You should read the following discussion and analysis together with our audited consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. The following discussion contains forward-looking statements, including those that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, without limitation, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." This section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2018 . Such reports and other information filed by the Company with theSEC are available free of charge on our website at www.bluegreenvacations.com or with theSEC at www.sec.gov.
Executive Overview
We are a leading vacation ownership company that markets and sells VOIs and manages resorts in popular leisure and urban destinations. Our resort network includes 45Club Resorts (resorts in which owners in ourVacation Club have the right to use most of the units in connection with their VOI ownership) and 23Club Associate Resorts (resorts in which owners in ourVacation Club have the right to use a limited number of units in connection with their VOI ownership). OurClub Resorts andClub Associate Resorts are primarily located in high-volume, "drive-to" vacation locations, includingOrlando ,Las Vegas ,Myrtle Beach andCharleston , among others. Through our points-based system, the approximately 220,000 owners in ourVacation Club have the flexibility to stay at units available at any of our resorts and have access to over 11,350 other hotels and resorts through partnerships and exchange networks. We have a robust sales and marketing platform supported by exclusive marketing relationships with nationally-recognized consumer brands, such asBass Pro and Choice Hotels. These marketing relationships drive sales within our core demographic.
VOI Sales and Financing
Our primary business is the marketing and selling of deeded VOIs, developed either by us or third parties. Customers who purchase these VOIs receive an annual allotment of points, which can be redeemed for stays at one of our resorts or at 11,350 other hotels and resorts available through partnerships and exchange networks. Historically, VOI companies have funded the majority of the capital investment in connection with resort development with internal resources and acquisition and development financing. In 2009, we began selling VOIs on behalf of third-party developers and have successfully diversified from a business focused on capital-intensive resort development to a flexible model with a balanced mix of developed and capital-light inventory. Our relationships with third-party developers enable us to generate fees from the sales and marketing of their VOIs without incurring the significant upfront capital investment generally associated with resort acquisition or development. While sales of acquired or developed inventory typically result in greater Adjusted EBITDA contribution, fee-based sales generally require no initial investment or development financing risk. Both acquired or developed VOI sales and fee-based VOI sales drive recurring, incremental and long-term fee streams by adding owners to ourVacation Club and new resort management contracts. In conjunction with our VOI sales, we also generate interest income by providing financing to qualified purchasers. Collateralized by the underlying VOIs, our loans are generally structured as 10-year, fully-amortizing loans with a fixed interest rate ranging from approximately 13% to approximately 17% per annum. As ofDecember 31, 2019 , the weighted-average interest rate on our VOI notes receivable was 14.9%. In addition, we earn fees for various other services, including title and escrow services in connection with the closing of VOI sales, and mortgage servicing. 50
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Resort Operations and Club Management
We enter into management agreements with the Home Owner Associations ("HOAs") that maintain most of the resorts and earn fees for providing management services to those HOAs and our approximately 220,000Vacation Club owners. These resort management services include oversight of housekeeping services, maintenance, and certain accounting and administration functions. Our management contracts yield highly predictable, recurring cash flows and do not have the traditional risks associated with hotel management contracts that are linked to daily rate or occupancy. Our management contracts are typically structured as "cost-plus," with an initial term of three years and automatic one year renewals. In connection with the management services provided to theVacation Club , we manage the reservation system and provide owner, billing and collection services. In addition to resort and club management services, we earn fees for various other services that produce recurring, predictable and long term-revenue, including construction management services to third-party developers.
Principal Components Affecting our Results of Operations
Principal Components of Revenue
Fee-Based Sales. Represent sales of third-party VOIs where we are paid a commission.
JIT Sales. Represent sales of VOIs acquired from third parties in close proximity to when we intend to sell such VOIs.
Secondary Market Sales. Represent sales of VOIs acquired from HOAs or other owners, typically in connection with maintenance fee defaults. This inventory is generally purchased at a greater discount to retail price compared to developed VOI sales and VOIs purchased by us for sale as part of our JIT sales activities. Developed VOI Sales. Represent sales of VOIs in resorts that we have developed or acquired (not including inventory acquired through JIT and secondary market arrangements). Financing Revenue. Represents revenue from the financing of VOI sales, which includes interest income and loan servicing fees. We also earn fees from providing mortgage servicing to certain third-party developers relating to VOIs sold by them. Resort Operations and Club Management Revenue. Represents recurring fees from managing theVacation Club and transaction fees for Traveler Plus and other member services. We also earn recurring management fees under our management agreements with HOAs for day-to-day management services, including oversight of housekeeping services, maintenance, and certain accounting and administrative functions.
Other Fee-Based Services. Represents revenue earned from various other services that produce recurring, predictable and long-term revenue, such as title services.
Principal Components of Expenses
Cost of VOIs Sold. Represents the cost at which our owned VOIs sold during the period were relieved from inventory. In addition to inventory from our VOI business, our owned VOIs also include those that were acquired by us under JIT and secondary market arrangements. Compared to the cost of our developed VOI inventory, VOIs acquired in connection with JIT arrangements typically have a relatively higher associated cost of sales as a percentage of sales while those acquired in connection with secondary market arrangements typically have a lower cost of sales as a percentage of sales as secondary market inventory is generally obtained from HOAs at a significant discount to retail price. Cost of VOIs sold as a percentage of sales of VOIs varies between periods based on the relative costs of the specific VOIs sold in each period and the size of the point packages of the VOIs sold (primarily due to offered volume discounts, and taking into account consideration of cumulative sales to existing owners). Additionally, the effect of changes in estimates under the relative sales value method, including estimates of projected sales, future defaults, upgrades and incremental revenue from the resale of repossessed VOI inventory, are reflected on a retrospective basis in the period the change occurs. Cost of sales will typically be favorably impacted in periods where a significant amount of secondary market VOI inventory is acquired and actual defaults and equity trades are higher and the 51
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resulting change in estimate is recognized. While we believe that there is additional inventory that can be obtained through the secondary market at favorable prices to us in the future, there can be no assurance that such inventory will be available as expected.
Net Carrying Cost of VOI Inventory. Represents the maintenance fees and developer subsidies for unsold VOI inventory paid or accrued to the HOAs that maintain the resorts. We attempt to offset this expense, to the extent possible, by generating revenue from renting our VOIs and through utilizing them in our sampler programs. We net such revenue from this expense item. Selling and Marketing Expense. Represents costs incurred to sell and market VOIs, including costs relating to marketing and incentive programs, tours, and related wages and sales commissions. Revenue from vacation package sales are netted against selling and marketing expenses. Financing Expense. Represents financing interest expense related to our receivable-backed debt, amortization of the related debt issuance costs and other expenses incurred in providing financing and servicing loans, including administrative costs associated with mortgage servicing activities for our loans and the loans of certain third-party developers. Mortgage servicing activities include, among other things, payment processing, reporting and collection services. Resort Operations and Club Management Expense. Represents costs incurred to manage resorts and theVacation Club , including payroll and related costs and other administrative costs to the extent not reimbursed by theVacation Club or HOAs. General and Administrative Expense. Primarily represents compensation expense for personnel supporting our business and operations, professional fees (including consulting, audit and legal fees), and administrative and related expenses.
Key Business and Financial Metrics and Terms Used by Management
Sales of VOIs. Represent sales of our owned VOIs, including developed VOIs and those acquired through JIT and secondary market arrangements, reduced by equity trade allowances and an estimate of uncollectible VOI notes receivable. In addition to the factors impacting system-wide sales of VOIs (described below), sales of VOIs are impacted by the proportion of system-wide sales of VOIs sold on behalf of third-parties on a commission basis, which are not included in sales of VOIs. System-wide Sales of VOIs. Represents all sales of VOIs, whether owned by us or a third party immediately prior to the sale. Sales of VOIs owned by third parties are transacted as sales of VOIs in ourVacation Club through the same selling and marketing process we use to sell our VOI inventory. We consider system-wide sales of VOIs to be an important operating measure because it reflects all sales of VOIs by our sales and marketing operations without regard to whether we or a third party owned such VOI inventory at the time of sale. System-wide sales of VOIs is not a recognized term under GAAP and should not be considered as an alternative to sales of VOIs or any other measure of financial performance derived in accordance with GAAP or to any other method of analyzing our results as reported under GAAP.
Guest Tours. Represents the number of sales presentations given at our sales centers during the period.
Sale to Tour Conversion Ratio. Represents the rate at which guest tours are converted to sales of VOIs and is calculated by dividing guest tours by number of VOI sales transactions.
Average Sales Volume Per Guest ("VPG"). Represents the sales attributable to tours at our sales locations and is calculated by dividing VOI sales by guest tours. We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the sale-to-tour conversion ratio.
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Adjusted EBITDA. We define Adjusted EBITDA as earnings, or net income, before taking into account interest income (excluding interest earned on VOI notes receivable), interest expense (excluding interest expense incurred on debt secured by our VOI notes receivable), income and franchise taxes, loss (gain) on assets held for sale, depreciation and amortization, amounts attributable to the non-controlling interest inBluegreen/Big Cedar Vacations (in which we own a 51% interest), and items that we believe are not representative of ongoing operating results including charges such as severance. Accordingly, amounts paid, accrued or incurred in connection with the Bass Pro settlement inJune 2019 were excluded in the computation of Adjusted EBTIDA for the year endedDecember 31, 2019 . For purposes of the Adjusted EBITDA calculation for each period presented, no adjustments were made for interest income earned on our VOI notes receivable or the interest expense incurred on debt that is secured by such notes receivable because they are both considered to be part of the operations of our business. We consider our total Adjusted EBITDA and our Segment Adjusted EBITDA to be an indicator of our operating performance, and it is used by us to measure our ability to service debt, fund capital expenditures and expand our business. Adjusted EBITDA is also used by companies, lenders, investors and others because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. Adjusted EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Adjusted EBITDA is not a recognized term under GAAP and should not be considered as an alternative to net income (loss) or any other measure of financial performance or liquidity, including cash flow, derived in accordance with GAAP, or to any other method or analyzing our results as reported under GAAP. The limitations of using Adjusted EBITDA as an analytical tool include, without limitation, that Adjusted EBITDA does not reflect (i) changes in, or cash requirements for, our working capital needs; (ii) our interest expense, or the cash requirements necessary to service interest or principal payments on our indebtedness (other than as noted above); (iii) our tax expense or the cash requirements to pay our taxes; (iv) historical cash expenditures or future requirements for capital expenditures or contractual commitments; or (v) the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations or performance. Further, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements. In addition, our definition of Adjusted EBITDA may not be comparable to definitions of Adjusted EBITDA or other similarly titled measures used by other companies. 53
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Results of Operations
Adjusted EBITDA for the years ended
We consider Segment Adjusted EBITDA in connection with our evaluation of the operating performance of our business segments as described in Note 17: Segment Reporting to our audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. See above for a discussion of our definition of Adjusted EBITDA, how management uses it to manage our business and material limitations on its usefulness. The following tables set forth Segment Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, our most comparable GAAP financial measure: For the Years Ended December 31, 2019 2018 2017 (in thousands) Adjusted EBITDA - sales of VOIs and financing$ 147,081 $ 173,668 $ 181,647 Adjusted EBITDA - resort operations and club management 56,378 50,561 43,350 Total Segment Adjusted EBITDA 203,459 224,229 224,997 Less: Corporate and other (81,670) (82,409) (74,717) Total Adjusted EBITDA$ 121,789 $ 141,820 $ 150,280 For the Years Ended December 31, 2019 2018 2017 (in thousands) Net income attributable to shareholder(s)$ 34,851 $ 87,962 $ 126,583 Net income attributable to the non-controlling interest in Bluegreen/Big Cedar Vacations 11,273 12,390 12,760 Adjusted EBITDA attributable to the non-controlling interest in Bluegreen/Big Cedar Vacations (11,670) (12,468) (12,485) Loss on assets held for sale 3,656 3 46 Add: depreciation and amortization 14,114 12,392 9,632 Less: interest income (other than interest earned on VOI notes receivable) (7,191) (6,044) (6,874) Add: interest expense - corporate and other 19,035 15,195 12,168 Add: franchise taxes 193 199 178 Add: provision (benefit) for income taxes 12,140 28,541 (2,345) Add: severance 6,267 3,650 5,836 Add: Bass Pro settlement 39,121 - 4,781 Total Adjusted EBITDA$ 121,789 $ 141,820 $ 150,280
The following tables reconciles system-wide sales of VOIs to gross sales of VOIs, the most comparable GAAP financial measure.
For the Years Ended December 31, 2019 2018 2017 (in thousands) Gross sales of VOIs$ 311,076 $ 305,530 $ 288,414 Add: Fee-based sales 308,032 318,540 330,854 System-wide sales of VOIs$ 619,108 $ 624,070 $ 619,268 54
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As of and for the Years Ended
2019 2018
2017
(in thousands, except number of resorts at period end, number of transactions and average sales volume per guest) Other Financial Data: System-wide sales of VOIs$ 619,108 $ 624,070 $ 619,268 Total Adjusted EBITDA$ 121,789 $ 141,820 $ 150,280 Adjusted EBITDA - sales of VOIs and financing$ 147,081 $ 173,668 $ 181,647 Adjusted EBITDA - resort operations and club management $ 56,378$ 50,561 $ 43,350 Number ofBluegreen Vacation Club / Vacation Club Associate resorts at period end 68 69
67
Total number of sale transactions 40,703 40,087
40,705
Average sales volume per guest $ 2,642
2,479 55
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For the year ended
Sales of VOIs and Financing
For the Years Ended December 31, 2019 2018 % of % of ?System- ?System- ?wide sales ?wide sales Amount ?of VOIs(5) Amount ?of VOIs(5) (dollars in thousands) Developed VOI sales (1)$ 355,353 57%$ 287,292 46% Secondary Market sales 248,780 40 232,562 37 Fee-Based sales 308,032 50 318,540 51 JIT sales 13,346 2 56,450 9 Less: Equity trade allowances (6) (306,403) (49) (270,774) (43) System-wide sales of VOIs 619,108 100% 624,070 100% Less: Fee-Based sales (308,032) (50) (318,540) (51) Gross sales of VOIs 311,076 50 305,530 49 Provision for loan losses (2) (55,701) (18) (51,305) (17) Sales of VOIs 255,375 41 254,225 41 Cost of VOIs sold (3) (21,845) (9) (23,813) (9) Gross profit (3) 233,530 91 230,412 91 Fee-Based sales commission revenue (4) 207,832 67 216,422 68 Financing revenue, net of ? financing expense 60,454 10 59,609 10 Other fee-based services - ? title operations, net 7,274 1 7,614 1 Net carrying cost of VOI inventory (23,816) (4) (11,358) (2) Selling and marketing expenses (317,716) (51) (307,614) (49) General and administrative expenses - ? sales and marketing (70,258) (11) (27,848) (4) Other income, net 3,068 (1) - - Operating profit - sales of VOIs ? and financing 100,368 16% 167,237 27% Add: Depreciation and amortization 6,118 6,335 Add: Severance 1,416 96 Add: Bass Pro Settlement 39,121 - Add: Loss on assets held for sale 58
-
Adjusted EBITDA - sales of VOIs ? and financing$ 147,081 $
173,668
(1)Developed VOI sales represent sales of VOIs acquired or developed by us under our developed VOI business. Developed VOI sales do not include Secondary Market sales, Fee-Based sales or JIT sales.
(2)Percentages for provision for loan losses are calculated as a percentage of gross sales of VOIs, which excludes Fee-Based sales (and not of system-wide sales of VOIs).
(3)Percentages for costs of VOIs sold and gross profit are calculated as a percentage of sales of VOIs (and not based on system-wide sales of VOIs).
(4)Percentages for Fee-Based sales commission revenue are calculated as a percentage of Fee-Based sales (and not based on system-wide sales of VOIs).
(5)Represents the applicable line item, calculated as a percentage of system-wide sales of VOIs, unless otherwise indicated in the above footnotes.
(6)Equity trade allowances are amounts granted to customers upon trading in their existing VOIs in connection with the purchase of additional VOIs.
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Sales of VOIs. Sales of VOIs were$255.4 million and$254.2 million during the years endedDecember 31, 2019 and 2018, respectively. Sales of VOIs are impacted by the factors described below in system-wide sales of VOIs. Gross sales of VOIs were reduced by$55.7 million and$51.3 million during the years endedDecember 31, 2019 and 2018, respectively, for the provision for loan losses. The provision for loan losses varies based on the amount of financed, non-fee based sales during the period and changes in our estimates of future notes receivable performance for existing loans. Our provision for loan losses as a percentage of gross sales of VOIs was 18% and 17% during the years endedDecember 31, 2019 and 2018, respectively. The percentage of our sales which were realized in cash within 30 days from sale was 42% during both the years endedDecember 31, 2019 and 2018. The increase in the provision for loan losses was primarily due to an increase in the average annual default rates, which we believe is due in large part to the receipt of letters from attorneys who purport to represent certain VOI owners and who have encouraged such owners to become delinquent and ultimately default on their obligations. Defaults associated with such letters in 2019 increased 26% compared to 2018, with a significant portion of such increase attributable to default activity for our resorts and owners located inMissouri , where we believe certain attorneys are currently targeting our customers. See "Item 3. Legal Proceedings" for additional information regarding such letters and actions taken by us in connection therewith. While we believe our notes receivable are adequately reserved at this time, actual defaults may differ from the estimates and the reserve may not be adequate, whether due to actions by our attorneys or otherwise. In addition to the factors described below impacting system-wide sales of VOIs, sales of VOIs are impacted by the proportion of system-wide sales of VOIs sold on behalf of third parties on a commission basis, which are not included in sales of VOIs.
The average annual default rates and delinquency rates (more than 30 days past due) on our VOI notes receivable were as follows:
Year Ended December 31, 2019 2018 Average annual default rates 8.73% 8.41% As of December 31, 2019 2018 Delinquency rates 3.62% 2.91% System-wide sales of VOIs. System-wide sales of VOIs were$619.1 million and$624.1 million during the years endedDecember 31, 2019 and 2018, respectively. System-wide sales decreased during 2019 due to a decrease in the number of guest tours. We believe the decrease was due in part to disruptions in staffing and operations at certain of our sales offices related to the issues withBass Pro which were resolved when the parties entered into a settlement agreement inJune 2019 (See Note 12: Commitments and Contingencies to our audited consolidated financial statements provided in Item 8 of this Annual Report on Form 10-K for additional information regarding this matter). Included in system-wide sales are Fee-Based Sales, JIT Sales, Secondary Market Sales and developed VOI sales. Sales by category are tracked based on which deeded VOI is conveyed in each transaction. We manage which VOIs are sold based on several factors, including the needs of fee-based clients, our debt service requirements and default resale requirements under term securitization and similar transactions. These factors contribute to fluctuations in the amount of sales by category from period to period. Fee-Based Sales comprised 50% and 51% of system-wide sales of VOIs during the years endedDecember 31, 2019 and 2018, respectively. We expect this rate to decrease in 2020 as we focus on selling Bluegreen owned inventory, however, actual results may different from this estimate in the future. 57
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The following table sets forth certain information for system-wide sales of VOIs for 2019 and 2018: For the Year Ended December 31, (dollars in thousands, except average sales volume per guest) 2019 2018 % Change Number of sales offices at period-end 26 26
-
Number of active sales arrangements with ? third-party clients at period-end 15 15
-
Total number of VOI sales transactions 40,703 40,087
2
Average sales price per transaction
(2)
Number of total guest tours 235,842 238,141
(1)
Sale-to-tour conversion ratio- total marketing guests 17.3% 16.8%
3
Number of new guest tours 142,130 146,623
(3)
Sale-to-tour conversion ratio- new marketing guests 14.1% 14.3%
(1)
Percentage of sales to existing owners 54.5% 51.6%
6
Average sales volume per guest$ 2,642 $ 2,642
-
Cost of VOIs Sold. During the years endedDecember 31, 2019 and 2018, cost of VOIs sold was$21.8 million and$23.8 million , respectively, and represented 9% of sales of VOIs during each year. Cost of VOIs sold as a percentage of sales of VOIs varies between periods based on the relative costs of the specific VOIs sold in each period and the size of the point packages of the VOIs sold (due to offered volume discounts, including consideration of cumulative sales to existing owners). Additionally, the effect of changes in estimates under the relative sales value method, including estimates of project sales, future defaults, upgrades and incremental revenue from the resale of repossessed VOI inventory, are reflected on a retrospective basis in the period the change occurs. Therefore, cost of sales will typically be favorably impacted in periods where a significant amount of Secondary Market VOI inventory is acquired or actual defaults and equity trades are higher than anticipated and the resulting change in estimate is recognized. During 2019, we acquired more Secondary Market VOI inventory compared to 2018 due to a temporary suspension of Secondary Market VOI inventory purchases inSeptember 2018 in connection with a system conversion involving our sales and inventory process. In addition, during 2019 our cost of sales benefited from sales of relatively lower cost VOIs as compared to 2018. Further, in 2018 we increased the average selling price of VOIs by approximately 3%. As a result of this pricing change in 2018, we also increased our estimate of total gross margin on the sale of our VOI inventory under the relative sales value method. Under the relative sales value method prescribed for timeshare developers to relieve the cost of VOI inventory, changes to the estimate of gross margin expected to be generated on the sale of VOI inventory are recognized on a retrospective basis in earnings. Accordingly, during 2018, we recognized a benefit to cost of VOIs sold of$3.6 million ($2.7 million net of tax,$0.04 EPS). Fee-Based Sales Commission Revenue. During the years endedDecember 31, 2019 and 2018, we sold$308.0 million and$318.5 million , respectively, of third-party VOI inventory under commission arrangements and earned sales and marketing commissions of$207.8 million and$216.4 million , respectively, in connection with those sales. We earned an average sales and marketing commission of 67% and 68% during the years endedDecember 31, 2019 and 2018, respectively, which is net of a reserve for commission refunds in connection with early defaults and cancellations pursuant to the terms of certain of our fee-based service arrangements. The decrease in sales and marketing commission as a percentage of fee-based sales for 2019 as compared to 2018 is primarily related to the mix of developer sales at higher commission rates in 2018 as well as higher reserves for early defaults in 2019, which we refund to the third-party developers in certain circumstances. Financing Revenue, Net of Financing Expense - Sales of VOIs. Interest income on VOIs notes receivable was$80.0 million and$79.4 million during the years endedDecember 31, 2019 and 2018, respectively, which was partially offset by interest expense on receivable backed debt of$20.5 million and$19.5 million , respectively. The increase in finance revenue net of finance expense in 2019 as compared to 2018 is a result of an increase in our notes receivable portfolio partially offset by our higher debt outstanding balances. Revenue from mortgage servicing during the years endedDecember 31, 2019 and 2018 of$6.2 million and$6.0 million , respectively, are included in financing revenue, net of mortgage servicing expenses of$5.3 million and$6.2 million , respectively.
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Other Fee-Based Services - Title Operations, net. During the years endedDecember 31, 2019 and 2018, revenue from our title operations was$14.2 million and$12.2 million , respectively, which was partially offset by expenses directly related to our title operations of$7.0 million and$4.6 million , respectively. Resort title fee revenue varies based on sales volumes as well as the relative title costs in the jurisdictions where the inventory being sold is located. Net Carrying Cost of VOI Inventory. The carrying cost of our inventory was$35.7 million and$27.4 million during the years endedDecember 31, 2019 and 2018, respectively, which was partially offset by rental and sampler revenue of$11.8 million and$16.1 million , respectively. The increase in net carrying costs of VOI inventory was primarily related to our acquisition of the Éilan Hotel and Spa duringApril 2018 , increased maintenance fees and developer subsidies associated with our increase in VOI inventory and decreased rentals of developer inventory. In certain circumstances, the Company offsets the marketing costs by using its inventory for marketing guest stays. Selling and Marketing Expenses. Selling and marketing expenses were$317.7 million and$307.6 million during the years endedDecember 31, 2019 and 2018, respectively. As a percentage of system-wide sales of VOIs, selling and marketing expenses were 51% and 49% during the years endedDecember 31, 2019 and 2018, respectively. The increase in selling and marketing expenses as a percentage of system-wide sales of VOIs is primarily attributable to higher costs per guest tour, higher fees toBass Pro as well as a change in the timing of expense recognition under the settlement agreement withBass Pro discussed below, additional costs related to our marketing operations in 15 newCabela's stores in 2019 and additional costs associated with testing new traditional and digital marketing programs. In addition, 2019 includes severance of$0.6 million pursuant to an agreement entered into with an executive during 2019 and is included in severance within the Sales of VOI and Financing segment. Our agreement withBass Pro previously provided for the payment of a variable commission upon the sale of a VOI to a marketing prospect obtained through the Bass Pro marketing channels. As discussed herein, pursuant to the settlement agreement and amended marketing arrangement withBass Pro , the settlement payment and a portion of the ongoing annual marketing fees are fixed costs and/or are subject to annual minimums regardless of the volume of VOI sales produced from the resulting marketing prospects generated from the amended agreement. If our amended agreement withBass Pro does not generate a sufficient number of prospects and leads or is terminated or limited, we may not be able to successfully market and sell our products and services at current sales levels, at anticipated levels or at levels required in order to offset the costs associated with our marketing efforts. In addition, the amended arrangement withBass Pro is expected to result in an annual 9% increase in our marketing costs as a percentage of sales from the program, based on increases in program fixed costs and anticipated VOI sales volumes from this marketing channel. Should our VOI sales volumes be below expectations, the increase in cost of this marketing program would be higher than expected and our results of operations and cash flows would be adversely impacted. General and Administrative Expenses - Sales and Marketing Operations. General and administrative expenses, representing expenses directly attributable to sales and marketing operations, were$70.3 million and$27.8 million during the years endedDecember 31, 2019 and 2018, respectively. As a percentage of system-wide sales of VOIs, general and administrative expenses directly attributable to sales and marketing operations were 11% and 4% during the years endedDecember 31, 2019 and 2018, respectively. Included in general and administrative expenses attributable to sales and marketing operations for the year endedDecember 31, 2019 was approximately$39.1 million related to the settlement of the dispute withBass Pro inJune 2019 . In addition, 2019 includes severance of$0.8 million pursuant to an agreement entered into with an executive during 2019 and is included in severance within the Sales of VOIs and Financing segment. See Note 12: Commitments and Contingencies to our audited consolidated financial statements included in Item 8 of this report for additional information regarding the Bass Pro settlement.
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Resort Operations and Club Management
For the Years Ended December 31, 2019 2018 (dollars in thousands) Resort operations and club management revenue$ 174,887 $ 168,353 Resort operations and club management expense (125,928)
(119,553)
Operating profit - resort operations ? and club management 48,959 28% 48,800 29% Add: Depreciation and amortization 1,294
1,719
Add: Severance 238 42 Add: Loss on assets held for sale 5,887 - Adjusted EBITDA - resort operations ? and club management $ 56,378
Resort Operations and Club Management Revenue. Resort operations and club management revenue increased 4% during the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 . Cost reimbursement revenue, which primarily consists of payroll and payroll related expenses for management of the HOAs and other services we provide where we are the employer, increased 2% during the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 . Net of cost reimbursement revenue, resort operations and club management revenues increased 5% during the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 . Resort operations and club management revenues, net of cost reimbursement revenues, increased during 2019 compared to 2018 primarily as a result of the receipt of management fees for the full year in 2019 related to two managed resorts added during 2018 and higher third-party rental commissions. We managed 49 resort properties as of bothDecember 31, 2019 andDecember 31, 2018 . Resort Operations and Club Management Expense. During 2019, resort operations and club management expense increased 5% compared to 2018. This increase was primarily due to increased cost reimbursement expense and the addition of new managed resorts during 2018 described above. Additionally, inDecember 2019 we conveyed the ski and golf operations and related property at one of our resorts to the HOA, which resulted in a non-cash loss on the disposal of approximately$5.6 million . Corporate and Other For the Years Ended ?December 31, 2019 2018 (in thousands) General and administrative expenses - corporate ? and other$ (81,829) $
(79,687)
Adjusted EBITDA attributable to the non-controlling
? interest in
(11,670)
(12,468)
Other income, net 1,909
1,201
Financing revenue -corporate and other 7,892
6,537
Interest income (other than interest earned on ?VOI notes receivable) (7,191)
(6,044)
Franchise taxes 193
199
(Gain) loss on assets held for sale (2,289) 3 Depreciation and amortization 6,702 4,338 Severance 4,613 3,512 Corporate and other$ (81,670) $ (82,409) 60
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General and Administrative Expenses - Corporate and Other. General and administrative expenses directly attributable to corporate overhead were$81.8 million and$79.7 million during the years endedDecember 31, 2019 and 2018, respectively. The increase in 2019 was primarily attributable to increased severance costs pursuant to agreements entered into with certain executives during 2019 compared to 2018, partially offset by lower self-insured health care costs, lower legal expense and lower information technology costs. See "Liquidity and Capital Resources" below for additional information. Adjusted EBITDA Attributable to Non-Controlling Interest inBluegreen/Big Cedar Vacations . We include in our consolidated financial statements the results of operations and financial condition ofBluegreen/Big Cedar Vacations , our 51%-owned subsidiary. The non-controlling interest in Adjusted EBITDA ofBluegreen/Big Cedar Vacations is the portion ofBluegreen/Big Cedar Vacations' Adjusted EBITDA that is attributable toBig Cedar LLC , which holds the remaining 49% interest inBluegreen/Big Cedar Vacations . Adjusted EBITDA attributable to the non-controlling interest inBluegreen/Big Cedar Vacations was$11.7 million and$12.5 million during the years endedDecember 31, 2019 and 2018, respectively. Other Income, net. Other income, net was$1.9 million and$1.2 million during the years endedDecember 31, 2019 and 2018, respectively. This increase was primarily related to a land sale duringJune 2019 resulting in a gain of$2.0 million . Interest Expense. Interest expense not related to receivable-backed debt was$19.0 million and$15.2 million during the years endedDecember 31, 2019 and 2018, respectively. The increase in interest expense is primarily due to a higher outstanding debt balances during the 2019 periods as compared to the 2018 periods. Additionally, inSeptember 2019 , we paid off our 2013 Notes Payable and in connection with this repayment, we wrote off unamortized debt issuance costs of$0.4 million . Provision for Income Taxes. Provision for income taxes was$12.1 million and$28.5 million during the years endedDecember 31, 2019 and 2018, respectively. Our effective income tax rate was approximately 26% and 25% for the years endedDecember 31, 2019 and 2018, respectively.
Changes in Financial Condition
The following table summarizes our cash flows for the years ended
For the Years Ended
2019
2018
Net cash provided by operating activities $ 70,558$ 76,834 Net cash used in investing activities (19,595)
(32,539)
Net cash used in financing activities (84,451)
(14,510)
Net (decrease) increase in cash and cash equivalents $ (33,488)
Cash Flows from Operating Activities
Our operating cash flow decreased$6.3 million during the year endedDecember 31, 2019 compared to 2018 due primarily to the$20.0 million payment made toBass Pro inJune 2019 pursuant to the settlement agreement described above and decreases in cash flows from changes in working capital. See Note 12: Commitments and Contingencies to our audited consolidated financial statements included in Item 8 of this report for additional information regarding the Bass Pro settlement. These decreases were partially offset by$15.9 million in decreased spending on acquisition and development of inventory and a$9.8 million reduction in income tax payments during 2019 as compared to 2018.
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Cash Flows from Investing Activities
Cash used in investing activities decreased$12.9 million during the year endedDecember 31, 2019 compared to 2018, primarily due to lower spending on purchases of property and equipment in 2019, as well as$4.9 million in net proceeds received for the sale of land during 2019.
Cash Flows from Financing Activities
Cash used in financing activities increased$69.9 million during the year endedDecember 31, 2019 compared to 2018, primarily due to net repayments of lines-of-credit and notes payable and receivable-backed notes payable during 2019 compared to net borrowings on such facilities during 2018. Additionally, dividend payments increased by$2.8 million during 2019 as compared to 2018. These factors which increased cash used in financing activities during 2019 compared to 2018 were partially offset by a decrease in repurchases of our common stock of$3.2 million and a decrease in distributions paid to non-controlling interest inBluegreen/Big Cedar Vacations of$2.5 million in 2019 as compared to 2018.
For additional information on the availability of cash from existing credit facilities, as well as repayment obligations, see "Liquidity and Capital Resources" below.
Seasonality We have historically experienced, and expect to continue to experience, seasonal fluctuations in our revenue and results of operations. This seasonality has resulted, and may continue to result, in fluctuations in our quarterly operating results. Due to consumer travel patterns, we typically see more tours and experience higher VOI sales during the second and third quarters.
Liquidity and Capital Resources
Our primary sources of funds from internal operations are: (i) cash sales; (ii) down payments on VOI sales which are financed; (iii) proceeds from the sale of, or borrowings collateralized by, notes receivable; (iv) cash from finance operations, including mortgage servicing fees and principal and interest payments received on the purchase money mortgage loans arising from sales of VOIs; and (v) net cash generated from sales and marketing fee-based services and other fee-based services, including resort management operations. While the vacation ownership business has historically been capital intensive and we have in the past and may in the future pursue transactions or activities which may require significant capital investment, we have sought to focus on the generation of "free cash flow" (defined as cash flow from operating activities, less capital expenditures) by: (i) incentivizing our sales associates and creating programs with third-party credit card companies to generate a higher percentage of sales in cash; (ii) maintaining sales volumes that focus on efficient marketing channels; (iii) limiting our capital and inventory expenditures; (iv) utilizing sales and marketing, mortgage servicing, resort management services, title and construction expertise to pursue fee-based-service business relationships that generally require minimal up-front capital investment and have the potential to produce incremental cash flows; and (v) more recently, by selling VOIs obtained through secondary market or JIT arrangements. We consider free cash flow to be a measure of cash generated by operating activities that can be used for future investing and financing activities, however, it is not a guarantee that we will use excess cash flows for such purposes VOI sales are generally dependent upon providing financing to buyers. The ability to sell and/or borrow against notes receivable from VOI buyers has been a critical factor in our continued liquidity. A financed VOI buyer is generally only required to provide a minimum of 10% to 20% of the purchase price in cash or equity at the time of sale; however, selling, marketing and administrative expenses attributable to the sale are primarily cash expenses that generally exceed a buyer's minimum required down payment. Accordingly, having financing facilities available for the hypothecation, sale or transfer of our VOI notes receivable has been a critical factor in our ability to meet our short and long-term cash needs. We have attempted to maintain a number of diverse financing facilities. Historically, we have relied on our ability to sell receivables in the term securitization market in order to generate liquidity and create capacity in our receivable facilities. If there is a tightening of credit or instability or volatility in the financial markets, as a result of the coronavirus or otherwise, there is no assurance that financing or securitization of VOIs will be 62
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available to us in the future at acceptable terms, or at all. Further, the
recent coronavirus outbreak in
In addition, maintaining adequate VOI inventory to sell and pursue growth into new markets has historically required us to incur debt for the acquisition, construction and development of new resorts. Development expenditures during 2020 are expected to be in a range of$50.0 million to$60.0 million , which primarily relate to developments at theBluegreen/Big Cedar Vacations resort and refurbishments at certain of our resorts, including ourBlue Ridge Village Resort inBanner Elk, North Carolina . In connection with our capital-light business activities, we have entered into agreements with third-party developers that allow us to buy VOI inventory, typically on a non-committed basis, prior to when we intend to sell such VOIs. Our capital-light business strategy also includes secondary market sales, pursuant to which we enter into secondary market arrangements with certain HOAs and others generally on a non-committed basis, which allows us to acquire VOIs generally at a significant discount, as such VOIs are typically obtained by the HOAs through foreclosure in connection with maintenance fee defaults. Acquisition of JIT and secondary market inventory in 2020 is expected to range between$10.0 million to$15.0 million . Capital expenditures in connection with sales and marketing facilities as well as information technology capital expenditures are expected to be in a range of$5.0 million to$10.0 million in 2020. Available funds may also be used to acquire or develop VOIs at other existing or new locations, acquire other businesses or assets, invest in other real estate based opportunities, or to fund loans to affiliates or others. During 2019, we paid quarterly cash dividends on our common stock of$0.17 per share during the first, second, and third quarters of 2019 and$0.13 per share during the fourth quarter of 2019, which totaled$47.6 million in the aggregate. During 2018, we paid quarterly cash dividends of$0.15 per share on our common stock, which totaled$44.8 million in the aggregate. We intend to pay regular quarterly cash dividends on our common stock, subject to declaration by, and the discretion of, our board of directors and limitations contained in our credit facilities. OnFebruary 20, 2020 , we paid a cash dividend of$0.13 per share on our common stock, which totaled$9.7 million in the aggregate. InApril 2015 , one of our wholly-owned subsidiaries provided an$80.0 million loan to BBX Capital. Amounts outstanding bear interest at 6% per annum. Payments of interest are required on a quarterly basis, with all outstanding amounts being currently due and payable at the end of the five-year term of the loan. BBX Capital 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 us to remain in compliance with covenants under our outstanding indebtedness. During each of the years endedDecember 31, 2019 and 2018, we recognized$4.8 million of interest income on the loan to BBX Capital. Our level of debt and debt service requirements have several important effects on our operations, including that: (i) significant debt service cash requirements reduce the funds available for operations and future business opportunities and increase our vulnerability to adverse economic and industry conditions, as well as conditions in the credit markets, generally; (ii) our leverage position increases our vulnerability to economic and competitive pressures; (iii) the financial covenants and other restrictions contained in indentures, credit agreements and other agreements relating to our indebtedness require us to meet certain financial tests and may restrict our ability to, among other things, pay dividends, borrow additional funds, dispose of assets or make investments; and (iv) our leverage position may limit funds available for acquisitions, working capital, capital expenditures, dividends and other general corporate purposes. Certain of our competitors operate on a less leveraged basis and have greater operating and financial flexibility than we do.
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Credit Facilities for Receivables with Future Availability
We maintain various credit facilities with financial institutions which allow us to borrow against or sell our VOI notes receivable. As ofDecember 31, 2019 , we had the following credit facilities with future availability, all of which are subject to revolving availability terms during the advance period and therefore provide for additional availability as the facility is paid down, subject in each case to compliance with covenants, eligible collateral and applicable terms and conditions during the advance period (dollars in thousands): Advance Period Borrowing Outstanding ?Expiration; Borrowing ?Limit ?Balance Availability ?Borrowing Rate; ?as of ?as of ?as of ?Maturity ?Rate as of ?December 31, ?December 31, ? December 31, ?as of ?December 31, 2019 ?2019 ?2019
?
Prime Rate; Liberty Bank June 2020; floor of Facility$ 50,000 $ 25,860 $ 24,140 ?March 2023 4.00%; 4.75% 30 day LIBOR+2.75%; ?floor of NBA Receivables September 2020; 3.50%; Facility 70,000 32,405 37,595 ?March 2025 ?4.55% 30 day LIBOR+2.75% Pacific Western September 2021; to 3.00%; Facility 40,000 30,304 9,696 ?September 2024 4.68% KeyBank/DZ 30 day LIBOR Purchase December 2022; or CP +2.25%; Facility 80,000 31,708 48,292 ?December 2024 3.99% (1) Quorum Purchase June 2020; Facility 50,000 44,525 5,475 ?December 2032 (2)$ 290,000 $ 164,802 $ 125,198 (1)Borrowings accrue interest at a rate equal to either LIBOR, a "Cost of Funds" rate or commercial paper ("CP") rates plus 2.25%. As described in further detail below, the interest rate will increase to the applicable rate plus 3.25% upon the expiration of the advance period. (2)Of the amounts outstanding under the Quorum Purchase Facility atDecember 31, 2019 ,$3.1 million accrues interest at a rate per annum of 4.75%,$21.3 million accrues interest at a fixed rate of 4.95%,$1.6 million accrues interest at a fixed rate of 5.00%,$17.2 million accrues interest at a fixed rate of 5.10%, and$1.3 million accrues interest at a fixed rate of 5.50%. Liberty Bank Facility. Since 2008, we have maintained a revolving VOI notes receivable hypothecation facility (the "Liberty Bank Facility") with Liberty Bank which provides for advances on eligible receivables pledged under the Liberty Bank Facility, subject to specified terms and conditions, during a revolving credit period throughMarch 2020 . The Liberty Bank Facility matures inMarch 2023 . Subject to its terms and conditions, the Liberty Bank Facility provides for advances of (i) 85% of the unpaid principal balance of Qualified Timeshare Loans assigned to agent, and (ii) 60% of the unpaid principal balance of Non-Conforming Qualified Timeshare Loans assigned to agent, during the revolving credit period of the facility. Maximum permitted outstanding borrowings under the Liberty Bank Facility are$50.0 million , subject to the terms of the facility. All borrowings outstanding under the facility bear interest at an annual rate equal to theWall Street Journal ("WSJ") Prime Rate, subject to a 4.00% floor. Subject to the terms of the facility, principal and interest due under the Liberty Bank Facility are paid as cash is collected on the pledged receivables, with the remaining balance being due by maturity. OnFebruary 11, 2020 , the Liberty Bank Facility was amended solely to extend the revolving credit period fromMarch 12, 2020 toJune 10, 2020 . NBA Receivables Facility.Bluegreen/Big Cedar Vacations has a revolving VOI hypothecation facility (the "NBA Receivables Facility") withNational Bank of Arizona ("NBA"). The NBA Receivables Facility provides for advances at a rate of 85% on eligible receivables pledged under the facility, subject to eligible collateral and specified terms and conditions, during a revolving credit period expiring inSeptember 2020 and allows for maximum borrowings of up to$70 million . The maturity date for the facility isMarch 2025 . The interest rate applicable to future borrowings under the NBA Receivables Facility is equal to the 30-day LIBOR plus 2.75% (with an interest rate floor of 3.50%).
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Subject to the terms of the facility, principal and interest payments received on pledged receivables are applied to principal and interest due under the facility, with the remaining outstanding balance being due by maturity.
Pacific Western Facility. We have a revolving VOI notes receivable hypothecation facility (the "Pacific Western Facility") withPacific Western Bank , which provides for advances on eligible VOI notes receivable pledged under the facility, subject to specified terms and conditions, during a revolving credit period. Maximum outstanding borrowings under the Pacific Western Facility are$40.0 million , subject to eligible collateral and customary terms and conditions. The revolving advance period expires inSeptember 2021 and the Pacific Western Facility matures inSeptember 2024 (in each case, subject to an additional 12-month extension at the option ofPacific Western Bank ). Eligible "A" VOI notes receivable that meet certain eligibility and FICO score requirements, which we believe are typically consistent with loans originated under our current credit underwriting standards, are subject to an 85% advance rate. The Pacific Western Facility also allows for certain eligible "B" VOI notes receivable (which have less stringent FICO score requirements) to be funded at a 53% advance rate. All borrowings outstanding under the Pacific Western Facility accrue interest at an annual rate equal to 30-day LIBOR plus 3.00%; provided, however, that a portion of the borrowings, to the extent such borrowings are in excess of established debt minimums, will accrue interest at 30-day LIBOR plus 2.75%. Subject to the terms of the facility, principal repayments and interest on borrowings under the Pacific Western Facility are paid as cash is collected on the pledged VOI notes receivable, subject to future required decreases in the advance rates after the end of the revolving advance period, with the remaining outstanding balance being due by maturity. The facility has limited recourse not to exceed$10.0 million .KeyBank /DZ Purchase Facility. We have a VOI notes receivable purchase facility (the "KeyBank /DZ Purchase Facility") withDZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main ("DZ"), andKeyBank National Association ("KeyBank") which permits maximum outstanding financings of up to$80.0 million and provides for an advance rate of 80% with respect to VOI receivables securing amounts financed. OnDecember 27, 2019 , theKeyBank /DZ Purchase Facility was amended to extend the advance period toDecember 2022 fromDecember 2019 . TheKeyBank /DZ Purchase Facility will mature and all outstanding amounts will become due 24 months after the revolving advance period has expired, or earlier under certain circumstances set forth in the facility. Interest on amounts outstanding under the facility is tied to an applicable index rate of the LIBOR rate, in the case of amounts funded byKeyBank , and a cost of funds rate or commercial paper rates, in the case of amounts funded by or through DZ. Pursuant to the amendment, the interest rate payable under the facility is the applicable index rate plus 2.25% until the expiration of the revolving advance period (a decrease from 2.75% prior to the amendment) and thereafter will equal the applicable index rate plus 3.25% (a decrease from 4.75% prior to the amendment). Subject to the terms of the facility, we will receive the excess cash flows generated by the VOI notes receivable sold (excess meaning after payments of customary fees, interest and principal under the facility) until the expiration of the VOI notes receivable advance period, at which point all of the excess cash flow will be paid to the note holders until the outstanding balance is reduced to zero. While ownership of the VOI notes receivable included in the facility is transferred and sold for legal purposes, the transfer of these VOI notes receivable is accounted for as a secured borrowing for financial reporting purposes. The facility is nonrecourse.
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Quorum Purchase Facility.Bluegreen/Big Cedar Vacations has a VOI notes receivable purchase facility (the "Quorum Purchase Facility") withQuorum Federal Credit Union ("Quorum"), pursuant to which Quorum has agreed to purchase eligible VOI notes receivable in an amount of up to an aggregate$50.0 million purchase price, subject to certain conditions precedent and other terms of the facility. The revolving purchase period expires onJune 30, 2020 . The interest rate on each advance is set at the time of funding based on rates mutually agreed upon by all parties. The loan purchase fee applicable to future advances is 0.25% and the maturity of the Quorum Purchase Facility is inDecember 2032 . Of the amounts outstanding under the Quorum Purchase Facility atDecember 31, 2019 ,$3.1 million accrues interest at a rate per annum of 4.75%,$21.3 million accrues interest at a fixed rate of 4.95%,$1.6 million accrues interest at a fixed rate of 5.00%,$17.2 million accrues interest at a fixed rate of 5.10%, and$1.3 million accrues interest at a fixed rate of 5.50%. The Quorum Purchase Facility provides for an 85% advance rate on eligible receivables sold under the facility, however Quorum can modify this advance rate on future purchases subject to the terms and conditions of the Quorum Purchase Facility. Eligibility requirements for VOI notes receivable sold include, among others, that the obligors under the VOI notes receivable sold be members of Quorum at the time of the note sale. Subject to performance of the collateral, we orBluegreen/Big Cedar Vacations , as applicable, will receive any excess cash flows generated by the VOI notes receivable transferred to Quorum under the facility (excess meaning after payment of customary fees, interest and principal under the facility) on a pro-rata basis as borrowers make payments on their VOI notes receivable. While ownership of the VOI notes receivable included in the Quorum Purchase Facility is transferred and sold for legal purposes, the transfer of these VOI notes receivable is accounted for as a secured borrowing for financial reporting purposes. The facility is nonrecourse.
Other Credit Facilities
Fifth Third Syndicated Line-of-Credit and Fifth Third Syndicated Term Loan. InDecember 2016 , we entered into a$100.0 million syndicated credit facility withFifth Third Bank , as administrative agent and lead arranger, and certain other bank participants as lenders. InOctober 2019 , we amended the facility and increased the facility to$225.0 million . The amended facility includes a$100.0 million term loan (the "Fifth Third Syndicated Term Loan") with quarterly amortization requirements and a$125.0 million revolving line of credit (the "Fifth Third Syndicated Line-of-Credit"). Borrowings under the amended facility generally bear interest at LIBOR plus 2.00% - 2.50%, depending on our leverage ratio, are collateralized by certain of our VOI inventories, sales center buildings, management fees, short-term receivables and cash flows from residual interests relating to certain term securitizations, and will mature inOctober 2024 . At closing, we borrowed the entire$100.0 million term loan and$30.0 million under the revolving line of credit. Proceeds were used to repay the outstanding balance on the existing Fifth Third Syndicated Credit Facility, repay$3.6 million on the existing Fifth Third Bank Note Payable and pay expenses and fees associated with the amendment, with the remainder to be used for general corporate purposes. As ofDecember 31, 2019 , outstanding borrowings under the facility totaled$128.8 million , including$98.8 million under the Fifth Third Syndicated Term Loan with an interest rate of 3.71%, and$30.0 million under the Fifth Third Syndicated Line of Credit with an interest rate of 3.85%.
We also have outstanding obligations under various credit facilities and securitizations that have no remaining future availability as the advance periods have expired.
Commitments
Our material commitments include the required payments due on our receivable-backed debt, lines-of-credit and other notes payable, junior subordinated debentures, commitments to complete certain projects based on our sales contracts with customers, subsidy advances to certain HOAs, inventory purchase commitments under JIT arrangements and commitments under non-cancelable operating leases. 66
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The following table summarizes the contractual minimum principal and interest payments required on all of our outstanding debt, non-cancelable operating leases and inventory purchase commitments by period due date, as ofDecember 31, 2019 (in thousands): Payments Due by Period Unamortized ?Debt Less than 1 - 3 4 - 5 After 5 ? Issuance Contractual Obligations ?1 year ?Years ?Years ?Years ?Costs Total Receivable-backed notes payable $ -$ 13,124 $ 102,381 $ 312,435 $ (5,125) $ 422,815 Lines-of-credit and notes payable 10,275 26,670 110,625 - (1,410) 146,160 Jr. subordinated debentures (1) - - - 110,827 - 110,827 Noncancelable operating leases (2) 6,038 9,448 4,598 11,608 - 31,692 Bass Pro Settlement (3) 4,000 8,000 8,000 - - 20,000 Total contractual obligations 20,313 57,242 225,604 434,870 (6,535) 731,494 Interest Obligations (4) Receivable-backed notes payable 16,728 33,086 29,076 85,629 - 164,519 Lines-of-credit and notes payable 5,527 9,545 7,001 - 22,073 Jr. subordinated debentures 7,537 15,075 15,075 83,844 - 121,531 Total contractual interest 29,792 57,706 51,152 169,473 - 308,123 Total contractual obligations$ 50,105 $ 114,948 $ 276,756 $ 604,343 $ (6,535) $ 1,039,617
(1)Amounts do not include purchase accounting adjustments for junior
subordinated debentures of
(2)Amounts represent the cash payment for leases and includes interest of
(3)Amounts represent the cash settlement to
(4)Assumes that the scheduled minimum principal payments are made in accordance with the table above and the interest rate on variable rate debt remains the same as the rate atDecember 31, 2019 . InDecember 2019 , our President and Chief Executive Officer resigned. In connection with his resignation, we agreed to make payments totaling$3.5 million over a period of 18 months, all of which remained payable as ofDecember 31, 2019 . Additionally, during 2019 we entered into certain agreements with executives related to their separation from Bluegreen or change in position. Pursuant to the terms of these agreements, we agreed to make payments totaling$2.5 million throughNovember 2020 . As ofDecember 31, 2019 ,$2.3 million remained payable under these agreements. In lieu of paying maintenance fees for unsold VOI inventory, we may enter into subsidy agreements with certain HOAs. During the years endedDecember 31, 2019 and 2018, we made payments related to such subsidies of$24.9 million and$12.6 million , respectively, which are included within cost of other fee-based services. As ofDecember 31, 2019 andDecember 31, 2018 , we had no accrued liabilities for such subsidies. We believe that our existing cash, anticipated cash generated from operations, anticipated future borrowings under existing or future credit facilities, and anticipated future sales of notes receivable under existing, future or replacement purchase facilities will be sufficient to meet our anticipated working capital, capital expenditure and debt service requirements, including the contractual payment of the obligations set forth above, for the foreseeable future, subject to the success of our ongoing business strategy and the availability of credit. We will continue our efforts to renew, extend or replace any credit and receivables purchase facilities that have expired or that will expire in the near term. We may, in the future, also obtain additional credit facilities and may issue corporate debt or equity securities. Any debt incurred or issued may be secured or unsecured, bear interest at fixed or variable rates and may be subject to such terms as the lender may require. In addition, our efforts to renew or replace credit facilities or receivables purchase facilities which have expired or which are scheduled to expire in the near term may not be successful, and sufficient funds may not be available from operations or under existing, proposed or future revolving credit or other borrowing arrangements or receivables purchase facilities to meet our cash needs, including debt service obligations. 67
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To the extent we are unable to sell notes receivable or borrow under such facilities, our ability to satisfy our obligations would be materially adversely affected.
Our receivables purchase facilities, credit facilities, indentures and other outstanding debt instruments include what we believe to be customary conditions to funding, eligibility requirements for collateral, cross-default and other acceleration provisions and certain financial and other affirmative and negative covenants, including, among others, limits on the incurrence of indebtedness, payment of dividends, investments in joint ventures and other restricted payments, the incurrence of liens and transactions with affiliates, as well as covenants concerning net worth, fixed charge coverage requirements, debt-to-equity ratios, portfolio performance requirements and cash balances, and events of default or termination. In the future, we may be required to seek waivers of such covenants, but may not be successful in obtaining waivers, and such covenants may limit our ability to raise funds, sell receivables or satisfy or refinance our obligations, or otherwise adversely affect our financial condition and results of operations, as well as our ability to pay dividends. In addition, our future operating performance and ability to meet our financial obligations will be subject to future economic conditions and to financial, business and other factors, many of which may be beyond our control. Pursuant to a settlement agreement we entered into withBass Pro and its affiliates duringJune 2019 , we paidBass Pro $20.0 million and agreed to make five annual payments toBass Pro of$4.0 million each commencing in 2020. Additionally, in lieu of the previous commission arrangement, we agreed to payBass Pro a fixed annual fee of$70,000 for eachBass Pro andCabela's retail store that we are accessing (excluding sales at retail stores which are designated to provide tours toBluegreen/Big Cedar Vacations , or "Bluegreen/Big Cedar feeder stores"), plus$32.00 per net vacation package sold (less cancellations or refunds within 45 days of sale). We also agreed to contribute to theWonders of Wildlife Foundation $5.00 per net package sold (less certain cancellations and refunds within 45 days of sale), subject to an annual minimum of$700,000 . The fixed annual fee was prorated for 2019. Subject to the terms and conditions of the settlement agreement, we will generally be required to pay the fixed annual fee with respect to at least 59 Bass Pro retail stores and a minimum number ofCabela's retail stores that increases over time to a total of at least 60Cabela's retail stores by the end of 2021. We had marketing operations at 15Cabela's stores atDecember 31, 2019 and are required to begin marketing operations in at least 25 more stores byDecember 31, 2020 . Notwithstanding the foregoing, the minimum number ofBass Pro andCabela's retail stores for purposes of the fixed annual fee may be reduced under certain circumstances set forth in the parties' agreement, including as a result of a reduction of traffic in the stores in excess of 25% year-over-year.
Off-balance-sheet Arrangements
As of
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of commitments and contingencies. On an ongoing basis, we evaluate our estimates, including those that relate to the estimated future sales value of inventory; the recognition of revenue; our allowance for loan losses; the recovery of the carrying value of real estate inventories; the fair value of assets measured at, or compared to, fair value on a non-recurring basis such as assets held for sale, intangible assets and other long-lived assets; the estimate of contingent liabilities related to litigation and other claims and assessments; and deferred income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates if different assumptions and conditions were utilized. If actual results differ significantly from our estimates, our results of operations and financial condition could be materially, adversely impacted.
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Revenue Recognition
Revenue is recognized for sales of VOIs after control of the VOI is deemed transferred to the customer. Transfer of control of the VOI to the buyer is deemed to occur when the legal rescission period expires as the risk and rewards associated with VOI ownership are transferred to the buyer at that time. In cases where construction and development of our developed resorts has not been completed, we defer all of the revenue and associated expenses for the sales of VOIs until construction is complete. We generally offer qualified purchasers financing for up to 90% of the purchase price of VOIs. The typical financing provides for a term of ten years and a fixed interest rate, is fully amortizing in equal installments and may be prepaid without penalty. For sales of VOIs for which we provide financing, we have reduced the transaction price for expected loan losses, which we consider to be variable consideration. To the extent we determine that it is probable that a significant reversal of cumulative revenue recognized may occur, we record an estimate of variable consideration as a reduction to the transaction price of the sales of VOIs until the uncertainty associated with the variable consideration is resolved. We estimate of variable consideration is based on the results of its static pool analysis, which relies on historical payment data for similar VOI notes receivable and tracks uncollectibles for each period's sales over the entire life of the notes. We also consider whether historical economic conditions are comparable to then current economic conditions, as well as variations in underwriting standards. Our policies regarding the estimation of variable consideration on our notes receivable are discussed in further detail under "Allowance for Loan Losses on VOI Notes Receivable" below. VOI Sales where no financing was provided do not have any material significant payment terms. Revenue in connection with our other fee-based services is recognized as services are rendered. Services provided to the HOAs are comprised of day-to-day services to operate the resort, including management services and certain accounting and administrative functions. Management services provided to theVacation Club include managing the reservation system and providing owner, billing and collection services. Our management contracts are typically structured as cost-plus with an initial term of three years and automatic one year renewals. We believe these services to be a series of distinct goods and services to be accounted for as a single performance obligation that is satisfied over time and recognized as revenue as the customer receives the benefits of its services.
Inventory and Cost of Sales
We carry our completed inventory at the lower of (i) cost, including costs of improvements and amenities incurred subsequent to acquisition, capitalized interest, real estate taxes and other costs incurred during construction, or (ii) estimated fair market value, less costs to sell. We use the relative sales value method for establishing the cost of our VOI sales and relieving inventory, which requires us to make estimates subject to significant uncertainty. Under the relative sales value method required by timeshare accounting rules, cost of sales is calculated as a percentage of net sales using a cost-of-sales percentage based on the ratio of total estimated development costs to total estimated VOI revenue, including the estimated incremental revenue from the resale of VOI inventory repossessed, generally as a result of the default of the related receivable. Also, pursuant to timeshare accounting rules, we do not relieve inventory for VOI cost of sales related to anticipated loan losses. Accordingly, no adjustment is made when inventory is reacquired upon default of the related receivable. We also periodically evaluate the recoverability of the carrying amount of our undeveloped or under development resort properties in accordance with ASC 360, Property, Plant and Equipment ("ASC 360"), which provides guidance relating to the accounting for the impairment or disposal of long-lived assets. No impairment charges were recorded with respect to VOI inventory during any of the years presented.
Allowance for Loan Losses on VOI Notes Receivable
The allowance for loan losses is related to the notes receivable generated in connection with financing our VOI sales. We hold large amounts of homogeneous VOI notes receivable and assess uncollectibility based on pools of receivables as there are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. In estimating future loan losses, we do not use a single primary indicator of credit quality but instead evaluate our VOI notes receivable based upon a static pool analysis that incorporates the age of the respective receivables, default trends and prepayment rates by origination year, as well as the FICO scores of the borrowers. ? 69
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