face the Atlantic Ocean. The resort features an outdoor heated swimming pool, children’s swimming pool, poolside grills and hot tub overlooking the beach and ocean.

 

Landmark Holiday Beach Resort — Panama City Beach, Florida.  The Landmark Holiday Beach Resort is located on Panama City Beach.  The resort features a hot tub, sauna, indoor heated pool, barbecue grill and oceanfront private balconies.

 

Ocean Towers Beach Club — Panama City Beach, Florida.  Located on the “Miracle Strip” in Panama City Beach, Ocean Towers Beach Club offers one- and two-bedroom oceanfront suites.  The resort’s units feature private balconies or porches, full kitchens and washer/dryers.  Other amenities include an exercise room, an outdoor heated pool, and nearby tennis and golf facilities.

 

Panama City Resort & Club — Panama City Beach, Florida.  The Panama City Resort & Club is located on Panama City Beach overlooking the Gulf of Mexico.  Amenities include private balconies, an outdoor heated pool, hot tub, and nearby jet skiing, windsurfing, parasailing, and golf.

 

Surfrider Beach Club — Sanibel Island, Florida.  This resort is located along the beach on Sanibel Island. The resort features one- and two-bedroom suites and offers amenities such as an outdoor heated swimming pool, hot tub, tennis, fishing and biking.

 

Grande Villas at World Golf Village™ & The Resort at World Golf Village — St. Augustine, Florida.  Grande Villas is located next to the World Golf Hall of Fame®.  This resort features an extensive array of amenities, including golf courses, swimming pools, a hot tub, sauna and playground.  The resort includes 214-units.

 

Bluegreen at Tradewinds – St. Pete Beach, Florida.  This 162-unit resort is located in St. Pete Beach with easy access to St. Petersburg’s shoreline along the Gulf of Mexico.  The resort features studio and one-bedroom villas.  Amenities include a spa, fitness center, pool, tennis and nearby paddle boarding, water parks, and casual dining at beach bars.

 

Solara Surfside™ —  Surfside, Florida.  This 60-unit oceanfront resort is located in Surfside, Florida, near Miami Beach.  Solara Surfside captures the art deco style of its surrounding area and features one- and two-bedroom vacation units, a swimming pool, sun deck and hot tub.

 

Petit Crest & Golf Club Villas at Big Canoe — Marble Hill, Georgia.  The resort is located at Big Canoe in the foothills of the North Georgia Appalachians and an hour north of Atlanta.  Nearby activities include fishing, boating, golfing and tennis.  Petit Crest Villas’ units feature a balcony or porch, full kitchen, fireplace, washer and dryer.

 

The Studio Homes at Ellis Square — Savannah, Georgia.  This 28-unit resort is centrally located in historic downtown Savannah.  Accommodations include one- and two-bedroom suites with fully-equipped designer kitchens.

 

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Pono Kai Resort — Kapaa (Kauai), Hawaii.  This 13-acre oceanfront resort is located on Kauai’s Coconut Coast.  Surrounded by palms and the Pacific, Pono Kai Resort is close to the beaches and features tennis courts, local arts and crafts vendors, concierge and a hospitality suite.

 

The Hotel Blake – Chicago, Illinois.  Situated in downtown Chicago’s urban Printer’s Row district, this 162-unit property offers a relaxing retreat and easy access to the activities in the city.  Accommodations include hotel units featuring vaulted ceilings and city views.

 

Bluegreen Club La Pension™ —  New Orleans, Louisiana.  This 64-unit resort is located in the French Quarter, just a few blocks from the Mississippi River.  Many of the units feature balconies overlooking the French Quarter.  The rooftop offers two sundecks with hot tubs and views of the French Quarter, river, and city.

 

The Breakers Resort — Dennis Port, Massachusetts.  This 52-unit resort is located on the beautiful sandy beaches of Nantucket Sound in Cape Cod.  This resort offers studio, one- and two-bedroom units and an outdoor heated pool.

 

The Soundings Seaside Resort — Dennis Port, Massachusetts.  This 69-unit resort is centrally located on Nantucket Sound in Cape Cod.  This resort has studio, one- and two-bedroom units.  Many of the rooms offer views of the Nantucket Sound.  The property offers a variety of amenities including an oceanfront outdoor pool, a heated pool, an outdoor putting green and a private beach.

 

Mountain Run at Boyne™ —  Boyne Falls, Michigan.  Mountain Run at Boyne is located on Boyne Mountain, which is known for skiing, snowboarding and tubing on more than 50 runs with convenient lift and trail systems.  In the summer, Boyne Mountain offers golf on nearby world-class courses including courses designed by Robert Trent Jones, Arthur Hills and Donald Ross.  Mountain Run has 204-units.

 

The Falls Village™ — Branson, Missouri.  The Falls Village is located near the Ozark Mountains.  Fishing, boating and swimming are available at nearby Table Rock Lake and Lake Taneycomo, and area theaters feature shows by renowned country music stars.  The Falls Village has 297-units.

 

Paradise Point Resort — Hollister, Missouri.  Paradise Point, which currently has 150-units, is situated on Table Rock Lake.  This vacation ownership resort is being developed, marketed and sold by Bluegreen/Big Cedar Vacations.  Paradise Point offers studio units, executive 1-bedroom villas and spacious 2-bedroom villas.  Guests also have access to certain of the luxury amenities at the Big Cedar Lodge, including a marina, horseback riding, and tennis courts.

 

Bluegreen Wilderness Club at Big Cedar™ — Ridgedale, Missouri.  The Bluegreen Wilderness Club at Big Cedar is a wilderness-themed resort adjacent to the world famous Big Cedar Lodge luxury hotel resort.  This vacation ownership resort is also developed, marketed and sold by Bluegreen/Big Cedar Vacations.  The 427-unit resort is located on Table Rock Lake, and is near Dogwood Canyon.  Guests staying in the two-bedroom cabins or one- or two-bedroom lodge villas enjoy fireplaces, private balconies and full kitchens.  Amenities include indoor and outdoor swimming pools and hot tubs, a lazy river, hiking trails, and playground.  Guests also have access to certain of the luxury amenities at the Big Cedar Lodge, including a marina, horseback riding and tennis courts.

 

The Cliffs™ at Long Creek — Ridgedale, Missouri.  The Cliffs at Long Creek currently features 29 patio homes that overlook Table Rock Lake.  These two- level, five-bedroom homes feature two master bedrooms, a whirlpool bath, walk-in closet, media room, billiards table, gourmet kitchen, covered porch, and 2-car garage.  This resort is also developed, marketed and sold by Bluegreen/Big Cedar Vacations.  Guests also have access to certain of the luxury amenities at the Big Cedar Lodge, including a marina, horseback riding, and tennis courts.

 

Lake Condominiums at Big Sky — Big Sky, Montana.  Lake Condominiums at Big Sky is located at the foot of Lore Mountain overlooking Lake Levinsky.  The resort features amenities such as a heated outdoor swimming pool, two large hot tubs and nearby skiing.

 

BG Club 36™ — Las Vegas, Nevada.  This 478-unit resort is located just off the Las Vegas strip and features various amenities, including an indoor pool, outdoor sundeck, fitness center and on-site restaurants.  Bluegreen Club 36 features both one- and two-bedroom villas with Parisian Art Deco décor.

 

South Mountain Resort — Lincoln, New Hampshire.  This 82-unit resort features year-round activities, offers many on-site amenities, and is a short drive to three separate ski mountains, hiking and biking trails, and many shops and restaurants.  Accommodations include studios and one-, two- and three-bedroom units. 

 

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Atlantic Palace — Atlantic City, New Jersey.  This 288-unit resort is situated on the Atlantic Ocean and the Atlantic City Boardwalk and features an outdoor pool, hot tub, game room, exercise room, steam room and sauna.  Accommodations include studios and one- and two-bedroom units. 

 

The Manhattan Club — New York, New York.  This 229-unit resort is located in the heart of Manhattan and is in close proximity to some of New York’s finest attractions, bars, restaurants, nightclubs and theaters.  Suites feature high-end furnishings, kitchenettes, and marble baths as well as flat screen TVs, Bose® radios and Wi-Fi Internet access.

 

Club Lodges at Trillium – Cashiers, North Carolina.  This 30-unit resort is located high in the Blue Ridge Mountains against a plateau lake with a 26-mile shoreline.  Amenities include a pool, indoor and outdoor tennis courts, and croquet, plus two restaurants, a massage room, and a chapel on site.  Accommodations include two- and three-bedroom units.

 

Foxrun Townhouses — Lake Lure, North Carolina.  Located on Lake Lure at the foot of the Blue Ridge Mountains, Foxrun Townhouses offers two-bedroom units with activities including golf, fishing, and skiing in the winter and water sports in the spring, summer and fall.

 

Sandcastle Village II — New Bern, North Carolina.  New Bern is located at the intersection of the Trent and Neuse Rivers.  Guests can enjoy nearby sailing, boating and water sports, as well as the antique shops in the historic downtown area.  The unique and spacious pedestal-style townhomes feature full kitchens, washers and dryers, and fireplaces.

 

Waterwood Townhouses — New Bern, North Carolina.  Located in a remote area near historical Tyron Palace, the Waterwood Townhouses resort generally attracts sports, outdoor and nature enthusiasts.  This lakefront resort offers two-bedroom suites and an on-site marina, tennis courts, miniature golf and indoor and outdoor pools.

 

The Suites at Hershey — Hershey, Pennsylvania.  This 78-unit resort is located near HersheyPark® and Hershey’s® Chocolate World.  Amenities include an outdoor swimming pool, hot tub, playground, picnic area with barbeque grills, game room, fitness center and indoor basketball courts.

 

The Lodge Alley Inn™ — Charleston, South Carolina.  Located in Charleston’s historic district, The Lodge Alley Inn includes one- and two-bedroom suites, many furnished with an equipped kitchen, living room with a fireplace, dining room, whirlpool bath, pine wood floors and 18th century-style furniture reproductions.  This 90-unit resort, which features an on-site restaurant, is within walking distance of many of Charleston’s historical sites, open-air markets and art galleries.

 

Players Club — Hilton Head Island, South Carolina.  Players Club is located on Hilton Head Island, which is famous for its natural beauty, expansive beaches and world-class golf and tennis.  This resort features 28 lighted tennis courts and a health club.

 

Carolina Grande™ — Myrtle Beach, South Carolina.  This 118-unit 20-story tower is located across the street from the beach.  Through an arrangement with The Carolinian Beach Resort, guests enjoy an accessible breezeway directly to the beach.  Other amenities include indoor and outdoor swimming pools, hot tubs, full kitchens, washers and dryers, and views of the ocean and city.  The resort is located near Broadway Gran Prix, Broadway at the Beach™ (a 350-acre complex featuring numerous specialty shops, restaurants, attractions and nightclubs), Myrtle Waves Water Park, Carolina Opry, Dixie Stampede and the Myrtle Beach Convention Center.

 

Harbour Lights™ — Myrtle Beach, South Carolina.  Harbour Lights is a 324-unit resort located in the Fantasy Harbour Complex in the center of Myrtle Beach.  Nearby are Theater Row, shopping, golf courses and restaurants. The resort’s activities center overlooks the Intracoastal Waterway.  The resort features hotel, one- and two-bedroom accommodations as well as an infinity-edge pool and lazy river.

 

Horizon at 77th – Myrtle Beach, South Carolina.  The Horizon at 77th resort is an 88-unit beach resort with spacious one-, two- and three-bedroom villas featuring full kitchens with granite countertops and stainless steel appliances.  Guests at this resort can enjoy a spa, and lazy river, or go for a swim in one of the resort’s two pools.

 

SeaGlass Tower™ — Myrtle Beach, South Carolina.  The SeaGlass Tower is a 19-story, 144-unit mirrored tower located on the beach.  Amenities include, among others, balconies, fully equipped kitchens, whirlpool baths, an indoor and two outdoor swimming pools, a hot tub, and two saunas.  SeaGlass Tower is located near Broadway at the Beach™ and the Myrtle Beach Convention Center.

 

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Shore Crest Vacation Villas™ I & II — North Myrtle Beach, South Carolina.  Shore Crest Vacation Villas consists of two towers and 240-units, and is located on the beach in the Windy Hill section of North Myrtle Beach, a mile from Barefoot Landing, which features numerous restaurants, theaters, shops and outlet stores.

 

MountainLoft™ I & II — Gatlinburg, Tennessee.  MountainLoft is located near the Great Smoky Mountains National Park and is minutes from the family attractions of Pigeon Forge, Tennessee.  The 394-units are located in individual chalets or mid-rise villa buildings.  Each unit has private balconies.

 

Laurel Crest™ — Pigeon Forge, Tennessee.  Laurel Crest is located in close proximity to the Great Smoky Mountains National Park and the Dollywood theme park.  Visitors to Pigeon Forge can enjoy over 200 factory outlet stores and music shows featuring renowned country music stars as well as partake in a variety of outdoor activities, such as horseback riding, trout fishing, boating, golfing and white water rafting.  Laurel Crest has 304-units.

 

Shenandoah Crossing™ — Gordonsville, Virginia.  Shenandoah Crossing, which currently includes 240-units, features an 18-hole golf course, indoor and outdoor swimming pools, a tennis court, horseback riding trails and a lake for fishing and boating.  Guests can enjoy a variety of accommodations, including traditional 2-bedroom cabins, 3-bedroom cabins, and chalet-style homes.

 

Bluegreen Wilderness Traveler at Shenandoah™ — Gordonsville, Virginia.  This property is located adjacent to Bluegreen’s Shenandoah Crossing resort.  Accommodations consist of 121 cabins, luxury campsites for recreational vehicles and fully furnished, climate-controlled platform tents.   The resort also features outdoor-themed amenities and programs.

 

BG Patrick Henry Square™ – Williamsburg, Virginia.  This 133-unit resort is located only 1/2 a block from Colonial Williamsburg.  The resort has accommodations ranging from studio to two-bedroom villas with kitchen and colonial-inspired décor.  Nearby attractions include Busch Gardens® Williamsburg and Water Country USA®, as well as the nearby scenic Atlantic beaches, shopping, golf, and water attractions.

 

Parkside Williamsburg Resort — Williamsburg, Virginia.  This 68-unit resort is located only blocks away from Colonial Williamsburg.  The resort has accommodations ranging from studio to two-bedroom villas with kitchens and colonial-inspired décor.  Nearby attractions include Busch Gardens® Williamsburg and Water Country USA®, as well as the nearby scenic Atlantic beaches, shopping, golf, and water attractions.

 

Bluegreen Odyssey Dells™ — Wisconsin Dells, Wisconsin.  This seven acre, 92-unit resort is located adjacent to the 156-acre Mt. Olympus Resort Water and Theme Park. 

Christmas Mountain Village™ — Wisconsin Dells, Wisconsin.  Christmas Mountain Village resort is a 482-unit resort offering a 27-hole golf course and seven ski trails served by two chair lifts.  Other on-site amenities include tennis courts, a five-acre lake with paddleboats and rowboats and four outdoor swimming pools. 

 

Future Resorts and Acquisition of Additional Inventory

 

Bluegreen believes that it currently has adequate timeshare inventory on hand, or available through arrangements with third parties in connection with its capital-light business strategy, to satisfy its projected sales of VOIs for 2016 and a number of years thereafter.  Accordingly, Bluegreen currently does not plan to acquire or significantly develop additional resort properties in the near term other than those to be developed by Bluegreen/Big Cedar Vacations and resorts added to the Bluegreen Vacation Club pursuant to Bluegreen’s capital-light business strategy.  However, Bluegreen may decide to acquire or develop additional inventory in the future.

 

VOI Exchange Networks, the Bluegreen Traveler Plus™ Program, and Other Strategic Alliances

 

Bluegreen believes that its VOIs are made more attractive by its alliance with Choice Hotels, its participation in third-party exchange networks, its Traveler Plus™ program and other strategic affiliations with third-party resort developers.  In 2013, Bluegreen entered into a five-year strategic alliance agreement with Choice Hotels.  Choice Hotels currently franchises approximately 6,300 hotels in more than 35 countries and territories and its brands include the Ascend Hotel Collection®, Comfort Inn®, Comfort Suites®, Quality®, Sleep Inn®, Clarion®, Cambria® hotels and suites, MainStay Suites®, Suburban Extended Stay Hotel®, Econo Lodge® and Rodeway Inn®.  Bluegreen’s relationship with Choice Hotels’ impacts several areas of Bluegreen’s business and, while there is no assurance as to the success of the relationship, it includes a sales and marketing alliance component that Bluegreen believes will enable it to leverage Choice Hotels brands, customer relationships and marketing channels to market Bluegreen’s VOI offerings.  Additionally, subject to the terms and conditions of the agreements, including specified payments to Choice Hotels, Bluegreen Vacation Club resorts may be branded as part of the Ascend Hotel Collection®.  As of December 31, 2015, a total of 29 Bluegreen Vacation Club resorts were branded as part of the Ascend Hotel Collection®.  Also, 

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Bluegreen Vacation Club members may enroll as members of the Choice Hotels loyalty program, Choice Privileges®, and for a fee can convert their Bluegreen Vacation Club points into Choice Privileges® points which can be used for stays at participating Choice Hotels.  Additionally, for a fee, members of the Bluegreen Traveler Plus™ program may exchange their vacation points for stays at Choice Hotels’ Ascend Hotel Collection® properties subject to the terms and conditions of the program.

 

Bluegreen Vacation Club members may also participate in an unaffiliated external exchange network, Resort Condominiums International, LLC (“RCI”).  The RCI exchange network allows an owner to exchange stays in their VOI for occupancy at nearly 4,500 participating resorts located throughout the world in over 100 countries, based upon availability and the payment of a variable exchange fee.  The annual membership fees of RCI are included in the Bluegreen Vacation Club dues.  In 2015, approximately 9% of Bluegreen Vacation Club members utilized the RCI exchange network for an exchange of two or more nights.  Most of the Bluegreen Vacation Club resorts are rated in one of the two highest categories by RCI (Gold Crown and Silver Crown).  

 

Bluegreen Vacation Club members, for an additional annual fee, may also participate in the Bluegreen Traveler Plus™ program, which allows them to use their points for a variety of hotel stays, RV site stays within the “Coast to Coast” network, or various cruise vacations.  Also, for a nominal fee, Bluegreen Vacation Club members who purchased or upgraded their VOI since July 1, 2007 and participate in the Bluegreen Traveler Plus™ program have the ability to use their vacation points to reserve accommodations in 42 additional resort locations through Bluegreen’s alliances with other resort development companies (“Direct Exchange”).

 

No assurance can be given that Bluegreen’s resorts will continue to participate in the RCI or Direct Exchange networks, or that Bluegreen’s customers will continue to be satisfied with these networks or the Bluegreen Traveler Plus™ program.  In addition, Bluegreen’s relationship with Choice Hotels may not be received favorably by Bluegreen’s customers and may not have a positive impact on Bluegreen’s operating results or financial condition.  If Bluegreen does not continue to participate in qualified exchange networks or maintain other strategic alliances, including if Bluegreen’s resorts are not included in such networks or alliances, or if such networks or other strategic alliances do not operate effectively, Bluegreen’s financial condition, results and business could be materially adversely affected.

 

Marketing and Sale of Inventory

 

Bluegreen uses a variety of methods to attract prospective purchasers of VOIs, including selling discount vacation packages either face-to-face or through telemarketing efforts to consumers Bluegreen meets in connection with various marketing alliances (as discussed in greater detail below) and other arrangements, and referrals of prospective purchasers from existing VOI owners.  Bluegreen sometimes provides hotel accommodations or accommodations in one of Bluegreen’s resorts to prospective purchasers at reduced rates in exchange for their touring one of Bluegreen’s resorts.

 

Additionally, Bluegreen offers a sampler program which allows purchasers of this product to enjoy substantially the same accommodations offered to Bluegreen Vacation Club members during a trial period, which is generally one or two years.  Bluegreen believes that it benefits from the sampler program as it gives Bluegreen an opportunity to market its VOIs to customers when they use their trial memberships at a Bluegreen resort and to recapture a portion of the costs incurred in connection with the initial marketing to prospective customers.

 

In addition to attracting new customers, Bluegreen seeks to sell VOIs to its existing VOI owners (“owner sales”).  Owner sales generally have lower marketing costs and typically result in relatively higher operating margins than sales generated through other marketing channels.  During 2015, owner sales accounted for 47% of Bluegreen’s system-wide sales.  However, Bluegreen has recently increased, and expects to continue to increase, its marketing efforts to new customers as compared to existing owners as it believes that its ability to continue to sell VOIs to its current existing owner base will diminish over time.  Accordingly, Bluegreen expects that its owner sales as a percentage of total sales will decrease and Bluegreen’s marketing expenses will increase in the future.

 

Bluegreen uses both “permission” marketing and branding programs.  “Permission” marketing methods involve obtaining the prospective purchasers’ permission, directly or indirectly, to contact them in the future regarding an offer to purchase a product or service.  Branding involves forming alliances with third-party entities that possess what Bluegreen believes to be a nationally or regionally known brand name, a good reputation and a customer base with similar demographic characteristics to Bluegreen’s target market.

 

One of Bluegreen’s wholly-owned subsidiaries has an arrangement with Big Cedar, LLC (“Big Cedar”), an affiliate of Bass Pro, Inc. (“Bass Pro”), relating to Bluegreen/Big Cedar Vacations.  Bluegreen’s subsidiary owns 51% of Bluegreen/Big Cedar Vacations and Big Cedar owns the remaining 49%.  Bluegreen/Big Cedar Vacations develops,

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markets, and sells VOIs at the Bluegreen Wilderness Club at Big Cedar, a wilderness-themed resort adjacent to the Big Cedar Lodge, a luxury hotel resort owned by Big Cedar, on the shores of Table Rock Lake in Ridgedale, Missouri.  Bluegreen/Big Cedar Vacations also develops, markets, and sells timeshare interests in The Cliffs at Long Creek and Paradise Point Resort.  Bluegreen/Big Cedar Vacations pays Big Cedar a fee upon sales of certain timeshare interests for promotional, marketing and advertising services.

 

Bluegreen also has an exclusive marketing agreement with Bass Pro, a privately-held retailer of fishing, marine, hunting, camping and sports gear.  Pursuant to the agreement, Bluegreen has the right to market VOIs at each of Bass Pro’s retail locations.  As of December 31, 2015, Bluegreen marketed VOIs in 67 of Bass Pro’s stores.  These marketing efforts include offers for the sale of discounted vacation packages which require the purchaser to attend a timeshare sales presentation, where permitted by law.  Under the agreement, Bluegreen also has the right to market VOIs in Bass Pro’s catalogs and on its website, and Bluegreen has access to Bass Pro’s customer lists.  In exchange, Bluegreen compensates Bass Pro based on the overall success of these marketing activities.  The amount of compensation is dependent on the level of additional marketing efforts required by Bluegreen to convert the prospect into a sale and a defined time frame for such marketing efforts.  No compensation is paid to Bass Pro under the marketing agreement on sales made by Bluegreen/Big Cedar Vacations of VOIs owned by Bluegreen/Big Cedar Vacations.  In accordance with the agreement, Bluegreen makes an annual prepayment to Big Cedar by February of each year.  The prepayment is an advance payment for anticipated commissions estimated to be generated during the upcoming year, as determined by Bluegreen and Big Cedar, not to exceed $5.0 million.  No additional commissions are paid to Big Cedar during any year until the annual prepayment for that year has been fully earned.  During 2015, sales of VOIs to prospects and leads generated by the marketing arrangement with Bass Pro accounted for approximately 20% of Bluegreen’s VOI sales volume.  Bluegreen’s marketing agreement with Bass Pro is for a term expiring in January 2025, subject to early termination in whole or in part under certain circumstances.  There is no assurance that Bluegreen will be able to maintain, extend or renew its marketing relationship with Bass Pro, including for the duration of the term of the agreement, and Bluegreen’s sales would be materially and adversely impacted if Bluegreen’s relationship with Bass Pro ended.

 

As previously described, Bluegreen entered into a five-year strategic relationship with Choice Hotels in 2013.  This relationship impacts several areas of Bluegreen’s business and, while there is no assurance as to the success of the relationship, it includes a sales and marketing alliance component which Bluegreen believes will enable Bluegreen to leverage Choice Hotels’ brands, customer relationships and marketing channels to market Bluegreen’s VOI offerings.  Choice Hotels’ obligations under the agreements are subject to Bluegreen making specified payments to Choice Hotels and certain other terms and conditions.

 

In 2014, Bluegreen began a limited marketing relationship with Walmart®, a leading global mass retailer with over 5,200 domestic locations, to sell vacation packages in 5 Walmart® locations.  This relationship expanded to 25 locations in 2015.  Under this relationship, Bluegreen leases space at certain Walmart® locations to sell discount vacation packages which require the purchaser to attend a timeshare sales presentation, where permitted by law.  There is no assurance that this relationship will be successful or that Bluegreen will be able to maintain, or extend its relationship with Walmart®. 

 

Typically, Bluegreen’s sales offices are located adjacent to certain of its resorts and are staffed with sales representatives and sales managers, all of whom are Bluegreen employees.  Bluegreen sponsors ongoing training for its personnel.

 

It is Bluegreen’s policy to require its sales staff to provide each VOI customer with a written disclosure statement prior to the time the customer signs a purchase agreement.  The purpose of this disclosure statement is to provide relevant information regarding VOI ownership at the resort and membership in the Bluegreen Vacation Club.  Pursuant to Bluegreen’s policies, the statement must be signed by every purchaser.  Purchasers are entitled to cancel purchase agreements within applicable legal rescission periods.  Substantially all VOI purchasers visit one of Bluegreen’s sales offices prior to or at the time of purchase.

 

Customer Financing

 

Bluegreen generally offers financing of up to 90% of the purchase price of its VOIs to its VOI customers who meet certain FICO® score-based underwriting standards.  The typical financing extended by Bluegreen on a VOI during 2015 provided for a term of 10 years and a fixed interest rate.  However, Bluegreen also encourages purchasers to finance their purchase with a loan having a shorter term by offering a lower interest rate on those loans.  In connection with Bluegreen VOI sales, Bluegreen delivers the property deed to the trustee of the Bluegreen Vacation Club on behalf of the purchaser and obtains a mortgage on the purchaser’s VOI.

 

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Purchasers of VOIs are generally required to make a down payment of at least 10% of the VOI sales price.  As part of Bluegreen’s continued efforts to improve its operating cash flows, Bluegreen incentivizes its sales associates to encourage cash sales, and Bluegreen promotes a point-of-sale credit card program sponsored by a third party financial institution.  As a result, Bluegreen has increased both the percentage of its sales that are 100% cash and its average down payment on financed sales.  Including down payments received on financed sales, approximately 46% of Bluegreen VOI sales during 2015 were paid in cash within approximately 30 days from the contract date.

 

See “Products and Services — Vacation Ownership” above for more information about the demographic profile of Bluegreen’s typical customer.  See “Sales of Receivables/Pledging of Receivables” below for information regarding Bluegreen’s receivable financing activities.

 

Loan Underwriting

 

Prior to December 15, 2008, Bluegreen’s VOI financing was not subject to any significant loan underwriting criteria and no FICO® score was obtained prior to extending credit.  Instead, customer financing on sales of VOIs typically only required the following: (i) receipt of a minimum down payment of 10% of the purchase price; (ii) a note and mortgage (or deed of trust); and (iii) other closing documents by the purchaser and Bluegreen.

 

Effective December 15, 2008, Bluegreen implemented a FICO® score-based credit underwriting program.  Following implementation,  Bluegreen no longer provided financing to customers with FICO® scores below 500, and new customers with FICO® scores between 500 and 599 were required to make a minimum cash down payment of 20%.  Effective January 1, 2010, Bluegreen further increased its FICO® score-based credit underwriting standards such that Bluegreen no longer originates financing to customers with FICO® scores below 575.  Bluegreen may, from time to time, offer certain introductory products to customers with different FICO®  scores, finance and down payment terms that it intends to hold in its portfolio.  Additionally, Bluegreen may provide financing to customers with no FICO®  scores if the customer makes a minimum required down payment.  For loans with an outstanding balance as of December 31, 2015 that were originated from December 15, 2008 through December 31, 2009, the borrowers’ weighted average FICO® score at the point of sale was 701.  For loans with an outstanding balance as of December 31, 2015 that were originated from January 1, 2010 through December 31, 2015, the borrowers’ weighted average FICO® score at the point of sale was 706.  Further information on VOI notes receivable held by Bluegreen is set forth in the following table:

 

 

 

 

 

Bluegreen encourages purchasers to make higher down payments and accept shorter loan period terms by offering lower interest rates.  In addition, where permitted under applicable laws, rules and regulations, buyers receive a 1% discount in the interest rate by participating in Bluegreen’s pre-authorized payment plan.  As of December 31, 2015, borrowers with respect to approximately 93% of Bluegreen’s serviced VOI notes receivable participated in Bluegreen’s pre-authorized payment plan.

 

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Effective November 1, 2008, Bluegreen increased the interest rates charged on new loans.  The weighted-average interest rate on Bluegreen’s VOI notes receivable was as follows:

 

 

 

 

 

Collection Policies

 

Financed sales of VOIs originated by Bluegreen typically utilize a note and mortgage.  Collection efforts related to the timeshare loans are managed by Bluegreen and are handled by a staff of experienced collectors, assisted by a mortgage collection computer system.  Bluegreen’s collectors are incentivized through a performance-based compensation program.  Technological capabilities include, but are not limited to, automated lock box and clearing house processing.

 

Bluegreen generally makes collection efforts to customers by mail and by telephone.  Telephone contact generally commences when an account is as few as 10 days past due.  At 30 days past due, a collection letter is sent to U.S. residents advising the customer that if the loan is not brought current, the delinquency will be reported to the credit reporting agencies.  At 60 days delinquent, Bluegreen sends a lockout letter to the customer by mail advising that they cannot make any future reservations for lodging at a resort.  If the delinquency continues, at 90 days past due, Bluegreen stops the accrual of, and reverses previously accrued but unpaid, interest on the note receivable and mails a “Notice of Intent to Cancel Membership,” which informs the customer that unless the delinquency is cured within 30 days,  Bluegreen will terminate the customer’s VOI ownership.  If the customer fails to respond to such correspondence within the given timeframe, the loan will be defaulted and the customer’s VOI terminated.  In that case, Bluegreen sends a final letter, typically at approximately 120 days delinquent, to notify the customer of the loan default and the termination of the customer’s beneficial interest in the VOI property.  Thereafter, Bluegreen seeks to resell the VOI to a new purchaser.  Historically, Bluegreen has typically not sought to collect a deficiency on defaulted notes.

 

Allowance for Credit Losses

 

Under timeshare accounting rules, Bluegreen estimates uncollectibles based on historical uncollectibles for similar VOI notes receivable and does not consider the value of the underlying collateral.  Bluegreen holds large amounts of homogeneous VOI notes receivable and assesses uncollectibility based on pools of receivables.  In estimating future credit losses, Bluegreen does not use a single primary indicator of credit quality but instead evaluates its VOI notes based upon a combination of factors, including a static pool analysis, the aging of the respective receivables, current default trends and prepayment rates by origination year, as well as the FICO® scores of the borrowers.

 

Substantially all defaulted VOI notes receivable result in the holder of the note receivable acquiring the related VOI that secured the note receivable, typically soon after default and at little or no cost.  The reacquired VOI is then available for resale in the normal course of business.

 

See “Item 5 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information about the performance of Bluegreen’s notes receivable portfolio.

 

Sales of Receivables/Pledging of Receivables

 

Bluegreen’s ability to sell or borrow against its VOI notes receivable has historically been a critical factor in Bluegreen meeting its liquidity requirements.  The vacation ownership business generally involves making sales of a vacation product where a buyer is only required to pay a minimum of 10% to 20% of the purchase price up front, while at the same time selling and marketing expenses are primarily cash expenses exceeding the down payment amount.  For the year ended December 31, 2015, Bluegreen’s sales and marketing expenses were approximately 51% of its system-wide sales.  Accordingly, having facilities for the sale or hypothecation of these VOI notes receivables, along with periodic term securitization transactions, has been a critical factor for Bluegreen in meeting its short- and long-term cash needs.

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Bluegreen’s VOI receivables purchase facilities and term securitizations typically utilize an owner’s trust structure whereby Bluegreen sells receivables to a wholly-owned, special purpose finance entity which then sells the receivables to an owner’s trust, typically without recourse to Bluegreen or its subsidiaries, except for breaches of certain representations and warranties at the time of sale.  While in limited instances Bluegreen has entered into guarantees in connection with its vacation ownership receivables purchase facilities or term securitizations, historically, Bluegreen has typically not entered into such guarantees.  These facilities usually have detailed requirements with respect to the eligibility of receivables for purchase, and fundings under these facilities are typically subject to certain conditions precedent.  Under such purchase facilities, a variable purchase price of a portion of the principal balance of the receivables sold, subject to certain terms and conditions, is paid at closing in cash.  The balance of the purchase price is deferred until such time as the purchaser of the VOI receivables has received a specified return and all servicing, custodial, agent and similar fees and expenses have been paid and, if applicable, a specified overcollateralization ratio is achieved and a cash reserve account is fully funded.  Bluegreen’s VOI receivables purchase facilities typically include various conditions to purchase, covenants, triggering events and other provisions Bluegreen believes to be customary for these types of transactions.  Bluegreen has historically acted as servicer of, and in such capacity received a fee for servicing, the VOI receivables Bluegreen has sold under these purchase facilities.  See “Item 5 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information about Bluegreen’s VOI receivables purchase facilities and term securitizations.

 

Receivables Servicing

 

Receivables servicing includes collecting payments from borrowers and remitting the funds to the owners, lenders or investors in such receivables, accounting for principal and interest on such receivables, making advances when required, contacting delinquent borrowers, terminating a membership in the Bluegreen Vacation Club in the event that defaults are not timely remedied, and performing other administrative duties.

 

Bluegreen receives mortgage servicing fees for servicing its securitized notes receivable which are included as a component of interest income.  Additionally, Bluegreen earns servicing fee income from third-party developers in connection with Bluegreen’s servicing of their loan portfolios under certain of Bluegreen’s fee-based services arrangements. 

 

Market and Industry Data

 

Market and industry data pertaining to Bluegreen and its business contained in this Annual Report on Form 10-K were obtained from Bluegreen’s internal surveys, industry publications, unpublished industry data and estimates, discussions with industry sources and other currently available information.  The sources for this data include, without limitation, the American Resort Development Association.  Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of such information. Bluegreen has not independently verified such market data.  Similarly, Bluegreen’s internal surveys, while believed to be reliable, have not been verified by any independent sources.  Accordingly, such data may not prove to be accurate.

 

BBX Capital Segment

 

The BBX Capital segment consists of BBX Capital’s monetization and management of legacy assets (the assets retained by BBX Capital following the sale of BankAtlantic) and BBX Capital’s investments in real estate and real estate development and in operating businesses.  Legacy assets include loans, real estate and investments in unconsolidated real estate joint ventures.  The BBX Capital segment also includes its investment in Woodbridge.  In April 2013 BBX Capital acquired a 46% equity interest in Woodbridge. Woodbridge’s principal asset is its ownership of Bluegreen and its subsidiaries.  Bluegreen is a vacation ownership company with over 190,000 owners and over 60 owned or managed resorts.  BFC owns the remaining 54% of Woodbridge. 

 

BBX Capital’s Business Strategy

 

Since the sale of BankAtlantic in July 2012, BBX Capital has been repositioning its business, monetizing its legacy portfolios of loans and real estate, and pursuing its goal of transitioning into a growth business by focusing on real estate opportunities and acquiring operating businesses. 

 

The majority of BBX Capital’s assets do not generate income on a regular or predictable basis. Recognizing the nature of its assets, BBX Capital’s goal is to build long-term value.  BBX Capital does not expect to generate significant revenue from the legacy BankAtlantic assets until the assets are monetized through repayments or transactions involving the sale, joint venture or development of the underlying real estate. BBX Capital is currently utilizing the

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cash flow from the monetization of its assets and dividends from Woodbridge to pay operating expenses and to invest in income producing real estate, real estate developments, real estate joint ventures and operating businesses. BBX Capital is seeking to manage its cash needs and the timing of monetizing its existing assets with new investments to maximize its returns. In some cases, this may involve immediate sale and in other cases a longer term hold or development (either directly or through a joint venture).  BBX Capital may also consider transactions involving its investments in operating businesses, including Renin and Sweet Holdings, and BBX Capital may in connection with its investment with BFC in Woodbridge pursue transactions involving Bluegreen, either directly or indirectly through a transaction involving Woodbridge, to monetize all or a portion of its investment in Woodbridge.  Such transactions may include pursuing a future sale or spin-off of a company or transactions involving other public or private issuances of a company’s debt or equity securities which might result in the ownership of less than 100% of the company.  BBX Capital is also engaged in land entitlement activities on certain properties that BBX Capital acquired through foreclosure and anticipates moving forward with land development projects which may include selling or leasing the improved properties to third parties or pursuing joint ventures with developers for the development of residential and commercial real estate projects involving the contribution of these properties by us all as potential cash investments in such projects.  BBX Capital is also pursuing potential investments in joint venture real estate projects that include real estate held by a joint venture partner or to be acquired from unrelated parties.  As a result of the substantial decline in real estate values during the recession, the majority of BBX Capital’s non-performing commercial real estate loans and foreclosed real estate were written down in prior periods to the then prevailing estimated fair values of the collateral less costs to sell.  BBX Capital believes there has been continued improvements generally in real estate markets and believes that the prior estimated fair values of the underlying collateral securing certain of its commercial real estate loans and its real estate carrying values may be below current market values.  Additionally, this recovery in the real estate market has favorably affected the financial condition of BBX Capital’s borrowers and BBX Capital is aggressively pursuing its borrowers and/or guarantors in order to maximize recoveries through cash settlements, loan workout arrangements or participation interests in the development or performance of the collateral.  If BBX Capital is successful in its efforts, BBX Capital expects to recognize gains to the extent that the amounts it collects exceed the carrying value of its commercial loans and foreclosed real estate and expect these gains to be reflected in an increase in BBX Capital’s shareholders’ equity in the long term.  Due to the nature of these activities however, BBX Capital does not expect to generate revenues or earnings on a predictable or consistent basis.  Accordingly, BBX Capital expects its results of operations to vary significantly on a quarterly basis and BBX Capital may experience losses in subsequent periods.  

 

Legacy Assets

 

Loans

 

On July 31, 2012, BBX Capital completed the sale of BankAtlantic to BB&T.  Prior to the closing of the BB&T Transaction, BankAtlantic formed two wholly-owned subsidiaries, BBX Capital Asset Management, LLC (“CAM”) and Florida Asset Resolution Group, LLC (“FAR”). BBX Capital retained through CAM, BBX Partners and FAR certain loans, tax certificates and foreclosed real estate and liabilities related to these retained assets which had been held by BankAtlantic. These retained loans were grouped in five loan segments as follows: residential loans, commercial real estate loans, consumer loans, small business loans and commercial non-mortgage loans.  CAM holds loans from the commercial real estate and the commercial non-mortgage loan segments.  BBX Partners holds loans from the commercial real estate segment and FAR holds loans from all five segments.

 

Residential - The majority of BBX Capital’s residential loans were originally acquired in the secondary markets and were originated by financial institutions. These loans, which are serviced by independent servicers, are secured by properties located throughout the United States. Residential loans were typically purchased in bulk and were generally non-conforming loans under agency guidelines due primarily to the size of the individual loans (“jumbo loans”). A portfolio of residential loans which were made primarily to “low to moderate income” borrowers in accordance with the Community Reinvestment Act were also retained but were sold during the year ended December 31, 2014.  BBX Capital’s residential loans serviced by independent servicers were classified as loans held-for-sale as of December 31, 2015.

 

Commercial Real Estate - Commercial real estate loans were originated in connection with the borrowers’ acquisition, development and construction of various types of properties including office buildings, retail shopping centers, residential construction and other non-residential properties.  Commercial real estate loans were also originated in connection with borrowers’ acquisition or refinance of existing income-producing properties. These loans were primarily secured by property located in Florida.

 

Commercial non-mortgage loans - These loans are generally business loans secured by the receivables, inventory, equipment, and/or general corporate assets of the borrowers.  

 

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Consumer - Consumer loans consist primarily of loans to individuals originated through BankAtlantic’s retail network.  The majority of consumer loans are home equity lines of credit secured by a first or second mortgage on the primary residence of the borrower, substantially all of which are located in Florida.

 

Small Business - BankAtlantic originated small business loans to companies located primarily in markets within BankAtlantic’s branch network.  Small business loans were originated primarily on a secured basis and do not generally exceed $2.0 million individually. These loans were originated with maturities ranging generally from one to three years or due upon demand.  Lines of credit extended to small businesses are due upon demand.  Small business loans have either fixed or variable prime-based interest rates. 

The composition of the legacy loans transferred to CAM, BBX Partners and FAR in the BB&T was (in thousands): 

 

 

 

 

Real Estate

 

BBX Capital’s real estate was generally acquired through foreclosure or contractual settlements with borrowers.  Real estate is classified into two categories: real estate held-for-sale or real estate held-for-investment.

 

Real estate held-for-sale - Real estate is classified as held-for-sale when the property is available for immediate sale in its present condition, management commits to a plan to sell the property, an active program to locate a buyer has been initiated, the property is being marketed at a price that is reasonable in relation to its current fair value and it is likely that a sale will be completed within one year.

 

Real estate held-for-investment - Real estate is classified as held-for-investment when the property is not available for immediate sale due to anticipated renovations and potential improvements in operating performance before sale, management pursuing joint venture opportunities, potential development, or management’s decision to retain the property in anticipation of appreciation in market value in subsequent periods. 

 

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The composition of the BBX reportable segment’s legacy real estate held-for-sale and held-for-investment was (in thousands):

 

 

 

 

 

 

 

Investments in unconsolidated real estate joint ventures

 

BBX Capital had investments in the following real estate joint ventures as of December 31, 2015 and 2014 (in thousands):

 

 

 

 

Altis at Kendall Square, LLC (“Kendell Commons”)

 

In March 2013, BBX Capital sold land to Altman Development (“Altman”), a third party real estate developer, for net proceeds of $8.0 million.  Altman is developing on that land a multifamily rental community comprised of 12 three-

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story apartment buildings, one mixed-use building and one clubhouse totaling 321 apartment units.  BBX Capital has invested $1.3 million of cash in the project as one of a number of investors.  The twelve three-story apartment buildings, clubhouse and mixed-use building have been completed.  After all members (including BBX Capital) receive a preferred return of 10% and all contributed capital is returned, BBX Capital is entitled to receive 13% of venture distributions until a 15% internal rate of return has been attained. Thereafter, BBX Capital will be entitled to receive 9.75% of any venture distributions.

 

Altis at Lakeline – Austin Investor, LLC

 

In December 2014, BBX Capital invested $5.0 million as one of a number of investors in a planned multi-family development – Altis at Lakeline – being developed by Altman.  Located on an approximate 23 acre parcel in the northwest area of Austin, Texas, Altis at Lakeline is planned for 19, two and three story, residential apartment buildings with 354 apartment units, 38 enclosed garages, and a private resort style 5,500 square foot clubhouse.  Construction commenced in the first quarter of 2015 and the facility is anticipated to be substantially completed during the fourth quarter of 2016.  After all investors receive a preferred return of 9% and all contributed capital is returned, BBX Capital is entitled to receive 26.3% of venture distributions until an 18% internal rate of return has been attained and thereafter BBX Capital will be entitled to receive 18.8% of any venture distributions.

 

New Urban/BBX Development, LLC (“Village at Victoria Park”)

 

Village at Victoria Park consists of approximately 2 acres of vacant land previously owned by BBX Capital that is located near downtown Fort Lauderdale, Florida. In December 2013, BBX Capital invested in a joint venture  with New Urban Communities to develop the project as 30 single-family homes.  The project is a 50% - 50% joint venture with New Urban Communities serving as the developer and manager of the joint venture.  The project commenced construction and sales during the third quarter of 2014.   Closings are projected to begin during the first quarter of 2016.

 

Bayview (Sunrise and Bayview Partners, LLC)

 

In June 2014, BBX Capital invested in a joint venture with an affiliate of Procacci Development Corporation.  The joint venture acquired for $8.0 million approximately three acres of real estate located at Bayview Drive and Sunrise Boulevard in Fort Lauderdale, Florida.  The joint venture entity, Sunrise and Bayview Partners, LLC, is a 50% - 50% joint venture between BBX Capital and an affiliate of Procacci Development.  The property is currently improved with an approximate 84,000 square foot office building along with a convenience store and gas station, and located minutes from the Fort Lauderdale beaches and directly across from the Galleria at Ft. Lauderdale.  BBX Capital anticipates that the property will be redeveloped into a mixed-use project at some point in the future.

 

Hialeah Communities, LLC (Bonterra – CC Homes)

 

During the third quarter of 2014, BBX Capital invested in a joint venture agreement with CC Homes- a Codina-Carr Company, to develop homes in a portion of Bonterra Communities (formerly called the Hialeah Communities) in Hialeah, Florida.  As the developer and manager of the joint venture, CC Homes currently plans to build approximately 394 single-family homes.    BBX Capital transferred approximately 50 acres of land at an agreed upon value of approximately $15.6 million subject to an $8.3 million mortgage which was assumed by the joint venture.  In exchange, BBX Capital received its joint venture interest and $2.2 million of cash. Anticipated project profits resulting from the joint venture after receipt of aggregate capital contributions and the preferred return will be distributed to CC Homes and BBX Capital on a 55% and 45% basis, respectively.  Any necessary additional capital for the joint venture is required to be contributed by CC Homes and BBX Capital on a 43% and 57% basis, respectively. BBX Capital is a guarantor of 26.3% of the joint venture’s $31.0 million acquisition and development loan.  The project commenced land development activities in October 2015. 

 

PGA Design Center Holdings, LLC

 

In December 2013, BBX Capital purchased for $6.1 million a commercial property in Palm Beach Gardens, Florida, with three existing buildings consisting of 145,000 square feet of mainly furniture retail space. The property, which is located in a larger mixed use property now known as PGA Station (formerly PGA Place), was substantially vacant at the date of acquisition.  Subsequent to the acquisition of the property, BBX Capital entered into a joint venture with Stiles Development which acquired a 60% interest in the joint venture for $2.9 million in cash.  BBX Capital contributed the property (excluding certain residential development entitlements having an estimated value of $1.2 million) to the joint venture in exchange for $2.9 million in cash and the remaining 40% interest in the joint venture.  BBX Capital transferred the retained residential development entitlements to adjacent parcels owned by it in the PGA

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mixed use property now known as PGA Station (see below for a discussion of the other parcels owned by BBX Capital in PGA Station).  The joint venture intends to seek governmental approvals to change the use of a portion of the property from retail to office and subsequently sell or lease the property. 

 

CCB Miramar, LLC

 

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

 

Centra Falls, LLC

 

In August 2015, BBX Capital invested as one of a number of investors in a joint venture with an unaffiliated developer for the development and sale of 89 townhomes in Pembroke Pines, Florida.  BBX Capital contributed $750,000 and is entitled to receive 7.143% of the joint venture distributions until a 12% return on its investment has been attained. Thereafter, BBX Capital will be entitled to 3.175% of the joint venture distributions thereafter.  The project commenced construction and sales during the third quarter of 2015.  Closings are projected to begin in 2016.

 

The Addison on Millenia Investment, LLC

 

In December 2015, BBX Capital invested as one of a number of investors in a joint venture to develop 11.8 acres in the Gardens at Millenia site located in Orlando, Florida into nine retail apartment buildings containing approximately 292 units.  The joint venture intends to hold the property and operate the apartment project as an income producing business.   BBX Capital transferred property with an agreed upon value of $5.8 million and $0.3 million of cash for its initial joint venture contribution. BBX Capital is entitled to receive 48% of the joint venture distributions until it receives its aggregate capital contributions plus a 10% per annum return on capital.  Any distributions thereafter are shared based on its earnings with the managing member receiving an increasing percentage of distributions based on the joint venture’s internal rate of return.  Construction is expected to commence in the first quarter of 2016. 

 

BBX/S Millenia Blvd Investments, LLC

 

In October 2015, BBX Capital and an unaffiliated developer invested in a joint venture to develop a retail center on the Gardens of Millenia site in Orlando, Florida.  The joint venture intends to obtain all necessary approvals, secure financing, construct all improvements, lease the premises and sell the property. BBX Capital transferred property with an agreed upon value of $7.0 million to the joint venture and received $0.7 million in cash and a 90% interest in the joint venture.  BBX Capital is entitled to receive 90% of joint venture distributions until it receives its aggregate capital contributions plus an 8% per annum return on capital.  Any distributions thereafter will be shared 54% to BBX Capital and 46% to the developer. Construction is expected to commence in the first quarter of 2016.

 

Altis at Bonterra – Hialeah, LLC

 

In December 2015, BBX Capital invested in a joint venture with Altman to develop approximately 314 apartment homes in a portion of Bonterra communities in Hialeah, Florida. BBX Capital transferred approximately 14 acres of land at an agreed upon value of approximately $9.4 million and cash of $7.5 million to the joint venture.  BBX Capital is entitled to receive 95% of the joint venture distributions until it receives its aggregate capital contributions plus a 9% per annum return on capital.  Any distributions thereafter will be shared 85% by BBX Capital and 15% by Altman.  Construction is expected to commence in the first quarter of 2016.

 

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

 

In October 2013, BBX Capital invested in a joint venture with JRG USA pursuant to which JRG USA assigned to the joint venture a contract to purchase for $10.8 million a 4.5 acre parcel overlooking the Intracoastal Waterway in West Palm Beach, Florida and BBX Capital contributed $0.5 million of cash.  During 2015, the zoning district surrounding this property was changed to permit up to 15 stories in building height from 4 stories in building height. 

 

BBX Capital also owned a 2.7 acre parcel located adjacent to the 4.5 acre parcel which was the subject of the contract held by the North Flagler joint venture with JRG USA.  The 2.7 acre parcel was acquired by BBX Capital through foreclosure.

 

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In May 2015, the joint venture acquired the 4.5 acre parcel and sold the parcel to a third party developer for $20.0 million and BBX Capital sold the 2.7 acre parcel which had a carrying value of $3.2 million on the date of sale to the same developer for $11.0 million.  BBX Capital recognized an aggregate $15.5 million gain on the sale of both parcels

 

PGA Station

 

BBX Capital owns land located in the newly named PGA Station, in the city of Palm Beach Gardens, Florida, with carrying values aggregating $8.4 million as of December 31, 2015.  The property held by the PGA Design Center Holdings joint venture described above is adjacent to PGA Station.  BBX Capital believes this property presents a variety of development opportunities, some of which are currently in the planning stages and remain subject to receipt of government approvals.   BBX Capital is currently seeking governmental approvals for a 111 room limited-service suite hotel and approximately 190,000 square feet of office buildings on vacant tracts of land.    

 

Operating Businesses

 

Renin

 

On October 30, 2013, a newly formed joint venture entity, Renin Holdings, LLC (“Renin”), owned 81% by BBX Capital and 19% by BFC, acquired substantially all of the assets and certain liabilities of Renin Corp for approximately $12.8 million (“the Renin Transaction”).  Renin had $24 million of total assets as of October 30, 2013 and manufactures interior closet doors, wall décor, hardware and fabricated glass products and operates through headquarters in Canada and two  manufacturing, assembly and distribution facilities in Canada, and the United States.

 

BBX Sweet Holdings

 

In December 2013, a wholly-owned subsidiary of BBX Capital, BBX Sweet Holdings, LLC, acquired Hoffman’s Chocolates (“Hoffman’s”).  Hoffman’s had total assets of $5.3 million as of the acquisition date and is a manufacturer of gourmet chocolates, with retail locations in South Florida.

 

Subsequent to January 2014, BBX Sweet Holdings acquired manufacturers in the chocolate and candy industries serving wholesalers such as boutique retailer, big box chains, department stores, national resort properties, corporate customers and private label brands.  The companies acquired were Williams and Bennett, Helen Grace Chocolates (“Helen Grace”), Jer’s Chocolates (“Jer’s”), Anastasia Confections (“Anastasia”) and Kencraft Confections, LLC (“Kencraft”).  The wholesale manufacturing companies acquired had aggregate total assets at acquisition of $9.8 million and total aggregate revenues during the year ended December 31, 2015 of $22.9 million. 

 

Employees

 

Management believes that its relations with its employees are satisfactory. BFC currently maintains employee benefit programs that are considered by management to be generally competitive with programs provided by other major employers in its markets.

 

As of December 31, 2015, BFC and its subsidiaries had approximately 6,108 employees, with 28 employees at BFC and its wholly owned subsidiaries; 651 employees at BBX Capital and its subsidiaries; and 5,429 employees at Bluegreen, of which 521 employees were located at Bluegreen’s headquarters in Boca Raton, Florida, and 4,908 employees were located in regional field offices throughout the United States and Aruba.  

 

Competition

 

Bluegreen

 

Bluegreen competes with various high profile and well-established operators, many of which have greater liquidity and financial resources than Bluegreen does.  Many of the world’s most recognized lodging, hospitality and entertainment companies develop and sell VOIs in resort properties.  Major companies that now operate or are developing or planning to develop vacation ownership resorts directly or through subsidiaries include Marriott Vacations Worldwide Corporation, the Walt Disney Company, Hilton Hotels Corporation, Starwood Hotels and Resorts Worldwide, Inc., Wyndham Worldwide Corporation and Diamond Resorts International. Bluegreen also competes with numerous other smaller owners and operators of vacation ownership resorts.  In Bluegreen’s fee-based services business, Bluegreen typically competes with Hilton Hotels Corporation and Wyndham Worldwide Corporation.  In addition to competing for sales leads, prospects and fee-based service clients, Bluegreen competes with other VOI developers for marketing, sales, and resort management personnel.

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BBX Capital

 

The industries in which BBX Capital conducts business are very competitive and it faces substantial competition from real estate developers and building construction companies from private equity funds and hedge funds. BBX Capital competes with institutions and entities that are larger and have greater resources than the resources available to BBX Capital.  Four companies in the candy and confections industry currently account for approximately 71% of the industry’s revenues reflecting significant consolidation in the industry in which Sweet Holdings operates.  Renin operations include the manufacturing of wall décor, hardware, and fabricated glass.  Renin’s products are sold mainly to large retailers as well as to housing and building construction companies. The industry in which Renin operates experiences intense competition from foreign importers and producers. 

 

Regulation

 

BFC and BBX Capital

 

As public companies, BFC and BBX Capital are subject to federal securities laws, including The Exchange Act.  In addition, the companies in which BFC and BBX Capital hold investments are subject to federal, state and local laws and regulations generally applicable to all of their businesses. 

 

Bluegreen

 

The vacation ownership and real estate industries are subject to extensive and complex governmental regulation.  Bluegreen is subject to various federal, state, local and foreign environmental, zoning, consumer protection and other laws, rules and regulations regarding the acquisition, marketing, and sale of real estate and VOIs and various aspects of Bluegreen’s financing operations.  On a federal level, the Federal Trade Commission has taken an active regulatory role through the Federal Trade Commission Act, which prohibits unfair or deceptive acts or unfair competition in interstate commerce.  In addition, many states have what are known as “Little FTC Acts” that apply to intrastate activity.  In addition to the laws applicable to Bluegreen’s customer financing and other operations discussed below, Bluegreen is or may be subject to the Fair Housing Act and various other federal laws, rules and regulations.  Bluegreen is also subject to various foreign laws with respect to La Cabana Beach and Racquet Club in Oranjestad, Aruba and Blue Water Resort in Nassau, Bahamas as well as with respect to certain marketing efforts and operations in Canada.  In addition, in the future, VOIs may be deemed to be securities subject to regulation as such, which could have a material adverse effect on Bluegreen.  The cost of complying with applicable laws and regulations may be significant and Bluegreen may not maintain compliance at all times with all applicable laws, including those discussed below.  Any failure to comply with current or future applicable laws or regulations could have a material adverse effect on Bluegreen.

 

Bluegreen’s vacation ownership resorts are subject to various regulatory requirements, including state and local approvals.  The laws of most states require Bluegreen to file a detailed offering statement describing Bluegreen’s business and all material aspects of the project and sale of VOIs with a designated state authority.  In addition, when required by state law, Bluegreen provides its VOI purchasers with a public disclosure statement that contains, among other items, detailed information about the resort, the surrounding vicinity, and the purchaser’s rights and obligations as a VOI owner.  Laws in each state where Bluegreen sells VOIs generally grant the purchaser of a VOI the right to cancel a purchase contract at any time within a specified rescission period following the earlier of the date the contract was signed or the date the purchaser has received the last of the documents required to be provided by Bluegreen.  Most states have other laws that regulate Bluegreen’s activities, including real estate licensure requirements; sellers of travel licensure requirements; anti-fraud laws; telemarketing laws; prize, gift and sweepstakes laws; and labor laws.  

 

Under various federal, state and local laws, ordinances and regulations, the owner of real property generally is liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, the property, as well as related costs of investigation and property damage.  These laws often impose such liability without regard to whether the owner knew of the presence of such hazardous or toxic substances.  The presence of these substances, or the failure to properly remediate these substances if they exist, may adversely affect the owner’s ability to sell or lease a property or to borrow using the real property as collateral.  Other federal and state laws require the removal or encapsulation of asbestos-containing material when this material is in poor condition or in the event of construction, demolition, remodeling or renovation.  Other statutes may require the removal of underground storage tanks.  Noncompliance with these and other environmental, health or safety requirements may result in the need to cease or alter operations or development at a property.  In addition, certain state and local laws may impose liability on property developers with respect to construction defects discovered on the property or repairs made by future owners of such property.  Under these laws, Bluegreen may be required to pay for repairs to the developed property.  The

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development, management and operation of Bluegreen’s resorts are also subject to the Americans with Disabilities Act.

 

Bluegreen’s marketing, sales and customer financing activities are also subject to extensive regulation, which can include, but is not limited to: the Truth-in-Lending Act and Regulation Z; the Fair Housing Act; the Fair Debt Collection Practices Act; the Equal Credit Opportunity Act and Regulation B; the Electronic Funds Transfer Act and Regulation E; the Home Mortgage Disclosure Act and Regulation C; the Dodd–Frank Wall Street Reform and Consumer Protection Act; Unfair or Deceptive Acts or Practices and Regulation AA; the Patriot Act; the Right to Financial Privacy Act; the Gramm-Leach-Bliley Act; the Fair and Accurate Credit Transactions Act; and anti-money laundering laws. The Dodd-Frank Act contains significant changes to the regulation of financial institutions, and related entities, including the creation of new federal regulatory agencies, and the granting of additional authorities and responsibilities to existing regulatory agencies to identify and address emerging systemic risks posed by the activities of financial services firms.  The Consumer Financial Protection Bureau (“CFPB”) is one such regulatory agency created pursuant to the Dodd-Frank Act.  The CFPB’s mandate is to protect consumers by carrying out federal consumer financial laws and to publish rules and forms that facilitate understanding of the financial implications of the transactions consumers enter into.  Consistent with this mission, the CFPB amended Regulations X and Z to establish new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property.  The practical impact upon Bluegreen was the requirement to use a new Integrated Mortgage Disclosure Statement in lieu of the separate Good Faith Estimate and Closing Statement.  While this rule has been complied with by Bluegreen, the rule-making process under the Dodd-Frank Act is still underway, and no assurance can be given that Bluegreen’ will comply with this act or other applicable laws or that compliance with this rule or the promulgation of additional new standards by the CFPB will not have an adverse impact on Bluegreen.  In addition, Bluegreen’s term securitization transactions must comply with certain requirements of the Dodd-Frank Act, including the risk retention rules.

 

Bluegreen's management of, and dealings with, POAs, including Bluegreen's purchase of defaulted inventory from POAs in connection with its secondary market arrangements, is also subject to state laws and resort rules and regulations, including those with respect to the establishment of budgets and expenditures, rule-making, and the imposition of maintenance assessments.

 

Bluegreen's management of, and dealings with, POAs, including Bluegreen's purchase of defaulted inventory from POAs in connection with its secondary market arrangements, is also subject to state laws and resort rules and regulations, including those with respect to the establishment of budgets and expenditures, rule-making, and the imposition of maintenance assessments.

 

During the year ended December 31, 2015, approximately 8% of Bluegreen’s VOI sales were generated by marketing to prospective purchasers obtained through internal and third-party vendors’ outbound telemarketing efforts.  Bluegreen attempts to monitor the actions and compliance of these third parties, but there are risks associated with Bluegreen’s and such third parties’ telemarketing efforts.  In recent years, state regulators have increased regulations and enforcement actions related to telemarketing operations, including requiring the adherence to state “do not call” laws.  In addition, the Federal Trade Commission and Federal Communications Commission have implemented national “do not call” legislation.  These measures have significantly increased the costs associated with telemarketing.  While Bluegreen continues to be subject to telemarketing risks and potential liability, Bluegreen believes that its exposure to adverse impacts from this heightened telemarketing legislation and enforcement may be mitigated to some extent by the use of “permission marketing,” whereby Bluegreen obtains the permission of prospective purchasers to contact them in the future, thereby exempting such calls from the various “do not call” laws.  Bluegreen has also implemented policies and procedures which Bluegreen believes will help reduce the possibility that individuals who have requested to be placed on its internal company do not call list are not contacted, but such policies and procedures may not be effective in ensuring strict regulatory compliance.

 

To date, no material fines or penalties have been imposed on Bluegreen as a result of its telemarketing operations.  However, from time to time, Bluegreen has been the subject of proceedings for violation of the “do not call” laws and for violation of state laws applicable to the marketing and sale of VOIs.  Bluegreen may not be able to efficiently or effectively market to prospective purchasers through telemarketing operations in the future or successfully develop alternative sources of identifying and marketing to prospective purchasers of Bluegreen’s VOI products at acceptable costs.  In addition, Bluegreen may face significant non-compliance issues or additional costs of compliance, which may adversely impact Bluegreen’s results and operations in the future.

 

See also “Item 1A – Risk Factors” for a description of risks with respect to regulatory compliance and “Item 3 – Legal Proceedings” for a description of pending regulatory actions.

 

 

 

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ITEM 1A. RISK FACTORS

 

BFC Financial Corporation Risks

 

BFC and its subsidiaries are subject to various risks and uncertainties relating to or arising out of the nature of their businesses, operations and investments, and general business, economic, financing, legal, regulatory, and other factors and conditions. New risk factors emerge from time to time and it is not possible for management to either predict all risk factors or assess the impact of any factor, or combination of factors, on BFC or its subsidiaries, including with respect to their operations, results and financial condition. 

 

BFC has in the past incurred cash flow deficits at its parent company level and will rely on dividends from its subsidiaries in the future.

 

BFC is engaged in making investments in operating businesses. Historically, BFC, at its parent company level, has not had revenue generating operating activities and has incurred cash flow deficits. BFC has financed operating cash flow deficits, and its operations and investments with available working capital, issuances of equity or debt securities, dividends from its subsidiaries and borrowings. As of December 31, 2015, BFC has $10.0 million available under the Loan and Security Agreement entered into during July 2015 which allows for borrowings by the company of up to $10 million on a revolving basis.  In addition, the payment of dividends by BBX Capital requires the declaration of such dividend by BBX Capital's board of directors; a majority of whom are independent under the listing standards of the -NYSE and, accordingly, such decision is not in BFC's control. Further, declaration of dividends by Bluegreen to Woodbridge are subject to the approval of Bluegreen’s Board of Directors and certain of Bluegreen's credit facilities contain terms which may limit the payment of cash dividends without the lender's consent or waiver. Decisions with respect to dividends by BBX Capital and Bluegreen are generally based on, among other things, the applicable company's operating results, financial condition, cash flow, and liquidity needs. BFC relies on dividends from Woodbridge in order to fund its current and future operations and investments; however, dividends by Woodbridge are dependent on the receipt of dividends from Bluegreen and are subject to the approval of the boards of directors of both BFC and BBX Capital.  Dividends from Woodbridge may not be paid to BFC to the extent or when anticipated or at all.

 

If cash flow is not sufficient to fund BFC's liquidity needs or BFC otherwise determines it is advisable to do so, BFC might seek to liquidate some of its investments or seek to fund its operations with the proceeds of additional equity or debt financing. Such financing may not be available on commercially reasonable terms, if at all, and if BFC chooses to liquidate its investments, it may be forced to do so at depressed prices.

 

Adverse conditions and events where BFC’s investments are currently concentrated or in the industries in which its subsidiaries operate could adversely impact its results and future growth.

 

BBX Capital's real estate related operations, activities and investments are concentrated in Florida.  Adverse economic conditions, natural disasters, including tropical storms and hurricanes, which are a permanent risk in Florida, or adverse changes in laws or regulations applicable to BFC or the companies in which BFC holds investments have in the past adversely impacted and may in the future adversely impact BFC's operating results and financial condition.

 

BFC and its subsidiaries may issue additional securities and incur additional indebtedness.

 

If BFC's cash flow is not sufficient to meet its liquidity needs and investment objectives or BFC's board of directors otherwise determines it to be appropriate, BFC may seek to raise funds in the future through the issuance of debt or equity securities. There is generally no restriction on BFC's ability to issue debt or equity securities which are pari passu or have a preference over its Class A Common Stock and Class B Common Stock, although the holders of BFC’s Class B Common Stock have special class voting rights under BFC’s Amended and Restated Articles of Incorporation with respect to certain securities issuances and other actions affecting BFC’s Class B Common Stock. Any such issuance, including shares issued in connection with any investment or acquisition which BFC makes in the future, may be dilutive to BFC's shareholders. In addition, any securities issuances in the future by a subsidiary of BFC may dilute BFC's economic investment or voting interest in that company.

 

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Further, BFC and its subsidiaries have in the past and may in the future incur significant amounts of debt. Such indebtedness could have several important effects, including, without limitation, that BFC or its subsidiaries, as applicable, may be required to use available cash for the payment of principal and interest due on its debt, that outstanding indebtedness and leverage will impact the liquidity of BFC or its subsidiaries, as applicable, and that outstanding indebtedness will increase the impact which negative changes in general economic and industry conditions may have on BFC or its subsidiaries.

 

BFC faces risks and uncertainties with respect to any acquisitions which it or its subsidiaries pursue in the future and there is no assurance that its investments will generate income or that BFC will exit any of its investments for a profit.

 

BFC has in the past focused and continues to focus on providing strategic support to its existing investments with a view to the improved performance of the organization as a whole. However, BFC may also seek to make opportunistic investments outside of its existing portfolio, including investments in real estate based opportunities and middle market operating businesses. While BFC will seek investments and acquisitions primarily in companies that it believes will provide opportunities for growth, BFC may not be successful in identifying these opportunities. Investments or acquisitions that BFC does make may not prove to be successful or even if successful may not generate income, or may generate income on an irregular basis or over a long time period, which would cause BFC's results of operations to vary significantly on a quarterly basis and from year to year. Acquisitions may expose BFC to additional risks and may have a material adverse effect on its results of operations. Any acquisition made may fail to accomplish the strategic objectives hoped or otherwise not perform as expected or adversely impact BFC's financial condition or operating results. In addition, BFC from time to time may consider transactions involving the sale of its subsidiaries or investments or other transactions which would result in a decrease in BFC’s ownership interest in its subsidiaries, and there is no assurance that any such transactions, if pursued and consummated will generate a profit or otherwise be advantageous to BFC. Acquisitions and investments will also expose BFC, or increase BFC’s exposure in the case of acquisitions of or additional investments in its portfolio companies, to the risks of any business acquired or invested in.

 

In addition, there is significant competition for investments and acquisitions, which could increase the costs associated with the investment or acquisition.  Substantial costs are incurred in connection with the evaluation of potential acquisition and investment opportunities whether or not the acquisition or investment is ultimately consummated. Further, such investments or acquisitions may rely on additional debt or equity financing, which will subject BFC to the risks and uncertainties described in the preceding risk factor. If BFC requires additional financing in the future, the financing may not be available when needed or on favorable terms, if at all. Additionally, BFC does not intend to seek shareholder approval of any investments or acquisitions unless required by law or regulation or by BFC’s Amended and Restated Articles of Incorporation or Bylaws.

 

Substantial sales of BFC’s Class A Common Stock or Class B Common Stock could adversely affect the market prices of such securities.

 

Substantial sales of BFC’s Class A Common Stock or Class B Common Stock, including sales of shares by controlling shareholders and management, or shares issued in connection with any investments or acquisition that BFC makes in the future, could adversely affect the market prices of such securities. Management has in the past and may in the future enter into Rule 10b5-1 plans pursuant to which a significant number of shares are sold into the open market.

 

Alan B. Levan and John E. Abdo's control position may adversely affect the market price of BFC's Class A Common Stock and Class B Common Stock.

 

Alan B. Levan, the former Chairman and Chief Executive Officer of BFC, and John E. Abdo, the current Vice Chairman of BFC, and their respective affiliates currently collectively beneficially own shares of BFC's Class A Common Stock and Class B Common Stock representing approximately 63% of the general voting power and approximately 24% of the total outstanding common stock of BFC. These shares consist of 11,291,413 shares, or approximately 15%, of BFC's Class A Common Stock and 10,416,386 shares, or approximately 76%, of  BFC's Class B Common Stock. In addition, each has been granted restricted securities which vest over time.  Messrs. Levan and Abdo are parties to an agreement pursuant to which Mr. Levan has agreed to vote his shares of BFC's Class B Common Stock in favor of the election of Mr. Abdo to BFC's board of directors for so long as he is willing and able to serve as a BFC director. Additionally, Mr. Abdo has agreed to vote the shares of BFC's Class B Common Stock he owns in the same manner that Mr.

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Levan votes his shares of BFC's Class B Common Stock. Mr. Abdo has also agreed, subject to certain exceptions, not to transfer certain of his shares of BFC's Class B Common Stock and to obtain the consent of Mr. Levan prior to the conversion of certain of his shares of BFC's Class B Common Stock into shares of BFC's Class A Common Stock. Because BFC's Class A Common Stock and Class B Common Stock vote as a single class on most matters, Messrs. Levan and Abdo effectively have the voting power to elect the members of BFC's board of directors and to control the outcome of any other vote of BFC's shareholders, except in those limited circumstances where Florida law mandates that the holders of BFC's Class A Common Stock vote as a separate class. Messrs. Levan and Abdo's control position may have an adverse effect on the market price of BFC's Class A Common Stock and Class B Common Stock. In addition, their interests may conflict with the interests of BFC's other shareholders.

 

The loss of the services of BFC's key management and personnel could adversely affect its business and the businesses of its subsidiaries.

 

BFC's ability to successfully implement its business strategy will depend on its ability to attract and retain experienced and knowledgeable management and other professional staff. BFC may not be successful in attracting and retaining key management personnel. Our business operations could be adversely affected if we are unable to retain and motivate our existing employees and attract new employees as needed. In addition, as described in further detail in “Item 3 – Legal Proceedings”, the jury in the SEC action against BBX Capital and Alan B. Levan found that BBX Capital and Alan B. Levan committed violations of federal securities laws, which included a two year bar on Mr. Levan serving as an officer or director of a public company. While BBX Capital and Mr. Levan appealed the adverse judgment to the Eleventh Circuit Court of Appeals, the results of appellate review are uncertain, and BFC, BBX Capital and their subsidiaries may be adversely impacted by the loss of services of Mr. Alan Levan as BFC’s and BBX Capital’s Chairman and Chief Executive Officer.   Mr. Alan Levan resigned as BFC’s and BBX Capital’s Chairman and Chief Executive Officer on December 23, 2015.  Jarett Levan, a director and Executive Vice President of BFC and a director and President of BBX Capital has been appointed acting Chairman and Chief Executive Officer of BFC and BBX Capital.  In addition, John E. Abdo, continues to serve as Vice Chairman of BFC and BBX Capital.

 

Provisions in BFC's Amended and Restated Articles of Incorporation and Bylaws, as well as BFC's shareholder rights plan, may make it difficult for a third party to acquire BFC and could impact the price of BFC's Class A Common Stock and Class B Common Stock.

 

BFC's Amended and Restated Articles of Incorporation and Bylaws contain provisions that could delay, defer or prevent a change of control of BFC or its management. These provisions could make it more difficult for shareholders to elect directors and take other corporate actions. As a result, these provisions could limit the price that investors are willing to pay in the future for shares of BFC's Class A Common Stock or Class B Common Stock. These provisions include:

 

 

 

 

In addition, BFC currently has in place a shareholder rights plan which is designed to preserve certain tax benefits available to BFC. However, because the rights plan provides a deterrent to investors from acquiring a 5% or greater ownership aggregate interest in BFC's Class A Common Stock and Class B Common Stock, it may have an anti-takeover effect.

 

BBX Capital's Restated Articles of Incorporation and Amended Restated Bylaws contain similar provisions as those described above. BBX Capital also has a shareholder rights plan similar to BFC’s with respect to the acquisition of more than 5% of BBX Capital’s Class A Common Stock. See "Risks Related to BBX Capital.”

 

 

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Dividends and distributions from BFC’s subsidiaries to their respective parent companies may be subject to claims in the future from creditors of the subsidiary.

 

Subsidiaries have in the past and may in the future make dividends or distributions to their parent companies. During 2014 and 2015, Bluegreen paid dividends totaling $71.5 million and $54.4 million, respectively, to its parent company, Woodbridge, and Woodbridge paid dividends totaling $37.3 million and $28.0 million, respectively, to BFC and $31.8 million and $23.8 million, respectively, to BBX Capital.  Dividend payments and other distributions by a subsidiary to its parent company may, in certain circumstances, be subject to claims made by creditors of the subsidiary which made the payment or distribution. Any such claim, if successful, may have a material adverse impact on the financial condition of the parent company against which the claim was brought.

 

There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with GAAP. Any changes in estimates, judgments and assumptions used could have a material adverse effect on BFC’s financial position and operating results.

 

The consolidated financial statements included in the periodic reports BFC files with the SEC, including this Annual Report on Form 10-K, are prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including goodwill and other intangible assets), liabilities and related reserves, revenues, expenses and income. This includes estimates, judgments and assumptions for assessing the amortization/accretion of purchase accounting fair value differences and the future value of goodwill and other intangible assets pursuant to applicable accounting guidance. BFC bases its estimates on historical experience and on various other assumptions that BFC believes 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. However, estimates, judgments and assumptions are subject to change in the future, and BFC's estimates, judgments and assumptions may prove to be incorrect and BFC's actual results may differ from these estimates under different assumptions or conditions. If any estimates, judgments or assumptions change in the future, or BFC's actual results differ from BFC's estimates or assumptions, BFC may be required to record additional expenses or impairment charges, which would be recorded as a charge against its earnings and could have a material adverse impact on its financial condition and operating results.

 

BFC’s investment in BBX Capital is subject to equity pricing risks.

 

BBX Capital's Class A Common Stock is currently listed for trading on the NYSE. Because BBX Capital is consolidated in BFC's financial statements, the decline in the market price of BBX Capital's Class A Common Stock would not impact BFC's consolidated financial statements. However, the market price of BFC's Class A Common Stock and Class B Common Stock, which is important to its valuation and ability to obtain equity or debt financing, would likely be adversely affected by a decline in the market price of BBX Capital's Class A Common Stock. The market price of BBX Capital's Class A Common Stock is subject to a number of factors, many of which may be beyond the control of BBX Capital, including general economic trends and conditions. In addition, BFC's control position with respect to BBX Capital may have an adverse effect on the market price of BBX Capital's Class A Common Stock.

 

Certain members of BFC’s board of directors and certain of BFC's executive officers are also directors and executive officers of BBX Capital and directors of Bluegreen.

 

Jarett S. Levan, Acting Chairman, Chief Executive Officer and President of BFC, and John E. Abdo, BFC's Vice Chairman, are also directors and executive officers of BBX Capital. Mr. Abdo is also Chairman of Bluegreen.    Further, Seth M. Wise, an executive officer and director of the Company, and Raymond S. Lopez, an executive officer of the Company, are each executive officers of BBX Capital. The Company and BBX Capital own 54% and 46%, respectively, of the outstanding equity interests in Woodbridge, which is the sole shareholder of Bluegreen.  None of BFC ‘s executive officers is obligated to allocate a specific amount of time to the management of BFC, and they may devote more time and attention to the operations of BFC's affiliates than they devote directly to BFC's operations.

 

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Pending legal proceedings and the impact of any finding of liability or damages could adversely impact BFC and its financial condition and operating results.

 

BFC and its subsidiaries are subject to the pending legal proceedings described in "Item 3 - Legal Proceedings," as well as proceedings that may arise from time to time.  The impact of any funding of liability or damages could adversely impact BFC and its financial condition and operating results.

 

BFC and its subsidiaries are subject to environmental laws related to their real estate activities and the cost of compliance could adversely affect the businesses of BFC and its subsidiaries.

 

As current or previous owners or operators of real property, BFC and its subsidiaries may be liable under federal, state and local environmental laws, ordinances and regulations for the costs of removal or remediation of hazardous or toxic substances on, under or in the property. These laws often impose liability whether or not BFC or its subsidiaries knew of, or was responsible for, the presence of such hazardous or toxic substances. The cost of investigating, remediating or removing such hazardous or toxic substances may be substantial.

 

Information technology failures and data security breaches could harm our business. 

 

The Company relies on information technology (IT) systems, including Internet sites, data hosting facilities and other hardware and platforms, some of which are hosted by third parties. These IT systems, like those of most companies, may be vulnerable to a variety of interruptions, including, but not limited to, natural disasters, telecommunications failures, hackers, and other security issues. Moreover, the Company’s computer systems, like those of most companies, may become subject to computer viruses or other malicious codes, and to cyber or phishing-attacks. Although administrative and technical controls have been implemented which attempt to minimize the risk of cyber incidents, computer intrusion efforts are becoming increasingly sophisticated, and any enhanced controls installed might be breached. If the IT systems cease to function properly, the Company could suffer interruptions in its operations. If the cyber-security is breached, unauthorized persons may gain access to the proprietary or confidential information of BFC and its subsidiaries, including information about borrowers, employees or investments. This could require the Company to incur significant costs to comply with legally required protocols and to repair or restore the security of its systems

 

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Risks Related to Bluegreen

 

Bluegreen is subject to various risks and uncertainties relating to or arising out of the nature of its business and general business, economic, financing, legal and other factors or conditions that may affect Bluegreen.  Moreover, Bluegreen operates in a very competitive, highly regulated and rapidly changing environment.  New risk factors emerge from time to time and it is not possible for management to either predict all risk factors, or assess the impact of all risk factors on Bluegreen’s business or the extent to which any factor, or combination of factors, may affect Bluegreen’s business. 

 

Bluegreen’s business and operations, including its ability to market VOIs, are subject to risks related to general economic conditions and the availability of financing.

 

Bluegreen’s business is subject to risks related to general economic and industry conditions and trends.   Bluegreen’s results, operations and financial condition may be adversely affected by unfavorable general economic and industry conditions, such as high unemployment rates and job insecurity, declines in discretionary spending, declines in real estate values and the occurrence of geopolitical conflicts  including if these or other factors adversely impact the availability of financing for Bluegreen or Bluegreen’s customers or the ability of Bluegreen’s customers’ to otherwise pay amounts owed under notes receivable. Further, adverse changes affecting the vacation ownership industry, such as an oversupply of vacation ownership units, a reduction in demand for such units, changes in travel, demographic and vacation patterns, changes in governmental regulation of the industry, imposition of increased taxes by governmental authorities, the declaration of bankruptcy and/or credit defaults by other vacation ownership companies and negative publicity for the industry, could also have a material adverse effect on Bluegreen’s business. In addition, Bluegreen's operations and results may be negatively impacted if Bluegreen is unable to update its business strategy over time and from time to time in response to changing economic and industry conditions.

 

The vacation ownership and hospitality industries are highly competitive, and Bluegreen may not be able to compete successfully.

 

Bluegreen competes with various high profile and well-established operators, many of which have greater liquidity and financial resources than Bluegreen.  Many of the world's most recognized lodging, hospitality and entertainment companies develop and sell time-share units or VOIs in resort properties.  Bluegreen also competes with numerous smaller owners and operators of vacation ownership resorts.  Bluegreen's ability to remain competitive and to attract and retain customers depends on its customers' satisfaction with its products and services as well as on distinguishing the quality, value, and efficiency of its products and services from those offered by its competitors.  Customer dissatisfaction with experiences at its resorts or otherwise as a member of the Bluegreen Vacation Club, including due to an inability to use points for desired stays, could result in negative publicity and/or a decrease in sales, or otherwise adversely impact Bluegreen's ability to successfully compete in the vacation ownership and hospitality industries.  Bluegreen may not be able to timely and sufficiently identify and remediate the cause of customer dissatisfaction.  Any of these events could materially and adversely impact Bluegreen's operating results and financial condition.

 

Bluegreen would suffer substantial losses and Bluegreen’s liquidity position could be adversely impacted if the customers to whom Bluegreen provides financing default on their obligations.

 

Prior to December 15, 2008, Bluegreen did not perform credit checks on the purchasers of its VOIs in connection with Bluegreen’s financing of their purchases.  Effective December 15, 2008, Bluegreen implemented a FICO® score-based credit underwriting program.  Bluegreen enhanced this credit underwriting program starting in January 2010.  While Bluegreen’s loan portfolio originated after December 15, 2008 has to date experienced defaults at a lower rate than loans originated prior to that date, Bluegreen’s FICO® score-based underwriting standards may not continue to result in decreased default rates or otherwise result in the improved performance of Bluegreen’s notes receivable.  Adverse conditions in the mortgage industry, including credit availability, borrowers’ financial profiles, prepayment rates and other factors, including those outside Bluegreen’s control, may increase the default rates Bluegreen experiences or otherwise negatively impact the performance of its notes receivable.  Although in many cases Bluegreen may have recourse against a buyer for the unpaid purchase price, certain states have laws that limit Bluegreen’s ability to recover personal judgments against customers who have defaulted on their loans or Bluegreen may determine that the cost of doing so may not be justified.  Historically, Bluegreen has generally not pursued such recourse against its customers.  In the case of Bluegreen’s notes receivable secured by VOIs, if Bluegreen is unable to collect the defaulted amount due, Bluegreen traditionally has terminated the customer’s interest in the Bluegreen Vacation Club and then remarketed the recovered VOI.  Irrespective of Bluegreen’s remedy in the event of a default,

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Bluegreen cannot recover the marketing, selling and administrative costs associated with the original sale and such costs generally exceed the cash received by Bluegreen from the buyer at the time of the sale.  In addition, Bluegreen will need to incur such costs again in order to resell the VOI.  If default rates for Bluegreen’s borrowers remain at current levels or increase, Bluegreen may be required to increase its provision for credit losses.  In addition, it may cause buyers of, or lenders whose loans are secured by, Bluegreen’s VOI notes receivable to reduce the amount of availability or advance rates under receivables purchase and credit facilities, or to increase the interest costs associated with such facilities.  In such an event, the cost of financing may increase and Bluegreen may not be able to secure replacement or alternative financing on terms acceptable to Bluegreen, if at all, which would adversely affect Bluegreen’s earnings, financial position and liquidity.

 

Under the terms of Bluegreen’s pledged and receivable sale facilities, Bluegreen may be required, under certain circumstances, to replace receivables or to pay down the loan to within permitted loan-to-value ratios.  Additionally, the terms of Bluegreen’s securitization transactions require Bluegreen to repurchase or replace loans if Bluegreen breaches any of the representations and warranties Bluegreen made at the time Bluegreen sold the receivables.  These agreements also often include provisions that in the event of defaults or delinquencies by customers in excess of stated thresholds, or if other performance thresholds are not met, will require substantially all of Bluegreen’s cash flow from its retained interest in the receivable portfolios sold to be paid to the parties who purchased the receivables from Bluegreen.

 

While Bluegreen has attempted to restructure its business to reduce its need for and reliance on financing for liquidity in the short term, there is no assurance that Bluegreen’s business and profitability will not be impacted by its ability to obtain financing, which may not be available on favorable terms, or at all. 

 

In connection with sales of VOIs, Bluegreen may offer financing to the purchaser of up to 90% of the purchase price of the VOI.  However, Bluegreen incurs selling, marketing and administrative cash expenditures prior to and concurrent with the sale.  These costs generally exceed the down payment Bluegreen receives at the time of the sale.  Accordingly, Bluegreen’s ability to borrow against or sell its notes receivable has historically been a critical factor in Bluegreen’s continued liquidity, and Bluegreen therefore has depended on funds from its credit facilities and securitization transactions to finance its operations.  If Bluegreen’s pledged receivables facilities terminate or expire and Bluegreen is unable to extend them or replace them with comparable facilities, or if Bluegreen is unable to continue to participate in securitization-type transactions and “warehouse” facilities on acceptable terms, Bluegreen’s liquidity, cash flow and profitability would be materially and adversely affected.  Credit market disruptions have in the past adversely impacted the willingness of banks and other finance companies to provide “warehouse” lines of credit for VOI receivables and resulted from time to time in the term securitization market being unavailable.  Future credit market disruptions may have similar effects or otherwise make obtaining additional and replacement external sources of liquidity more difficult and more costly.

 

In addition, financing for real estate acquisition and development and the capital markets for corporate debt is cyclical.  In response to changing conditions, during 2008, Bluegreen adopted initiatives, which included limiting sales and encouraging higher down payments on sales, in an attempt to conserve cash.  Bluegreen also increased its focus on expanding its fee-based service business.  However, there is no assurance that these initiatives will enhance Bluegreen’s financial position or otherwise be successful in the long term. 

 

Notwithstanding the initiatives implemented by Bluegreen to improve its cash position, Bluegreen anticipates that it will continue to seek and use external sources of liquidity, including funds that Bluegreen obtains pursuant to additional borrowings under its existing credit facilities, under credit facilities that Bluegreen may obtain in the future, under securitizations in which Bluegreen may participate in the future or pursuant to other borrowing arrangements, to:

 

 

Bluegreen’s ability to service or refinance its indebtedness or to obtain additional financing (including its ability to consummate future term securitizations) depends on the credit markets and on Bluegreen’s future performance, which is subject to a number of factors, including the success of Bluegreen’s business, Bluegreen’s results of operations, leverage, financial condition and business prospects, prevailing interest rates, general economic conditions, the performance of Bluegreen’s receivables portfolio, and perceptions about the vacation ownership and real estate industries. Further, reputational and other risks to both the lender and to Bluegreen associated with the

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2007 bankruptcy of Levitt and Sons, LLC, a former wholly owned homebuilding subsidiary of Woodbridge, and the adverse jury verdict in the litigation brought by the SEC against BBX Capital and its former Chairman, Alan B. Levan, who was also Chairman of Bluegreen until December 2015 may be considered by lenders in connection with both making and renewing extensions of credit.

 

As of December 31, 2015, Bluegreen had $31.2 million of indebtedness scheduled to become due during 2016.  Historically, much of Bluegreen’s debt has been renewed or refinanced in the ordinary course of business.  However, there is no assurance that Bluegreen will in the future be able to obtain sufficient external sources of liquidity on attractive terms, or at all, or otherwise renew, extend or refinance all or any portion of its outstanding debt.  Any of these occurrences may have a material adverse impact on Bluegreen’s liquidity and financial condition.

 

Bluegreen's indebtedness may impact its financial condition and results of operations, and the terms of Bluegreen's indebtedness may limit its activities.

 

Bluegreen's level of debt and debt service requirements have several important effects on Bluegreen's operations.  Significant debt service cash requirements reduce the funds available for operations and future business opportunities and increase Bluegreen's vulnerability to adverse economic and industry conditions, as well as conditions in the credit markets generally.  In addition, Bluegreen's leverage position increases its vulnerability to economic and competitive pressures and may limit funds available for acquisitions, working capital, capital expenditures, dividends, and other general corporate purposes.  Further, the financial covenants and other restrictions contained in indentures, credit agreements and other agreements relating to Bluegreen's indebtedness require Bluegreen to meet certain financial tests and restrict Bluegreen's ability to, among other things, pay dividends, borrow additional funds, dispose of assets or make investments.  If Bluegreen fails to comply with the terms of its debt instruments, such debt may become due and payable immediately, which would have a material adverse impact on Bluegreen's cash position and financial condition.  Significant resources may be required to monitor Bluegreen's compliance with its debt instruments (from a quantitative and qualitative perspective), and such monitoring efforts may not be effective in all cases.

 

To the extent inflationary trends, tightened credit markets or other factors affect interest rates, Bluegreen’s debt service costs may increase.  If interest rates increased one percentage point, the effect on interest expense related to Bluegreen’s variable-rate debt would be an annual increase of $2.8 million, based on December 31, 2015 balances. 

 

The ratings of third-party rating agencies could adversely impact Bluegreen’s ability to obtain, renew or extend credit facilities, or otherwise raise funds.

 

Rating agencies from time to time review prior corporate and specific transaction ratings in light of tightened ratings criteria.  In December 2015, Standard & Poor’s Rating Services affirmed Bluegreen’s ‘B+’ credit rating.  Bluegreen’s corporate credit rating is also based, in part, on rating agencies’ speculation about Bluegreen’s potential future debt and dividend levels.  If rating agencies were to downgrade Bluegreen’s corporate credit ratings, Bluegreen’s ability to raise funds on favorable terms, or at all, and Bluegreen’s liquidity, financial condition and results of operations could be adversely impacted.  In addition, if rating agencies downgraded their original ratings on certain bond classes in Bluegreen’s securitizations, holders of such bonds may be required to sell bonds in the marketplace, and such sales could occur at a discount, which could impact the perceived value of the bonds and Bluegreen’s ability to sell future bonds on favorable terms or at all.  While Bluegreen is not currently aware of any reasonably likely downgrades to its corporate credit rating or the ratings of bond classes in its securitizations, such ratings changes can occur without advance notice.

 

Bluegreen’s future success depends on its ability to market its products and services successfully and efficiently and Bluegreen’s marketing expenses may increase.

 

Bluegreen competes for customers with hotel and resort properties and other vacation ownership resorts.  The identification of sales prospects and leads, and the marketing of Bluegreen’s products and services to them are essential to Bluegreen’s success.  Bluegreen incurs expenses associated with marketing programs in advance of the closing of sales.  If Bluegreen’s lead identification and marketing efforts do not yield enough leads or Bluegreen is unable to successfully convert sales leads to sales, Bluegreen may be unable to recover the expense of its marketing programs and systems and its business, operating results and financial condition would be adversely affected.  In addition, Bluegreen is currently focusing and has increased its marketing efforts on selling to new customers, which typically involves a relatively higher marketing cost compared to sales to existing owners and therefore has increased and is expected to continue to increase Bluegreen’s sales and marketing expenses.  If Bluegreen is not

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successful in offsetting the cost increase with greater sales revenue, Bluegreen’s operating results and financial condition would be adversely impacted.  In addition, Bluegreen's marketing efforts are subject to the risk of changing consumer behavior.  Changes in consumer behavior may adversely impact the effectiveness of marketing efforts and strategies which Bluegreen has in place and Bluegreen may not be able to timely and effectively respond to such changes.

 

Bluegreen generates a significant portion of its new sales prospects and leads through its arrangements with various third parties, including Bass Pro and Choice Hotels.  If these arrangements do not generate a sufficient number of leads or if these arrangements are terminated or limited and not replaced by other sources of sales prospects and leads, Bluegreen may not be able to successfully market and sell its products and services to new customers at current sales levels, at anticipated levels or at levels required in order to offset the costs associated with its marketing efforts.  This would adversely impact Bluegreen’s operating results and financial condition.

 

Bluegreen may not be successful in maintaining or expanding its capital-light business relationships, or its capital-light activities, including fee based sales and marketing arrangements, just-in-time VOI arrangements, and Secondary Market Sales activities, and such activities may not be profitable, which may have an adverse impact on Bluegreen’s results of operations and financial condition.

 

In 2009, Bluegreen began offering fee-based marketing, sales, resort management and other services to third-party developers.  Since that time, Bluegreen has continued to expand its capital-light business strategy, which Bluegreen believes enables it to leverage its expertise in sales and marketing, resort management, mortgage servicing, construction management and title services.  Bluegreen currently intends for its capital-light business activities to become an increasing portion of its business over time as such activities generally produce positive cash flow and typically require less capital investment than Bluegreen’s traditional vacation ownership business.  Bluegreen has attempted to structure these activities to cover its costs and generate a profit.  Sales of third party developers' VOIs must generate sufficient cash to comply with the terms of the developers' financing obligations as well as to pay the fees or commissions due Bluegreen.  The third party developers may not be able to obtain or maintain financing necessary to meet the developer’s requirements, which could impact Bluegreen's ability to sell the developers' inventory.  While Bluegreen could attempt to utilize other arrangements, including just-in-time arrangements, where Bluegreen would utilize its receivable credit facilities in order to provide fee-based marketing and sales services, this would reduce the credit otherwise available to Bluegreen.  Bluegreen commenced its capital-light activities largely during the recession in response to poor economic conditions and Bluegreen’s fee-based and other capital-light business activities in the future may be adversely impacted by changes in economic conditions.  While Bluegreen performs fee-based sales and marketing services, Bluegreen sells VOIs in a resort developed by a third party as an interest in the Bluegreen Vacation Club.  This subjects Bluegreen to a number of risks typically associated with selling products developed by others under its own brand name, including litigation risks.  Additionally, demand for the third party resorts may be below Bluegreen’s expectations.

 

Bluegreen also sells VOI inventory through Secondary Market arrangements which require low levels of capital deployment.  In connection with Secondary Market Sales, Bluegreen acquires VOI inventory from its resorts’ POAs on a non-committed basis in close proximity to the timing of when Bluegreen intends to sell such VOIs.  VOIs purchased from POAs are typically obtained by the POAs through foreclosure in connection with maintenance fee defaults and are generally acquired by Bluegreen at a discount.  While Bluegreen intends to increase its Secondary Market Sales efforts in the future, Bluegreen may not be successful in doing so, and these efforts may not result in Bluegreen achieving anticipated results.  Further Bluegreen’s Secondary Market Sale activities may subject Bluegreen to negative publicity, which could adversely impact Bluegreen’s reputation and business. 

 

Bluegreen’s results of operations and financial condition may be materially and adversely impacted if Bluegreen does not continue to participate in exchange networks and other strategic alliances with third parties or if Bluegreen’s customers are not satisfied with the networks in which Bluegreen participates or Bluegreen’s strategic alliances.

 

Bluegreen believes that its participation in exchange networks and other strategic alliances and its Traveler Plus™ program make ownership of Bluegreen VOIs more attractive by providing owners with the ability to take advantage of vacation experiences in addition to stays at Bluegreen’s resorts.  A VOI owner’s participation in the RCI exchange network allows an owner to exchange their annual VOI for occupancy at over 4,500 participating resorts, based upon availability and the payment of a variable exchange fee.  During 2015, approximately 9% of Bluegreen owners utilized the RCI exchange network for an exchange of two or more nights.  Bluegreen also has a strategic arrangement with Choice Hotels pursuant to which, subject to payments and conditions, certain of Bluegreen’s resorts have been branded as part of Choice Hotels’ Ascend Resort Collection® and Ascend Hotel Collection®.  In

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addition, Bluegreen’s Traveler Plus™ members have the ability to convert their Bluegreen Vacation Club points into Choice Privileges® points which can be used for stays at participating Choice Hotels or may convert their Bluegreen Vacation Club points to stay at Ascend Collection® hotels.  In addition, all Bluegreen Vacation Club members may convert their Bluegreen Vacation Club points for Choice Privileges® points for a fee.  Bluegreen Vacation Club members, for an additional annual fee, may also participate in the Bluegreen Traveler Plus™ program which allows them to use their points for a variety of hotel stays, RV site stays within the “Coast to Coast" network, or various cruise vacations.  Also, for a nominal fee, Bluegreen Vacation Club owners who purchased or upgraded their VOI since July 1, 2007 and participate in the Bluegreen Traveler Plus™ program have the ability to use their vacation points to reserve accommodations in 42 additional resort locations through Direct Exchange.  Bluegreen may not be able to or desire to continue to participate in the RCI or Direct Exchange networks in the future.  In addition, these networks and Bluegreen’s Traveler Plus™ program may not continue to operate effectively, and Bluegreen’s customers may not be satisfied with them.  Further, Bluegreen’s relationship with Choice Hotels may not be well received by Bluegreen’s customers or otherwise result in the benefits Bluegreen expects to derive from the relationship.  In addition, Bluegreen may not be successful in identifying or entering into new strategic relationships in the future.  If any of these events should occur, Bluegreen’s results of operations and financial condition may be materially and adversely impacted.

 

The resale market for VOIs could adversely affect Bluegreen’s business.

 

Based on Bluegreen’s experience at its resorts and at resorts owned by third parties, Bluegreen believes that resales of VOIs in the secondary market generally are made at net sales prices below the original customer purchase prices.  The relatively lower sales prices are partly attributable to the high marketing and sales costs associated with the initial sales of such VOIs.  Accordingly, the initial purchase of a VOI may be less attractive to prospective buyers and Bluegreen competes with buyers who seek to resell their VOIs.  While VOI resale clearing houses or brokers currently do not have a material impact on Bluegreen’s business, the availability of resale VOIs at lower prices, particularly if an organized and liquid secondary market develops, could adversely affect Bluegreen’s level of sales and sales prices, which in turn would adversely affect Bluegreen’s results of operations.

 

Bluegreen is subject to the risks of the real estate market and the risks associated with real estate development, including a decline in real estate values and a deterioration of other conditions relating to the real estate market and real estate development.

 

Real estate markets are cyclical in nature and highly sensitive to changes in national and regional economic conditions, including:

 

 

Deterioration in general economic conditions or in the real estate market would have a material adverse effect on Bluegreen’s business.

 

To the extent Bluegreen decides to acquire more real estate inventory in the future, the availability of land for development of resort properties at favorable prices at that time will be critical to Bluegreen’s profitability and the ability to cover its significant selling, general and administrative expenses, cost of capital and other expenses.  If Bluegreen is unable to acquire such land or resort properties at a favorable cost, Bluegreen’s results of operations may be materially, adversely impacted.  The profitability of Bluegreen’s real estate development activities is also impacted by the cost of construction materials and services.  Should the cost of construction materials and services rise, the ultimate cost of Bluegreen’s future resorts inventory when developed could increase and have a material, adverse impact on Bluegreen’s results of operations.

 

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Adverse outcomes in legal or other regulatory proceedings, including claims for development-related defects, could adversely affect Bluegreen’s financial condition and operating results.

 

In the ordinary course of business, Bluegreen is subject to litigation and other, legal and regulatory proceedings, which result in significant expenses and devotion of time.  In addition, litigation is inherently uncertain and adverse outcomes in the litigation and other proceedings to which Bluegreen is subject could adversely affect its financial condition and operating results.

 

Bluegreen engages third-party contractors to construct its resorts.  Bluegreen also historically engaged third-party contractors to develop the communities within its former Bluegreen Communities business.  However, Bluegreen’s customers may assert claims against Bluegreen for construction defects or other perceived development defects, including, without limitation, structural integrity, the presence of mold as a result of leaks or other defects, water intrusion, asbestos, electrical issues, plumbing issues, road construction, water and sewer defects and defects in the engineering of amenities.  In addition, certain state and local laws may impose liability on property developers with respect to development defects discovered in the future.  Bluegreen could have to accrue a significant portion of the cost to repair such defects in the quarter when such defects arise or when the repair costs are reasonably estimable.  In addition, liabilities related to Bluegreen Communities that were not assumed by Southstar Development Partners, Inc. (“Southstar”) in connection with its purchase of substantially all of the assets which comprised Bluegreen Communities on May 4, 2012, including those relating to Bluegreen Communities’ operations prior to the closing of the transaction, remain Bluegreen’s responsibility. 

 

See “Item 3 - Legal Proceedings” for a description of currently pending legal matters with respect to Bluegreen.  Costs associated with litigation, including claims for development-related defects, and the outcomes thereof could adversely affect Bluegreen’s liquidity, financial condition and operating results.

 

Bluegreen may be adversely affected by extensive federal, state and local laws and regulations and changes in applicable laws and regulations, including with respect to the imposition of additional taxes on operations.  In addition, results of audits of Bluegreen’s tax returns or those of Bluegreen’s subsidiaries may have a material adverse impact on Bluegreen’s financial condition.

 

The federal government and the states and local jurisdictions in which Bluegreen operates have enacted extensive regulations that affect the manner in which Bluegreen markets and sells VOIs and conducts its other business operations.  In addition, many states have adopted specific laws and regulations regarding the sale of VOIs.  Many states, including Florida and South Carolina, where certain of Bluegreen’s resorts are located, extensively regulate the creation and management of timeshare resorts, the marketing and sale of timeshare properties, the escrow of purchaser funds prior to the completion of construction and closing, the content and use of advertising materials and promotional offers, the delivery of an offering memorandum and the creation and operation of exchange programs and multi-site timeshare plan reservation systems. Moreover, with regard to sales conducted in South Carolina, the closing of real estate and mortgage loan transactions must be conducted under the supervision of an attorney licensed in South Carolina and otherwise in accordance with South Carolina’s Time Sharing Transaction Procedures Act.  Most states also have other laws that are applicable to Bluegreen’s activities, such as timeshare project registration laws, real estate licensure laws, mortgage licensure laws, sellers of travel licensure laws, anti-fraud laws, consumer protection laws, telemarketing laws, prize, gift and sweepstakes laws, and consumer credit laws.  Bluegreen's management of, and dealings with, POAs, including Bluegreen's purchase of defaulted inventory from POAs in connection with its Secondary Market Sales, is also subject to state laws and resort rules and regulations, including those with respect to the establishment of budgets and expenditures, rule-making, and the imposition of maintenance assessments.

 

Bluegreen currently is authorized to market and sell VOIs in all locations at which its marketing and sales are conducted.  If Bluegreen’s agents or employees violate applicable regulations or licensing requirements, their acts or omissions could cause the states where the violations occurred to revoke or refuse to renew Bluegreen’s licenses, render Bluegreen’s sales contracts void or voidable, or impose fines on Bluegreen based on past activities.

 

Further, the Consumer Finance Protection Bureau, created under the Dodd-Frank Act, has emphasized new regulatory focus on areas of Bluegreen’s business such as consumer mortgage servicing and debt collection, credit reporting and consumer financial disclosures, all of which affect the manner in which Bluegreen provides purchase money financing to the purchasers of its VOIs and conducts its lending and loan servicing operations.

 

In addition, the federal government and the states and local jurisdictions in which Bluegreen conducts business have generally enacted extensive regulations relating to direct marketing and telemarketing, including the federal

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government’s national “Do Not Call” list, and the making of marketing and related calls to cell phone users, a significant development in light of cell phone usage rapidly becoming the primary method of communication.  The regulations have impacted Bluegreen’s marketing of VOIs, and Bluegreen has taken steps to ensure compliance with these new regulations.  However, these steps have increased and are expected to continue to increase Bluegreen’s marketing costs.  Bluegreen cannot predict the impact that these legislative initiatives or any other legislative measures that may be proposed or enacted in the future may have on Bluegreen’s marketing strategies and results.  Further, from time to time, complaints are filed against Bluegreen by individuals claiming that they received calls in violation of applicable regulations.

 

Currently, most states have taxed VOIs as real estate, imposing property taxes that are billed to the respective POAs that maintain the related resorts and have not sought to impose sales tax upon the sale of the VOI or accommodations tax upon the use of the VOI.  From time to time, however, various states have attempted to promulgate new laws or apply existing laws impacting the taxation of VOIs to require that sales or accommodations taxes be collected.  Should new state or local laws be implemented or interpreted to impose sales or accommodations taxes on VOIs, Bluegreen’s business could be materially adversely affected.

 

From time to time, consumers file complaints against Bluegreen in the ordinary course of Bluegreen’s business.  Bluegreen could be required to incur significant costs to resolve these complaints or enter into consents with regulators regarding its activities.  Bluegreen may not remain in compliance with all applicable federal, state and local laws and regulations, and violations of applicable laws may have adverse implications on Bluegreen, including negative public relations, potential litigation and regulatory sanctions.  The expense, negative publicity and potential sanctions associated with any failure to comply with applicable laws or regulations could have a material adverse effect on Bluegreen’s results of operations or financial position.

 

In addition, VOIs may in the future be deemed to be securities under federal or state law and therefore subject to applicable securities regulation, which could have a material adverse effect on Bluegreen due to, among other things, the cost of compliance with such regulations.

 

Environmental liabilities, including claims with respect to mold or hazardous or toxic substances, could have a material adverse impact on Bluegreen’s financial condition and operating results.

 

Under various federal, state and local laws, ordinances and regulations, as well as common law,  Bluegreen may be liable for the costs of removal or remediation of certain hazardous or toxic substances, including mold, located on, in or emanating from property that  Bluegreen owns, leases or operates, as well as related costs of investigation and property damage at such property.  These laws often impose liability without regard to whether Bluegreen knew of, or was responsible for, the presence of the hazardous or toxic substances.  The presence of such substances, or the failure to properly remediate such substances, may adversely affect Bluegreen’s ability to sell or lease its property or to borrow money using such property or receivables generated from the sale of such property as collateral.  Noncompliance with environmental, health or safety requirements may require Bluegreen to cease or alter operations at one or more of its properties.  Further, Bluegreen may be subject to common law claims by third parties based on damages and costs resulting from violations of environmental regulations or from contamination associated with one or more of Bluegreen’s properties.

 

A failure to maintain the integrity of internal or customer data could result in damage to Bluegreen's reputation and subject Bluegreen to costs, fines, or lawsuits.

 

Bluegreen's operations and activities require the collection and retention of large volumes of internal and customer data, including credit card numbers and other personally identifiable information of Bluegreen's customers and employees.  The integrity and protection of that customer, employee and company data is critical to Bluegreen.  If that data is inaccurate or incomplete, Bluegreen could make faulty decisions.  Bluegreen's customers and employees also have a high expectation that Bluegreen will adequately protect their personal information.  The information, security and privacy requirements imposed by governmental regulation are increasingly demanding.  Bluegreen's systems may not be able to satisfy these changing requirements and employee and customer expectations, or may require significant additional investments or time in order to do so.  Efforts to hack or breach security measures, failures of systems or software to operate as designed or intended, viruses, operator error, or inadvertent releases of data all threaten Bluegreen's information systems and records.  Bluegreen's reliance on computer, Internet-based and mobile systems and communications and the frequency and sophistication of efforts by hackers to gain unauthorized access to such systems have increased significantly in recent years.  A significant theft, loss, or fraudulent use of customer, employee, or company data could adversely impact Bluegreen's reputation and could result in remedial

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and other expenses, fines, or litigation and could have a material adverse impact on Bluegreen’s results of operations and financial condition.

 

Bluegreen’s technology requires updating and the failure to keep pace with developments in technology could impair Bluegreen's operations or competitive position.

 

The vacation ownership and hospitality industries require the utilization of technology and systems, including technology utilized for sales and marketing, mortgage servicing, property management, brand assurance and compliance, and reservation systems.  This technology requires continuous updating and refinements, including technology required to remain competitive and to comply with the legal requirements such as privacy regulations and requirements established by third parties.  Bluegreen intends to update its information technology platform, which has required, and is likely to continue to require, significant capital expenditures.  Older systems which have not yet been updated may increase the risk of operational inefficiencies, financial loss and non-compliance with applicable legal and regulatory requirements and Bluegreen may not be successful in updating such systems in the time frame or at the cost anticipated.  Further, as a result of the rapidly changing technological environment, systems which Bluegreen has put in place or expects to put in place in the near term may become outdated requiring new technology, and Bluegreen may not be able to replace those systems as quickly as its competition or within budgeted costs and time frames.  Further, Bluegreen may not achieve the benefits that may have been anticipated from any new technology or system.

 

The loss of the services of Bluegreen’s key management and personnel could adversely affect its business.

 

Bluegreen’s ability to successfully implement its business strategy will depend on its ability to attract and retain experienced and knowledgeable management and other professional staff, and Bluegreen may not be successful in doing so.  If Bluegreen's efforts to retain and attract key management and other personnel are unsuccessful, Bluegreen's business, prospects, results of operations and financial condition may be materially and adversely impacted.  Bluegreen’s Chief Executive Officer resigned in May 2015 and no permanent replacement has been appointed.  In addition, in December 2015, Alan B. Levan resigned as Chairman of Bluegreen, with John E. Abdo, Bluegreen’s Vice Chairman since May 2002, being appointed to succeed Mr. Levan as Bluegreen’s Chairman. 

 

Since 2010, Bluegreen’s Executive Committee has provided leadership and strategic direction to Bluegreen.  In May 2015, Anthony M. Puleo, Chief Financial Officer of Bluegreen, was named Chairman of Bluegreen’s Executive Committee.  The other members of Bluegreen’s Executive Committee include Bluegreen’s Chief Strategy Officer, President of National Sales and Marketing, Senior Vice President of Corporate Marketing, Senior Vice President of Planning and Business Analytics, Chief Human Resources Officer, Chief Information Officer and General Counsel.  There can be no assurance that this management structure will continue to be effective or that future changes to this structure, if any, would not have an adverse impact on Bluegreen.

 

 

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Risks Related to BBX Capital

 

BBX Capital’s business and operations and the mix of its assets significantly changed as a result of the sale of BankAtlantic to BB&T during July 2012, and its financial condition and results of operations depend on the monetization of its assets at or near their current book values and its results of operations will depend on the success of its investments.

 

As a result of the BB&T transaction, BBX Capital’s business and operations significantly changed from its business and operations prior to the sale of BankAtlantic. As a consequence, BBX Capital’s financial condition and results of operations will be dependent on its ability to successfully manage and monetize legacy assets and on the results of operations of Bluegreen and Bluegreen’s ability to continue to pay dividends to Woodbridge and in turn Woodbridge’s payment of dividends to BBX Capital.  Further, BBX Capital’s loan portfolio and real estate may not be easily salable in the event BBX Capital decides to liquidate an asset through a sale transaction. BBX Capital’s financial condition and results of operations will be dependent in the long term on the success of its investments.  If the legacy assets are not monetized at or near the current book values ascribed to them, or if these assets are liquidated for amounts less than book value, BBX Capital’s financial condition and results of operations would be adversely affected, and its ability to successfully pursue its business goals could be adversely affected. Because a majority of its assets do not generate income on a regular basis, BBX Capital does not expect to generate significant revenue or income with respect to these assets until such time as an asset is monetized through repayments or it consummates transactions involving the sale, joint venture or development of the underlying real estate or investments. Accordingly, BBX Capital expects its revenues and results of operations to vary significantly on a quarterly basis and from year to year.

 

BBX Capital’s future acquisitions may reduce earnings, require it to obtain additional financing and expose it to additional risks.

 

BBX Capital’s business strategy includes investments in or acquisitions of operating companies, such as its acquisitions of Renin Corp. and the acquisitions of businesses by BBX Sweet Holdings in the candy and confections industry.  Some of these investments and acquisitions may be material. While BBX Capital is seeking investments and acquisitions primarily in companies that provide opportunities for growth, it may not be successful in identifying these opportunities. Investments or acquisitions that it completes may not prove to be successful or even if successful may not initially generate income, or may generate income on an irregular basis or over a long time period. Accordingly BBX Capital’s results of operations may vary significantly on a quarterly basis and from year to year. Acquisitions may result in additional risks and may have a material adverse effect on BBX Capital’s results of operations. Acquisitions entail numerous risks, including:

 

 

BBX Capital may not be able to acquire or profitably manage additional businesses, or to integrate successfully any acquired businesses, including Renin and the businesses BBX Sweet Holdings acquired, without substantial costs, delays or other operational or financial difficulties, including difficulties in integrating information systems and personnel and establishing control environment processes across acquired businesses.  The failure to do so could have a material adverse effect on its business, financial condition and results of operations.  In addition, to the extent that operating businesses are acquired outside the United States or the State of Florida, there will be additional risks related to compliance with foreign regulations and laws including tax laws, labor laws, currency fluctuations and geography economic conditions.

 

In addition, BBX Capital faces competition in making investments or acquisitions which could increase the costs associated with the investment or acquisition. Further, investments or acquisitions may rely on additional debt or equity financing. The issuance of debt will result in additional leverage which could limit its operating flexibility, and the issuance of equity could result in additional dilution to its shareholders. In addition, such financing could

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consist of equity securities which have rights, preferences or privileges senior to BBX Capital’s Class A Common Stock.

 

If BBX Capital requires additional financing in the future, the financing may not be available when needed or on favorable terms, if at all. Additionally, shareholder approval will not be sought in connection with any investments or acquisitions unless required by law or regulation.

 

Some of BBX Capital’s operations are through unconsolidated joint ventures with unaffiliated third parties and BBX Capital may be adversely impacted by a joint venture partner’s failure to fulfill its obligations. 

 

By entering into joint ventures, BBX Capital can reduce the amount invested in the ownership and development of real estate properties. However, joint venture partners may become financially unable or unwilling to fulfill their obligations under the joint venture agreements. Most joint ventures borrow money to help finance their activities, and although recourse on the loans is generally limited to the managing members, joint ventures and their properties, BBX Capital has in some cases and may in the future provide ongoing financial support or guarantees. If joint venture partners do not meet their obligations to the joint venture, BBX Capital may be required to make significant expenditures which may have an adverse effect on its operating results or financial condition.

 

Investments in real estate developments directly or through joint ventures expose it to market and economic risks inherent in the real estate construction and development industry.

 

The real estate construction and development industry is highly competitive and subject to numerous risks which in many cases are beyond management’s control.  The success of BBX Capital’s investments in real estate developments is dependent on many factors, including:

 

 

Any of these factors could give rise to delays in the start or completion of a project, or increase the cost of developing a project, or could result in reduced prices and values for BBX Capital’s developments, including developments underlying its joint venture investments.

 

A significant portion of BBX Capital’s assets are located in Florida and economic conditions in the Florida real estate market could adversely affect BBX Capital’s earnings and financial condition.

 

The legacy assets retained by BBX Capital in the BB&T Transaction and the real estate investments made by BBX Capital are primarily in the Florida market, and adverse changes to the Florida economy or the real estate market may negatively impact BBX Capital’s earnings and financial condition. BBX Capital’s business, the primary source of repayment for loans and the real estate collateralizing loans and real estate acquired through foreclosure or settlements with borrowers and its investments in real estate joint ventures are primarily concentrated in Florida. As a result, BBX Capital is exposed to geographic risks of high unemployment rates, declines in the housing industry and declines in the real estate market in Florida. Adverse changes in laws and regulations in Florida would have a negative impact on BBX Capital’s revenues, financial condition and business. Declines in the Florida housing

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markets may negatively impact the credit performance of BBX Capital’s loans and result in significant asset impairments. Further, the State of Florida is subject to the risks of natural disasters such as tropical storms and hurricanes, which may disrupt BBX Capital’s operations, adversely impact the ability of its borrowers to timely repay their loans, adversely impact the value of any collateral securing loans and BBX Capital’s portfolio of real estate (both held-for-sale and held-for-investment), or otherwise have an adverse effect on BBX Capital’s results of operations. The severity and impact of tropical storms, hurricanes and other weather related events are unpredictable.

 

An increase in BBX Capital’s allowance for loan losses will result in reduced earnings.

 

BBX Capital continues to be exposed to the risk that borrowers will be unable to repay their loans according to their terms and that any collateral securing the payment of these loans will not be sufficient to assure full repayment. Management evaluates the collectibility of the loan portfolio and provides an allowance for loan losses that it believes is adequate based upon such factors as:

 

 

Many of these factors are difficult to predict or estimate accurately, particularly in a changing economic environment. The process of determining the estimated losses inherent in the loan portfolio requires subjective and complex judgments and the level of uncertainty concerning economic conditions may adversely affect the ability to estimate the losses which may be incurred in the loan portfolio. If such evaluation is incorrect and borrowers’ defaults result in losses exceeding the portion of the allowance for loan losses allocated to those loans, or if perceived adverse trends requires significant increases in the allowance for loan losses in the future, BBX Capital’s earnings could be significantly and adversely affected.

 

Non-accrual loans take significant time to resolve and adversely affect BBX Capital’s results of operations and financial condition, and could result in further losses in the future.

 

At December 31, 2015, non-accrual loans totaled approximately $17.4 million or 72% of BBX Capital’s total loan portfolio. Non-accrual loans adversely affect net income through foreclosure costs, operating expenses and taxes. Until these loans are monetized, BBX Capital may incur additional losses relating to these non-accrual loans. BBX Capital records interest income on non-accrual loans on a cash basis. When BBX Capital receives the collateral in foreclosures or similar proceedings, BBX Capital is required to mark the related collateral to the then fair market value, generally based on appraisals of the property. These loans also increase BBX Capital’s risk profile, and increases in the level of non-accrual loans adversely affect BBX Capital’s results of operations and financial condition. While BBX Capital seeks to manage non-accrual loans, decreases in the value of these loans or deterioration in the financial condition of borrowers, which is often impacted by economic and market conditions beyond BBX Capital’s control, could adversely affect BBX Capital’s business, results of operations and financial condition. In addition, the resolution of non-accrual loans requires significant commitments of management time.

 

BBX Capital’s consumer loan portfolio is concentrated in home equity loans collateralized by properties located in South Florida.

 

Financial institutions and other lenders have tightened underwriting standards which has limited the ability of borrowers to refinance. The majority of BBX Capital’s home equity loans are residential second mortgages that exhibit higher loss severity than residential first mortgages. If home prices decline, BBX Capital may experience higher credit losses from this loan portfolio. Since the collateral for this portfolio consists primarily of second mortgages, it is unlikely that BBX Capital will be successful in recovering all or any portion of BBX Capital’s loan proceeds in the event of a default unless BBX Capital is prepared to repay the first mortgage and such repayment and the costs associated with a foreclosure are justified by the value of the property.

 

The cost and outcome of pending legal proceedings may impact BBX Capital’s results of operations.

 

BBX Capital is involved in ongoing litigation which has resulted in significant selling, general and administrative expenses relating to legal and other professional fees. Pending proceedings include litigation brought by the SEC, litigation arising out of workouts and foreclosures, and legal proceedings associated with BankAtlantic’s tax

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certificate business. As discussed under Item 3. Legal Proceedings, the jury in the SEC action found that BBX Capital and BBX Capital’s Chairman and Chief Executive Officer, Alan B. Levan had engaged in an act of fraud or deceit toward shareholders or prospective investors by making materially false statements knowingly or with severe recklessness (1) with respect to three statements in a July 25, 2007 conference call and (2) failing to classify certain loans as held-for sale in the 2007 Annual Report on Form 10-K.  The jury also found that Mr. Levan made or caused to be made false statements to the independent accountants regarding the held  for sale issue. BBX Capital and Mr. Levan have appealed the adverse judgment to the Eleventh Circuit Court of Appeals. While the results of appellate review are uncertain legal and related costs are being incurred in connection with the appeal. BBX Capital received legal fee and cost reimbursements from its insurance carrier in connection with the SEC action of approximately $5.8 million as of December 31, 2015 and the insurance carrier has indicated it may seek reimbursement for costs, charges and expenses advanced in connection with this matter. If BBX Capital is required to reimburse the insurance carrier, such reimbursements would adversely impact BBX Capital’s financial condition and results of operations.  See Item 3-  Legal Proceedings for additional information.

 

Adverse market conditions may affect BBX Capital’s business and results of operations.

 

BBX Capital’s financial condition and results of operations may be adversely impacted as a result of any downturn in the U.S. housing and commercial real estate markets and general economic conditions.  Negative market and economic developments may cause increases in delinquencies and default rates of BBX Capital’s loans and may impact charge-offs and provisions for loan losses and the value of BBX Capital’s real estate and other real estate related assets.

 

Renin sales are concentrated with two significant customers and there is significant competition in the industry.  

 

A significant amount of Renin’s sales are to big-box home centers.  These home centers in many instances have significant negotiating leverage with their vendors, and are able to affect the prices Renin receives for its products and the terms and conditions on which Renin conducts its business with them.  These home centers may also reduce the number of vendors they purchase from or make significant changes in their volume of purchases. Although homebuilders, dealers and other retailers represent other channels of distribution for Renin’s products, the loss of a home center customer or reduced sales volume from any of these home centers would have a material adverse effect on Renin’s business. Further, Renin has substantial competition from overseas manufacturers of products similar to those sold by Renin.

 

A significant portion of Renin’s business relies on home improvement and new home construction activity, both of which are cyclical and outside of management’s control.

 

A significant portion of Renin’s business in Canada and the United States is dependent on the levels of home improvement activity, including spending on repair and remodeling projects, and new home construction activity. Macroeconomic conditions including consumer confidence levels, fluctuations in home prices, unemployment and underemployment levels, interest rates, regulatory initiatives, and the availability of home equity loans and mortgage financing  affect both  discretionary spending on home improvement projects as well as new home construction activity. Adverse changes in these factors or uncertainty regarding these macroeconomic conditions could result in a decline in spending on home improvement projects and a decline in demand for new home construction, both of which could adversely affect Renin’s results of operations.

 

The operating results of Renin and BBX Sweet Holdings would be negatively impacted if they experience increased commodity costs or a limited availability of commodities.

 

BBX Capital’s operating businesses purchase various commodities to manufacture products, including steel, aluminum, glass and mirror in the case of Renin, and sugar and cocoa in the case of BBX Sweet Holdings. Fluctuations in the availability and prices of these commodities could increase the cost to manufacture products. Further, increases in energy costs could increase production costs as well as transportation costs, each of which could negatively affect these businesses operating results.   Renin’s and BBX Sweet Holdings’ existing arrangements with customers, competitive considerations and the relative negotiating power and resistance of  home center customers and big-box retailers to price increases make it difficult to increase selling prices to absorb increased production costs. If Renin and BBX Sweet Holdings are not able to increase the prices of its products or achieve other cost savings or productivity improvements to offset any increased commodity and production costs, BBX Capital’s operating results could be negatively impacted.

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Unexpected events, such as natural disasters, severe weather and terrorist activities may disrupt Renin’s operations and increase its production costs.

 

The occurrence of one or more unexpected events, including tsunamis, hurricanes, earthquakes, floods and other forms of severe weather or terrorist activities in countries or regions in which Renin’s suppliers are located could adversely affect Renin’s operations and financial performance. Natural disasters, acts or threats of war or terrorism, or other unexpected events could result in temporary or long-term disruption in the delivery or supply of necessary raw materials and component products from Renin’s suppliers, which would disrupt Renin’s production capabilities and likely increase its cost of doing business.

 

Market demand for chocolate and candy products could decline.

 

BBX Sweet Holdings and its acquired businesses operate in highly competitive markets and compete with larger companies that have greater resources.  The success of these businesses is impacted by many factors, including the following:

 

 

A decline in market demand for chocolate and candy products could negatively affect operating results.

 

BBX Sweet Holdings product recall or product liability claims could have a material and adverse effect.

 

Selling products for human consumption involves inherent legal and other risks, including product contamination, spoilage, product tampering, allergens, or other adulteration. BBX Sweet Holdings could decide or be required to destroy inventory, recall products or lose sales in connection with contamination, tampering, adulteration or other deficiencies.  These events could result in significant losses and may damage BBX Sweet Holdings’ reputation, and discourage consumers from buying products, or cause production and delivery disruptions which would adversely affect BBX Sweet Holdings’ financial condition and results of operations.  BBX Sweet Holdings may also incur losses if products cause injury, illness or death.  A significant product liability claim may adversely affect both reputation and profitability, even if the claim is unsuccessful.

 

BBX Capital’s financial performance may adversely affect its ability to access capital and may have a material adverse effect on its business, financial condition and results of operations.

 

BBX Capital’s ability to fund operations and investment opportunities may depend on its ability to raise capital in the secondary markets and on its ability to monetize its portfolio of non-accruing loans and foreclosed real estate. Its ability to raise additional capital will depend on, among other things, conditions in the financial markets at the time, which are outside of BBX Capital’s control, as well as litigation and its financial condition, results of operations and prospects. The failure to obtain capital may have a material adverse effect on BBX Capital’s results of operation and financial condition.

 

BBX Capital is controlled by BFC and its controlling shareholders, and this control position may adversely affect the market price of BBX Capital’s Class A Common Stock.

 

BFC currently owns 13,321,441 shares of BBX Capital’s Class A Common Stock, representing approximately 81% of the outstanding shares of such stock and all 195,045 outstanding shares of BBX Capital’s Class B Common Stock representing approximately 90% of BBX Capital’s total voting power. Additionally, Alan B. Levan and John E. Abdo, Vice Chairman of BBX Capital and BFC, collectively beneficially own shares of BFC’s Class A Common Stock and Class B Common Stock representing approximately 63% of BFC’s total voting power. BBX Capital’s Class A Common Stock and Class B Common Stock vote as a single group on most matters. Accordingly, BFC, directly, and Messrs. Levan and Abdo, indirectly through BFC, are in a position to control BBX Capital, elect BBX

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Capital’s board of directors and significantly influence the outcome of any shareholder vote. This control position may have an adverse effect on the market price of BBX Capital’s Class A Common Stock.

 

BFC can reduce its economic interest in BBX Capital and still maintain voting control.

 

BBX Capital’s Class A Common Stock and Class B Common Stock generally vote together as a single class, with the Class A Common Stock possessing a fixed 53% of the aggregate voting power of BBX Capital, and the Class B Common Stock possessing a fixed 47% of such aggregate voting power. BBX Capital’s Class B Common Stock currently represents less than 1% of BBX Capital’s total common equity and 47% of BBX Capital’s total voting power. As a result, the voting power of BBX Capital’s Class B Common Stock does not bear a direct relationship to the economic interest represented by the shares.

 

Any issuance of shares of Class A Common Stock will further dilute the relative economic interest of the Class B Common Stock, but will not decrease the voting power represented by the Class B Common Stock. Further, BBX Capital’s Restated Articles of Incorporation provide that these relative voting percentages will remain fixed until such time as BFC and its affiliates own less than 97,253 shares of the Class B Common Stock, which is approximately 50% of the number of shares of Class B Common Stock that BFC now owns, even if additional shares of Class A Common Stock are issued. Therefore, BFC may sell up to approximately 50% of its shares of Class B Common Stock (after converting those shares to shares of Class A Common Stock), and significantly reduce its economic interest in BBX Capital, while still maintaining its voting power. If BFC were to take this action, it would widen the disparity between the equity interest represented by the Class B Common Stock and its voting power. Any conversion of shares of Class B Common Stock into shares of Class A Common Stock would further dilute the voting interests of the holders of the Class A Common Stock.

 

Provisions in BBX Capital’s Restated Articles of Incorporation and Amended and Restated Bylaws, and recently adopted shareholder rights plan, may make it difficult for a third party to acquire BBX Capital and could depress the price of BBX Capital’s Class A Common Stock.

 

BBX Capital’s Restated Articles of Incorporation and Amended and Restated Bylaws contain provisions that could delay, defer or prevent a change of control of BBX Capital or its management. These provisions could make it more difficult for shareholders to elect directors and take other corporate actions. As a result, these provisions could limit the price that investors are willing to pay in the future for shares of BBX Capital’s Class A Common Stock. These provisions include:

 

 

In addition, on February 7, 2013, BBX Capital adopted a shareholder rights plan which is designed to preserve certain tax benefits available to BBX Capital. However, because the rights plan provides a deterrent to investors from acquiring a 5% or greater ownership interest in Class A Common Stock, it may have an anti-takeover effect.

 

The loss of key personnel or the failure to attract and retain highly qualified personnel could adversely affect BBX Capital’s operations.

BBX Capital’s performance is largely dependent on the talents and efforts of skilled individuals. BBX Capital’s business operations could be adversely affected if BBX Capital is unable to retain and motivate BBX Capital’s existing employees and attract new employees as needed. In addition, as previously described, the jury in the SEC action found that BBX Capital and Alan B. Levan committed violations of federal securities laws. While BBX Capital and Mr. Levan appealed the adverse judgment to the Eleventh Circuit Court of Appeals, the results of appellate review are uncertain. Mr. Alan Levan resigned as BBX Capital’s Chairman and Chief Executive Officer on December 23, 2015.  BBX Capital believes that Mr. Abdo, who serves as a director and Vice Chairman of BBX Capital and Jarett Levan, the Board appointed acting Chairman and Chief Executive Officer will mitigate the loss of Mr. Alan Levan as Chairman and Chief Executive Officer. 

 

 

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ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

None.

 

 

 

 

ITEM 2.  PROPERTIES

 

The principal executive offices of BFC and BBX Capital are located at 401 East Las Olas Boulevard, Suite 800, Fort Lauderdale, Florida, 33301.  BBX Capital leases the office space.  The office lease expiration date is June 30, 2021.  BBX Capital has the right to renew the terms of the lease for two additional terms of five years commencing as of the expiration date. BFC subleases certain of the office space from BBX Capital pursuant to an agreement where BFC reimburses BBX Capital for the costs associated with such space.

 

Bluegreen’s principal executive office is located in Boca Raton, Florida in 159,000 square feet of leased space. The office lease expiration date is December 31, 2018.  At December 31, 2015, Bluegreen also maintained sales offices at 23 of its resorts as well as regional administrative offices in Orlando, Florida and Indianapolis, Indiana. For a description of Bluegreen’s resort properties, that are part of the Bluegreen Vacation Club, please see “Item 1 Business —Products and Services – Vacation Club Resort Locations”.

 

Renin leases its executive offices located at 110 Walker Drive, Brampton, Ontario. The office lease expiration date is December 31, 2024.  Renin leases two manufacturing facilities in the United States and Canada which have lease expiration dates of December 31, 2022 and December 31, 2024.

 

Hoffman’s owns its chocolate manufacturing facility located at 5190 Lake Worth Road, Greenacres, Florida.  The facility is comprised of a 4,000 square foot office and store front area and a 11,526 square foot manufacturing area.  Hoffman’s also owns two warehouse facilities in Riviera Beach, Florida and leases a warehouse in Greenacres, Florida which expires June 30, 2017.

 

Hoffman’s leases three of its retail locations in West Palm Beach, Florida with lease expiration dates ranging from March 5, 2017 to December 31, 2019. Hoffman’s leases four retail locations in Broward County, Florida with lease expiration dates ranging from June 30, 2019 to December 31, 2020.

 

Williams and Bennett leases its chocolate manufacturing facility located at 2045 High Ridge Road, Boynton Beach, Florida with an expiration date of January 31, 2020. The facility is comprised of 30,000 square feet of office, manufacturing, warehousing and food storage areas. 

 

Anastasia leases its chocolate manufacturing facility located at 1815 Cypress Lake Drive, Orlando, Florida with an expiration date of September 30, 2019 with three additional option terms of five years each commencing as of the expiration date. The facility is comprised of 80,000 square feet of office, manufacturing, warehousing and food storage areas. 

 

Kencraft leases a 50,000 square foot manufacturing, storage and distribution facility located at 680 South 500 East, American Fork, Utah, with a lease expiration date of May 31, 2023.

 

 

 

 

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ITEM 3.  LEGAL PROCEEDINGS

 

In the ordinary course of business, BFC and its subsidiaries are parties to lawsuits as plaintiff or defendant involving its operations and activities. Although BFC and its subsidiaries believe that they have meritorious defenses in all current legal actions, the outcome of litigation and regulatory matters and timing of ultimate resolution are inherently difficult to predict and uncertain. Set forth below are descriptions of material pending legal proceedings.

 

BFC and its Wholly Owned Subsidiaries

 

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

 

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

 

On August 12, 2015, the appellate court issued its decision, in which it largely affirmed the trial court’s order, including the trial court’s fair value determination and the trial court’s award of attorneys’ fees and costs. On August 27, 2015, the Company made a payment of approximately $11.0 million to the dissenting shareholders for the fair value portion of the judgment and interest thereon, but reserved all rights on appeal, including the right to recover the amount paid if Woodbridge prevails.  On December 28, 2015, the Company made a payment of approximately $2.7 million to the dissenting shareholders for the fees and costs, and remaining interest, due under the judgment, but reserved all rights on appeal, including the right to recover the amount paid if Woodbridge prevails. On January 7, 2016, Woodbridge filed a notice with the Florida Supreme Court to seek discretionary review of the matter. The Florida Supreme Court’s judgment with respect to this notice and the outcome of any review by the Florida Supreme Court is uncertain.

 

Bluegreen

 

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

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Bluegreen-Woodbridge Merger Litigation

 

Between November 16, 2011 and February 13, 2012, seven purported class action lawsuits related to the previously proposed stock-for-stock merger between BFC, which at that time was the sole member of Woodbridge, and Bluegreen were filed against Bluegreen, the members of Bluegreen’s board of directors, BFC and BXG Florida Corporation, a wholly owned subsidiary of Woodbridge (“Merger Sub”).  Four of these lawsuits were consolidated into a single action in Florida, and the other three lawsuits were consolidated into a single action in Massachusetts and stayed in favor of the Florida action. 

 

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

 

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

 

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

 

On January 25, 2013, the plaintiffs in the Florida action filed a Second Amended Class Action Complaint that set forth more fully their challenge to the Bluegreen–Woodbridge Cash Merger.  The Second Amended Class Action Complaint asserted claims for (i) breach of fiduciary duties against the individual director defendants, BFC, and Woodbridge, (ii) aiding and abetting breaches of fiduciary duties against Bluegreen, BFC, Woodbridge, and Merger Sub, and (iii) a violation of the section of the Massachusetts Business Corporation Act regarding the approval of conflict of interest transactions.  Class action certification was granted to the plaintiffs in the Second Amended Class Action Complaint by Order dated December 18, 2013.

 

On June 5, 2015, the parties in the action agreed to settle the litigation.  Pursuant to the settlement agreement, which was finalized and approved by the court during September 2015, Woodbridge paid $36.5 million, which amounts to approximately $2.50 per share, into a gross settlement fund for the benefit of former Bluegreen shareholders whose shares were acquired in connection with the Bluegreen-Woodbridge Cash Merger.  All litigation arising from or relating to the Merger was dismissed with prejudice, together with a full release of Bluegreen, BFC, Woodbridge, BBX Capital and others.  Bluegreen, BFC, Woodbridge, BBX Capital and all of the defendants denied and continue to deny that any of them violated any laws or breached any duties to the plaintiffs or Bluegreen’s former shareholders. 

 

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BBX Capital

 

Securities and Exchange Commission v. BankAtlantic Bancorp, Inc. and Alan B. Levan, Case No. 12-60082-CV-SCOLA, United States District Court, Southern District of Florida

 

On January 18, 2012, the SEC brought an action in the United States District Court for the Southern District of Florida against BBX Capital and Alan B. Levan, BBX Capital’s Chairman and Chief Executive Officer, alleging that they violated securities laws by not timely disclosing known adverse trends in BBX Capital’s commercial real estate loans, selectively disclosing problem loans and engaging in improper accounting treatment of certain specific loans which may have resulted in a material understatement of its net loss in BBX Capital’s Annual Report on Form 10-K for the year ended December 31, 2007. Further, the complaint alleged that Mr. Alan B. Levan intentionally misled investors in related earnings calls. The Court denied summary judgment as to most issues, but granted the SEC’s motion for partial summary judgment that certain statements in one of Alan Levan’s answers on a July 25, 2007 investor conference call were false. 

 

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

 

The SEC sought a final judgement: (i) permanently barring Alan B. Levan from serving as an officer or director of any SEC reporting company; (ii) imposing civil penalties of $5.2 million against BBX Capital and $1.56 million against Alan B. Levan; and (iii) permanently restraining BBX Capital and Alan B. Levan from violating securities laws.  On September 24, 2015, the court entered a final judgment denying the SEC’s request for a permanent bar from Mr. Levan serving as an officer or director of any public company, but instead ordered Mr. Levan barred from serving as an officer or director of any public company for a period of two years commencing on December 23, 2015. As a result of the court’s decision, on December 23, 2015, Mr. Levan resigned as Chairman and Chief Executive Officer of BBX Capital, as Chairmen, Chief Executive Officer and President of BFC, and as a director of BBX Capital and BFC.  The court also imposed monetary penalties against BBX Capital in the amount of $4,550,000 and monetary penalties against Mr. Levan in the amount of $1,300,000.    As a result of the bar order, Mr. Levan resigned as Chairman and Chief Executive Officer of BBX Capital, as Chairman, Chief Executive Officer and President of BFC, and as a director of BBX Capital and BFC. BBX Capital and Mr. Levan are appealing the final judgment to the Eleventh Circuit Court of Appeals.

 

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

 

In re:  New Jersey Tax Sales Certificates Antitrust Litigation v. BBX Capital Corporation f/k/a BankAtlantic Bancorp, Inc., Fidelity Tax, LLC, Gary I. Branse, Michael Deluca and BB&T Corporation, and multiple other individuals and entities who purchased New Jersey tax certificates between 1998 to February 2009, Case No.12-CV-01893-MAS-TJB, United States District Court, District of New Jersey (Trenton)

 

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

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action, subject to court approval.  The settlement has been preliminarily approved by the court and the final approval hearing is currently scheduled for the second quarter of 2016.

 

 

 

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not Applicable.

 

 

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PART II

 

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

BFC’s Class A Common Stock and Class B Common Stock have substantially identical terms, except as follows:

 

 

In addition to any other approval required by Florida law, the voting structure described in the first bullet point above may not be amended without the approval of holders of a majority of the outstanding shares of our Class B Common Stock, voting as a separate class.  Holders of our Class B Common Stock also have certain other special voting rights with respect to matters affecting our capital structure and the Class B Common Stock.

 

Market Information

 

Our Class A Common Stock is quoted on the OTCQB market tier of the OTC Markets (“OTCQB”) under the ticker symbol “BFCF.” Our Class B Common Stock is quoted on the OTCQB under the ticker symbol “BFCFB.” 

 

On March 11, 2016, there were approximately  432 record holders of our Class A Common Stock and approximately 152 record holders of our Class B Common Stock.

 

The following table sets forth, for the indicated periods, the high and low trading prices for our Class A Common Stock and Class B Common Stock as quoted on the OTCQB.

 

 

 

 

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Dividends

 

BFC has never paid cash dividends on its Class A Common Stock or Class B Common Stock.  Future declaration and payment of cash dividends with respect to BFC’s Common Stock, if any, will be determined in light of the then-current financial condition of BFC and other factors deemed relevant by the board of directors of BFC.

 

See the “BFC-Liquidity and Capital Resources” section of “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion regarding the ability of BBX Capital and Bluegreen to pay dividends to holders of their capital stock, including BFC, as well as restrictions pertaining thereto.

 

Issuer Purchases of Equity Securities

 

On September 21, 2009, our board of directors approved a share repurchase program which authorizes the repurchase of up to 20,000,000 shares of Class A Common Stock and Class B Common Stock at an aggregate cost of up to $10 million.  The share repurchase program authorizes management, at its discretion, to repurchase shares from time to time subject to market conditions and other factors.  No shares have been repurchased under this share repurchase program.

 

Equity Compensation Plan Information

 

The following table lists awards previously granted and outstanding, and securities authorized for issuance, under the Company’s equity compensation plans at December 31, 2015:

 

 

 

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Shareholder Return Performance Graph

 

Set forth below is a graph comparing the cumulative total returns (assuming reinvestment of dividends) for BFC’s Class A Common Stock, the Standard and Poor’s 500 Stock Index and Standard and Poor’s Small-Cap Stock Index and assumes $100 was invested on December 31, 2010.

 

 

 

 

 

 

BFC is not able to identify a group of peer companies or industry or line of business index which it believes is comparable to BFC and its current activities.  Accordingly, BFC selected the Standard and Poor’s Small-Cap Stock Index based on BFC’s market capitalization.

 

The performance graph should not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of BFC under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such filing.

 

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ITEM 6.  SELECTED FINANCIAL DATA

 

The following table sets forth selected historical consolidated financial data of BFC as of and for the periods indicated below.  The selected historical consolidated statements of operations for fiscal years 2015, 2014 and 2013 and the selected consolidated statements of financial conditions as of December 31, 2015 and 2014 are derived from our audited consolidated financial statements included in Item 8 of this report.  The selected historical consolidated statements of operations for fiscal years 2012 and 2011 and the selected consolidated statements of financial condition as of December 31, 2013, 2012 and 2011 set forth below are derived from our previously filed audited consolidated financial statements and have been updated to conform to the current presentation.

 

 

 

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

BFC Financial Corporation (“BFC” or, unless otherwise indicated or the context otherwise requires, “we”, “us”, “our” or the “Company”) is a holding company.  BFC’s principal holdings include its investment in BBX Capital Corporation (including its subsidiaries, (“BBX Capital”) and a direct 54% equity interest in Woodbridge Holdings, LLC (“Woodbridge”). Woodbridge owns 100% of Bluegreen Corporation including its subsidiaries, (“Bluegreen”). BBX Capital owns the remaining 46% equity interest in Woodbridge.

 

We hold shares of BBX Capital’s Class A Common Stock, which is listed for trading on the New York Stock Exchange (“NYSE”), and Class B Common Stock representing an approximately 90% voting interest and 81% equity interest in BBX Capital.  BBX Capital’s current operations and business plans involve investments in income producing real estate, real estate developments and real estate joint ventures, and investments in middle market operating businesses.

 

Bluegreen is a sales, marketing and management company focused on the vacation ownership industry. Bluegreen markets, sells and manages VOIs in resorts, which are generally located in popular, high-volume, “drive-to” vacation destinations, and were either developed or acquired by Bluegreen or developed and owned by others in which case Bluegreen earns fees for providing these services. Bluegreen also provides other fee-based services, including property association management services, mortgage servicing, VOI title services, reservation services, and construction design and development services. In addition, Bluegreen provides financing to individual purchasers of its VOIs, which generates significant interest income. 

 

We currently report the results of our business activities through two segments:  Bluegreen and BBX Capital.

 

As of December 31, 2015, we had total consolidated assets of approximately $1.3 billion and shareholders’ equity attributable to BFC of approximately $376.8 million.  Net income attributable to BFC for the year ended December 31, 2015 was approximately $122.5 million.  Net income attributable to BFC for the year, ended December 31, 2014 and 2013 was approximately $13.9 million and $29.1 million, respectively.

 

Recent Events

 

Increase in Ownership of Shares of BBX Capital’s Class A Common Stock

 

On April 30, 2015, the Company consummated a cash tender offer pursuant to which it purchased from the shareholders of BBX Capital a total of 4,771,221 shares of BBX Capital’s Class A Common Stock, at a purchase price of $20.00 per share, for a total purchase price of approximately $95.4 million. As a result, the Company’s ownership interest in BBX Capital increased from approximately 51% to approximately 81% and its voting interest in BBX Capital increased from approximately 74% to approximately 90%.

 

On September 4, 2015, BFC entered into Share Exchange Agreements with Alan B. Levan, John E. Abdo, Jarett S. Levan and Seth M. Wise (collectively, the “BBX Capital Executives”) as holders of restricted stock units of Class A Common Stock of BBX Capital (“BBX Capital RSUs”).  Pursuant to the Share Exchange Agreements, (a) each BBX Capital Executive granted BFC the option to acquire, simultaneously with the vesting of each BBX Capital RSU, some or all of the shares of BBX Capital’s Class A Common Stock which, absent the Share Exchange Agreement, would (after withholding) have been received by the BBX Capital Executive upon the vesting of the BBX Capital RSU and (b) BFC agreed to issue to the BBX Capital Executive shares of BFC’s Class A Common Stock or Class B Common Stock having an aggregate market value equal to the aggregate market value of the shares of BBX Capital’s Class A Common Stock acquired by BFC upon the option exercise. Pursuant to the Share Exchange Agreements, the market value of the shares of BFC’s Class A Common Stock and Class B Common Stock and of BBX Capital’s Class A Common Stock is the closing price of the applicable class of stock on the trading day immediately preceding the date of closing of the share exchange. 

 

On September 1, 2015, BFC’s Board of Directors approved (a) the exercise in full of BFC’s options with respect to all of the BBX Capital RSUs held by the BBX Capital RSU Holders which vested on September 30, 2015 and (b) the issuance of shares of BFC’s Class B Common Stock in exchange therefor.   In connection with this option exercise, on September 30, 2015, BFC issued a total of 1,218,476 shares of its Class B Common Stock to the BBX Capital RSU

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Holders and received a total of 221,821 shares of BBX Capital’s Class A Common Stock in exchange therefor.  The share exchanges were effected simultaneously with the vesting of the applicable BBX Capital RSUs on September 30, 2015 and were based on the closing prices of BFC’s Class B Common Stock and BBX Capital’s Class A Common Stock on September 29, 2015 of $2.88 per share and $15.82 per share, respectively. The following table sets forth the number of shares of BFC’s Class B Common Stock issued to each BBX Capital RSU Holder on September 30, 2015 and the number of shares of BBX Capital’s Class A Common Stock which BFC received in exchange therefor.

   

 

 

On April 17, 2015, BFC entered into a Loan Agreement and Promissory Note with Bluegreen Specialty Finance, LLC, a wholly owned subsidiary of Bluegreen (“BSF”), pursuant to which BSF provided an $80 million loan to BFC.  BFC used the proceeds of the loan and approximately $15.4 million in cash on hand to fund the purchase of shares in the tender offer. Amounts outstanding on the loan bear interest at a rate of 10% per annum.  Payments of interest only are required on a quarterly basis, with all outstanding amounts being due and payable at the end of five years.  BFC is permitted to prepay the loan in whole or in part at any time, and prepayments will be required, to the extent necessary, in order for Bluegreen or its subsidiaries to remain in compliance with covenants under their outstanding indebtedness.  The $80 million loan to BFC from BSF is eliminated in BFC’s consolidated financial statements.

 

As a result of the increase in BFC’s ownership interest in BBX Capital, BFC will be filing a consolidated group tax return which will include the operations of BBX Capital, Woodbridge and Bluegreen. 

 

Woodbridge Acquisition of Bluegreen; Settlement of Merger Litigation 

 

On April 2, 2013, Bluegreen merged with a wholly-owned subsidiary of Woodbridge in a cash merger transaction (sometimes hereinafter referred to as the “Bluegreen merger” or the “Bluegreen cash merger”).  Pursuant to the terms of the merger agreement, Bluegreen’s shareholders (other than Woodbridge) received consideration of $10.00 in cash for each share of Bluegreen’s common stock that they held at the effective time of the merger, including unvested restricted securities. The aggregate merger consideration was approximately $149.2 million.  As a result of the merger, Bluegreen, which was the surviving corporation of the merger, became a wholly-owned subsidiary of Woodbridge.  Prior to the merger, the Company indirectly through Woodbridge owned approximately 54% of Bluegreen’s outstanding common stock. Woodbridge was a wholly-owned subsidiary of BFC prior to BBX Capital’s investment in Woodbridge.

 

In connection with the financing of the merger, BFC and Woodbridge entered into a Purchase Agreement with BBX Capital on April 2, 2013 (the “Purchase Agreement”). Pursuant to the terms of the Purchase Agreement, BBX Capital invested $71.75 million in Woodbridge contemporaneously with the closing of the merger in exchange for a 46% equity interest in Woodbridge. BFC continues to hold the remaining 54% of Woodbridge’s outstanding equity interests.  BBX Capital’s investment in Woodbridge consisted of $60 million in cash, which was utilized to pay a portion of the aggregate merger consideration, and a promissory note in Woodbridge’s favor in the principal amount of $11.75 million.

 

Several class action lawsuits were brought against Bluegreen, the directors of Bluegreen, BFC, Woodbridge, certain directors and officers of BFC and others, which challenged the terms of the merger. The plaintiffs, former Bluegreen shareholders, in the lawsuit sought the “fair value” of the shares of Bluegreen’s common stock on behalf of Bluegreen’s minority shareholders. On June 5, 2015, the parties in the action agreed to the settlement of the litigation.  Pursuant to the settlement, Woodbridge paid $36.5 million, which amounts to approximately $2.50 per share, into a “Settlement Fund” for the benefit of former shareholders of Bluegreen whose shares were acquired in connection with the merger (the “Class”).   Woodbridge used the proceeds from BBX Capital’s repayment of its $11.75 million promissory note to Woodbridge and additional capital contributions from BFC and BBX Capital of $13.4 million and $11.4 million, respectively, based on their respective 54% and 46% ownership interests in Woodbridge to fund the Settlement Fund.  All litigation arising from or relating to the merger was dismissed with prejudice, together with a full release of BFC, Bluegreen, Woodbridge, BBX Capital and others.  BFC, Bluegreen, Woodbridge, BBX Capital and all of the defendants denied and continue to deny that any of them violated any laws or breached any duties to the plaintiffs or Bluegreen’s former shareholders.