SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996
Commission File Number
0-9811
BFC FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2022148
- ------------------------------ ------------------------------
(State of Organization) (I.R.S. Employer
Identification Number)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida 33304
- ------------------------------ ------------------------------
(Address of Principal (Zip Code)
Executive Office)
(954) 760-5200
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
Common stock of $.01 par value, 2,305,682 shares outstanding.
Special Class A common stock of $.01 par value, 0 shares outstanding.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
June 30, 1996 and December 31, 1995
(in thousands, except share data)
(Unaudited)
ASSETS
1996 1995
---- ----
Cash and cash equivalents $ 544 1,152
Securities available for sale 14,139 5,105
Investment in BankAtlantic Bancorp, Inc. ("BBC") 55,258 52,662
Mortgage notes and related receivables, net 3,631 5,168
Real estate acquired in debenture exchanges, net 10,717 11,072
Real estate investments 6,459 10,211
Escrow for redeemed debenture liability 5,762 8,982
Other assets 3,261 2,544
------ ------
Total assets $99,771 96,896
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Exchange debentures, net 3,037 3,810
Deferred interest on the exchange debentures 2,543 2,722
Redeemed debenture liability 15,849 15,964
Mortgage payables and other borrowings 26,170 27,616
Other liabilities 9,235 9,393
Deferred income taxes 3,492 1,633
------ ------
Total liabilities 60,326 61,138
Commitments and contingencies
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Special class A common stock of $.01 par value;
authorized 20,000,000 shares; none issued -- --
Common stock of $.01 par value; authorized
20,000,000 shares; issued 2,351,021
in 1996 and 1995 17 17
Additional paid-in capital 21,040 19,773
Retained earnings 18,964 13,609
Less: treasury stock
(45,339 shares for 1996 and 1995) (280) (280)
------ ------
Total stockholders' equity before
BBC net unrealized appreciation
(depreciation) on debt securities
available for sale, net of deferred
income taxes 39,741 33,119
BBC net unrealized appreciation (depreciation)
on debt securities available for sale,
net of deferred income taxes (296) 2,639
------ ------
Total stockholders' equity 39,445 35,758
------ ------
Total liabilities and stockholders' equity $99,771 96,896
======= ======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For the six and three month periods ended June 30, 1996 and 1995
(in thousands, except per share data)
(Unaudited)
Six months ended Three months ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Interest on mortgage notes and
related receivables $ 187 222 91 111
Interest and dividends on securities
available for sale and escrow
accounts 344 353 196 176
Earnings on real estate
operations, net 585 362 262 225
Gain on sale of
real estate, net 3,289 206 -- 206
Other income, net 154 404 49 286
----- ----- ----- -----
Total revenues 4,559 1,547 598 1,004
----- ----- ----- -----
Costs and expenses:
Interest on exchange debentures 636 912 316 461
Interest on mortgages payable
and other borrowings 1,258 1,282 615 647
Loss on disposition of mortgage
notes and investment, net 232 -- -- --
Expenses related to real estate
investments 85 98 54 13
Employee compensation and benefits 562 506 321 252
Occupancy and equipment 24 26 14 13
General and administrative, net 577 614 344 306
----- ----- ----- -----
Total cost and expenses 3,374 3,438 1,664 1,692
----- ----- ----- -----
Income (loss) before equity in
earnings of BBC, income taxes
and extraordinary items 1,185 (1,891) (1,066) (688)
Equity in earnings of BBC 4,721 4,599 2,429 2,432
----- ----- ----- -----
Income before income taxes
and extraordinary items 5,906 2,708 1,363 1,744
Provision (benefit) for income taxes 1,306 -- (168) --
----- ----- ----- -----
Income before extraordinary items 4,600 2,708 1,531 1,744
Extraordinary items:
Gain on settlements of Exchange
litigation, net of income
taxes of $606,000 and $144,000
for the six and three months ended
June 30, 1996, respectively 755 -- 6 --
----- ----- ----- -----
Net income $ 5,355 2,708 1,537 1,744
===== ===== ===== =====
Income per common and common
equivalent share:
Before extraordinary items $ 2.04 1.26 0.67 0.81
Extraordinary items 0.33 -- -- --
----- ----- ----- -----
Net income per common and
common equivalent share $ 2.37 1.26 0.67 0.81
===== ===== ===== =====
Income per common and common
equivalent share assuming
full dilution:
Before extraordinary items $ 2.03 1.24 0.67 0.79
Extraordinary items 0.33 -- -- --
----- ----- ----- -----
Net income per common and
common equivalent share
assuming full dilution $ 2.36 1.24 0.67 0.79
===== ===== ===== =====
Weighted average number of common
and common equivalent shares
outstanding 2,261 2,154 2,294 2,152
===== ===== ===== =====
Weighted average number of common
and common equivalent shares
outstanding assuming full dilution 2,266 2,186 2,294 2,213
===== ===== ===== =====
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the six months ended June 30, 1996
(in thousands)
(Unaudited)
Addi-
tional Trea-
Common Paid-in Retained sury
Stock Capital Earnings Stock Other Total
----- ------- -------- ----- ----- -----
Balance at
December 31, 1995 $ 17 19,773 13,609 (280) 2,639 35,758
Effect of issuance by
BBC of BBC Class A
common stock
to shareholders other
than BFC - 1,267 - - - 1,267
Change in BBC net
unrealized
appreciation (depreciation)
on debt securities
available for
sale-net of
deferred income
taxes - - - - (2,935) (2,935)
Net income - - 5,355 - - 5,355
---------------------------------------------------
Balance at
June 30, 1996 $ 17 21,040 18,964 (280) (296) 39,445
===================================================
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flow
For the six months ended June 30, 1996 and 1995
(In thousands)
Six months ended
June 30,
--------
1996 1995
------ ------
Operating activities:
Net income before extraordinary items $ 4,600 2,708
Adjustments to reconcile net income
before extraordinary items to net cash
(used) by operating activities:
Equity in earnings of BBC (4,721) (4,599)
Depreciation 395 375
Expenses related to real estate investments 85 98
Increase in deferred income taxes 1,306 --
Loss on disposition of mortgage notes
and investment, net 232 --
Accretion on exchange debentures 8 14
Amortization of discount on
loans receivable (30) (15)
Gain on sale of real estate, net (3,289) (206)
Increase in deferred interest on the
exchange debentures 368 701
Accrued interest income on escrow accounts (100) (157)
Interest accrued regarding redeemed
debenture liability 261 196
Decrease in other liabilities (211) (288)
Decrease (increase) in other assets (24) 100
------ ------
Net cash (used) by
operating activities (1,120) (1,073)
------ ------
Investing activities:
Proceeds from the sale of real estate
investment 6,489 341
Common stock dividends received
from BBC 429 382
Purchase of securities available
for sale (23,513) (9,935)
Proceeds from redemption and maturities
of securities available for sale 17,456 10,439
Principal reduction on loans 1,305 70
Increase in real estate investments (168) (64)
Improvements to real estate acquired in
debenture exchanges (40) (85)
------ ------
Net cash provided by investing
activities 1,958 1,148
------ ------
Financing activities:
Repayments of borrowings (1,446) (140)
------ ------
Net cash (used) by
financing activities (1,446) (140)
------ ------
Decrease in cash and
cash equivalents (608) (65)
Cash and cash equivalents at
beginning of period 1,152 711
------ ------
Cash and cash equivalents at
end of period $ 544 646
====== ======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1996
1. PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
by BFC Financial Corporation (the "Company" or "BFC") in accordance with the
accounting policies described in its 1995 Annual Report and should be read in
conjunction with the notes to the consolidated financial statements which appear
in that report.
In the opinion of management, the accompanying financial statements contain such
adjustments as are necessary to present fairly the Company's unaudited
consolidated financial condition at June 30, 1996, the unaudited consolidated
results of operations for the six and three month periods ended June 30, 1996
and 1995 and the unaudited consolidated cash flows for the six months ended June
30, 1996 and 1995. Such adjustments consisted only of normal recurring items.
The unaudited consolidated financial statements and related notes are presented
as permitted by Form 10-Q and consequently, do not include certain information
and notes necessary for a complete presentation of financial condition, results
of operations and cash flows as required by generally accepted accounting
principles for financial statements. Certain prior year balances have been
reclassified to conform with the 1996 presentation.
2. INVESTMENT IN BANKATLANTIC BANCORP, INC.
A reconciliation of the carrying value in BankAtlantic Bancorp, Inc. ("BBC") to
BBC stockholders' equity at June 30, 1996 and December 31, 1995 is as follows:
June 30, December 31,
1996 1995
---- ----
BBC stockholders' equity $141,651 120,561
Ownership percentage 40.84% 46.03%
------- -------
57,850 55,494
Purchase accounting adjustments (2,592) (2,832)
------- -------
Investment in BBC $ 55,258 52,662
======= =======
In February 1996, shareholders of BBC approved a proposal to create a new class
of non-voting common stock designated as Class A Common Stock. BBC's existing
common stock was redesignated Class B Common Stock. Class A Common Stock is
entitled to receive cash dividends equal to at least 110% of any cash dividends
declared and paid on the Class B Common Stock. In 1996, BBC issued approximately
1.7 million shares of Class A Common Stock in a public offering reducing BFC's
ownership in BBC's total outstanding Class A and B common stock to approximately
41%.
In July 1996, BBC issued $57.5 million of 6 3/4% debentures due July 2006. The
debentures are convertible at an exercise price of $12.80 and can be converted
into 4,492,188 shares of BBC Class A Common Stock.
On July 9, 1996, the Board of Directors of BBC declared a five for four common
stock dividend effected in the form of a stock split, payable in Class A Common
Stock to BBC Class A and Class B common shareholders of record on July 19, 1996.
The Stock dividend is payable in Class A Common Stock regardless of the Class of
shares held. Where appropriate, amounts throughout this report have been
adjusted to reflect the stock split.
3. SECURITIES AVAILABLE FOR SALE
Included in securities available for sale at June 30, 1996 and December 31, 1995
was approximately $14.1 million and $5.1 million of U.S. Treasury Bills and
other investments, respectively. Market value at June 30, 1996 and December 31,
1995 approximates book value. At June 30, 1996 and December 31, 1995
approximately $4.8 million was pledged as collateral to secure a Letter of
Credit issued in connection with the Short vs. Eden United, Inc. litigation.
The 1991 Exchange settlement agreement provided for a release from escrow of any
balances remaining at the end of June 1996. Accordingly, approximately $3.0
million was transferred from escrow for redeemed debenture liability to
securities available for sale.
4. CONSOLIDATED STATEMENTS OF CASH FLOWS
Other non-cash financing and investing activities for the six months ended June
30, 1996 and 1995 were as follows (in thousands):
June 30,
--------
1996 1995
---- ----
Change in stockholders' equity resulting
from the Company's proportionate share
of BBC's net unrealized appreciation
(depreciation) on debt securities
available for sale, less related
deferred income taxes (2,935) 643
======= ======
Transfers from escrow accounts to reflect
payments on the redeemed debenture liability 427 3,219
===== =====
Transfer from escrow for redeemed debenture
liability to securities available for sale in
connection with the 1991 Exchange
litigation settlement 2,977 -
===== ====
Effect of issuance of BBC's common stock
by BBC to shareholders other than BFC 1,267 1,188
====== =====
The net gain associated with the settlements
of the Exchange litigation, net of income taxes 755 -
====== ====
Loss on disposition of mortgage
notes and investment, net 232 -
====== =====
BBC's dividends on common stock
declared and not received 215 191
===== ======
Interest paid on borrowings 1,261 1,203
======= =====
5. REAL ESTATE INVESTMENTS
In 1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo, Vice Chairman of the Board, and certain of his affiliates
(the "Abdo Group"). Under the arrangement, the Company and the Abdo Group will
share equally in profits after any profit participation due to any other
partners in the ventures and after a priority return in favor of the Company.
The Company bears the risk of loss, if any, under the arrangement. On such
basis, the Company has acquired interests in three properties. In June 1994, an
entity controlled by the Company acquired from an independent third party 23.7
acres of unimproved land know as "Cypress Creek" property located in Fort
Lauderdale, Florida. In March 1996, the Cypress Creek property was sold to an
unaffiliated third party for approximately $9.7 million and the company
recognized a gain of approximately $3.3 million. In connection therewith, the
Abdo Group received approximately $2.9 million as their share of the profit from
the transaction. In December 1994, an entity controlled by the Company acquired
from an unaffiliated seller 60.1 acres of unimproved land known as the
"Centerport" property in Pompano Beach, Florida. In May 1995, an entity
controlled by the Company contracted to acquire the Regency Golf and Beach Club
at Palm-Aire in Pompano Beach, Florida (the "Regency") for $14.5 million. The
Regency is an existing rental apartment complex having 288 apartment suites. The
acquisition is expected to close during 1996 and it is currently anticipated
that the Company will seek other partners in connection with the acquisition of
the property.
In March 1996, the Company recorded a loss on the disposition of mortgage notes
and investment, net of approximately $232,000 due to the disposition of three
mortgage notes and an investment due from affiliated limited partnerships.
During 1996, the limited partnerships were liquidated after the sale of their
respective properties.
6. OTHER MATTERS
An unaffiliated tenant contaminated certain property formerly owned by BFC. The
tenant while contractually responsible for the cleanup of the contamination
refused to do so. BFC, therefore, conducted the cleanup and sought to collect
the cleanup costs from the tenant. Through June 30, 1996, an aggregate of
approximately $865,000 of costs and attorneys' fees relating to this matter were
recorded by BFC as a receivable. In July 1996, approximately $1.1 million was
received as payment for costs incurred by BFC. BFC will, therefore, recognize a
gain of approximately $235,000 during the third quarter of 1996 relating to this
matter.
<PAGE>
BFC Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
BFC Financial Corporation (the "Company" or "BFC") is a savings bank holding
company which owns approximately 40.84% of the outstanding common stock of
BankAtlantic Bancorp, Inc. ("BBC"). BBC was formed in April 1994 under the laws
of the state of Florida and is the holding company for BankAtlantic, A Federal
Savings Bank ("BankAtlantic").
Results of Operations
For the quarter ended June 30, 1996 the Company reported net income of
approximately $1.5 million or $.67 primary and fully diluted income per common
and common equivalent share as compared to net income of approximately $1.7
million or $.81 primary and $.79 fully diluted income per common and common
equivalent share for the comparable period in 1995. Operations for the quarter
ended June 30, 1996 included an extraordinary gain, net of deferred income taxes
of approximately $6,000 relating to a change in the estimate of the amount of
the settlement liability on the 1989 and 1991 Exchange transaction.
For the six month period ended June 30, 1996 the Company reported net income of
approximately $5.4 million or $2.37 primary and $2.36 fully diluted income per
common and common equivalent share as compared to net income of approximately
$2.7 million or $1.26 primary and $1.24 fully diluted income per common and
common equivalent share for the comparable period in 1995. Operations for 1996
included an extraordinary gain, net of deferred income taxes of approximately
$755,000 or $.33 primary and fully diluted income per common and common
equivalent share, relating to a change in the estimate of the amount of the
settlement liability on the 1989 and 1991 Exchange transaction.
The increase in revenues of approximately $3.0 million for the six months ended
June 30, 1996, as compared to the comparable period in 1995 was primarily due to
an increase in earnings on real estate operations of approximately $223,000 and
the net gain on the sale of real estate of approximately $3.1 million. Such
increase in revenues was partially offset by a decrease in interest on mortgage
notes and related receivables of approximately $35,000 and other income, net of
approximately $ 250,000.
The decrease in revenues of approximately $406,000 for the quarter ended June
30, 1996, as compared to the comparable period in 1995 was primarily due to
decreases in interest on mortgage notes and related receivables of approximately
$20,000, the net gain on the sale of real estate of approximately $206,000
during 1995 and other income, net of approximately $237,000. Such decrease in
revenues was partially offset by an increase in interest and dividends on other
securities available for sale and escrow accounts of approximately $20,000 and
earnings on real estate operations, net of approximately $37,000.
In June 1994, an entity controlled by the Company acquired from an independent
third party 23.7 acres of unimproved land know as "Cypress Creek" property
located in Fort Lauderdale, Florida. In March 1996, the Cypress Creek property
was sold to an unaffiliated third party for approximately $9.7 million and the
company recognized a net gain of approximately $3.3 million. In April 1995 a
subsidiary of the Company sold a property located in Galesburg, Illinois for
approximately $375,000 and the company reported a net gain of approximately
$206,000 for the quarter ended June 30, 1995.
Earnings on real estate operations, net increased for the six and three month
periods ended June 30, 1996 as compared to the same periods in 1995 primarily as
a result of an increase in occupancy at a property acquired in the 1991
Exchange. During the quarter ended June 30, 1996, the increase in earnings on
real estate operations, net was partially offset with an increase in provision
for uncollectible tenant receivables.
Interest on mortgage notes and related receivables decreased for the six and
three month periods ended June 30, 1996 as compared to the same periods in 1995
primarily due to a reduction in the amount of mortgage note receivables from
affiliated limited partnerships held by the Company.
Interest and dividends on securities available for sale and escrow accounts
decreased for the six months ended June 30, 1996 as compared with the 1995
comparable period primarily due to decreases in yields in securities available
for sale and decreases in the escrow accounts yield and average balance related
to the settlement of litigation. This decrease was offset during the quarter
ended June 30, 1996 as compared with the 1995 comparable period primarily due to
increases in investable funds.
Other income, net decreased for the six and three month periods ended June 30,
1996 as compared with the same periods in 1995 primarily due to proceeds
received during the quarter ended June 30, 1995 related to advances due from an
affiliate which were written-off in prior years.
The decrease in cost and expenses of approximately $64,000 for the six months
ended June 30, 1996 as compared to same period in 1995 was primarily due to
decreases in interest on exchange debentures of approximately $276,000, interest
on mortgage payable and other borrowings of approximately $24,000, expenses
related to real estate investments of approximately $13,000 and general and
administrative, net of approximately $37,000. This decrease was offset with
increases in loss on disposition of mortgage notes and investment, net of
approximately $232,000 and employee compensation and benefits of approximately
$56,000.
The decrease in cost and expenses of approximately $28,000 for the quarter ended
June 30, 1996 as compared to the same period in 1995 was primarily due to
decreases in interest on exchange debentures of approximately $145,000 and
interest on mortgage payable and other borrowings of approximately $32,000. This
decrease was offset with increases in expenses related to real estate
investments of approximately $41,000, employee compensation and benefits of
approximately $69,000 and general and administrative, net of approximately
$38,000.
Interest on exchange debentures decreased for the six and three month periods
ended June 30, 1996 as compared to the same periods in 1995 as a result of the
1991 and 1989 Exchange settlements and decreases in the amounts payable in 1995
and 1996 relating to changes in the settlement liability. This decrease was
offset in part by the accrual of interest on the 1989 Exchange settlement
liability.
The expenses related to real estate investments represents the Company's prorata
share of expenses, primarily real estate taxes, related to the ownership of
property acquired in 1994 by an entity controlled by the Company. The decrease
in expenses related to real estate investments for the six months ended June 30,
1996 as compared to the same period in 1995 was primarily due to the sale of
Cypress Creek in March 1996. This decrease was offset during the quarter ended
June 30, 1996 as compared to the same period in 1995 primarily due to an
adjustment in the 1995 period attributable to the accrual for real estate taxes.
In March 1996, the Company recorded a loss on the disposition of mortgage notes
and investment, net of approximately $232,000 due to the disposition of three
mortgage notes and an investment due from affiliated limited partnerships.
During 1996, the limited partnerships were liquidated, subsequent to the sale of
their respective properties.
Interest on mortgage payables and other borrowings decreased for the six and
three month periods ended June 30, 1996 as compared to the same periods in 1995
primarily due to reduction in borrowings.
Employee compensation and benefits increased for the six and three month periods
ended June 30, 1996 as compared to the same periods in 1995 primarily due to
increase in salary levels.
General and administrative, net decreased for the six months ended June 30, 1996
as compared to the same period in 1995 primarily due to decreases in legal
expenses, leasing fees and professional and consulting fees. This decrease was
offset during the quarter ended June 30, 1996 with an increase in the provision
relating to the Kugler litigation of approximately $65,000.
BBC's net income applicable to common shareholders for the six and three month
periods ended June 30, 1996 was $10.3 million and $5.5 million, respectively,
compared to net income of $8.9 million and $4.7 million for the six and three
month periods ended June 30, 1995. The Company's equity in BBC's net income for
the six and three month periods ended June 30, 1996 was $4.7 million and $2.4
million, respectively, compared to its equity in BBC's net income of $4.6
million and $2.4 million for the six and three month periods ended June 30,
1995, respectively. The Company's ownership in BBC decreased from approximately
46% to 41.5% in March 1996 upon BBC's issuance of a new class of common stock.
The Company's ownership in BBC has further decreased to 40.84% at June 30, 1996
due to BBC's issuance of common stock in connection with exercise of employee
stock options.
Financial Condition
BFC's total assets at June 30, 1996 and at December 31, 1995 were $99.8 million
and $96.9 million, respectively. The majority of the difference at June 30, 1996
as compared to December 31, 1995 was due to increases in securities available
for sale of approximately $9.0 million and investment in BBC of approximately
$2.6 million. These increases were offset by decreases in mortgage notes and
related receivables, net of approximately $1.5 million, a decrease in the escrow
for redeemed debenture liability of approximately $3.2 million and a decrease in
real estate investments of approximately $3.8 million.
Mortgage notes and related receivables, net decreased due to principal
reductions on loans and the disposition of three mortgage notes due from
affiliated limited partnerships resulting from the liquidation of the
partnerships.
The decrease in real estate investments was due to the sale of the Cypress Creek
property to an unaffiliated third party for approximately $9.7 million.
Securities available for sale increased due to the investment of proceeds
received in connection with the sale of the Cypress Creek property in March 1996
and the transfer from escrow for redeemed debenture liability to securities
available for sale in connection with the 1991 Exchange litigation settlement of
approximately $3.0 million.
Mortgages payable and other borrowing decreased due to the satisfaction of loans
upon the sale of affiliated limited partnership properties.
Exchange debentures, net and deferred interest on the Exchange debentures
decreased approximately $773,000 and $179,000, respectively, primarily due to a
decrease in the amount payable in connection with the settlement of litigation
relating to the 1991 and 1989 Exchange. The decrease in deferred interest on the
Exchange debentures was partially offset by increases in the deferred interest
on the 1989 and 1991 Exchange debentures pursuant to their terms.
Investment in BBC increased by $2.6 million due to the equity in earnings of BBC
of approximately $4.7 million, the $1.3 million effect of issuance of BBC Class
A common stock by BBC to BBC shareholders other than BFC, reduced by the common
stock dividends of approximately $0.5 million declared in 1996 and the change in
BBC's net unrealized appreciation (depreciation) on debt securities available
for sale, net of deferred income taxes of approximately $2.9 million.
Liquidity and Capital Resources
Numerous lawsuits were filed against the Company in connection with both the
1989 and 1991 Exchange offers. Settlement of these lawsuits occurred during
1994. A description of these settlements is contained in the Company's 1995
Annual Report.
In connection with the above settlements, the Company deposited $20.8 million
into settlement escrow accounts, with another deposit of approximately $4.7
million and $5.1 million required in December 1996 and March 1997, respectively.
In 1996, based upon claims made and paid pursuant to the settlements of the 1991
Exchange litigation and Meador 1989 Exchange litigation, a net gain of
approximately $755,000 was recognized for the six months ended June 30, 1996
related to Class Members No Longer Owning Debentures (as defined) and Class
Members that did not make a claim within the period required by the terms of the
settlement relating to the Meador litigation. Although amounts for the required
payments have been escrowed, payments are not yet being made pursuant to the
Purcell 1989 Exchange Litigation pending resolution of the ABC litigation.(See
Item 3 Legal Proceedings in the Company's 1995 Annual Report.)
At June 30, 1996, the redeemed debenture liability for the 1989 and 1991
Exchange litigation settlements was approximately $13.7 million and $2.2
million, respectively. Additionally, at June 30, 1996 the escrow for redeemed
debenture liability relating to the 1989 Exchange litigation settlement was
approximately $5.8 million. The 1991 Exchange settlement agreements provided for
a release from the escrow of any balances remaining at the end of June 1996.
Accordingly, approximately $3.0 million was released from escrow and is included
in securities available for sale in the Company's Consolidated Statements of
Financial Condition at June 30, 1996. The Meador 1989 Exchange settlement
agreement provides for a release from the escrow of any balances remaining at
January 18, 1998. No release dates have been established relating to the Purcell
1989 Exchange settlement based on the pendency of the ABC appeal.
In connection with certain litigation related to the purchase and sale of an
apartment complex in Indiana (See Item 3. "Litigation ", Short vs. Eden United,
Inc., et. al. in the Company's 1995 Annual Report), on February 25, 1994, the
lower court on remand awarded plaintiff a judgment totaling approximately $4.5
million, including interest. The Company appealed the trial court's order and
posted an appeal bond which is currently collateralized by approximately $4.8
million of marketable securities. In prior years, the Company had accrued a $4.5
million provision for this litigation and incurred expenses associated with a
cash bond of approximately $445,000, which is included in other liabilities in
the Company's Consolidated Statements of Financial Condition. In July 1995, the
Indiana Court of Appeals affirmed conditionally or remanded in part and reversed
in part the decision of the trial court on remand. The effect of the Court of
Appeals opinion was to reduce the damage award to $1,285,000 from $2,570,000;
disallow pre-judgment interest, set the date for computation of post-judgment
interest and fix the rate at 8% and require the use of a discount to compute the
present value of the damage award. The reduction of the damage award will be
remanded to the trial court for verification that the trial court used the same
method of damage computation as the Court of Appeals and for the trial court to
determine the present value and enter a new final judgment. Short filed for a
hearing before the Indiana Supreme Court but his petition was denied. Based upon
the ruling, preliminary computations by the Company indicate that the total loss
to the Company would be approximately $500,000 not the $4.5 million dollars
previously established as a provision in connection with this litigation. The
appeal bond in this matter has been reduced by the Courts to $800,000.
In connection with certain litigation relating to an action filed by an
individual investor against two individual defendants, who allegedly sold
securities without being registered as securities brokers, two corporations
organized and controlled by such individuals, and against approximately sixteen
publicly offered limited partnerships, including two partnerships that the
Company acquired the assets and liabilities of in the 1991 Exchange transaction,
(the "Predecessor Partnerships") interests in which were sold by the individual
and corporate broker defendants, (See Item 3. "Litigation", Kugler, et.al. v.
I.R.E. Real Estate Income Fund, et.al. in the Company's 1995 Annual Report) in
April 1996 the Court entered summary judgment against the Predecessor
Partnerships. As a result of the summary judgment, the Company will be required
to pay claims of approximately $3.6 million (including interest through July 31,
1996 but not including attorney's fees to plaintiffs counsel). A liability for
approximately $4.1 million had been previously established for this matter and
is reflected in the accompanying financial statements.
A substantial portion of the funds currently required in connection with the
liabilities associated with the litigation described above have already been
provided. Other funds required, in addition to those currently available, may
come from operations, borrowings against BBC stock, BBC dividends, the
collateral previously delivered in connection with the Short litigation, or sale
and/or refinancing of real estate and mortgages owned.
As a result of the Exchange litigation settlements, the Company's obligation to
pay interest on debentures is limited to only those debentures held by persons
that acquired debentures in an arms length transaction prior to the date on
which settlements were reached ("Holders in Due Course"), or debentures held by
persons that opted out of the litigation. Pursuant to the terms of the
debentures issued in the 1989 Exchange and the 1991 Exchange, the Company may
elect to defer interest payments on its subordinated debentures if management of
the Company determines in its discretion that the payment of interest would
impair the operations of the Company. Items considered in the decision to defer
the interest payment would include, among other items, the upcoming payments due
on the Purcell and Meador Litigation, required payments relating to the Kugler
Litigation, the ability to identify which debentures are held by Holders in Due
Course and current operating expenses. Since December 31, 1991, the Company has
deferred interest payments on its subordinated debentures. The Company believes
it has sufficient current liquidity to meet its normal operating expenses, but
it is not anticipated that it will make current payments of interest on the
Exchange debentures until such time as the identity of holders due interest has
been determined with reasonable certainty.
As previously indicated, the Company holds 40.84% of BBC's outstanding common
stock. BBC's primary sources of funds during the first six months of 1996 were
the issuance of the Class A Common Stock and dividends from its wholly owned
subsidiary BankAtlantic, A Federal Savings Bank ("BankAtlantic"). Current
regulations applicable to the payment of cash dividends by savings institutions
impose limits on capital distributions based on an institution's regulatory
capital levels and net income. An institution that meets all of its fully
phased-in capital requirements (both before and after giving effect to the
distribution) and is not in need of more than normal supervision would be a
"Tier 1 association". Upon prior notice to, and non-objection by, the OTS, a
Tier 1 association may make capital distributions during a calendar year up to
the greater of (1) 100% of net income for the current calendar year plus 50% of
its capital surplus or (ii) 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval. Capital distributions by institutions that do not qualify as Tier 1
associations are subject to greater limitations and to other regulatory
requirements. BankAtlantic is also required to meet all capital standards
promulgated pursuant to FIRREA and FDICIA. To be considered "well capitalized"
under FDICIA, a savings institution must generally have a core capital ratio of
at least 5%, a Tier 1 risk-based capital ratio of at least 6%, and a total
risk-based capital ratio of at least 10%. At June 30, 1996, BankAtlantic met all
regulatory capital requirements and met the definition of "well capitalized."
BBC's primary use of funds is to pay cash dividends to common stockholders and
interest expense on its outstanding debentures. It is anticipated that funds for
payment of these expenses will be obtained from BankAtlantic. The ultimate
repayment by BBC of its outstanding Debentures may be dependent upon dividends
from BankAtlantic, refinancing of the debt or raising additional equity capital
by BBC. BBC currently anticipates that it will pay regular quarterly cash
dividends on its common stock. Funds for dividend payments and interest expense
on the Debentures are in part dependent upon BankAtlantic's ability to pay
dividends to BBC. The Company's cash position and its ability to meet its
obligations will in part be dependent on the financial condition of BBC and the
payment of dividends to its shareholders.
In 1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo, Vice Chairman of the Board, and certain of his affiliates
(the "Abdo Group"). Under the arrangement, the Company and the Abdo Group will
share equally in profits after any profit participation due to any other
partners in the ventures and after a priority return in favor of the Company.
The Company bears the risk of loss, if any, under the arrangement. On such
basis, the Company has acquired interests in three properties. In June 1994, an
entity controlled by the Company acquired from an independent third party 23.7
acres of unimproved land know as "Cypress Creek" property located in Fort
Lauderdale, Florida. In March 1996, the Cypress Creek property was sold to an
unaffiliated third party for approximately $9.7 million and the company
recognized a gain of approximately $3.3 million. In connection therewith, the
Abdo Group received approximately $2.9 million as their share of the profit from
the transaction. In December 1994, an entity controlled by the Company acquired
from an unaffiliated seller 60.1 acres of unimproved land known as the
"Centerport" property in Pompano Beach, Florida. In May 1995, an entity
controlled by the Company contracted to acquire the Regency Golf Beach Club at
Palm-Aire in Pompano Beach, Florida (the "Regency"). The Regency is an existing
rental apartment complex having 288 apartment suites. The acquisition is
expected to close during 1996 and is currently anticipated that the Company will
seek other partners in connection with the acquisition of the property.
Cash Flows
A summary of the Company's consolidated cash flows is as follows (in thousands):
Six months ended
June 30,
--------
Net cash provided (used) by: 1996 1995
---- ----
Operating activities $(1,120) (1,073)
Investing activities 1,958 1,148
Financing activities (1,446) (140)
------ -----
(Decrease) in cash $ (608) (65)
====== =====
The changes in cash flow used or provided in operating activities are affected
by the changes in operations, which are discussed elsewhere herein, and by
certain other adjustments. These adjustments include additions to operating cash
flows for non-operating charges such as depreciation and loss on disposition of
mortgage notes and investment, net. Cash flow from operating activities is also
adjusted to reflect the use or the providing of cash for increases and
decreases, respectively, in operating assets, decreases or increases,
respectively of operating liabilities, and increases in exchange debentures
deferred interest. Accordingly, the changes in cash flow from operating
activities in the periods indicated above has been impacted not only by the
changes in operations during the periods but also by these other adjustments.
The primary sources of funds to the Company, for the six months ended June 30,
1996 were proceeds from the sale of real estate investments, principal reduction
on loans, proceeds from redemption and maturities of securities available for
sale, revenues from property operations and dividends from BBC. These funds were
primarily utilized for reduction of mortgage payables and other borrowings,
purchase of securities available for sale, operating expenses and capital
improvements at the Company's properties and general and administrative
expenses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Short vs. Eden United, Inc., et al. in the Marion County Superior Court, State
of Indiana. Civil Division Case No. S382 0011. In connection with certain
litigation related to the purchase and sale of an apartment complex in Indiana
(See Item 3. "Litigation ", Short vs. Eden United, Inc., et. al. in the
Company's 1995 Annual Report), on February 25, 1994, the lower court on remand
awarded plaintiff a judgment totaling approximately $4.5 million, including
interest. The Company appealed the trial court's order and posted an appeal bond
which is currently collateralized by approximately $4.8 million of marketable
securities. In prior years, the Company had accrued a $4.5 million provision for
this litigation and incurred expenses of approximately $445,000 in connection
with a cash bond, which is included in other liabilities in the Company's
Consolidated Statements of Financial Condition. In July 1995, the Indiana Court
of Appeals affirmed conditionally or remanded in part and reversed in part the
decision of the trial court on remand. The effect of the Court of Appeals
opinion was to reduce the damage award to $1,285,000 from $2,570,000; disallow
pre-judgment interest, set the date for computation of post-judgment interest
and fix the rate at 8% and require the use of a discount to compute the present
value of the damage award. The reduction of the damage award will be remanded to
the trial court for verification that the trial court used the same method of
damage computation as the Court of Appeals and for the trial court to determine
the present value and enter a new final judgment. Short filed for a hearing
before the Indiana Supreme Court but his petition was denied. Based upon the
ruling, preliminary computations by the Company indicate that the total loss to
the Company would be approximately $500,000 not the $4.5 million dollars
previously established as a provision in connection with this litigation. The
appeal bond in this matter has been reduced by the Courts to $800,000.
Kugler, et al., v I.R.E. Real Estate Income Fund, et al. In the Appellate Court
of Illinois, First District, and related cases, App. No 90-107. In connection
with certain litigation relating to an action filed by an individual investor
against two individual defendants, who allegedly sold securities without being
registered as securities brokers, two corporations organized and controlled by
such individuals, and against approximately sixteen publicly offered limited
partnerships, including two partnerships that the Company acquired the assets
and liabilities of in the 1991 Exchange transaction, (the "Predecessor
Partnerships") interests in which were sold by the individual and corporate
broker defendants, (See Item 3. "Litigation", Kugler, et.al. v. I.R.E. Real
Estate Income Fund, et.al. in the Company's 1995 Annual Report) in April 1996
the Court entered summary judgment against the Predecessor Partnerships. As a
result of the summary judgment, the Company will be required to pay claims of
approximately $3.6 million (including interest through July 31, 1996 but not
including attorney's fees to plaintiffs counsel). A liability of approximately
$4.1 million had been previously established relating to this matter and is
reflected in the accompanying financial statements.
Item 2 through 5.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27 - Financial Data Schedule
b) No report on Form 8-K was filed during the quarter ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BFC Financial Corporation
Date: August 6, 1996 By: /s/ Glen R. Gilbert
----------------------
Glen R. Gilbert, Senior Vice President
and Chief Financial Officer
<TABLE> <S> <C>
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<LEGEND>
The schedule contains summary financial information extracted from the BFC
Financial Corporation Form 10-Q for the quarter ended June 30, 1996 and is
qualified in its entirity by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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