2. Acquisitions

2014 Acquisitions

In October 2014, BBX Sweet Holdings acquired the outstanding common shares of Anastasia Confections (“Anastasia”) for purchase consideration of $11.4 million. Founded in 1984 and headquartered in an 80,000 square foot production facility in Orlando, Florida, Anastasia manufactures gourmet coconut and chocolate candy, salt water taffy, and other chocolate gift products. The purchase consideration included cash of $4.2 million and a $7.5 million promissory note. The promissory note was recorded at a $0.3 million discount to reflect the fair value of the promissory note at the acquisition date.

In July 2014, BBX Sweet Holdings acquired Helen Grace Chocolates (“Helen Grace”), a California based manufacturer of premium chocolate confections, chocolate bars, chocolate candies and truffles and in a separate transaction during July 2014 BBX Sweet Holdings acquired Jer’s Chocolates (“Jer’s”), a California based distributor of peanut butter chocolate products internationally and in the United States. In January 2014, BBX Sweet Holdings acquired Williams and Bennett, including its brand Big Chocolate Dipper. Williams and Bennett is headquartered in Boynton Beach, Florida and is a manufacturer of chocolate products serving boutique retailers, big box chains, department stores, national resort properties, corporate customers, and private label brands.

The purchase consideration for the Williams and Bennett, Helen Grace, and Jer’s acquisitions included cash of $4.6 million and holdback amounts of $0.7 million. The holdback amounts serve to satisfy any indemnification claims made by BBX Sweet Holdings against a seller pursuant to the purchase agreements. Holdback amounts of $150,000 were included in other liabilities in the Company’s Statement of Financial Condition as of December 31, 2014 as these amounts were non-interest bearing and paid to a seller in February 2015.

The following tables summarize the fair value of the assets acquired and liabilities assumed from Anastasia at the acquisition date (in thousands):



Fair value of identifiable assets
acquired and liabilities assumed:
Trade receivables	$	483
Inventories		1,338
Properties and equipment		1,873
Identifiable intangible assets (1)		3,410
Deferred tax liabilities		(1,365)
Other liabilities		(421)
Fair value of identifiable net assets		5,318
Goodwill		6,113
Purchase consideration	$	11,431

(1) Identifiable intangible assets consisted primarily of $1.9 million and $1.5 million of trademarks and customer relationships intangible assets, respectively.

The Company incurred $0.1 million of acquisition related costs in connection with the Anastasia acquisition. 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, 2014.

The amount of revenues and net income from Anastasia included in the Company’s Statement of Operations for the year ended December 31, 2014 was $2.1 million and $268,000, respectively. The Anastasia net income excludes acquisition related costs and is from the date of acquisition (October 1, 2014) through December 31, 2014.

The supplemental pro forma amount of the Company’s revenues and net income had the Anastasia acquisition been as of January 1, 2013 was as follows (in thousands):



(unaudited)		Revenue	Income (1)
Pro forma from 1/1/2014 -12/31/2014	$	98,022	4,540
Pro forma from 1/1/2013 -12/31/2013	$	54,828	48,305

(1) Amounts represent income from continuing operations.

The following tables summarize the fair value of the assets acquired and liabilities assumed from Williams and Bennett, Jer’s and Helen Grace at the respective acquisition dates (in thousands):



Fair value of identifiable assets
acquired and liabilities assumed:
Trade receivables	$	49
Inventories		3,284
Properties and equipment		1,329
Identifiable intangible assets (1)		2,738
Other assets		416
Notes payable		(186)
Deferred tax liabilities		(1,742)
Other liabilities		(602)
Fair value of identifiable net assets		5,286
Goodwill		1,264
Purchase consideration		(5,313)
Bargain purchase gain	$	1,237

(1) Identifiable intangible assets consisted primarily of $1.2 million and $1.1 million of trademarks and customer relationships intangible assets, respectively.

The Company incurred $0.4 million of acquisition related costs in connection with these acquisitions. 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, 2014.

The bargain purchase gain of $1.2 million from the Helen Grace acquisition represents the amount by which the fair value of identifiable net assets acquired exceeded the purchase consideration. Management believes that it was able to acquire Helen Grace for a bargain purchase gain because Helen Grace was a division of a larger company that made a strategic decision to divest chocolate manufacturing activities.

The amount of revenues and net loss from these acquisitions included in the Company’s Statement of Operations for the year ended December 31, 2014 was $9.7 million and $0.3 million, respectively. The net loss from the date of these acquisitions through December 31, 2014 excludes $0.4 million of acquisition related costs and the $1.2 million Helen Grace bargain purchase gain.

The supplemental pro forma amount of the Company’s revenues and net income had these acquisitions been consummated as of January 1, 2013 was as follows (in thousands):




(unaudited)		Revenue	Income (1)
Pro forma from 1/1/2014 -12/31/2014	$	97,148	3,289
Pro forma from 1/1/2013 -12/31/2013	$	64,496	46,941

(1) Amounts represent income from continuing operations.

The net cash outflows from the Williams and Bennett, Jer’s, Helen Grace and Anastasia acquisitions (collectively, “2014 Acquisitions”) was as follows (in thousands):



Total purchase consideration	$	16,744
Notes payable		(7,750)
Other liabilities		(150)
Net cash outflow from acquisitions	$	8,844

2013 Acquisitions

On October 30, 2013, Renin 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.

Renin funded approximately $9.4 million of the Renin Transaction Consideration through proceeds from a loan and revolver facility to Renin provided by Bluegreen. 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 as of December 31, 2013 was a $1.7 million receivable for this indemnity and working capital adjustment escrow.

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

The following tables summarize the purchase consideration for the Hoffman’s acquisition and for the Renin Transaction and 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
Identifiable intangible assets		2,686
Other assets		477
Notes payable		(2,493)
Other liabilities		(9,011)
Fair value of identifiable net assets		16,207
Purchase consideration		(15,206)
Bargain purchase gain	$	1,001

Purchase consideration	$	15,206
Working capital adjustment receivable		1,694
Holdback amounts		(500)
Discount on Holdback amounts		46
Cash acquired		(1,033)
Net cash outflows from acquisitions	$	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 net loss from the Renin Transaction included in the Company’s Statement of Operations for the year ended December 31, 2013 was $9.3 million and a net loss of $0.9 million, respectively. Actual net loss from October 30, 2013 through December 31, 2013 excludes acquisition costs and the bargain purchase gain.

The supplemental pro forma amount of the Company’s revenues and net income (loss) had the Renin Transaction been consummated as of January 1, 2012 was as follows (in thousands):



(unaudited)		Revenue	Income (1)
Pro forma from 1/1/2013 - 12/31/2013	$	104,987	43,639
Pro forma from 1/1/2012 - 12/31/2012	$	107,303	(28,794)

(1) Amounts represent income from continuing operations

The methodology utilized to fair value the assets acquired for the Renin and Hoffman’s acquisitions in 2013 and the 2014 Acquisitions was as follows:

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 for Renin. The inputs used were trade receivable balances, allowances, charge-offs, sales discounts and volume of returned merchandise. The fair value of the trade receivables acquired from the BBX Sweet Holdings acquisitions were recorded at the invoiced amounts.

Inventories

Raw materials were fair valued using the cost approach. Raw material items replaced on a regular basis were recorded at fair value based on historical costs. Raw material items acquired in the Renin transaction 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. 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. Finished goods on hand acquired in the Renin Transaction greater than 180 days of sales were recorded at fair value with discounts relative to historical costs.

Properties and Equipment

Properties and equipment acquired consisted primarily of machinery and equipment used in 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 and customer relationships. 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. The multi-period excess earnings method, a form of the income approach, was used to estimate the fair value of the customer relationships. The multi-period excess earnings method isolates the expected cash flows attributable to the customer relationship intangible asset and discounts these cash flows at a risk adjusted discount rate.