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, 1997
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 Executive Office) (Zip Code)
(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, 2,346,907
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, 1997 and December 31, 1996
(in thousands, except share data)
(Unaudited)
Assets
1997 1996
---- ----
Cash and cash equivalents $ 435 1,796
Securities available for sale 4,537 6,819
Investment in BankAtlantic Bancorp, Inc. ("BBC") 60,733 59,039
Mortgage notes and related receivables, net 1,928 2,180
Real estate acquired in debenture exchanges, net 7,392 10,383
Real estate held for development and sale, net 6,508 6,497
Real estate joint venture 2,664 --
Escrow for redeemed debenture liability 5,278 10,528
Other assets 1,630 1,599
------- ------
Total assets $91,105 98,841
======= ======
Liabilities and Stockholders' Equity
Exchange debentures, net 2,374 2,953
Deferred interest on the exchange debentures 2,586 2,806
Redeemed debenture liability 5,921 16,182
Mortgage payables and other borrowings 24,917 25,498
Other liabilities 586 4,663
Deferred income taxes 8,301 5,277
------- ------
Total liabilities 44,685 57,379
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 2,392,246
in 1997 and 2,373,021 in 1996 22 21
Additional paid-in capital 19,689 20,890
Retained earnings 26,582 20,520
Less: treasury stock
(45,339 shares for 1997 and 1996) (280) (280)
------- ------
Total stockholders' equity before
BBC net unrealized appreciation
on securities available for sale,
net of deferred income taxes 46,013 41,151
BBC net unrealized appreciation
on securities available for sale,
net of deferred income taxes 407 311
------- ------
Total stockholders' equity 46,420 41,462
------- ------
Total liabilities and stockholders' equity $91,105 98,841
======= ======
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, 1997 and 1996
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
---------------- ------------------
June 30, June 30,
-------- --------
1997 1996 1997 1996
----- ------ ----- -----
<S> <C> <C> <C> <C>
Revenues:
Interest on mortgage notes and
related receivables $ 112 187 56 91
Interest and dividends on securities
available for sale and escrow accounts 255 344 97 196
Earnings on real estate rental operations, net 521 585 241 230
Income (loss) in real estate joint venture, net 1 -- (3) --
Sale of real estate 149 9,700 -- --
Net gain from sale of BBC common stock 1,349 -- 1,128 --
Reversal of provision for litigation 2,272 -- 2,272 --
Other income, net 198 154 12 81
----- ------ ----- -----
Total revenues 4,857 10,970 3,803 598
----- ------ ----- -----
Costs and expenses:
Interest on exchange debentures 440 636 193 316
Interest on mortgages payable
and other borrowings 1,037 1,258 523 615
Cost of sale of real estate 18 6,411 1 --
Loss on disposition of mortgage
notes and investment, net -- 232 -- --
Expenses related to real estate held for
development and sale, net 89 85 48 54
Employee compensation and benefits 587 562 282 321
Occupancy and equipment 20 24 11 14
General and administrative, net 620 577 327 344
----- ------ ----- -----
Total cost and expenses 2,811 9,785 1,385 1,664
----- ------ ----- -----
Income (loss) before equity in earnings
of BBC, income taxes and
extraordinary items 2,046 1,185 2,418 (1,066)
Equity in earnings of BBC 5,772 4,721 2,954 2,429
----- ------ ----- -----
Income before income taxes
and extraordinary items 7,818 5,906 5,372 1,363
Provision (benefit) for income taxes 2,537 1,306 2,247 (168)
----- ------ ----- -----
Income before extraordinary items 5,281 4,600 3,125 1,531
Extraordinary items:
Gain from debt restructuring, net of
deferred income taxes of $114,000
for the six and three months ended
June 30, 1997 181 -- 181 --
Gain on settlements of Exchange
litigation, net of deferred income taxes
of $373,000 and $303,000 for the six and
three month periods ended June 30, 1997,
respectively and $606,000 and $144,000
for the six and three month periods
ended June 30, 1996, respectively 600 755 483 6
----- ------ ----- -----
Net income $6,062 5,355 3,789 1,537
===== ====== ===== =====
Income per common and common
equivalent share:
Before extraordinary items $ 2.22 2.04 1.31 0.67
Extraordinary items 0.33 0.33 0.28 --
----- ------ ----- -----
Net income per common and
common equivalent share $ 2.55 2.37 1.59 0.67
===== ====== ===== =====
Income per common and common
equivalent share assuming full
dilution:
Before extraordinary items $ 2.19 2.03 1.30 0.67
Extraordinary items 0.33 0.33 0.28 --
----- ------ ----- -----
Net income per common and
common equivalent share
assuming full dilution $ 2.52 2.36 1.58 0.67
===== ====== ===== =====
Weighted average number of common
and common equivalent shares
outstanding 2,375 2,261 2,383 2,294
===== ====== ===== =====
Weighted average number of common
and common equivalent shares
outstanding assuming full dilution 2,407 2,266 2,409 2,294
===== ====== ===== =====
</TABLE>
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, 1997
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Addi- Retained
tional Earnings Trea-
Common Paid-in Accumulated sury
Stock Capital (Deficit) Stock Other Total
----- ------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $ 21 20,890 20,520 (280) 311 41,462
Net effect of other BBC
capital transactions -- (1,356) -- -- -- (1,356)
Change in BBC net
unrealized appreciation
on securities
available for
sale-net of deferred
income taxes -- -- -- -- 96 96
Exercise of stock options 1 155 -- -- -- 156
Net income -- -- 6,062 -- -- 6,062
----- ------ ------ ---- --- ------
Balance at
June 30, 1997 $ 22 19,689 26,582 (280) 407 46,420
===== ====== ====== ==== === ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the six months ended June 30, 1997 and 1996
(In thousands)
(Unaudited)
June 30,
--------
1997 1996
---- ----
Operating activities:
Income before extraordinary items $ 5,281 4,600
Adjustments to reconcile income
before extraordinary items to net cash
(used) by operating activities:
Equity in earnings of BBC (5,772) (4,721)
Depreciation 342 395
Expenses related to real estate held for
development and sale, net 89 85
Increase in deferred income taxes 2,537 1,306
Accretion on exchange debentures
and mortgages payable 8 8
Amortization of discount on
loans receivable (22) (30)
Gain on sale of real estate, net (131) (3,289)
Net gain from sale of BBC common stock (1,349) --
Loss on disposition of mortgage notes and
investment, net -- 232
Reversal of provision for litigation (2,272) --
Fundings for litigation settlement (1,801) --
Increase in the Exchange escrows
to fund settlement liability (5,123) --
Increase in deferred interest on the
exchange debentures 380 368
Accrued interest income on escrow accounts (128) (100)
Interest accrued regarding redeemed
debenture liability 52 261
Increase (decrease) in other liabilities 67 (211)
Decrease (increase) in other assets 116 (24)
------ ------
Net cash (used in) operating activities (7,726) (1,120)
------ ------
Investing activities:
Proceeds from the sales of real estate
acquired in debenture exchanges 131 --
Proceeds from the sale of real estate -- 6,489
Proceeds from the sale of BBC common stock 3,720 --
Common stock dividends received from BBC 449 429
Purchase of securities available for sale (15,081) (23,513)
Proceeds from redemption and maturities
of securities available for sale 17,337 17,456
Principal reduction on loans 90 1,305
Increase in real estate (126) (168)
Improvements to real estate acquired in
debenture exchanges -- (40)
------ ------
Net cash provided by investing activities 6,520 1,958
------ ------
Financing activities:
Issuance of common stock 92 --
Increase in borrowings 9,144 --
Repayments of borrowings (9,391) (1,446)
------ ------
Net cash (used in)
financing activities (155) (1,446)
------ ------
Decrease in cash and cash equivalents (1,361) (608)
Cash and cash equivalents at beginning of period 1,796 1,152
------ ------
Cash and cash equivalents at end of period $ 435 544
====== ======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
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 1996 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, 1997, the unaudited consolidated
results of operations for the six and three months ended June 30, 1997 and 1996
and the unaudited consolidated cash flows for the six months ended June 30, 1997
and 1996. 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 1997 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, 1997 and December 31, 1996 is as follows:
June 30, December 31,
1997 1996
---- ----
BBC stockholders' equity $ 153,575 147,704
Ownership percentage 40.78% 41.52%
------ -------
62,628 61,327
Purchase accounting adjustments (1,895) (2,288)
------- -------
Investment in BBC $ 60,733 59,039
======= =======
In June 1997 and January 1997, the Company sold 250,000 and 109,844 shares of
BankAtlantic Bancorp, Inc. Class A common stock, respectively. Net proceeds
received from these sales amounted to approximately $3.7 million and a net gain
of approximately $1.3 million was recognized in connection with these
transactions during the six month period ended June 30, 1997. Net proceeds
received from the June 1997 sale amounted to approximately $2.8 million and a
net gain of approximately $1.1 million was recognized during the quarter ended
June 30, 1997.
The Company owned 40.78% of all outstanding BBC common stock at June 30, 1997.
At June 30, 1997, the Company's ownership of BBC Class A and B common stock was
approximately 36% and 46%, respectively.
In March 1997, BBC formed BBC Capital Trust I ("BBC Capital"). BBC Capital is a
statutory business trust which exists for the purpose of issuing the Preferred
Securities ("Preferred Securities") and investing the proceeds thereof in Junior
Subordinated Debentures of BBC. In a public offering in April 1997, BBC Capital
issued $75 million, 2.99 million shares, of Preferred Securities. Holders of
Preferred Securities will be entitled to receive a preferential cumulative cash
distribution at a fixed annual percentage of the liquidation amount (9.5%). BBC
Capital's sole asset is BBC Junior Subordinated Debentures which will bear
interest at the same rate as the Preferred Securities and have a stated maturity
of 30 years from the date of issuance.
In July 1997, 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 August 1,
1997. The Stock dividend was 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, 1997 and December 31, 1996
was approximately $4.5 million and $6.8 million of U.S. Treasury Bills and other
investments, respectively. Market value at June 30, 1997 and December 31, 1996
approximates book value.
4. CONSOLIDATED STATEMENTS OF CASH FLOWS
Other non-cash financing and investing activities and other supplemental cash
flow items for the six months ended June 30, 1997 and 1996 were as follows (in
thousands):
June 30,
--------
1997 1996
---- ----
Change in stockholders' equity resulting
from the Company's proportionate share
of BBC's net unrealized appreciation
(depreciation) on securities available
for sale, less related deferred income taxes 96 (2,935)
===== =====
Transfers from escrow accounts to reflect
payments on the redeemed debenture liability 10,535 427
===== =====
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
===== =====
Net effect of other BBC capital transactions (1,356) --
===== =====
Net gain associated with the settlements
of the Exchange litigation, net of income taxes 600 755
===== =====
Net gain on debt restructuring, net
of deferred income taxes 181 --
===== =====
Loss on disposition of mortgage
notes and investment, net -- 232
===== =====
BBC's dividends on common stock
declared and not received 221 215
===== =====
Increase in equity for the tax effect related to
the exercise of employee stock options 64 --
===== =====
Interest paid on borrowings 1,113 1,261
===== =====
Conversion of mortgage receivable to an
equity interest in an affiliated partnership 184 --
===== =====
5. REAL ESTATE
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 received a default notice from the
lender. The Company entered into an agreement for forbearance and an extension
agreement, which extended the maturity through April 1997. In April 1997, new
financing was obtained from an unaffiliated lender and the previous mortgage
note was satisfied. The principal amount of the current mortgage note is
approximately $9.1 million, the note bears interest at a rate of 9.20% per
annum, requires monthly payments of $77,992 and matures on May 1, 2007. Upon
satisfaction of the previous mortgage note, the Company recognized an
extraordinary gain from debt restructuring, net of deferred income taxes of
approximately $181,000.
The Company sold, effective October 1, 1996, a 50% interest in a property
acquired in the 1989 Exchange. The remaining 50% interest in the property is
being accounted for as a real estate joint venture. Because of the Company's
continuing involvement, a gain on sale of approximately $0.6 million was
deferred, reducing the Company's carrying value in the joint venture.
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 known as the "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, which is included in cost of sale of real estate. As part of
the sale of the Cypress Creek property, the Company has an interest in an
unaffiliated limited partnership that will entitle it to receive approximately
4.5% of any profits, if any, from development and operation of the property. 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. The property is currently being marketed for sale and
serves as partial collateral for an $8.08 million loan to the Company from an
unaffiliated lender.
6. NEW ACCOUNTING STANDARD
Financial Accounting Standard Board Statement ("(FASB) No. 130 and No. 131 were
issued in June 1997. FASB Statement No. 130 ("FAS 130") establishes standards
for reporting comprehensive income in financial statements. This statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Some of the items included in comprehensive income are unrealized
gains or losses on securities available for sale, underfunded pension
obligations and employee stock options. FASB Statement No.131 ("FAS 131")
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires that those
companies report selected information about operating segments in interim
financial statements issued to shareholders. FAS 130 and FAS 131 are effective
for periods beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Implementation of FAS 130 and FAS 131 will impact disclosure but will not have
an impact on the Company's Statement of Financial Condition or Statement of
Operations.
<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 40.78% 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, 1997, the Company reported net income of
approximately $3.8 million or $1.59 primary and $1.58 fully diluted income per
common and common equivalent share as compared to net income of approximately
$1.5 million or $.67 primary and fully diluted income per common and common
equivalent share for the comparable period in 1996. Operations for the quarter
ended June 30, 1997 included an extraordinary gain of approximately $664,000 or
$.28 primary and fully diluted income per common and common equivalent share.
The 1997 extraordinary gain, net of deferred income taxes was due to changes in
the estimate of the amount of the settlement liability associated with the
exchange litigation of approximately $483,000 and a gain on debt restructuring
of approximately $181,000. The 1996 extraordinary gain, net of deferred income
taxes of approximately $6,000 was attributable to changes in the estimate of the
amount of the settlement liability associated with the exchange litigation.
For the six month period ended June 30, 1997, the Company reported net income of
approximately $6.1 million or $2.55 primary and $2.52 fully diluted income per
common and common equivalent share as compared to net income of approximately
$5.4 million or $2.37 primary and $2.36 fully diluted income per common and
common equivalent share for the comparable period in 1996. Operations for 1997
and 1996 included extraordinary gains, net of deferred income taxes of
approximately $781,000 or $.33 primary and fully diluted income per common and
common equivalent share and $755,000 or $.33 primary and fully diluted income
per common and common equivalent share, respectively, relating to changes in the
estimate of the amount of the settlement liability on the 1989 and 1991 Exchange
transactions and in 1997 a $181,000 gain on debt restructuring.
The increase in revenues of approximately $3.2 million for the quarter ended
June 30, 1997, as compared to the comparable period in 1996 was primarily due to
the net gain from the sale of BBC Class A common stock of approximately $1.1
million, the reversal of a provision for litigation of approximately $2.3
million and earnings on real estate rental operations, net of approximately
$11,000. This increase in revenues was partially offset by decreases in interest
on mortgage notes and related receivables of approximately $35,000, interest and
dividend on securities available for sale and escrow accounts of approximately
$99,000 and other income, net of approximately $69,000.
The decrease in revenues of approximately $6.1 million for the six month period
ended June 30, 1997, as compared to the comparable period in 1996 was primarily
due to decreases in revenues from sale of real estate of approximately $9.6
million, interest on mortgage notes and related receivables of approximately
$75,000, interest and dividends on securities available for sale and escrow
accounts of approximately $89,000 and earnings on real estate rental operations,
net of approximately $64,000. This decrease in revenues was offset in part by an
increase in revenues associated with the net gain from the sale of BBC Class A
common stock of approximately $1.3 million, the reversal of provision for
litigation of approximately $2.3 million and other income, net of approximately
$44,000.
In June 1997 and January 1997, the Company sold 250,000 and 109,844 shares of
BankAtlantic Bancorp, Inc. Class A common stock, respectively. Net proceeds
received from these sales amounted to approximately $3.7 million and a net gain
of approximately $1.3 million was recognized in connection with these
transactions during the six month period ended June 30, 1997. Net proceeds
received from the June 1997 sale amounted to approximately $2.8 million and a
net gain of approximately $1.1 million was recognized during the quarter ended
June 30, 1997.
In connection with the Short vs. Eden, et al. litigation, the Company at
December 31, 1996 had an accrual of approximately $3.0 million included in other
liabilities. The Company in April 1997, disbursed approximately $783,000 and
received a release and satisfaction of judgment. Accordingly, the remaining
accrual of approximately $2.3 million was reversed during the quarter ended June
30, 1997. (See Item 3. "Litigation" in the Company's 1996 Annual Report)
In February 1997, the Company sold 12.7 acres located in Birmingham, Alabama to
an unaffiliated third party for approximately $149,000 and the company
recognized a net gain on the sale of approximately $132,000. 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.
Interest on mortgage notes and related receivables decreased for the six and
three month periods ended June 30, 1997, as compared to the same periods in 1996
primarily due to the satisfaction of a loan receivable in 1996 and reductions 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 and three month periods ended June 30, 1997, as compared
with the same periods in 1996 primarily due to decreases in investable funds
attributable to the funding of litigation and decreases in the escrow for
redeemed debenture liability related to the settlement of litigation.
Earnings on real estate rental operations, net, decreased for the six month
period ended June 30, 1997, as compared to the same periods in 1996 primarily
due to the sale of a 50% interest in a property acquired in the 1989 Exchange
and the accounting for the remaining ownership as a real estate joint venture.
This decrease was partially offset by an increase in rental income at a property
acquired in the 1991 Exchange.
Other income, decreased for the quarter ended June 30, 1997 as compared to the
same period in 1996 primarily due to the proceeds received in 1996 from advances
due from affiliates which were written-off in prior years. Other income, net
increased for the six month period ended June 30, 1997 as compared with the same
period in 1996 primarily due to proceeds received in 1997 relating to a loan
from an affiliate which was written-off in prior years.
The decrease in cost and expenses of approximately $279,000 for the quarter
ended June 30, 1997 as compared to same period in 1996 was primarily due to: (i)
decreases in interest on exchange debentures of approximately $123,000, (ii) a
decrease in interest on mortgage payable and other borrowings of approximately
$92,000, (iii) decreases in employee compensation and benefits of approximately
$39,000 and (iv) decreases in general and administrative, net of approximately
$17,000.
The decrease in cost and expenses of approximately $7.0 million for the six
month period ended June 30, 1997 as compared to the comparable period in 1996
was primarily due to: (i) decreases in interest on exchange debentures of
approximately $196,000, (ii) a decrease in interest on mortgage payable and
other borrowings of approximately $221,000, (iii) the inclusion in 1996 results
of the cost of sale of real estate of approximately $6.4 million and (iv) the
inclusion of the loss on disposition of mortgage notes and investments, net of
approximately $232,000 in 1996 results. This decrease was offset in part by
increases in (i) employee compensation and benefits of approximately $25,000 and
(ii) general and administrative, net, of approximately $43,000.
Interest on exchange debentures decreased for the six and three month periods
ended June 30, 1997 as compared to the same periods in 1996 as a result of the
accrual of interest on the delayed funding of the 1989 Exchange settlement
liability during 1996.
Interest on mortgage payables and other borrowings decreased for six and three
month periods ended June 30, 1997 as compared to the same periods in 1996
primarily due to the sale during 1996 of a 50% interest in a property acquired
in the 1989 Exchange and a reduction in borrowings.
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
disposition of three mortgage notes and an investment due from affiliated
limited partnerships. During 1996, the limited partnerships were liquidated.
Employee compensation and benefits decreased for the quarter ended June 30, 1997
as compared to the same period in 1996 primarily due to decreases in leasing
commissions and officers' insurance. Employee compensation and benefits
increased for the six months ended June 30, 1997, as compared to the same period
in 1996 primarily due to bonus accruals. This increase was offset in part by
decreases in leasing commissions and officers' insurance.
General and administrative, net decreased for the quarter ended June 30, 1997 as
compared to the same period in 1996 primarily due to a 1996 provision relating
to the Kugler litigation of approximately $65,000. This decrease was offset in
part by increases in trustee fees. General and administrative, net, increased
for the six month period ended June 30, 1997 as compared to the same period in
1996 primarily due to an increase in trustee fees, intangible taxes and
professional and consulting fees associated with the ABC litigation.
BBC's net income applicable to common shareholders for the six and three month
periods ended June 30, 1997 was $13.2 million and $6.8 million, respectively,
compared to net income of $10.3 million and $5.5 million for the six and three
month periods ended June 30, 1996, respectively. The Company's equity in BBC's
net income for the six and three month periods ended June 30, 1997 was $5.8
million and $3.0 million, respectively, compared to its equity in BBC's net
income of $4.7 million and $2.4 million for the six and three month periods
ended June 30, 1996, respectively. The increase in equity in earnings of BBC was
due to an increase in earnings by BBC, partially offset by the Company's
decreased ownership percentage in BBC. The Company's ownership in BBC decreased
to 40.78% of all outstanding BBC common stock at June 30, 1997. The decrease in
ownership was attributable to the sale of 359,844 shares of BBC's Class A common
stock by the Company during 1997. This decrease was partially offset by changes
in BBC's outstanding common stock. At June 30, 1997, the Company's ownership of
BBC Class A and B common stock was approximately 36% and 46%, respectively.
Financial Condition
BFC's total assets at June 30, 1997 and at December 31, 1996 were $91.1 million
and $98.8 million, respectively. The majority of the difference at June 30, 1997
as compared to December 31, 1996 was due to decreases in (i) securities
available for sale, (ii) mortgage notes and related receivables, net, (iii) real
estate acquired in debenture exchanges, net and (iv) escrow for redeemed
debenture liability. These decreases were offset in part by increases in
investment in BBC and in a real estate joint venture.
Securities available for sale decreased in connection with the funding of the
1989 Exchange settlement escrow account of approximately $5.1 million and the
funding of the Kugler and Short litigation settlement of approximately $1.0
million and $783,000, respectively. This decrease was partially offset by net
proceeds of approximately $3.7 million received in connection with the sale of
359,844 shares of BBC's Class A common stock.
Mortgage notes and related receivables, net, decreased due to the conversion of
approximately $184,000 of a note due from an affiliated limited partnership to
an equity position in the partnership in January 1997.
The decrease in real estate acquired in debenture exchanges, net and increase in
real estate joint venture was due to the sale of a 50% interest in a property
acquired in the 1989 Exchange. The remaining 50% interest in the property was
accounted for as a real estate joint venture. Because of the Company's
continuing involvement in the 50% of the property sold, a gain on sale of
approximately $0.6 million was deferred and will reduce the Company's carrying
value in the joint venture.
Escrow for redeemed debenture liability decreased due to payments made in
accordance with the terms of the Exchange litigation settlements. This decrease
was offset in part by the funding of the second half of the Meador (1989
Exchange) settlement escrow account of approximately $5.1 million.
Exchange debentures and deferred interest on the exchange debentures decreased
primarily due to the identification of class members that were previously
estimated to belong to the group of debenture holders classified as "Holders in
Due Course". The decrease in deferred interest on the exchange debentures was
offset in part by an increase in the deferral of interest on the Exchange
debentures pursuant to their terms.
Redeemed debenture liability decreased due to payments made in accordance with
the terms of the Exchange litigation settlements.
Mortgages payable and other borrowing decreased primarily due to the payment of
an outstanding balance on a broker line of credit of approximately $131,000 and
principal payments made on loans according to their terms. This decrease was
offset in part by a net increase in borrowing of approximately $200,000 relating
to an April 1997 debt restructuring and refinancing of a mortgage loan secured
by the Burlington, North Carolina property.
Other liabilities decreased primarily due to the payment of approximately $1.0
million in connection with the Kugler litigation escrow account. In connection
with the Short litigation, at December 31, 1996, the Company had an accrual of
approximately $3.0 million included in other liabilities. The Company in April
1997, disbursed approximately $783,000 and received a release and satisfaction
of judgment. Accordingly, the remaining accrual of approximately $2.3 million
was reversed during the quarter ended June 30, 1997. (See Item 3. "Litigation",
Short vs Eden United, Inc., et. al. in the Company's 1996 Annual Report)
Investment in BBC increased by $1.7 million due to an increase in equity in
earnings of BBC of approximately $5.8 million and the change in BBC's net
unrealized appreciation on debt securities available for sale, net of deferred
income taxes of approximately $96,000, reduced by the sale of 359,844 shares of
BBC Class A common stock having a book value of approximately $2.4 million,
dividends of approximately $0.4 million declared in 1997 and the net effect of
other BBC capital transactions of approximately $1.4 million.
Liquidity and Capital Resources
In connection with the Short litigation, the Company in April 1997, disbursed
approximately $783,000 and received a release and satisfaction of judgment. At
December 31, 1996, the Company had an accrual of approximately $3.0 million
included in other liabilities with respect to this matter. The remaining accrual
in the amount of approximately $2.3 million was reversed during the quarter
ended June 30, 1997. (See Item 3. "Litigation ", Short vs. Eden United, Inc.,
et. al. in the Company's 1996 Annual Report)
The Company in October 1996 and March 1997, respectively, paid approximately
$3.7 million and $1.0 million into an escrow account to fund the settlement of
the Kugler litigation. On April 30, 1997, the Courts approved the Kugler
settlement. (See Item 3. "Litigation", Kugler, et.al. v. I.R.E. Real Estate
Income Fund, et.al. in the Company's 1996 Annual Report)
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 1996
Annual Report. In connection with the settlements, the Company deposited $30.6
million into settlement escrow accounts, including a deposit of $5.1 million in
March 1997 to the 1989 Exchange settlement escrow. All of the funding required
in connection with the Exchange settlement escrow accounts had been provided for
as of March 31, 1997. The time period for filing a claim in connection with the
1991 Exchange and Meador claimants has expired and the time period for Purcell
claimants expires in January 1998. In 1997, based upon claims made and paid
pursuant to the settlements of the Exchange litigation, an extraordinary gain,
net of deferred income taxes of approximately $600,000 and $483,000 was
recognized for the six and three month periods ended June 30, 1997, respectively
relating to Class Members No Longer Owning Debentures (as defined).
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 the 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 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 in due course have been determined with
reasonable certainty.
In June 1997 and January 1997, the Company sold 250,000 and 109,844 shares of
BankAtlantic Bancorp, Inc. Class A common stock, respectively. Net proceeds
received from the 1997 sale amounted to approximately $3.7 million and a net
gain of approximately $1.3 million was recognized in connection with these
transactions during the six month period ended June 30, 1997.
As previously indicated, the Company holds approximately 40.78% of all BBC's
outstanding common stock. Presently, BBC's primary use of funds is the payment
of cash dividends to common stockholders, interest expense on its outstanding 9%
Subordinated Debentures, 6 3/4% Convertible Subordinated Debentures, and 9.5%
junior Subordinated Debentures, the purchase of $6.3 million of equity
securities, the acquisition and retirement of common stock and funding a $6.5
million commercial loan. The commercial loan was a loan participation from
BankAtlantic. It is anticipated that funds for interest and dividend payments
will be obtained by BBC from BankAtlantic. Additionally, 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 paid a regular quarterly dividend since its formation and
management of BBC has indicated that it currently anticipates that it will pay
regular quarterly cash dividends on its common stock. 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 March 1997, BBC formed BBC Capital Trust I ("BBC Capital"). BBC Capital is a
statutory business trust which exists for the purpose of issuing the Preferred
Securities ("Preferred Securities") and investing the proceeds thereof in Junior
Subordinated Debentures of BBC. In a public offering in April 1997, BBC Capital
issued 2.99 million shares of Preferred Securities having a liquidation value of
approximately $75 million. Holders of Preferred Securities will be entitled to
receive a preferential cumulative cash distribution at a fixed annual percentage
of the liquidation amount (9.5%). BBC Capital's sole asset is BBC Junior
Subordinated Debentures that will bear interest at the same rate as the
Preferred Securities and have a stated maturity of 30 years from date of
issuance
At June 30, 1997, BankAtlantic's core, Tier 1 risk-based and total risk-based
capital ratios were 6.79%, 10.03% and 11.28%, respectively. Based on these
capital ratios, BankAtlantic meets the definition of a well capitalized
institution.
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: 1997 1996
---- ----
Operating activities $ (7,726) (1,120)
Investing activities 6,520 1,958
Financing activities (155) (1,446)
------ ------
Decrease in cash and cash equivalents $ (1,361) (608)
====== ======
The changes in cash flow used or provided by 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 investments, 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 and reversal of provision for litigation. 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 period but
also by these other adjustments.
The primary sources of funds to the Company for the six months ended June 30,
1997 were proceeds from the sale of real estate, sale of BBC Class A common
stock, increased borrowings, principal reduction on loan receivables, proceeds
from redemption and maturities of securities available for sale, revenues from
property operations, and dividends from BBC. These funds were primarily utilized
to reduce mortgage payables and other borrowings, to fund litigation settlements
including the funding of the exchange escrow, to purchase securities available
for sale, and to fund operating expenses 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Kugler, et.al., (formerly Martha Hess, 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. On or about May 20, 1988, an individual investor filed
the above referenced action against two individual defendants, who allegedly
sold securities without being registered as securities brokers in Illinois, 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. Plaintiff alleged that
the sale of limited partnership interests in the predecessor partnerships (among
other affiliated and unaffiliated partnerships) by persons and corporations not
registered as securities brokers under the Illinois Securities Act constitutes a
violation of such Act, and that the Plaintiff, and all others who purchased
securities through the individual or corporate defendants, should be permitted
to rescind their purchases and recover their principal plus 10% interest per
year, less any amounts received. The predecessor partnerships' securities were
properly registered in Illinois and the basis of the action related solely to
the alleged failure of the Broker Dealer to be properly registered. In October
1996 the matter was resolved and the Company placed approximately $3.7 million
in escrow to fund the rescission of sales and in March 1997, approximately $1.0
million was placed in escrow for plaintiffs attorneys' fees. On April 30, 1997,
the Courts approved the Kugler settlement.
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 1996 Annual Report.) In April 1997, the Company paid approximately
$783,000 and received a release and satisfaction of judgment. At December 31,
1996, the Company had an accrual of approximately $3.0 million included in other
liabilities with respect to this matter. The remaining accrual in the amount of
approximately $2.3 million was reversed during the quarter ended June 30, 1997.
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, 1997.
<PAGE>
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 12, 1997 By: /s/ Alan B. Levan
----------------------
Alan B. Levan, President
Date: August 12, 1997 By: /s/ Glen R. Gilbert
------------------------
Glen R. Gilbert, Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE JUNE 30, 1997 FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000315858
<NAME> BFC Financial Corporation
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