2. Acquisitions and Investments

Investment in Woodbridge Holdings, LLC

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

The Company’s investment in Woodbridge was accounted for as a transaction between entities under common control as BFC is the controlling shareholder of the Company and Woodbridge. As a consequence, the investment in Woodbridge was recorded by the Company at BFC’s historical cost and the difference between 46% of BFC’s historical cost in Woodbridge ($85.1 million) and the amount the Company invested in Woodbridge ($71.75 million) was recognized as an increase in additional paid-in capital ($13.34 million) in the Company’s financial statements.

The following are the components of the Company’s initial investment in Woodbridge and the adjustments to the investment in Woodbridge under the equity method from the date of the investment (April 2, 2013) through December 31, 2013 (in thousands).


		From April 2, 2013
		Through
		December 31, 2013
Cash to Woodbridge	$	60,404
Note payable to Woodbridge		11,750
Increase in additional paid-in capital		13,337
Investment in Woodbridge - Beginning of period		85,491
Equity earnings in Woodbridge		13,461
Dividends received from Woodbridge		(20,379)
Investment in Woodbridge - End of period	$	78,573

The condensed Statement of Financial Condition as of December 31, 2013 and the condensed Statement of Operations for the nine months ended December 31, 2013 of Woodbridge Holdings, LLC are as follows:



		December 31,
		2013
Assets
Cash and restricted cash	$	224,104
Notes receivable, net		467,319
Inventory of real estate		204,256
Intangible assets		64,142
Other assets		126,494
Total assets	$	1,086,315
Liabilities and Equity
Accounts payable, accrued liabilities and other	$	193,682
Notes payable		537,500
Junior subordinated debentures		147,431
Total liabilities		878,613
Total Woodbridge members' equity		169,981
Noncontrolling interest		37,721
Total equity		207,702
Total liabilities and equity	$	1,086,315



		For the Nine
		Months Ended
		December 31, 2013
Total revenues		399,708
Total costs and expenses		341,938
Other income		209
Income from continuing operations before taxes		57,979
Provision for income taxes		(18,409)
Income from continuing operations		39,570
Discontinued operations:
(Loss) income from discontinued operations, net of tax		(332)
Net income		39,238
Net income attributable to noncontrolling interest		(9,974)
Net income attributable to Woodbridge	$	29,264

Acquisitions

On October 30, 2013, a newly formed joint venture entity, Renin Holdings, LLC (“Renin”), owned 81% by the Company and 19% by BFC, acquired, through two newly formed subsidiaries, substantially all of the assets and certain liabilities of Renin Corp for approximately $14.5 million (the “Renin Transaction Consideration”). Renin manufactures interior closet doors, wall décor, hardware and fabricated glass products and operates through headquarters in Canada and three manufacturing, assembly and distribution facilities in Canada and the United States and a sales and distribution facility in the United Kingdom.

The Renin Transaction Consideration is subject to adjustment based on the verification of Renin’s working capital as of the closing and certain post-closing indemnities. Bluegreen funded approximately $9.4 million of the Renin Transaction Consideration in the form of a loan and revolver facility to Renin. Renin is seeking to refinance the Bluegreen facilities with an unrelated third party, although Renin may not be successful in doing so. The remainder of the Renin Transaction Consideration was funded $4.2 million by BBX Capital and $1.0 million by BFC pro rata in accordance with their percentage equity interests in Renin. At closing, $1.7 million of the Renin Transaction Consideration was placed in an escrow account pending final determination of the working capital adjustment (if any) and final resolution of any indemnification obligations of Renin Corp. In January 2014, the working capital and indemnification obligations of the sellers were finalized and the entire escrow balance was distributed to Renin. As a result, the Renin Transaction Consideration was reduced to $12.8 million. Included in other assets in the Company’s Statement of Financial Condition was a $1.7 million receivable for this indemnity and working capital adjustment escrow.

In December 2013, a wholly-owned subsidiary of the Company, BBX Sweet Holdings, LLC acquired the outstanding common shares or membership interests in Hoffman’s from their shareholders or members (“Sellers”). The purchase consideration included $500,000 (“Holdback Payment”) that is payable on the second anniversary of the closing date and accrues interest at 1.93% per annum. The Holdback Payment serves as security for the Sellers’ obligations under the Hoffman’s stock purchase and sale agreement including the indemnity obligations and performance under each of the Seller’s non-competition agreements. The Holdback Payment was recorded at a $46,000 premium to reflect the fair value of the holdback at the acquisition date. The Holdback Payment is guaranteed by BBX Capital. Hoffman’s is a manufacturer of gourmet chocolates, with four retail locations in South Florida.

The following tables summarizes the purchase consideration for Hoffman’s and for substantially all of the assets and certain liabilities of Renin Corp., the fair value of the assets acquired and liabilities assumed and the net cash outflows from the acquisitions at the acquisition dates (in thousands):



Fair value of identifiable assets
acquired and liabilities assumed:
Cash	$	1,033
Trade receivables		7,523
Inventories		9,858
Properties and equipment		6,134
Intangible assets		2,686
Other assets		477
Notes payable		(2,493)
Other liabilities		(9,011)
Fair value of identifiable net assets		16,207
Transaction Consideration		15,206
Bargain purchase gain		(1,001)

Transaction Consideration		15,206
Working capital adjustment receivable		1,694
Holdback payment		(500)
Discount on holdback payment		46
Cash acquired		(1,033)
Net cash outflows from acquisitions, net of cash acquired		15,413

The Company incurred $1.1 million of acquisition related costs in connection with the acquisitions. The bargain purchase gain of $1.0 million from the Renin Transaction represents the amount by which the fair value of identifiable net assets acquired exceeded the Renin Transaction Consideration. Management believes that it was able to acquire Renin Corp. for a bargain purchase gain because Renin Corp. was a distressed company. The acquisition related costs are included in selling, general and administrative expenses in the Company’s Statement of Operations for the year ended December 31, 2013.

The amount of revenues and loss before income taxes from Renin’s operations included in the Company’s Consolidated Statement of Operations and the supplemental pro forma amount of revenues and losses had the acquisition date been as of January 1, 2013, 2012 and 2011 was as follows (in thousands):



			Earnings
		Revenue	(Loss)
Actual from 10/30/2013 - 12/31/2013	$	9,300	(902)

Pro forma from 1/1/2013 - 12/31/2013	$	65,629	(4,923)

Pro forma from 1/1/2012 - 12/31/2012	$	74,018	(318)

Pro forma from 1/1/2011 - 12/31/2011	$	75,059	(3,685)

Actual loss from October 30, 2013 through December 31, 2013 excludes non-recurring acquisition costs and the bargain purchase gain. The pro forma loss for the years ended December 31, 2013, 2012 and 2011 excludes non-recurring transactions.

Trade Receivables

Trade receivables were recorded at fair value using the cost approach with level 3 inputs based on the percentage of gross receivables collected in a trailing eighteen month period ending in October 2013. The inputs used were trade receivable balances, allowances, charge-offs, sales discounts and volume of returned merchandise.

Inventories

Raw materials were fair valued using the cost approach with level 3 inputs. Raw material items replaced on a regular basis were recorded at fair value based on historical costs. Raw material items with greater than 180 days of usage on hand were recorded at fair value based on discounts relative to historical cost amounts. Finished goods inventory was recorded at fair value using the cost approach with level 3 inputs. Fifty percent of the historical gross margin was added to the finished goods historical cost amounts in order to estimate a reasonable profit margin for selling finished goods. The selling expenses were estimated at 5% of gross sales. Finished goods on hand greater than 180 days of sales were recorded at fair value with discounts relative to historical costs.

Properties and Equipment

Properties and equipment acquired primarily consisted of machinery and equipment used in Renin’s manufacturing operations. The machinery and equipment was recorded at fair value using the market approach with level 2 inputs as market comparable data. The cost approach was used to estimate the contributing installation costs to fair value and the electrical distribution system in certain manufacturing facilities. The inputs were obtained from market data collected from used equipment dealers that purchase and sell comparable equipment, quotations from new machinery dealers and manufacturers, historical installation cost information and searches on the internet.

Identifiable Intangible Assets

The identifiable intangible assets acquired primarily consisted of trade names. The relief from royalty valuation method, a form of the income approach, was used to estimate the fair value of the trade names. The fair value was determined by present valuing the expected future estimated royalty payments that would have to be paid if the trade names were not owned. The fair value of the net royalties saved was estimated based on discounted cash flows at a risk adjusted discount rate. A terminal value was applied based on a long-term growth rate of 3% after achieving a steady state of cash flows.