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 September 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
September 30, 1996 and December 31, 1995
(in thousands, except share data)
(Unaudited)
Assets
1996 1995
---- ----
Cash and cash equivalents $ 4,181 1,152
Securities available for sale 12,247 5,105
Investment in BankAtlantic Bancorp, Inc. ("BBC") 55,397 52,662
Mortgage notes and related receivables, net 2,531 5,168
Real estate acquired in debenture exchanges, net 10,520 11,072
Real estate investments 6,417 10,211
Escrow for redeemed debenture liability 5,794 8,982
Other assets 2,189 2,544
--------- ------
Total assets $ 99,276 96,896
========= ======
Liabilities and Stockholders' Equity
Exchange debentures, net 3,041 3,810
Deferred interest on the exchange debentures 2,730 2,722
Redeemed debenture liability 15,947 15,964
Mortgage payables and other borrowings 25,685 27,616
Other liabilities 9,213 9,393
Deferred income taxes 3,493 1,633
--------- ------
Total liabilities 60,109 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 20,511 19,773
Retained earnings 18,923 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 39,171 33,119
BBC net unrealized appreciation (depreciation)
on debt securities available for sale,
net of deferred income taxes (4) 2,639
--------- ------
Total stockholders' equity 39,167 35,758
--------- ------
Total liabilities and stockholders' equity $ 99,276 96,896
========= ======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For the nine and three month periods ended September 30, 1996 and 1995
(in thousands, except per share data)
(Unaudited)
Nine months ended Three months ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Interest on mortgage notes and
related receivables $ 256 332 69 110
Interest and dividends on securities
available for sale and escrow
accounts 553 499 209 146
Earnings on real estate
operations, net 872 651 287 289
Gain on sale of
real estate, net 3,289 206 -- --
Other income, net 545 430 391 26
------ ----- ----- -----
Total revenues 5,515 2,118 956 571
------ ----- ----- -----
Costs and expenses:
Interest on exchange debentures 959 1,384 323 472
Interest on mortgages payable
and other borrowings 1,871 1,927 613 645
Loss on disposition of mortgage
notes and investment, net 289 -- 57 --
Expenses related to real estate
investments 127 154 42 56
Employee compensation and benefits 859 757 297 251
Occupancy and equipment 34 35 10 9
General and administrative, net 808 797 231 183
------ ----- ----- -----
Total cost and expenses 4,947 5,054 1,573 1,616
------ ----- ----- -----
Income (loss) before equity in earnings
of BBC, income taxes and
extraordinary items 568 (2,936) (617) (1,045)
Equity in earnings of BBC 5,297 7,005 576 2,406
------ ----- ----- -----
Income (loss) before income taxes
and extraordinary items 5,865 4,069 (41) 1,361
Provision for income taxes 1,306 -- -- --
------ ----- ----- -----
Income (loss) before extraordinary items 4,559 4,069 (41) 1,361
Extraordinary items:
Gain from debt restructuring -- 825 -- 825
Gain on settlements of Exchange
litigation, net of income taxes of
$606,000 for the nine months
ended September 30, 1996 755 230 -- 230
------ ----- ----- -----
Net income (loss) $5,314 5,124 (41) 2,416
====== ===== ===== =====
Income (loss) per common and
common equivalent share:
Before extraordinary items $ 2.00 1.85 (0.02) 0.60
Extraordinary items 0.33 0.48 -- 0.46
------ ----- ----- -----
Net income (loss) per common and
common equivalent share $ 2.33 2.33 (0.02) 1.06
====== ===== ===== =====
Income (loss) per common and
common equivalent share
assuming full dilution:
Before extraordinary items $ 1.98 1.83 (0.02) 0.59
Extraordinary items 0.33 0.47 -- 0.46
------ ----- ----- -----
Net income (loss) per common and
common equivalent share
assuming full dilution $ 2.31 2.30 (0.02) 1.05
====== ===== ===== =====
Weighted average number of common
and common equivalent shares
outstanding 2,279 2,199 2,315 2,288
====== ===== ===== =====
Weighted average number of common
and common equivalent shares
outstanding assuming full dilution 2,305 2,227 2,381 2,310
====== ===== ===== =====
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the nine months ended September 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 - 1,274 - - - 1,274
Net effect of other BBC
capital transactions - (536) - - - (536)
Change in BBC net
unrealized
appreciation
(depreciation) on debt
securities available
for sale-net of
deferred income
taxes - - - - (2,643) (2,643)
Net income - - 5,314 - - 5,314
---- ------ ------ ---- ------ ------
Balance at
September 30, 1996 $ 17 20,511 18,923 (280) (4) 39,167
==== ====== ====== ==== ====== ======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flow
For the nine months ended September 30, 1996 and 1995
(In thousands)
Nine months ended
September 30,
-------------
1996 1995
---- ----
Operating activities:
Net income before extraordinary items $ 4,559 4,069
Adjustments to reconcile net income
before extraordinary items to net cash
(used) by operating activities:
Equity in earnings of BBC (5,297) (7,005)
Depreciation 594 567
Expenses related to real estate investments 127 154
Increase in deferred income taxes 1,306 --
Loss on disposition of mortgage notes
and investment, net 289 --
Accretion on exchange debentures 12 22
Amortization of discount on loans receivable (45) (80)
Gain on sale of real estate, net (3,289) (206)
Increase in deferred interest on the exchange deb 555 1,068
Gain from litigation cost, net (211) --
Proceeds received from litigation settlement 1,109 --
Accrued interest income on escrow accounts (144) (216)
Interest accrued regarding redeemed debenture lia 391 294
Decrease in other liabilities (232) (13)
Decrease (increase) in other assets 123 (29)
------- -------
Net cash (used) by
operating activities (153) (1,375)
------- -------
Investing activities:
Proceeds from the sale of real estate investment 6,489 341
Common stock dividends received from BBC 656 598
Purchase of securities available for sale (38,487) (14,776)
Proceeds from redemption and maturities
of securities available for sale 31,399 15,294
Proceeds from the 1991 Exchange escrow 2,903 --
Principal reduction on loans 2,420 320
Loans originated -- (475)
Increase in real estate investments (225) (99)
Additions to office properties and equipment -- (33)
Improvements to real estate acquired in
debenture exchanges (42) (337)
------- -------
Net cash provided by investing
activities 5,113 833
------- -------
Financing activities:
Increase in borrowings -- 501
Repayments of borrowings (1,931) (244)
------- -------
Net cash (used) provided by financing activities (1,931) 257
------- -------
Increase (decrease) in cash and
cash equivalents 3,029 (285)
Cash and cash equivalents at
beginning of period 1,152 711
------- -------
Cash and cash equivalents at
end of period $ 4,181 426
======= =======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 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 September 30, 1996, the unaudited
consolidated results of operations for the nine and three month periods ended
September 30, 1996 and 1995 and the unaudited consolidated cash flows for the
nine months ended September 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 September 30, 1996 and December 31, 1995 is as
follows:
September 30, December 31,
1996 1995
---- ----
BBC stockholders' equity $139,727 120,561
Ownership percentage 41.41% 46.03%
------- -------
57,855 55,494
Purchase accounting adjustments (2,458) (2,832)
------- -------
Investment in BBC $ 55,397 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. The Company's ownership in BBC
decreased from approximately 46% to 40.84% as of June 30, 1996 upon BBC's
issuance of a new class of common stock in March 1996 and issuance of common
stock in connection with exercise of employee stock options in June 1996. The
Company's ownership in BBC increased to 41.41% of all outstanding BBC common
stock at September 30, 1996, upon BBC's repurchase of 160,000 and 112,500 of its
Class A and B common stock, respectively. At September 30, 1996, the Company's
ownership in BBC Class A and B common stock was approximately 29.5% and 46.1%,
respectively.
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 October 11, 1996,
BankAtlantic used capital contributions from BBC to acquire Bank of North
America Bancorp, Inc. for $53.8 million.
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 September 30, 1996 and December 31,
1995 was approximately $12.2 million and $5.1 million of U.S. Treasury Bills and
other investments, respectively. Market value at September 30, 1996 and December
31, 1995 approximates book value. At 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. During the three
month period ended September 30, 1996, this Letter of Credit was canceled and
the collateral was released.
The 1991 Exchange settlement agreement provided for a release from escrow of any
balances remaining at the end of June 1996. Accordingly, in September 1996,
approximately $2.9 million was released from escrow and such amount is included
in securities available for sale.
4. CONSOLIDATED STATEMENTS OF CASH FLOWS
Other non-cash financing and investing activities and other supplemental cash
flow items for the nine months ended September 30, 1996 and 1995 were as follows
(in thousands):
September 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 (2,643) 652
======= ======
Transfers from escrow accounts to reflect
payments on the redeemed debenture liability 505 3,603
======= =====
Effect of issuance of BBC's common stock
by BBC to shareholders other than BFC 1,274 1,222
======= ======
Net effect of other BBC capital transactions (536) -
======= ======
The net gain associated with the settlements
of the Exchange litigation, net of income taxes 755 230
======= ======
Net gain on debt restructuring - 825
======= ======
Loss on disposition of mortgage
notes and investment, net 289 -
======= ======
BBC's dividends on common stock
declared and not received 215 216
======= ======
Interest paid on borrowings 1,874 1,849
======= ======
Income taxes paid 122 214
======= ======
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 acquired interests in two 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" located in Fort Lauderdale, Florida. In
March 1996, Cypress Creek 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. 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. Additionally, 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 and placed a $500,000 deposit in connection therewith. The Regency is an
existing rental apartment complex having 288 apartment suites. The acquisition
was expected to close during 1996, however, there currently exists disagreements
with the owner which has resulted in litigation. The entity controlled by the
Company has sued the owner for specific performance and damages under the
contract. If the litigation is resolved in favor of the entity controlled by the
Company, it is anticipated that the property will be acquired and that the
Company would seek other partners in connection with the acquisition. If the
litigation is resolved in favor of the seller, it is anticipated that the
contract would be canceled and the entity controlled by the Company might not
receive a return of its deposit.
The Company recorded a loss on the disposition of mortgage notes and investment,
net, of approximately $289,000 due to the March 1996 disposition of three
mortgage notes and an investment 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. An aggregate of approximately $898,000 of
costs and attorneys' fees relating to this matter had been recorded by BFC as a
receivable. In July 1996, approximately $1.1 million was received as payment for
costs incurred by BFC. Based on such receipt, a net gain of approximately
$211,000 was recognized during the third quarter of 1996 relating to this
matter.
On October 29, 1996, a balloon payment of approximately $9.4 million was due on
the mortgage note that is secured by the Burlington Manufacturers Outlet Center.
Such payment was not made and the Company has received a default notice from the
lender. The Company had previously discussed refinancing with the lender but had
been informed that the lender was not interested. Other sources of financing
were sought, however, it has been determined that other lenders will not loan
the full amount due. There is no recourse against the Company on the existing
first mortgage and the Company is currently evaluating whether the value of the
property justifies investing additional cash into the property to retain it.
<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 41.41% 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 September 30, 1996, the Company reported a net loss of
approximately $41,000 or $.02 primary and fully diluted loss per common and
common equivalent share as compared to net income of approximately $2.4 million
or $1.06 primary and $1.05 fully diluted income per common and common equivalent
share for the comparable period in 1995. Operations for the quarter ended
September 30, 1995 included extraordinary gains of approximately $1.1 million or
$.46 primary and fully diluted income per common and common equivalent share.
The 1995 gain was attributable to a change in the estimate of the amount of the
settlement liability on the exchange litigation of approximately $230,000 and a
gain from debt restructuring of approximately $825,000.
For the nine month period ended September 30, 1996, the Company reported net
income of approximately $5.3 million or $2.33 primary and $2.31 fully diluted
income per common and common equivalent share as compared to net income of
approximately $5.1 million or $2.33 primary and $2.30 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 exchange litigation. Operations for the period
ended September 30, 1995 included extraordinary gains of approximately $1.1
million or $.48 primary and $.47 fully diluted income per common and common
equivalent share. This was attributable to a change in the estimate of the
amount of the settlement liability on the 1991 exchange litigation of
approximately $230,000 and a gain from debt restructuring of approximately
$825,000.
The increase in revenues of approximately $3.4 million for the nine months ended
September 30, 1996, as compared to the comparable period in 1995 was primarily
due to an increase in earnings on real estate operations of approximately
$221,000, an increase in other income, net, of approximately $115,000, an
increase in interest and dividends on securities available for sale and escrow
accounts of approximately $54,000 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
$76,000.
The increase in revenues of approximately $385,000 for the quarter ended
September 30, 1996, as compared to the comparable period in 1995 was primarily
due to increases in other income, net, of approximately $365,000 and interest
and dividends on securities available for sale and escrow accounts of
approximately $63,000. Such increase in revenues was partially offset by a
decrease in interest on mortgage notes and related receivables of approximately
$41,000.
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" located in
Fort Lauderdale, Florida. In March 1996, Cypress Creek 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, the Company
sold a property located in Galesburg, Illinois for approximately $375,000 and
the Company reported a net gain of approximately $206,000.
Earnings on real estate operations, net, increased for the nine month period
ended September 30, 1996 as compared to the same period in 1995 primarily as a
result of an increase in occupancy and an increase in tenant reimbursements for
common area maintenance and insurance at a property acquired in connection with
the 1991 Exchange.
Interest on mortgage notes and related receivables decreased for the nine and
three month periods ended September 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
increased for the nine and three month periods ended September 30, 1996 as
compared with the 1995 comparable periods primarily due to increases in
investable funds. Such increase was partially offset with decreases in yields on
securities available for sale and decreases in the yield and average balance of
escrow accounts established in connection with the settlement of litigation.
Other income, net increased for the nine and three month periods ended September
30, 1996 as compared with the same periods in 1995 primarily due to a net gain
of approximately $211,000 associated with the settlement of litigation related
to the cleanup of contamination on a property formerly owned by the Company. An
additional $142,000 was also recognized when the first mortgage holder on a
property formerly owned by the Company allowed release of funds from an escrow
account for an improvement reserve that was established during the time the
Company owned the property. However, the 1995 period included the proceeds
received during the quarter ended June 30, 1995 related to advances due from an
affiliate which were written-off in prior years which did not recur in the 1996
period.
The decrease in cost and expenses of approximately $107,000 for the nine month
period ended September 30, 1996 as compared to same period in 1995 was primarily
due (i) to decreases in interest on exchange debentures of approximately
$425,000, (ii) interest on mortgage payable and other borrowings of
approximately $56,000, and (iii) expenses related to real estate investments of
approximately $27,000. This decrease was offset by increases in (i) loss on
disposition of mortgage notes and investments, net, of approximately $289,000,
(ii) employee compensation and benefits of approximately $102,000 and (iii)
general and administrative, net, of approximately $11,000.
The decrease in costs and expenses of approximately $43,000 for the quarter
ended September 30, 1996 as compared to the same period in 1995 was primarily
due to decreases in interest on exchange debentures of approximately $149,000,
interest on mortgage payable and other borrowings of approximately $32,000 and
expenses related to real estate investments of approximately $14,000. This
decrease was offset with increases in loss on disposition of mortgage notes and
investments, net, of approximately $57,000, employee compensation and benefits
of approximately $46,000 and general and administrative, net, of approximately
$48,000.
Interest on exchange debentures decreased for the nine and three month periods
ended September 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 delayed funding of the second
half of the 1989 Exchange settlement liability.
The expenses related to real estate investments represents the Company's prorata
share of expenses, primarily real estate taxes relating to the ownership of
property acquired in 1994 by an entity controlled by the Company. The decrease
in expenses relating to real estate investments for the nine and three month
periods ended September 30, 1996 as compared to the same periods in 1995 was
primarily due to the sale of Cypress Creek in March 1996.
The Company recorded a loss on the disposition of mortgage notes and investment,
net, of approximately $232,000 in connection with the March 1996 disposition of
three mortgage notes and an investment due from affiliated limited partnerships.
During the three month period ended September 30, 1996, the Company wrote-off an
additional $57,000 related to these limited partnerships. During 1996, the
limited partnerships were liquidated.
Interest on mortgage payables and other borrowings decreased for the nine and
three month periods ended September 30, 1996 as compared to the same periods in
1995 primarily due to a reduction in borrowings and the prime rate of interest.
Employee compensation and benefits increased for the nine and three month
periods ended September 30, 1996 as compared to the same periods in 1995
primarily due to an increase in salary levels.
General and administrative, net, increased for the nine month period ended
September 30, 1996 as compared to the same period in 1995 primarily due to an
addition of approximately $65,000 to the provision relating to the Kugler
litigation. This increase was offset with decreases in professional and
consulting fees, trustee fees and audit expenses. General and administrative,
net increased for the three month period ended September 30, 1996 as compared to
the same period in 1995 primarily due to increased legal fees. This increase was
offset in part by decreases in trustee fees and audit expenses
BBC's net income applicable to common shareholders for the nine and three month
periods ended September 30, 1996 was $11.4 million and $1.1 million,
respectively, compared to net income of $13.7 million and $4.8 million for the
nine and three month periods ended September 30, 1995. The Company's equity in
BBC's net income for the nine and three month periods ended September 30, 1996
was $5.3 million and $576,000, respectively, compared to its equity in BBC's net
income of $7.0 million and $2.4 million for the nine and three month periods
ended September 30, 1995, respectively. The Company's ownership in BBC decreased
from approximately 46% to 40.84% as of June 30, 1996 upon BBC's issuance of a
new class of common stock in March 1996 and issuance of common stock in
connection with exercise of employee stock options in June 1996. The Company's
ownership in BBC increased to 41.41% of all outstanding BBC common stock at
September 30, 1996, upon BBC's repurchase of 160,000 and 112,500 of its Class A
and B common stock, respectively. At September 30, 1996, the Company's ownership
in BBC Class A and B common stock was approximately 29.5% and 46.1%,
respectively.
Financial Condition
BFC's total assets at September 30, 1996 and at December 31, 1995 were $99.3
million and $96.9 million, respectively. The majority of the difference at
September 30, 1996 as compared to December 31, 1995 was due to increases in
securities available for sale of approximately $7.1 million and investment in
BBC of approximately $2.7 million. These increases were offset by decreases in
mortgage notes and related receivables, net, of approximately $2.6 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, satisfaction of a loan 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 release of approximately $2.9 million from an escrow account established
for the payment of redeemed debentures in connection with the 1991 Exchange
litigation settlement.
Mortgages payable and other borrowing decreased due to the satisfaction of loans
upon the sale of affiliated limited partnership properties and the satisfaction
of a $300,000 working capital loan.
Exchange debentures and deferred interest on the exchange debentures decreased
approximately $769,000 and $546,000, respectively, primarily due to a decrease
in the amount payable in connection with the settlement of litigation relating
to the Exchanges. The decrease in deferred interest on the exchange debentures
was offset by an increase of approximately $555,000 in the deferred interest on
the Exchange debentures pursuant to their terms.
Investment in BBC increased by $2.7 million due to the equity in earnings of BBC
of approximately $5.3 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 $0.7 million declared in 1996, the net effect
of other BBC capital transactions of approximately $536,000 and the change in
BBC's net unrealized appreciation (depreciation) on debt securities available
for sale, net of deferred income taxes of approximately $2.6 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 $4.6
million funded in October 1996 and $5.1 million required in March 1997. In 1996,
based upon claims made and paid pursuant to the settlements of the 1991 Exchange
litigation and the Meador 1989 Exchange litigation, a net gain of approximately
$755,000 was recognized for the nine months ended September 30, 1996 relating 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 were not being made pursuant to the Purcell 1989
Exchange Litigation settlement because of an appeal of the settlement by the
American Broadcasting Company and William H. Wilson ("ABC"). The ABC appeal has
now been resolved and payments will commence as soon as matters relating to the
class attorneys' legal fees are ruled on by the Court. (See Item 3 Legal
Proceedings in the Company's 1995 Annual Report.) At September 30, 1996, the
redeemed debenture liability for the 1989 and 1991 Exchange litigation
settlements was approximately $13.8 million and $2.1 million, respectively.
Additionally, 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 and placed a $500,000 deposit in connection
therewith. The Regency is an existing rental apartment complex having 288
apartment suites. The acquisition was expected to close during 1996, however,
there currently exists disagreements with the owner which has resulted in
litigation. The entity controlled by the Company has sued the owner for specific
performance and damages under the contract. If the litigation is resolved in
favor of the entity controlled by the Company, it is anticipated that the
property will be acquired and that the Company would seek other partners in
connection with the acquisition. If the litigation is resolved in favor of the
seller, it is anticipated that the contract would be canceled and the entity
controlled by the Company might not receive a return of its deposit.
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 was collateralized by approximately $4.8 million of
marketable securities. 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. The appeal bond in this matter has been reduced by the
Court to $800,000 and the $4.8 million of collateral was released.
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 approximately $2.0 million representing investments in predecessor
partnerships plus interest at 10% from date of investment less any amounts
received. The method of computation of interest on the rescission amount is
being contested by the parties. $3.7 million was placed in an escrow account on
October 22, 1996 to fund amounts which might be due in this matter.
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, 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 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 approximately 41.41% of all BBC's
outstanding common stock. BBC's primary sources of funds during the first nine
months of 1996 were the issuance of the Class A Common Stock, 6 3/4% Debentures
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.
BBC's primary use of funds during the nine months of 1996 was to contribute $49
million of capital to BankAtlantic, payment of cash dividends to common
stockholders and interest expense on its outstanding debentures. It is
anticipated that funds for payment by BBC of these amounts 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 has indicated that it 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 by BBC of dividends
to its shareholders, including the Company.
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 acquired interests in two 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" located in Fort Lauderdale, Florida. In
March 1996, Cypress Creek 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. Additionally, 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 was
expected to close during 1996, however, there currently exists disagreements
with the seller which has resulted in litigation. If the litigation is resolved
in favor of the entity controlled by the Company, it is anticipated that the
property will be acquired and that the Company would seek other partners in
connection with the acquisition. If the litigation is resolved in favor of the
seller, it is anticipated that the contract would be canceled and the entity
controlled by the Company would receive a return of its deposit.
Cash Flows
A summary of the Company's consolidated cash flows is as follows (in thousands):
Nine months ended
September 30,
-------------
Net cash provided (used) by: 1996 1995
---- ----
Operating activities $ (153) (1,375)
Investing activities 5,113 833
Financing activities (1,931) 257
------ ------
Increase (decrease) in cash $ 3,029 (285)
====== ======
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 nine months ended September
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, proceeds received from litigation settlement, revenues from
property operations, release of funds from an escrow account established for
redeemed debentures 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.
Except for historical information contained herein, the matters discussed in
this report are forward-looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, including but not limited
to, economic, competitive and other factors affecting the Company's operations,
markets, products and services, expansion strategies and other factors discussed
elsewhere in this report and the documents filed by the Company with the
Securities and Exchange Commission. Many of these factors are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this report
will, in fact, occur.
<PAGE>
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 was collateralized by approximately $4.8 million of marketable securities.
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. The appeal
bond in this matter has been reduced by the Court to $800,000 and the $4.8
million of collateral was released.
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
approximately $2.0 million representing investments in predecessor partnerships
plus interest at 10% from date of investment less any amounts received. The
method of computation of interest on the rescission amount is being contested by
the parties. $3.7 million was placed in an escrow account on October 22, 1996 to
fund amounts which might be due in this matter.
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 September 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: November 8, 1996 By: /s/ Glen R. Gilbert
----------------------
Glen R. Gilbert, Senior Vice President
and Chief Financial Officer
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This schedule contains summary financial information extracted from the third quarter Form
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<NAME> BFC Financial Corporation
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