Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number
0-9811
BFC FINANCIAL CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Florida
---------------------------------------
(State of Organization)
59-2022148
----------------------------------------
(IRS Employer Identification Number)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida
---------------------------------------
(Address of Principal Executive Office)
33304
---------------------------------------
(Zip Code)
(954) 760-5200
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $.01 par Value
-------------------------------------------
(Title of Class)
None
-------------------------------------------
(Name of Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendments to
this form 10-K.
[ X ]
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant:
As of March 21, 1997 - $12,127,621
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, 2,327,682 shares outstanding.
Documents Incorporated by Reference in Part IV of this Form 10-K:
Proxy Statement - Prospectus dated June 20, 1980; Annual Report on Form 10-K for
the year ended December 31, 1987 of BFC Financial Corporation; Annual Report on
Form 10-K for the year ended December 31, 1996 of BankAtlantic Bancorp, Inc.
PART I
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 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 is no assurance that the forward-looking information
contained in this report will, in fact prove correct or occur
ITEM 1. BUSINESS
General Description of Business
BFC Financial Corporation and its subsidiaries are collectively identified
herein as the "Registrant", "BFC" or the "Company". BFC Financial Corporation is
a savings bank holding company as a consequence of its ownership interest in the
common stock of BankAtlantic Bancorp, Inc. ("BBC"). BBC owns 100% of the capital
stock of BankAtlantic, A Federal Savings Bank ("BankAtlantic"). 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. At December 31, 1996, the
Company's ownership in BBC Class A and B common stock was approximately 35.1%
and 46.2%, respectively, in the aggregate representing 41.5% of all of BBC's
outstanding common stock.
The Company acquired control of BankAtlantic in 1987 for a total investment of
approximately $43 million. During the period 1987 through June 1993, BFC
increased its ownership in BankAtlantic and BankAtlantic was consolidated in the
Company's financial statements from October 1987 through November 1993. During
November 1993, a public offering of 5,053,711 million shares of BankAtlantic
common stock at a price of $5.53 per common share was consummated. Of the shares
sold, 3,417,969 shares were sold by BFC Financial Corporation. Net proceeds to
BFC Financial Corporation from the sale amounted to approximately $17.7 million.
Upon the sale of the BankAtlantic shares, BFC Financial Corporation's ownership
of BankAtlantic decreased from 77.83% to 48.17%. With the Company's ownership
position less than 50%, BankAtlantic was no longer consolidated in the Company's
financial statements. BankAtlantic represented approximately 97% of the
Company's consolidated assets when it was consolidated with the Company. Now,
based on the equity method of accounting for the Company's investment in BBC,
the investment represents approximately 60% of the Company's consolidated
assets. Where appropriate, amounts throughout this report of all BBC share and
per share amounts have been adjusted for the May 1993 15% stock dividend, the
June 1995, January 1996, July 1996 and February 1997 five for four common share
stock splits effected in the form of 25% stock dividends.
BankAtlantic is headquartered in Ft. Lauderdale, Florida and provides a full
range of commercial banking products and related financial services directly and
through subsidiary corporations. BankAtlantic operates through 56 branch offices
located primarily in Dade, Broward and Palm Beach Counties in South Florida. As
reported by an independent statistical reporting service, BankAtlantic is
currently the largest savings bank headquartered in the State of Florida based
on deposits at September 30, 1996, the most recent date utilized by the
reporting service. BankAtlantic is the second largest financial institution
headquartered in the State of Florida based on deposits at September 30, 1996.
BankAtlantic is regulated and examined by the OTS and the Federal Deposit
Insurance Corporation ("FDIC") and its deposit accounts are insured up to
applicable limits by the FDIC.
In addition to its investment in BBC, the Company owns and manages real estate.
Since its inception in 1980, and prior to the acquisition of control of
BankAtlantic, the Company's primary business was the organization, sale and
management of real estate investment programs. A subsidiary of the Company
serves as the corporate general partner of a public limited partnership which
files periodic reports with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Subsidiaries
of the Company also serve as corporate general partners of a number of private
limited partnerships formed in prior years. Effective as of December 31, 1987,
the Company ceased the organization and sale of new real estate investment
programs, but continues to manage the real estate assets owned by its existing
program as well as real estate and mortgages held by the Company.
During 1989, the Company exchanged (the "1989 Exchange") approximately $30
million of its subordinated unsecured debentures for all of the assets and
liabilities of three affiliated limited partnerships, I.R.E. Real Estate Fund,
Ltd. - Series 21, I.R.E. Real Estate Fund, Ltd. - Series 23 and I.R.E. Real
Estate Fund, Ltd. - Series 24. The major assets and liabilities of these
partnerships consisted principally of fourteen commercial real estate properties
and related non-recourse mortgage debt. During 1991, the Company exchanged (the
"1991 Exchange") approximately $15.4 million of its subordinated unsecured
debentures for all of the assets and liabilities of three affiliated limited
partnerships, I.R.E. Real Estate Fund, Ltd. - Series 25, I.R.E. Real Estate
Fund, Ltd. - Series 27 and I.R.E. Real Estate Income Fund, Ltd. The major assets
and liabilities of these partnerships consisted principally of eight commercial
real estate properties and related non-recourse mortgage debt. Of the properties
acquired, one property plus a 50% interest in another property is still owned by
the Company at December 31, 1996.
Numerous class action lawsuits were filed against the Company in connection with
both the 1989 and 1991 Exchanges. All of these lawsuits have now been settled.
In connection with the settlements, the Company deposited $25.5 million through
December 31, 1996 along with an additional $5.1 million in March 1997 into
escrow accounts. Payments have been made and are currently being made to class
members under these settlements. At December 31, 1996 and March 15, 1997,
approximately $10.5 million and $15.0 million, respectively, remained in the
escrow accounts. As discussed above, BFC sold 3,417,969 BBC shares in November
1993. The proceeds from such sale provided BFC with the cash resources required
by these settlements.
As indicated above, during 1987, the Company acquired a controlling interest in
BankAtlantic and became a savings bank holding company. Although the Company's
current ownership in BBC is less than 50%, the Company's principal business is
still the ownership of the savings bank through BBC. A description of BBC and
BankAtlantic is incorporated herein by reference to the Annual Report on Form
10-K of BBC for the year ended December 31, 1996.
Holding Company Regulation
As the holder of approximately 41.5% of all of BBC's outstanding Common Stock,
BFC is a non-diversified savings and loan holding company within the meaning of
the National Housing Act of 1934, as amended. As such, BFC is registered with
and is subject to examination and supervision by the OTS as well as subject to
certain reporting requirements. As an FDIC-insured subsidiary of a savings bank
holding company, BankAtlantic is subject to certain restrictions in dealing with
BFC and with persons affiliated with BFC. BBC has been considering converting
BankAtlantic's charter to that of a commercial bank. BBC is not presently
pursuing a conversion of BankAtlantic's charter since it is awaiting the outcome
of legislative proposals relating to the possible consolidation of bank and
thrift charters. If BBC does convert, BFC may be required to discontinue all
real estate related activities.
Restrictions on BBC's Ability to Pay Dividends to the Company
Prior to 1993, BankAtlantic did not pay any regular dividend on its common
stock. Since August 1993, BankAtlantic has paid a regular quarterly dividend to
its common stockholders. Subject to the results of operations and regulatory
capital requirements, management of BBC has indicated that it will seek to
declare regular quarterly cash dividends on its common stock. BBC or its
predecessor declared a 15% stock dividend in May 1993 and five for four stock
splits effected in the form of 25% stock dividends in June 1995 and January
1996. 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. BBC also declared five
for four common share stock splits effected in the form of 25% stock dividends
payable in Class A shares to all shareholders of both classes of common stock in
February 1997 paid in March 1997, and July 1996 paid in August 1996.
During 1996, BBC issued $57.5 million of 6 3/4% convertible debentures due July
1, 2006 ("6 3/4% Debentures"). The 6 3/4 % Debentures are convertible into Class
A common stock at an exercise price of $10.24 per share. Also during 1996, BBC
issued approximately 2.1 million Class A common stock in an underwritten public
offering at $9.60 per share. BBC contributed approximately $54.0 million of the
above proceeds to BankAtlantic, repurchased approximately $3.3 million of BBC
common stock, invested $3.9 million in marketable securities to cover two
semi-annual interest payments in accordance with the related indenture agreement
and the balance of net proceeds are available for general corporate purposes.
During 1995, BBC issued $21.0 million of 9% subordinated debentures (the "9%
Debentures") due in October 2005. The proceeds to the offering were utilized as
follows: $6.0 million was contributed to the capital of BankAtlantic, $2.9
million was utilized to repay a note payable, $8.4 million was used to redeem
all of the outstanding shares of the Company's non-cumulative preferred stock
and in accordance with the terms of the underlying indenture, $1.9 million was
invested in marketable securities to cover two semi-annual interest payments.
Presently, BBC has no significant operations other than those related to its
ownership of BankAtlantic and does not require funds other than to pay certain
operating expenses and interest expense on its outstanding debentures. It is
anticipated that funds for payment of these expenses will be obtained from
BankAtlantic. No dividend payments may be made in the event that payments are
not made on BBC's outstanding debentures and in the event that BBC Capital Trust
issues the preferred securities (See "Liquidity and Capital Resources"), the
subordinated debentures issued to BBC Capital. 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.
Current regulations applicable to the payment of cash dividends by savings
institutions impose limits on capital distributions based on an institution's
regulatory capital levels and net income. An institution that meets all of its
fully phased-in capital requirements (both before and after giving effect to the
distribution) and is not in need of more than normal supervision would be a
"Tier 1 association". Upon prior notice to, and non-objection by, the OTS, a
Tier 1 association may make capital distributions during a calendar year up to
the greater of (1) 100% of net income for the current calendar year plus 50% of
its capital surplus or (ii) 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval.
An institution that meets its minimum regulatory capital requirements but does
not meet its fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of its
net income over the most recent four-quarter period, depending on the
institution's risk-based capital level. A "Tier 3 association" is defined as an
institution that does not meet all of its minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
A "well capitalized" institution must have risk-based capital of 10% or more,
core capital of 5% or more and Tier 1 risk-based capital (based on the ratio of
core capital to risk-weighted assets) of 6% or more and may not be subject to
any written agreement, order, capital directive or prompt corrective action
directive issued by the OTS to meet and maintain a specific capital level or a
specific capital measure. An institution will be categorized as: "adequately
capitalized" if it has total risk-based capital of 8% or more, Tier 1 risk-based
capital of 4% or more and core capital of 4% or more; "undercapitalized" if it
has total risk-based capital of less than 8%, Tier 1 risk-based capital of less
than 4% or core capital of less than 4%; "significantly undercapitalized" if it
has total risk-based capital of less than 6%, Tier 1 risk-based capital of less
than 3% or core capital of less than 3%; and "critically undercapitalized" if it
has tangible capital of less than 2%. Any savings institution that fails its
regulatory capital requirement is subject to enforcement action by the OTS and
FDIC. At December 31, 1996, BankAtlantic met the capital requirements of a "well
capitalized" institution as defined above.
Savings institutions must provide the OTS with at least 30 days written notice
before making any capital distribution. All capital distributions are subject to
the OTS' right to object to a distribution on safety and soundness grounds.
While proposed regulations would eliminate the notice requirement for certain
institutions, the proposal would not apply to BankAtlantic because it is owned
by a holding company.
Real Estate and Other Activities
As discussed in "General Description of Business", the Company prior to its
investment in BankAtlantic had been primarily engaged in the real estate
business. From 1981 through 1987, eleven public real estate partnerships were
formed for which the Company provided property management for fees, and
administrative and accounting services for cost reimbursements. As discussed
above, in March 1989, February 1991 and June 1991, the assets and liabilities of
six partnerships were exchanged for subordinated debentures of the Company. The
Company has liquidated significantly all of the assets acquired in the
Exchanges. Four other partnerships have been liquidated.
In addition to its investment in BBC and unrelated to the public limited
partnership programs and its property management activities, the Company holds
mortgage notes receivable of approximately $2.2 million which were received in
connection with the sale of properties previously owned by 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 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. 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. 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"). The acquisition was
expected to close during 1996, however, because of disagreements with the owner
the contract was canceled and the entity controlled by the Company received a
return of its deposit in February 1997.
During 1996, the Company agreed to sell, effective October 1, 1996, a 50%
interest in a property acquired in the 1989 Exchange. When the transaction is
completed, the remaining 50% interest in the property will be 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 will
be deferred and is reducing the Company's carrying value reflected above.
Federal and State Taxation
The State of Florida imposes a corporate income tax at the rate of 5.5% on
taxable income as determined for Florida income tax purposes. Taxable income for
this purpose is based on federal taxable income in excess of $5,000 as adjusted
by certain items.
Employees
At December 31, 1996, BFC Financial Corporation employed 7 full-time and 2
part-time employees. Management believes that its relations with its employees
are satisfactory. The employee benefits offered by the Company are considered by
management to be generally competitive with employee benefits provided by other
major employers in Florida. The Company's employees are not represented by any
collective bargaining group.
ITEM 2. Properties
BFC maintains its offices in approximately 1,500 square feet located in a
building owned by BankAtlantic. The space is leased on terms no less favorable
than that which management believes could be obtained from an independent third
party.
The properties listed below are not utilized by the Company but are held by the
Company as investments. All are zoned for their current uses. Lease terms do not
include options.
A parcel of land located in Springfield, Massachusetts containing
approximately 4.4 acres subject to an estate for years expiring in July
2006.
A parcel of land located in Aurora, Illinois containing approximately 4.4
acres subject to an estate for years expiring in July 2006.
A parcel of land located in Fort Lauderdale, Florida, referred to herein as
the Centerport property, containing approximately 60.1 acres
A shopping center known as the Burlington Manufacturers Outlet Center
located in Burlington, North Carolina containing approximately 280,265
leaseable square feet.
A 50% interest in an industrial park known as Delray Industrial Park
located in Delray Beach, Florida containing approximately 134,237 leaseable
square feet.
A parcel of land located in Birmingham, Alabama containing approximately
12.7 acres. This parcel was subsequently sold in February 1997.
ITEM 3. LEGAL PROCEEDINGS
The following is a description of certain lawsuits to which the Company is a
party.
Timothy J. Chelling vs. BFC Financial Corporation, Alan B. Levan, I.R.E.
Advisors Series 21, Corp. and First Equity Corporation, U.S. District Court,
Southern District of Florida Case No. 89-1850-Civ-Ryscamp. John D. Purcell and
Debra A. Purcell vs. BFC Financial Corporation, Alan B. Levan, Scott Kranz,
Frank Grieco, I.R.E. Advisors Series 23, Corp. and First Equity Corporation,
U.S. District Court, Southern District of Florida, Case No. 89-1284-Civ-Ryskamp.
William A. Smith and Else M. Smith vs. BFC Financial Corporation, Alan B. Levan
and I.R.E. Advisors Series 24, Corp. and First Equity Corporation, U.S. District
Court, Southern District of Florida, Case No. 89-1605-Civ-Ryscamp.
These actions were filed by the plaintiffs as class actions during September
1989, June 1989 and August 1989, respectively. The actions arose out of an
Exchange Offer made by the Company to the limited partners of I.R.E. Real Estate
Fund, Ltd. - Series 21, I.R.E. Real Estate Fund, Ltd. - Series 23, and I.R.E.
Real Estate Fund, Ltd. - Series 24. The plaintiffs were limited partners of the
above named partnerships who did not consent to the Exchange Offer. The Exchange
Offer was made through the solicitation of consents pursuant to a Proxy
Statement/Prospectus dated February 14, 1989 and was approved by the holders of
a majority of the limited partnership interests of each of the Partnerships in
March 1989. Messrs. Levan, Grieco and Kranz served as individual general
partners of each of the Partnerships, and Mr. Levan is the President and a
director of the Company.
In June 1994, the parties entered into an agreement to settle this action
pursuant to which BFC agreed to pay approximately fifty-six percent (56%) of the
face amount of the outstanding debentures held by class members and the
debentures will be canceled pursuant to the procedures outlined in the
agreement. Following an appeal in this matter, in January 1997, the Company
commenced payments to class members under the settlement.
Alan B. Levan and BFC Financial Corporation v. Capital Cities/ABC, Inc. and
William H. Wilson, in the United States District Court for the Southern District
of Florida, Case No. 92-325-Civ-Atkins. On November 29, 1991, The ABC television
program 20/20 broadcast a story about Alan B. Levan and BFC which purportedly
depicted some securities transactions in which they were involved. The story
contained numerous false and defamatory statements about the Company and Mr.
Levan and, February 7, 1992, a defamation lawsuit was filed on behalf of the
Company and Mr. Levan against Capital Cities/ABC, Inc. and William H. Wilson,
the producer of the broadcast. In December 1996, a jury found in favor of the
Company and Mr. Levan and awarded a compensatory judgment of $1.25 million to
the Company and $8.75 million to Mr. Levan. Capital Cities/ABC, Inc. and William
H. Wilson have filed a motion for a rehearing in this matter. That motion is
currently pending.
Mark Gallegos, et. al., (formerly Cheryl and Wayne Hubbell, et al.) vs. I.R.E.
Advisors Series 26, Corp. et al., in the California Superior Court in Los
Angeles, California, Case No. BC049913. This action was filed as a class action
during March 1992 on behalf of all purchasers of I.R.E. Real Estate Fund, Ltd. -
Series 25, I.R.E. Real Estate Fund, Ltd. - Series 26, I.R.E. Real Estate Fund,
Ltd. - Series 27, I.R.E. Real Estate Growth Fund, Ltd. - Series 28 and I.R.E.
Real Estate Income Fund, Ltd. against the managing and individual general
partners of the above named partnerships and the officers and directors of those
entities. The plaintiffs alleged that the offering materials distributed in
connection with the promotions of these limited partnerships contained
misrepresentations of material fact and that the defendants misrepresented and
concealed material facts from the plaintiffs during the time the partnerships
were in existence. The complaint asserts two causes of action for fraud, one of
which is based on a claim for intentional misrepresentation and concealment and
one of which is based on a claim of negligent misrepresentation. The complaint
also contains a claim for breach of fiduciary duty. The complaint seeks
unspecified compensatory and punitive damages, attorneys' fees and costs.
Plaintiffs filed a third amended complaint which defendants answered in April
1993. In May 1993, a motion to dismiss was filed by the plaintiffs to dismiss
all claims relating to I.R.E. Real Estate Fund, Ltd.-Series 25, I.R.E. Real
Estate Fund, Ltd.-Series 27 and I.R.E. Real Estate Income Fund, Ltd., whether
exchange related or not, only leaving claims against I.R.E. Real Estate Fund,
Ltd. - Series 26 and I.R.E. Growth Fund, Ltd. - Series 28. This motion was
approved by the Court in September 1994.
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, approximately $3.7 million was placed in escrow to rescind sales and in
March 1997, approximately $1.0 million was placed in escrow for attorneys' fees.
Final settlement of this matter is subject to notice to class members and
approval of the Courts.
Short vs. Eden United, Inc., et al. in the Marion County Superior Court, State
of Indiana. Civil Division Case No. S382 0011. In January, 1982, an individual
filed suit against a subsidiary of the Company, Eden United, Inc. ("Eden"),
seeking return of an earnest money deposit held by an escrow agent and
liquidated damages in the amount of $85,000 as a result of the failure to close
the purchase and sale of an apartment complex in Indianapolis, Indiana and
unspecified damages based on fraud and interference with contract. Eden was to
have purchased the apartment complex from a third party and then immediately
resell it to plaintiff. The third party was named as a co-defendant and such
third party also filed a cross claim against Eden, seeking to recover the
earnest money deposit. After trial, subsequent appeals and hearings on remand,
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 prejudgment interest, set the date for computation of
postjudgment 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 was 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 and in March 1996 such hearing
was denied. Based upon the ruling, preliminary computations by the Company
indicate that the total loss to the Company could be approximately $500,000 not
the $4.5 million dollars previously established as a provision in connection
with this litigation. Both parties have filed suggested Forms of Entry of
Judgment on Remand with the trial court, but the trial court has yet to decide
which, if any, of the versions it will utilize, therefore, the amount of the
final judgment in this case can still not be determined. The appeal bond in this
matter has been reduced by the Court to $800,000. At December 31, 1996, the
Company had an accrual of approximately $3 million included in other liabilities
with respect to this matter. Such accrual will not be adjusted until such time
as a final judgment is issued and all rights of appeal have expired.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
INCORPORATION BY REFERENCE
Part I - Items 1 through 3 pertaining to BFC's significant subsidiary, BBC is
incorporated herein by reference to the annual report on Form 10-K of
BankAtlantic Bancorp, Inc. for the fiscal year end December 31, 1996.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
a) The following table sets forth, for the periods indicated, the high bid and
low offer prices on the NASD OTC Bulletin Board of Registrant's common
stock, as reported to the Registrant by the National Quotation Bureau. The
Company's stock trades on the NASD OTC Bulletin Board under the symbol
BFCFC.
Year: High Low
Quarter Bid Offer
------- --- -----
1995:
1st Quarter 5.06 3.25
2nd Quarter 6.63 4.63
3rd Quarter 11.25 6.00
4th Quarter 9.00 6.50
1996:
1st Quarter 7.75 6.25
2nd Quarter 9.25 7.75
3rd Quarter 14.00 8.00
4th Quarter 14.75 11.50
b) The approximate number of shareholders of record of common stock as of
March 21, 1997 was 1,100.
c) No dividends have been paid by Registrant since its inception.
d) On December 27, 1996, the last sale price of the Company's common stock as
reported to the Registrant by the National Quotation Bureau was $12.63 per
share.
On January 10, 1997, the Board of Directors of BFC Financial Corporation adopted
a Shareholder Rights Plan. As part of the Rights Plan, the Company declared a
dividend distribution of one preferred stock purchase right (the "Right") for
each outstanding share of BFC's common stock to shareholders of record on
January 21, 1997. Each Right will become exercisable only upon the occurrence of
certain events, including the acquisition of 20% or more of BFC's common stock
by persons other than the existing control shareholders (as specified in the
Rights Plan), will entitle the holder to purchase either BFC stock or shares in
the acquiring entity at half the market price of such shares. The Rights may be
redeemed by the Board of Directors at $.01 per Right until the tenth day
following the acquisition of 20% or more of BFC's common stock by persons other
than the existing shareholders. The Board may also, in its discretion, extend
the period for redemption. The Rights will expire on January 10, 2007.
There are no restrictions on the payment of dividends by Registrant except that
no dividends may be paid to the holders of any equity securities of the Company
while any deferred interest on the Company's Exchange debentures remains unpaid.
The Company has deferred the interest payments relating to the debentures issued
in both the 1989 Exchange and the 1991 Exchange in an aggregate amount of
approximately $2.8 million at December 31, 1996.
As noted in Part I, Item I under "Business - Regulation - Restrictions on BBC's
Ability to Pay Dividends to the Company," there are restrictions on the payment
of dividends by BankAtlantic to BBC and by BBC to its common shareholders. The
source of funds for payment by BBC of dividends to BFC is currently dividend
payments received by BBC from BankAtlantic.
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data
(In thousands, except for per share data and percents)
Years Ended December 31,
--------------------------------------------------------------
1996 (c) 1995 (c) 1994 (c) 1993 (c) 1992
-------- -------- -------- -------- ----
Revenues $ 13,303 3,292 19,249 5,051 142,236
Costs and expenses 12,971 7,481 24,376 17,118 131,026
Earnings (loss) before income tax
expense, cumulative effect of
change in accounting for income
taxes and extraordinary items 8,982 4,230 2,913 (1,303) 11,210
Income tax expense (benefit) 2,924 - (2,009) - 9,201
Extraordinary items, net of income
taxes and minority interest 853 (e) 3,702 (f) 22,744 (g) (501) (h) 548 (d)
Net income (loss) 6,911 7,932 27,666 (1,804) 2,557
Income (loss) per common and
common equivalent shares before
extraordinary items 2.63 1.90 2.39 (1.18) 0.78
Net income (loss) per common and
common equivalent shares 3.00 3.57 13.45 (1.47) 1.10
Income (loss) per common and
common equivalent share
assuming full dilution
before extraordinary items 2.61 1.89 2.39 (1.18) 0.78
Net income (loss) per common and
common equivalent share
assuming full dilution 2.98 3.54 13.45 (1.47) 1.10
Ratio of earnings to fixed charges (h) 1.33 0.26 0.47 (0.30) (0.09)
Dollar deficiency of earnings to
fixed charges (h) - 3,370 4,374 11,796 10,126
December 31,
--------------------------------------------------------------
1996 (c) 1995 (c) 1994 (c) 1993 (c) 1992
-------- -------- -------- -------- ----
Investment in BankAtlantic
Bancorp, Inc. ("BBC") 59,039 52,662 43,768 36,436 42,984
Loans receivable, net 2,180 5,168 4,904 9,179 566,023
Mortgage-backed securities - - - - 486,886
Securities available for sale 6,819 5,105 5,869 20,373 125,047 (j)
Real estate acquired in
debenture exchanges, net (i) 10,383 11,072 11,169 18,315 20,330
Real estate held for development
and sale, net 6,497 10,211 9,912 - -
Total assets 98,841 96,896 91,291 87,495 1,340,465
Customer deposits - - - - 1,108,115
Advances from Federal Home Loan Bank - - - - 66,100
Securities sold under agreements to
repurchase - - - - 21,532
Capital notes and other
subordinated debentures - - - - 7,928
Exchange debentures, net 2,953 3,810 6,616 35,651 38,996
Mortgages payable and other borrowings 25,498 27,616 26,618 30,367 32,168
Deferred interest on the exchange
debentures 2,806 2,722 3,494 12,049 4,985
Redeemed debenture liability 16,182 15,964 18,395 - -
Redeemable common stock - - - 5,776 5,776
Stockholders' equity (deficit) 41,462 35,758 26,532 (6,988) (4,916)
Book value per share excluding
redeemable common stock n/a n/a n/a (4.11) (2.89)
Book value per share including
redeemable common stock 19.74 17.39 12.91 (0.59) 0.42
Return on assets (a) 7.0 % 8.5 % 30.8 % (2.1)% 0.2 %
Return on equity excluding
redeemable common stock (a) n/a n/a n/a (51.0)% (30.6)%
Return on equity including
redeemable common stock (a) 17.7 % 26.4 % 327.9 % (237.1)% (99.2)%
Equity to assets ratio excluding
redeemable common stock (a) n/a n/a n/a (5.9)% (0.6)%
Equity to assets ratio including
redeemable common stock (a) 39.4 % 32.3 % 9.4 % 0.9 % (0.2)%
- ----------
(a) Ratios were computed using quarterly averages.
(b) Since its inception, the Company has not paid any dividends.
(c) Since 1993, BBC is not included in the consolidated amounts as a
consequence of the fact that the Company's ownership position in BBC is
less than 50%. BBC is now carried on the Company's financial statements
using the equity method.
(d) Utilization of state net operating loss carryforward, net of minority
interest of $208,000.
(e) Gain on settlements of 1991 and 1989 Exchanges litigation, net of
applicable income taxes of approximately $611,000.
(f) Gain from extinguishment of debt of approximately $460,000, net of income
taxes and gain on settlements of Exchange litigation of approximately $3.2
million, net of income taxes.
(g) Gain on settlements of 1991 and 1989 Exchanges litigation, net of
applicable income taxes of approximately $214,000.
(h) Cumulative effect of change in accounting for income taxes
(i) Real estate acquired in debenture exchange, net represents the properties
acquired in the 1989 and 1991 Exchange.
(j) 1992 excludes Federal Home Loan Bank stock. Includes interest-bearing
deposits in other banks, and securities purchased under agreement to
resell.
ITEM 7. BFC FINANCIAL CORPORATION'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General - BFC Financial Corporation ("BFC" or "the Company") became a savings
bank holding company during 1987 by acquiring a controlling interest in
BankAtlantic, A Federal Savings Bank ("BankAtlantic"). On July 13, 1994
BankAtlantic consummated a reorganization into a holding company structure and
BankAtlantic Bancorp, Inc. ("BBC") became a unitary savings bank holding
company. The reorganization resulted in BankAtlantic becoming a wholly-owned
subsidiary of BBC and in BFC becoming a shareholder of BBC on the same
proportionate basis as the Company's prior ownership in BankAtlantic. Any
reference to BBC contained herein for periods prior to the July reorganization
would relate to BankAtlantic. At December 31, 1996, the Company owned
approximately 41.5% of all of the outstanding common stock of BBC. The Company's
ownership interest in BBC has been recorded by the purchase method of
accounting. Where appropriate, amounts throughout this report of all BBC share
and per share amounts have been adjusted for the May 1993 15% stock dividend,
the June 1995, January 1996, July 1996 and February 1997 five for four common
share stock splits effected in the form of 25% stock dividends. In November
1993, BFC Financial Corporation's ownership of BankAtlantic decreased from
77.83% to 48.17%, upon the sale of BankAtlantic shares. Since 1993, with the
Company's ownership position less than 50%, BankAtlantic was no longer
consolidated in the Company's financial statements. Based on the equity method
of accounting, the Company's investment in BBC represents approximately 60% of
the Company's consolidated assets. 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. At December 31, 1996, the Company's ownership in the outstanding BBC
Class A and B common stock was approximately 35.1% and 46.2%, respectively. For
information relating to changes affecting BBC, see Management's Discussion and
Analysis of Financial Condition and Results of Operations of BBC incorporated
herein by reference to BBC's Annual Report on Form 10-K. See note 2 of notes to
consolidated financial statements for a discussion of the Company's investment
in BBC.
In addition to its investment in BBC, the Company owns and manages real estate.
Since its inception in 1980 and prior to the acquisition of control of
BankAtlantic in 1987, the Company's primary business was the organization, sale
and management of real estate investment programs. Effective as of December 31,
1987, the Company ceased the organization and sale of new real estate investment
programs, but continues to own and manage real estate assets. At December 31,
1996, a subsidiary of the Company serves as the corporate general partner of one
public limited partnership which files periodic reports with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended. Other
subsidiaries of the Company also serve as corporate general partners of a number
of private limited partnerships formed in prior years.
Results of Operations
Net income for the year ended December 31, 1996 was approximately $6.9 million
compared to net income of approximately $7.9 million and $27.7 million in 1995
and 1994, respectively. Operations for 1996 included extraordinary items of
$853,000, net of income taxes, relating to a change in the estimate of the
amount of the settlement liability on the Exchange litigation. Operations for
1995 included extraordinary items of $3.2 million, net of income taxes,
attributable to an adjustment related to the settlements of the 1989 and 1991
Exchange litigation and a gain of approximately $460,000, net of income taxes,
from extinguishment of debt. Operations for 1994 included an extraordinary item
of approximately $22.7 million attributable to the gain on the settlements of
litigation relating to the 1989 and 1991 Exchanges.
Equity in earnings of BBC for the year ended December 31, 1996, 1995 and 1994
was approximately $8.7 million, $8.4 million and $8.0 million, respectively.
Exclusive of the Company's ownership of BBC, the Company and its other
subsidiaries generated a net loss in 1996 of approximately $1.7 million, a net
loss in 1995 of approximately $487,000 and a net income in 1994 of approximately
$19.6 million. As indicated above the 1996, 1995 and 1994 operations included
extraordinary gains on the settlement of litigation relating to the 1989 and
1991 Exchanges, net of income taxes, of approximately $853,000, $3.2 million and
$22.7 million, respectively. The 1995 operations also included a extraordinary
net gain of approximately $460,000 on extinguishment of debt, net of income
taxes. The 1996, 1995 and 1994 operations included a net gain on the sale of
real estate of approximately $3.3 million, $206,000 and $2.8 million,
respectively. The 1996 revenues included 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 and an adjustment to
the provision associated with the Kugler litigation of approximately $292,000.
(See Item 3. "Legal Proceedings" Kugler, et al., v I.R.E. Real Estate Income
Fund, et al.) The 1994 revenues included $2.5 million from insurance proceeds
associated with the reimbursement of expenses incurred by the Company in
connection with the litigation related to the 1989 and 1991 Exchanges. Such
expenses were incurred and expensed by the Company in prior years. Approximately
$1.2 million, $2.0 million and $5.8 million of 1996, 1995 and 1994 operations,
respectively, related to interest expense on the debentures issued in the 1989
and 1991 Exchanges. The 1996 operations included a loss on disposition of
mortgage notes and investment, net of approximately $474,000 due from affiliated
limited partnerships. Approximately $531,000 of 1994 operations related to
provisions for loss on real estate acquired in the 1991 Exchange. Operations in
1995 and 1994 included provisions for loss on loans receivables of approximately
$335,000 and $624,000, respectively. Approximately $2.2 million of 1994
operations related to a provision arising in connection with court decisions in
the Kugler litigation.
Revenues - The following table shows the components of revenues and the changes
between the years (in thousands):
Increase (decrease)
1996 1995 1994 1996/1995 1995/1994
----- ----- ----- ---------- ---------
Interest on mortgage notes
and related receivables $ 613 451 657 162 (206)
Interest and dividends
on securities available
for sale and escrow
accounts 694 648 743 46 (95)
Dividend on redemption
of BBC preferred stock - 191 - (191) 191
Earnings on real estate
operations, net 1,303 1,033 1,735 270 (702)
Sale of real estate 9,700 375 13,250 9,325 (12,875)
Insurance settlement - - 2,500 - (2,500)
Other income, net 993 594 364 399 230
------ ------ ------ ------ -------
$ 13,303 3,292 19,249 10,011 (15,957)
====== ===== ====== ====== =======
Interest on mortgage notes and related receivables increased for the year ended
December 31, 1996 as compared to 1995 primarily due to proceeds received during
the fourth quarter of 1996 of approximately $297,000 for interest due from
affiliated limited partnerships. This interest was not accrued in prior years.
The increase in interest on mortgage notes and related receivables was offset in
1996 as compared to 1995 and 1994 periods, primarily due to reductions in the
amount of mortgage note receivables from affiliated limited partnerships held by
the Company.
Interest and dividends on other securities available for sale and escrow
accounts increased during the year ended December 31, 1996 compared to the same
period in 1995 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. Interest and dividends on other
securities available for sale and escrow accounts decreased for the year ended
December 31, 1995 as compared with the same period in 1994 primarily due to
decreases in investable funds and escrow funds related with the settlement of
litigation.
In October 1995, BankAtlantic redeemed all of its preferred stock at $25.00 per
share. BFC's aggregate purchase price relating to its ownership of the preferred
stock was approximately $143,000 and all such preferred stock was redeemed for
approximately $334,000. Therefore, BFC reported a gain on redemption of BBC
preferred stock of approximately $191,000.
Earnings on real estate operations include earnings from the 1989 and 1991
Exchange properties, properties acquired in 1994 by subsidiaries of BFC and
deferred profit recognition on sales of real estate by the Company and its
subsidiaries other than BBC (excluding the 1989 and 1991 Exchange properties).
The 1996 increase in earnings on real estate operations, net as compared to the
1995 period was primarily due to 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. The 1995 decline in earnings on
real estate operations, net, as compared to the 1994 period was primarily due to
the sale and disposition of properties in 1994.
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. The 1994 gain on sale
of real estate, net of approximately $2.8 million was attributable to the gain
of approximately $2.7 million on the sale of three properties acquired in the
1991 Exchange and the net gain of approximately $92,000 on the foreclosure of
two properties acquired in the 1989 Exchange.
In 1994 an insurance settlement of $2.5 million related to reimbursement by an
insuror of expenses incurred by the Company in connection with the litigation
related to the 1989 and 1991 Exchanges. Such expenses were incurred and expensed
by the Company in prior years.
Other income, net , increased for the year ended December 31, 1996 as compared
with the comparable period 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 and an adjustment to
the provision associated with the Kugler litigation. (See Item 3. "Legal
Proceedings", Kugler, et al., v I.R.E. Real Estate Income Fund, et al.). An
additional $142,000 was also recognized when the first mortgage holder on a
property formerly owned by the Company allowed the release of funds from an
escrow account that was established during the time the Company owned the
property. However, during 1995 other income included proceeds received relating
to advances due from an affiliate which were written-off in prior years which
did not recur in 1996. Other income, net, increased for the year ended December
31, 1995 as compared with the comparable periods in 1994 due to proceeds
received during the quarter ended March 31, 1995 from litigation regarding an
investment that the Company wrote-off in 1991 and the receipt of amounts from an
affiliate which were written-off in prior years.
Costs and Expenses - The following table shows the components of costs and
expenses and the changes between the years (in thousands):
Increase (decrease)
1996 1995 1994 1996/1995 1995/1994
---- ---- ---- --------- ---------
Interest on Exchange
debentures $ 1,238 1,976 5,777 (738) (3,801)
Interest on mortgage
payables and other
borrowings 2,396 2,598 2,499 (202) 99
Cost of sale of real
estate 6,420 169 10,459 6,251 (10,290)
Provision for loss
on real estate
acquired in
debenture exchange - - 531 - (531)
Provision for loan
losses - 335 624 (335) (289)
Provision for litigation - - 2,200 - (2,200)
Loss on disposition of
mortgage notes and
investment, net 474 - - 474 -
Expenses related to
real estate
investments, net 154 93 - 61 93
Employee compensation
and benefits 1,153 1,232 1,166 (79) 66
Occupancy and equipment 44 46 60 (2) (14)
General and
administrative, net 1,092 1,032 1,060 60 (28)
------- ----- ------- ------ -------
$ 12,971 7,481 24,376 5,490 (16,895)
====== ===== ====== ===== =======
Interest on Exchange debentures decreased for the year ended December 31, 1996
as compared to the same periods in 1995 and 1994 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.
Interest on mortgage payables and other borrowings decreased for the year ended
December 31, 1996 as compared to the same period in 1995 primarily due to a
reduction in borrowings and interest rates. Interest on mortgages payable and
other borrowings increased for the year ended December 31, 1995 as compared with
the same period in 1994 primarily due to additional borrowings in the fourth
quarter of 1994 as a result of the purchase of Cypress Creek and Centerport.
This increase was offset in part by the elimination of mortgage debt principally
related to the sale or foreclosure of properties acquired in the 1989 and 1991
Exchanges.
During 1994, the Company established a valuation allowance of approximately
$531,000 on the 12.73 acres of unimproved land owned by it in Birmingham,
Alabama.
In 1995 and 1994 the Company recorded a provision for loss on loan receivables
due from affiliated limited partnerships of approximately $335,000 and $624,000,
respectively. This loss was based upon management's determination regarding the
net carrying value of the loans and the estimated fair value of the underlying
loan collateral.
The 1994 provision for litigation of $2.2 million was attributable to an
appellate court decision in the Kugler litigation.
During 1996, the Company recorded a loss of approximately $474,000 in connection
with the disposition of mortgage notes and investments from five affiliated
limited partnerships. During 1996, the limited partnerships were liquidated.
The expenses related to real estate held for development and sale, net represent
the Company's prorata share of expenses and revenues, relating to the Centerport
property acquired in December 1994 located in Pompano Beach, Florida by an
entity controlled by the Company.
Employee compensation and benefits were less for the year ended December 31,
1996 and 1994 as compared to the same period in 1995 primarily due to a bonus
payment made in 1995.
General and administrative, net, increased for the year ended December 31, 1996
as compared to the same period in 1995 primarily due to an increase in legal
fees This increase was partially offset with decreases in professional and
consulting fees, trustee fees and audit expenses.
BBC's net income on common shares for the year ended December 31, 1996, 1995 and
1994 was approximately $19.0 million $16.4 million, $16.0 million, respectively.
The Company's equity in BBC's net income for the year ended December 31, 1996,
1995 and 1994 was approximately $8.7 million, $8.4 million and $8.0 million,
respectively. The increase in the equity in earnings of BBC was due to an
increase in earnings by BBC, partially offset by the Company's decreased
ownership of BBC.
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. The Class A Common Stock has
no voting rights except as may be required under Florida law. The two classes of
common stock generally have the same economic rights, except Class A Common
Stock is entitled to receive cash dividends equal to at least 110% of any cash
dividends declared and paid on the Class B Common Stock. In March 1996, BBC
issued 1.80 million shares of Class A Common Stock in an underwritten public
offering at $9.60 per share resulting in a decrease in the Company's ownership
of all outstanding BBC common stock from approximately 46% to 41.5%. At June 30,
1996, the Company's ownership in all outstanding BBC's common stock further
decreased to 40.8% upon BBC's issuance of Class A common stock in connection
with exercise of employee stock options and in April 1996 the underwriter
exercised an overallotment option to purchase an additional 252,817 shares of
Class A common stock. In August 1996, BBC announced an intention to purchase up
to 1.25 million shares of the BBC common stock in the open market. At December
31, 1996, the Company's ownership in all outstanding common stock of BBC
increased to 41.5%, upon BBC's repurchase of 228,125 and 112,500 shares of BBC
Class A and B common stock, respectively, in the secondary market for $3.3
million. At December 31, 1996, the Company's ownership in BBC Class A and B
common stock was approximately 35.1% and 46.2%, respectively.
Financial Condition -BFC's total assets at December 31, 1996, and at December
31, 1995, were $98.8 million and $96.9 million, respectively. The difference at
December 31, 1996 as compared to December 31, 1995 was primarily due to
increases in (i) securities available for sale (ii) investment in BBC and (iii)
escrow for redeemed debenture liability. These increases were offset in part by
decreases in (i) mortgage notes and related receivables, net and (ii) real
estate held for development and sale, net.
Securities available for sale increased primarily due to investment of proceeds
received in connection with the sale of the Cypress Creek property in March 1996
of approximately $6.5 million 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. This increase was
offset in part by the funding of the 1989 Exchange settlement escrow account of
approximately $4.6 million and the funding of the Kugler litigation settlement
of approximately $3.7 million.
Investment in BBC increased by $6.4 million due to the equity in earnings of BBC
of approximately $8.7 million, the $1.3 million effect of issuance of BBC Class
A common stock by BBC to BBC shareholders other than BFC, reduced by the common
stock dividends of approximately $0.8 million declared in 1996, the net effect
of other BBC capital transactions of approximately $335,000 and the change in
BBC's net unrealized appreciation (depreciation) on debt securities available
for sale, net of deferred income taxes of approximately $2.3 million.
Escrow for redeemed debenture liability increased in 1996 primarily due to the
funding of the 1989 Exchange settlement escrow account of approximately $4.6
million. This increase was offset in part by the release of approximately $2.9
million that had been placed in the escrow account related to the 1991 Exchange
litigation settlement and payments made in accordance with the terms of the
Exchange litigation settlements.
Other assets at December 31, 1995 included approximately $900,000 relating to
costs and attorneys' fees incurred in prior years relating to the cleanup of
contamination on a property formerly owned by BFC. In 1996, this amount was
collected resulting in the decline in other assets.
Mortgage notes and related receivables, net decreased due to principal
reductions on loans, satisfaction of a loan and the disposition of mortgage
notes due from affiliated limited partnerships resulting from the liquidation of
the partnerships.
The decrease in real estate held for development and sale, net was related to
the sale of the Cypress Creek property to an unaffiliated third party for
approximately $9.7 million.
Mortgages payable and other borrowings 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, net decreased approximately $857,000 primarily due to the
determination that some of the debentures originally estimated to be held by
holders in due course were actually held by members of the class involved in the
Exchange litigation. Deferred interest on the exchange debentures increased by
approximately $747,000 based on the deferral of interest on the Exchange
debentures pursuant to their terms. This increase was offset in part by a
decrease of approximately $663,000 relating to the determination that some of
the debentures originally estimated to be held by holders in due course were
actually held by members of the class involved in the Exchange litigation.
Redeemed debenture liability increased $218,000 as compared to the prior year.
The components of this increase include an increase on $72,000 relating to
adjustments for the Exchange litigation as additional class members were
identified, an increase of $475,000 for interest accrued regarding the redeemed
debenture liability and an increase of $208,000 for the interest income on the
escrow account related to the 1989 Exchange settlements. These increases were
offset in part by payments of approximately $537,000 made in accordance with the
terms of the Exchange litigation settlements.
Other liabilities decreased primarily due to the payment of approximately $3.7
million in connection with the Kugler litigation escrow account.
Purchase Accounting - The acquisition of BankAtlantic has been accounted for as
a purchase and accordingly, the assets and liabilities acquired have been
revalued to reflect market values at the dates of acquisition. The discounts and
premiums arising as a result of such revaluation are generally being accreted or
amortized (i.e. added into income or deducted from income), net of tax, using
the level yield or interest method over the remaining life of the assets and
liabilities. The net impact of such accretion, amortization and other purchase
accounting adjustments was to increase consolidated net earnings during 1996,
1995 and 1994 by approximately $545,000, $677,000 and $366,000 respectively.
Assuming no sales or dispositions of the related assets or liabilities by BBC,
the Company believes the net increase (decrease) in earnings resulting from the
net amortization/accretion of the adjustments to net assets acquired resulting
from the use of the purchase method of accounting will remain at a similar level
in future years.
Excess cost over fair value of net assets acquired at December 31, 1996 and
1995, was approximately $700,000 and $822,000, respectively. Such excess cost
over fair value of net assets acquired at December 31, 1996 and 1995 is included
in the investment of BBC in the accompanying statements of financial condition
Liquidity and Capital Resources - Numerous lawsuits were filed against the
Company in connection with both the 1989 and 1991 Exchange offers. Settlement of
the litigation against the Company that arose in connection with the 1991
Exchange was approved by the District Court in May 1994. The settlements
required BFC Financial Corporation to establish a settlement fund equal to
81.359% of the original face amount of the debentures distributed in connection
with the 1991 Exchange to the 1991 Exchange Class Members. Settlement of the
litigation brought against the Company in connection with the 1989 Exchange by
the plaintiffs who either voted against the transaction or did not vote (the
"Purcell Litigation") was approved by the District Court in September 1994. The
settlement required BFC to establish a settlement fund equal to 56% of the
original face amount of the debentures issued to the class members in the
Purcell Litigation (the Purcell Class"). Settlement of the litigation brought
against the Company in connection with the 1989 Exchange by the plaintiffs who
voted yes (the "Meador Litigation") was approved by the District Court in
December 1994. The settlement agreement in the Meador litigation contains the
same financial terms as those in the description of the settlement of the
Purcell Litigation. In connection with the above settlements, the Company
deposited $25.5 million into settlement escrow accounts through December 31,
1996 along with an additional deposit of approximately $5.1 million in March
1997. At December 31, 1996 and March 15, 1997, approximately $10.5 million and
$15.0 million, respectively, remained in the escrow accounts. Although amounts
for the required payments were 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").
ABC lost their appeals in the lower courts and filed for a hearing before the
Supreme Court. In October 1996, the Supreme Court declined to hear the case and
payments on the Purcell 1989 Exchange Litigation settlement commenced in January
1997.
The amounts that will be paid under these settlements can not be determined with
certainty because the amount of settlement depends upon whether the class member
still owns the debenture issued to them in the exchange transaction ("Class
Members Still Owning Debentures") or whether the class member sold the debenture
transferred to them in the exchange transaction ("Class Members No Longer Owning
Debentures"). The determination of which group a debenture holder falls into is
complicated by the fact that when a transfer of ownership occurs, the transfer
may not be a bona fide sale transaction (i.e., involved a transfer to street
name or to a family member). When a debenture is held by a Class Member Still
Owning Debentures, the amount of gain recognized on that debenture is greater
because the debenture and any related accrued interest is removed from the books
whereas if the debenture was sold to a non class member, a settlement payment is
made to the Class Member No Longer Owning the Debenture and the debenture and
all related accrued interest remains on the books in the name of the current
holder of the debenture. When the settlements were recorded, the gain recorded
was based upon the determination that if the debenture had been transferred
since issue, the debenture was classified in the group of Class Members No
Longer Owning Debentures. As debentures were presented for payment, if a
determination was made that the debenture belonged in the group of Class Members
Still Owning Debentures, an adjustment was made and additional gain was
recognized. Additionally, Class Members No Longer Owning Debentures had/have a
specified time period for filing a claim and as the determination of the claim
amounts are made and when the time period expires an adjustment is made and
additional gain is recognized. Gains on the above settlements of approximately
$853,000, $3.2 million and $22.7 million were recognized in 1996, 1995 and 1994,
respectively. The time period for filing a claim for the 1991 Exchange and
Meador claimants has expired and the time period for Purcell claimants expires
in January 1998.
At December 31, 1996, the redeemed debenture liability for the 1989 and 1991
Exchange litigation was approximately $14 million and $2.2 million,
respectively. Additionally, at December 31, 1996 the escrow for redeemed
debenture liability for the 1989 Exchange litigation was approximately $10.5
million for payment under the above settlements. The 1991 Exchange settlement
agreements provided for a release from the escrow any balances remaining at the
end of June 1996 and accordingly, approximately $2.9 million was released from
escrow. The Meador and Purcell (1989 Exchange) settlement agreement provides for
a release from the escrow any balances remaining at January 18, 1998 and January
10, 2000, respectively. (See Item 3. "Legal Proceedings.")
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 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 remainder of its
litigation has been resolved and the identity of holders due interest has been
determined with reasonable certainty.
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. 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. 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"). The acquisition was
expected to close during 1996, however, because of disagreements with the owner
the contract was canceled and the entity controlled by the Company received a
return of its deposit in February 1997.
During October 1996 and March 1997, respectively, the Company paid approximately
$3.7 million and $1.0 million into an escrow account to fund the settlement of
the Kugler litigation. (See Item 3. "Legal Proceedings.")
Through March 1997, all of the funds required in connection with the liabilities
associated with the litigation described above have already been provided except
for amounts which may be required in the Short litigation. 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 previously indicated, the Company holds approximately 41.5% of all BBC's
outstanding common stock. Presently, BBC has no significant operations other
than those related to its ownership of BankAtlantic and does not require funds
other than to pay certain operating expenses and interest expense on its
outstanding debentures. It is anticipated that funds for payment of these
expenses will be obtained 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 stated its intention to 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 the BBC. In March 1997, BBC Capital filed a
registration statement with the Securities and Exchange Commission to issue up
to 2.3 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. BBC Capital's sole asset will
be the 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
date of issuance.
In January 1997, the Company sold 87,875 shares of BankAtlantic Bancorp, Inc.
Class A common stock, net proceeds received from the sale amounted to
approximately $915,000.
In October 1995, BankAtlantic redeemed all of its outstanding preferred stock at
$25.00 per share. BFC owned BBC preferred stock with an approximate aggregate
carrying value of $143,000 and all such preferred stock was redeemed for
approximately $334,000. Therefore, in October 1995 BFC reported a gain on
redemption of BBC preferred stock of approximately $191,000.
Cash Flows - A summary of the Company's consolidated cash flows follows (in
thousands):
December 31,
------------
1996 1995 1994
---- ---- ----
Net cash provided (used) by:
Operating activities $(5,485) (1,963) (19,892)
Investing activities 8,142 2,321 9,402
Financing activities (2,013) 83 10,852
------ ------ ------
Increase in cash
and cash equivalents $ 644 441 362
====== ====== ======
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 during the year ended December 31,
1996 were proceeds from the sale of real estate, 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, funding for litigation settlement,
increases in the exchange escrow to fund settlement liability, purchase of
securities available for sale, operating expenses and capital improvements at
the Company's properties and general and administrative expenses.
Investing activities for the year ended December 31, 1996 included inflows of
approximately $6.5 million from the sale of real estate, principal reduction on
mortgage receivables of approximately $2.8 million, and dividends from BBC of
approximately $883,000. Investing activities for the year ended December 31,
1996 included outflows from a net increase in Exchange escrows to fund
settlement liability of approximately $1.8 million, a net increase in securities
available for sale of approximately $1.7 million, an increase in real estate
held for development and sale, net of approximately $275,000 and improvements to
real estate acquired in debenture exchange of approximately $74,000. Financing
activities for the year ended December 31, 1996 includes issuance of common
stock on the exercise of employee stock options issued by the Company's Stock
Option Plan and repayments of borrowing of approximately $2.1 million.
Impact of Inflation - The financial statements and related financial data and
notes presented herein have been prepared in accordance with GAAP, which require
the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
Virtually all of the assets and liabilities of BBC are monetary in nature. As a
result, interest rates have a more significant impact on BBC's performance than
the effects of general price levels. Although interest rates generally move in
the same direction as inflation, the magnitude of such changes varies. The
possible effect of fluctuating interest rates is discussed more fully in BBC's
Management's Discussion and Analysis of Financial Condition and Results of
Operations under "Interest Rate Sensitivity", which is incorporated herein by
reference. BFC does not believe that inflation has had any material impact on
the Company, however, economic conditions generally have had an adverse effect
on the values and operations of its real estate assets.
New Accounting Standards and Policies - In 1995, the FASB issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." ("FAS 121"). FAS
121 requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles that an entity expects to
hold and use should be based on the fair value of the asset. FAS 121 is
effective for financial statements for fiscal years beginning after December 15,
1995. Adoption of FAS 121 did not have a material effect on consolidated
financial position or results of operations, upon adoption on January 1, 1996.
On October 23, 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"). This statement applies to all
transactions in which an entity acquires goods or services by issuing equity
instruments or by incurring liabilities where the payment amounts are based on
the entity's common stock price. The Statement covers transactions with
employees and non-employees and is applicable to both public and non-public
entities. Entities are allowed for employee compensation purposes (1) to
continue to use the Accounting Principles Board Opinion No. 25 method ("APB
25"), or (2) to adopt the FAS 123 fair value based method. Once the method is
adopted, an entity cannot change and the method selected applies to all of an
entity's compensation plans and transactions. The Company adopted FAS 123 on
January 1, 1996 and elected to continue to use the APB 25 method for employee
stock based compensation purposes. There was no financial statement impact from
the adoption.
ITEM 8. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Financial Condition - December 31, 1996 and
1995
Consolidated Statements of Operations - For each of the Years in the
Three Year Period ended December 31, 1996
Consolidated Statements of Stockholders' Equity - For each of the
Years in the Three Year Period ended December 31, 1996
Consolidated Statements of Cash Flows - For each of the Years in the
Three Year Period ended December 31, 1996
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BFC Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of BFC Financial Corporation and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BFC Financial
Corporation and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principals.
/S/ KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
March 21, 1997
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
December 31, 1996 and December 31, 1995
(in thousands, except share data)
Assets
1996 1995
------ ------
Cash and cash equivalents $ 1,796 1,152
Securities available for sale 6,819 5,105
Investment in BankAtlantic Bancorp, Inc. ("BBC") 59,039 52,662
Mortgage notes and related receivables, net 2,180 5,168
Real estate acquired in debenture exchanges, net 10,383 11,072
Real estate held for development and sale, net 6,497 10,211
Escrow for redeemed debenture liability 10,528 8,982
Other assets 1,599 2,544
------ ------
Total assets $ 98,841 96,896
====== ======
Liabilities and Stockholders' Equity
Exchange debentures, net 2,953 3,810
Deferred interest on the exchange debentures 2,806 2,722
Redeemed debenture liability 16,182 15,964
Mortgage payables and other borrowings 25,498 27,616
Other liabilities 4,663 9,393
Deferred income taxes 5,277 1,633
------ ------
Total liabilities 57,379 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 2,373,021
in 1996 and 2,351,021 in 1995 21 20
Additional paid-in capital 20,890 19,770
Retained earnings 20,520 13,609
Less: treasury stock
(45,339 shares for 1996 and 1995) (280) (280)
------ ------
Total stockholders' equity before
BBC net unrealized appreciation
on debt securities available for sale,
net of deferred income taxes 41,151 33,119
BBC net unrealized appreciation
on debt securities available for sale,
net of deferred income taxes 311 2,639
------ ------
Total stockholders' equity 41,462 35,758
------ ------
Total liabilities and stockholders' equity $ 98,841 96,896
====== ======
See accompanying notes to consolidated financial statements.
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For each of the years in the three year period ended
December 31, 1996
(in thousands, except per share data)
1996 1995 1994
------ ------ ------
Revenues:
Interest on mortgage notes and
related receivables 613 451 657
Interest and dividends on securities
available for sale and escrow accounts 694 648 743
Dividend on redemption of BBC
preferred stock - 191 -
Earnings on real estate rental operations, net 1,303 1,033 1,735
Sale of real estate 9,700 375 13,250
Insurance settlement - - 2,500
Other income, net 993 594 364
------ ------ ------
Total revenues 13,303 3,292 19,249
------ ------ ------
Costs and expenses:
Interest on exchange debentures 1,238 1,976 5,777
Interest on mortgages payable
and other borrowings 2,396 2,598 2,499
Cost of sale of real estate 6,420 169 10,459
Provision for loss on real estate
acquired in debenture exchange - - 531
Provision for loan losses - 335 624
Provision for litigation - - 2,200
Loss on disposition of mortgage
notes and investment, net 474 - -
Expenses related to real estate held for
development and sale, net 154 93 -
Employee compensation and benefits 1,153 1,232 1,166
Occupancy and equipment 44 46 60
General and administrative, net 1,092 1,032 1,060
------ ------ ------
Total cost and expenses 12,971 7,481 24,376
------ ------ ------
Income (loss) before equity in earnings
of BBC, income taxes and
extraordinary items 332 (4,189) (5,127)
Equity in earnings of BBC 8,650 8,419 8,040
------ ------ ------
Income before income taxes
and extraordinary items 8,982 4,230 2,913
Provision (benefit) for income taxes 2,924 - (2,009)
------ ------ ------
Income before extraordinary items 6,058 4,230 4,922
Extraordinary items:
Net gain from extinguishment of debt,
net of income taxes of $218,000 - 460 -
Gain on settlements of Exchange
litigation, net of income
taxes of $611,000 in 1996,
$1,461,000 in 1995 and
$214,000 in 1994 853 3,242 22,744
------ ------ ------
Net income $ 6,911 7,932 27,666
====== ====== ======
(Continued)
1996 1995 1994
------ ------ ------
Income per common and
common equivalent share:
Before extraordinary items $ 2.63 1.90 2.39
Extraordinary items 0.37 1.67 11.06
------ ------ ------
Net income per common and
common equivalent share $ 3.00 3.57 13.45
====== ====== ======
Income per common and
common equivalent share
assuming full dilution:
Before extraordinary items $ 2.61 1.89 2.39
Extraordinary items 0.37 1.65 11.06
------ ------ ------
Net income per common and
common equivalent share
assuming full dilution $ 2.98 3.54 13.45
====== ====== ======
Weighted average number of common
and common equivalent shares
outstanding 2,302 2,222 2,056
====== ====== ======
Weighted average number of common
and common equivalent shares
outstanding assuming full dilution 2,321 2,243 2,056
====== ====== ======
See accompanying notes to consolidated financial statements.
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For each of the years in the three year period ended December 31, 1996
(in thousands)
Addi- Retained
tional Earnings Trea-
Common Paid-in Accumulated sury
Stock Capital (Deficit) Stock Other Total
----- ------- --------- ----- ----- -----
Balance at
December 31, 1993 $ 17 15,264 (21,989) (280) - (6,988)
Transfer from redeemable
common stock 3 5,773 - - - 5,776
Effect of issuance by BBC
of BBC's common stock by
BBC to shareholders other
than BFC - (15) - - - (15)
Change in BBC net
unrealized appreciation
on debt securities
available for
sale-net of deferred
income taxes - - - - 93 93
Net income - - 27,666 - - 27,666
--- ------ ------ ---- ----- ------
Balance at
December 31, 1994 20 21,022 5,677 (280) 93 26,532
Effect of issuance by BBC
of BBC's common stock by
BBC to shareholders other
than BFC - (1,252) - - - (1,252)
Change in BBC net
unrealized appreciation
on debt securities
available for
sale-net of deferred
income taxes - - - - 2,546 2,546
Net income - - 7,932 - - 7,932
--- ------ ------ ---- ----- ------
Balance at
December 31, 1995 20 19,770 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 - (335) - - - (335)
Change in BBC net
unrealized appreciation
on debt securities
available for
sale-net of deferred
income taxes - - - - (2,328) (2,328)
Exercise of stock options 1 181 - - - 182
Net income - - 6,911 - - 6,911
--- ------ ------ ---- ----- ------
Balance at
December 31, 1996 $ 21 20,890 20,520 (280) 311 41,462
=== ====== ====== ==== ===== ======
See accompanying notes to consolidated financial statements.
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For each of the years in the three year period ended December 31, 1996
(In thousands)
1996 1995 1994
------- ------- -------
Operating activities:
Income before extraordinary items $ 6,058 4,230 4,922
Adjustments to reconcile income
before extraordinary items to net cash
(used) by operating activities:
Equity in earnings of BBC (8,650) (8,419) (8,040)
Provision for declines in real estate owned - - 531
Depreciation 772 762 1,441
Expenses related to real estate held for
development and sale, net 154 93 -
Increase (decrease) in deferred income taxes 3,033 - (2,009)
Accretion on exchange debentures
and mortgages payable 15 29 118
Tax effect of real estate acquired
in debenture exchange - - (20)
Amortization of discount on
loans receivable (152) (168) (58)
Gain on sale of real estate, net (3,280) (206) (2,791)
Gain on redemption of BBC preferred stock - (191) -
Provision to state mortgage receivable at fair value - 335 624
Loss on disposition of mortgage notes and
investment, net 474 - -
Provision for litigation - - 2,200
Gain from litigation cost, net (211) -
Proceeds received from litigation settlement 1,109 - -
Fundings for litigation settlement (3,690) - -
Increase in the Exchange escrows
to fund settlement liability (4,653) - (20,840)
Proceeds from the 1991 Exchange escrow 2,903 - -
Increase in deferred interest on the
exchange debentures 747 1,423 5,604
Accrued interest income on escrow accounts (161) (272) (307)
Interest accrued regarding redeemed
debenture liability 475 524 63
Increase (decrease) in other liabilities (961) 89 (887)
Decrease (increase) in other assets 533 (192) (443)
------- ------- -------
Net cash (used in) operating activities (5,485) (1,963) (19,892)
------- ------- -------
Investing activities:
Proceeds from the sales of real estate
acquired in debenture exchanges - - 4,283
Proceeds from the sale of real estate 6,480 341 -
Deposits received for sale of real estate - 750 -
Common stock dividends received from BBC 883 819 753
Purchase of securities available for sale (47,153) (20,091) (62,346)
Proceeds from redemption and maturities
of securities available for sale 45,475 21,046 76,850
Principal reduction on loans 2,806 733 220
Loans originated - (475) -
Increase in real estate held for development
and sale, net (275) (392) (9,912)
Addition to office properties and equipment - (35) (12)
Improvements to real estate acquired in
debenture exchanges (74) (375) (434)
------- ------- -------
Net cash provided by investing activities 8,142 2,321 9,402
------- ------- -------
Financing activities:
Issuance of common stock 105 - -
Increase in borrowings - 513 11,500
Repayments of borrowings (2,118) (430) (648)
------- ------- -------
Net cash provided by (used in)
financing activities (2,013) 83 10,852
------- ------- -------
Increase in cash and cash equivalents 644 441 362
Cash and cash equivalents at beginning of period 1,152 711 349
------- ------- -------
Cash and cash equivalents at end of period $ 1,796 1,152 711
======= ======= =======
See accompanying notes to consolidated financial statements.
BFC Financial Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation - The financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP").
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the statements
of consolidated financial condition and income and expenses for the periods
presented. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the next year relate to the determination of the allowance for real estate, and
in connection with the settlements of exchange litigation, the percentages used
to estimate class members no longer owning debentures and the allowance for
mortgage notes and related receivables.
The financial statements and notes to consolidated financial statements of
BankAtlantic Bancorp, Inc. and Subsidiaries ("BBC"), are incorporated herein by
reference.
Principles of Consolidation - BFC Financial Corporation is a savings bank
holding company as a consequence of its ownership of the common stock of
BankAtlantic Bancorp, Inc. ("BBC") On July 13, 1994 BankAtlantic, A Federal
Savings Bank ("BankAtlantic") consummated a reorganization into a holding
company structure and BankAtlantic Bancorp, Inc. acquired all the capital stock
of BankAtlantic thereby becoming a unitary savings bank holding company. The
reorganization resulted in BankAtlantic becoming a wholly-owned subsidiary of
BBC with BFC becoming a shareholder of BBC on the same proportionate basis as
was the Company's ownership in BankAtlantic. The consolidated financial
statements reflect the activities of BFC Financial Corporation and its wholly
owned subsidiaries ("BFC"). Because the Company's ownership in BBC was less than
50% beginning in 1993, the Company's investment in BBC has been carried on the
equity method since the year 1993.
Cash Equivalents - Cash equivalents include liquid investments with original
maturities of three months or less.
Securities Available for Sale - The Company's securities are available for sale.
These securities are carried at fair value, with any related unrealized
appreciation or and depreciation reported as a separate component of
stockholders' equity, net of income taxes. A write-down is reflected in the
statement of operations to the extent that securities are permanently impaired.
Mortgage Notes and Related Receivables, net - Mortgage notes and related
receivables, net, are carried at the lower of cost or fair value.
Allowance for Loan Losses - BFC, beginning on January 1, 1995, bases the
measurement of loan impairment in accordance with FAS 114. Non-collateral
dependent loan impairment is based on the present value of the estimated future
cash flows. Impairment losses are included in the allowance for loan losses
through a charge to the provision for loan losses. Adjustments to impairment
losses resulting from changes in the fair value of an impaired loan's collateral
or projected cash flows are included in the provision for loan losses. Upon
disposition of an impaired loan, any related valuation allowance is relieved
from the allowance for loan losses.
Real Estate - Real estate acquired in the Exchange transactions and real estate
held for development and sale, net are stated at the lower of cost or fair
value, less estimated disposition costs, in the accompanying statements of
financial condition. In 1995, the FASB issued Statement of Financial Accounting
Standard SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." ("FAS 121"). FAS 121 requires that
long-lived assets, assets held for sale and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles that an entity expects to
hold and use should be based on the fair value of the asset. FAS 121 is
effective for financial statements for fiscal years beginning after December 15,
1995. The impact of adoption of FAS 121 was not material.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets which generally range up to 31.5 years for buildings and 5
years for tenant improvements.
Income Taxes - The Company does not include BBC and its subsidiaries in its
consolidated income tax return with its wholly-owned subsidiaries, since the
Company owns less than 80% of the outstanding stock of BBC. Deferred income
taxes are provided on elements of income that are recognized for financial
accounting purposes in periods different than such items are recognized for
income tax purposes.
The Company utilizes the asset and liability method to account for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to the differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the period that includes the statutory enactment
date. A valuation allowance is provided to the extent it is more likely than not
that deferred tax assets will not be utilized.
Excess Cost Over Fair Value of Net Assets Acquired (Goodwill) - The ownership
position in BankAtlantic was acquired at different times. At the February 1987,
October 1989, June 1990, October 1990 and November 1991 acquisitions, the fair
market value of the net assets of BankAtlantic were greater than the Company's
cost. At other increases in ownership, the Company's cost was in excess of the
fair market value of BankAtlantic's net assets. The excess of fair market value
over cost was recorded as a reduction to the fair market value of non-current
assets, including identified intangible assets. The excess of cost over fair
market value was recorded as goodwill and is being amortized on the straight
line basis over a 15 year period. Identified intangibles consist of loan
servicing and escrows. These intangibles were amortized over the remaining life
of the applicable loan and escrow accounts using the level yield method and at
the end of 1993 had been completely amortized. The minor 3.3%, 4%, 0.5% and 2.4%
increases in ownership of BankAtlantic in October 1989, June 1990, October 1990
and November 1991 were recorded utilizing BankAtlantic's cost basis of assets
and liabilities as fair market value. The excess of such cost basis over the
Company's purchase price was recorded as a reduction to property and equipment
and is being amortized on a straight-line basis over a ten year period. Cost
over fair value of net assets acquired and other intangible assets is evaluated
by management for impairment on an on-going basis based on the facts and
circumstances related to the net assets acquired.
Redeemable Common Stock - In May 1989, the Company exchanged with Mr. Abdo, a
member of the Company's Board of Directors, and certain members of his family
(the "Abdos"), among other things, 353,478 shares of its common stock (including
117,483 shares of treasury stock) for 282,782 shares of common stock of
BankAtlantic. (See also Note 2). The exchange ratio for the shares was 1.25 to
1. The Abdos had the right to require the Company, at any time, to purchase such
shares for the higher of (i) their book value as of the date of notice or (ii)
the average market value of such shares. The Company and Alan B. Levan,
individually, had the right to buy and to require the Abdos to sell such shares
to each, respectively, on the same terms indicated above. At the transaction
date the book value of the shares was greater than their market value.
Accordingly, the amount initially recorded for this redeemable common stock,
$5,776,000, was at book value. Amounts subsequently reflected in the Company's
statements of financial condition were to be adjusted to reflect the maximum
liability based on the higher of either the market price or the book value of
the shares. However, such liability was not to be reduced from the amount
initially reflected at the time of acquisition. There were no adjustments to the
amount stated since the May 1989 acquisition date. In February 1994, the parties
mutually agreed to cancel the agreement with respect to the requirement to buy
and or sell shares. Therefore, during the first quarter of 1994, the amount
classified as redeemable common stock was reclassified to the stockholders'
equity section of the statement of financial condition.
Income Per Share - Income per common share and common equivalent share was
computed by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. The
number of common shares was increased by the number of shares issuable on the
exercise of options when the market price of the common stock exceeds the
exercise price of the options. This increase in the number of common shares was
reduced by the number of common shares that are assumed to have been purchased
with the proceeds from the exercise of the options; those purchases were assumed
to have been made at the average price of the common stock during the period
when the market price of the common stock exceeded the exercise price of the
options. For income per common share assuming full dilution, those purchases
were assumed to be made at the market price at the end of the period, if higher
than the average price during the period.
For all periods, the shares issued in connection with a 1984 acquisition are
considered outstanding after elimination of 227,250 in 1996 and 250,000 shares
prior to 1996, representing the Company's 45% and 50% ownership of the shares
issued in the acquisition, respectively.
New Accounting Standards - On October 23, 1995, the FASB issued Statement No.
123, "Accounting for Stock-Based Compensation" ("FAS 123"). This statement
applies to all transactions in which an entity acquires goods or services by
issuing equity instruments or by incurring liabilities where the payment amounts
are based on the entity's common stock price. The Statement covers transactions
with employees and non-employees and is applicable to both public and non-public
entities. Entities are allowed for employee compensation purposes (1) to
continue to use the Accounting Principles Board Opinion No. 25 method ("APB
25"), or (2) to adopt the FAS 123 fair value based method. Once the method is
adopted, an entity cannot change and the method selected applies to all of an
entity's compensation plans and transactions. The Company adopted FAS 123 on
January 1, 1996 and elected to continue to use the APB 25 method for employee
stock based compensation purposes. There was no financial statement impact from
the adoption.
Reclassifications - For comparative purposes, certain prior year balances have
been reclassified to conform with the 1996 financial statement presentation.
2. INVESTMENTS IN BANKATLANTIC BANCORP, INC.
The Company has acquired its 41.5% ownership at December 31, 1996 of all
outstanding BBC common stock through various acquisitions and sales. Where
appropriate, amounts throughout this report of all BBC share and per share
amounts have been adjusted for the June 1995, January 1996, July 1996 and
February 1997 five for four common share stock splits effected in the form of
25% stock dividends. The July 1996 and February 1997 25% stock dividend was
payable in Class A Common Stock to BBC Class A and Class B common shareholders.
At December 31, 1994, 1995 and 1996, BFC owned 48.0%, 46.0% and 41.5%,
respectively, of the outstanding common stock of BBC.
The decrease in the ownership percentage at December 31, 1995 from 48.0% to
46.0% results from additional shares of BBC common stock being issued in
connection with BBC's stock option plan.
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. The Class A Common Stock has
no voting rights except as may be required under Florida law. The two classes of
common stock generally have the same economic rights, except Class A Common
Stock is entitled to receive cash dividends equal to at least 110% of any cash
dividends declared and paid on the Class B Common Stock.
In March 1996, BBC issued 1.80 million shares of Class A Common Stock in an
underwritten public offering at $9.60 per share resulting in a decrease in the
Company's ownership of all outstanding BBC common stock from approximately 46%
to 41.5%. At June 30, 1996, the Company's ownership in all outstanding BBC's
common stock further decreased to 40.8% upon BBC's issuance of Class A common
stock in connection with exercise of employee stock options and in April 1996
the underwriter exercised an overallotment option to purchase an additional
252,817 shares of Class A common stock. In August 1996, BBC announced a plan to
purchase up to 1.25 million shares of the BBC's common stock. At December 31,
1996, the Company's ownership in all outstanding common stock of BBC increased
to 41.5%, upon BBC's repurchase of 228,125 and 112,500 shares of BBC Class A and
B common stock, respectively. At December 31, 1996, the Company's ownership in
BBC Class A and B common stock was approximately 35.1% and 46.2%, respectively.
The acquisition of BankAtlantic has been accounted for as a purchase and
accordingly, the assets and liabilities acquired have been revalued to reflect
market values at the dates of acquisition. The discounts and premiums arising as
a result of such revaluation are generally being accreted or amortized (i.e.
added into income or deducted from income), net of tax, using the level yield or
interest method over the remaining life of the assets and liabilities. The net
impact of such accretion, amortization and other purchase accounting adjustments
was to increase consolidated net earnings during 1996, 1995 and 1994 by
approximately $545,000, $677,000 and $366,000 respectively. Assuming no sales or
dispositions of the related assets or liabilities by BBC, the Company believes
the net increase (decrease) in earnings resulting from the net
amortization/accretion of the adjustments to net assets acquired resulting from
the use of the purchase method of accounting will be remain at a similar level
in future years.
Excess cost over fair value of net assets acquired at December 31, 1996 and
1995, was approximately $700,000 and $822,000, respectively. Excess cost over
fair value of net assets acquired at December 31, 1996 and 1995 is included in
the investment of BBC in the accompanying statements of financial condition, in
addition to other unamortized purchase accounting adjustments.
In January 1997, the Company sold 87,875 shares of BankAtlantic Bancorp, Inc.
Class A common stock, net proceeds received from the sale amounted to
approximately $915,000.
A reconciliation of the carrying value in BBC to BBC's Stockholders equity at
December 31, 1996 and 1995 is as follows:
December 31,
------------
1996 1995
---- ----
BBC stockholders' equity $ 147,704 120,561
Ownership percentage 41.52% 46.03%
------- -------
61,327 55,494
Purchase accounting adjustments (2,288) (2,832)
------- -------
Investment in BBC $ 59,039 52,662
======= =======
BFC owned 5,600 shares of BBC 12.25% Series A Preferred Stock, 529 shares of BBC
10.00% Series B Preferred Stock and 7,245 shares of BBC 8.00% Series C Preferred
Stock. The aggregate purchase price relating to the acquisition of these shares
was approximately $143,000 and was included in securities available for sale,
net in the 1994 statement of financial condition. All such preferred stock was
redeemed by BBC in October 1995 for approximately $334,000. The redemption
proceeds in excess of carrying value, aggregating approximately $191,000 was
recognized as a dividend in the 1995 consolidated statement of operations.
During 1995, BBC issued $21.0 million of 9% subordinated debentures (the "9%
Debentures") due in October 2005. The proceeds to the offering were utilized as
follows: $6.0 million was contributed to the capital of BankAtlantic, $2.9
million was utilized to repay a note payable, $8.4 million was used to redeem
all of the outstanding shares of the Company's non-cumulative preferred stock
and in accordance with the terms of the underlying indenture, $1.9 million was
invested in marketable securities to cover two semi-annual interest payments.
During 1996, BBC issued $57.5 million of 6 3/4% convertible debentures due July
1, 2006. The 6 3/4% debentures are convertible into Class A common stock at an
exercise price of $10.24 per share. Also during 1996 , BBC issued approximately
2.1 million Class A common stock in an underwritten public offering at $9.60 per
share. BBC contributed approximately $54 million of the above proceeds to
BankAtlantic, approximately $3.3 million was utilized for the repurchase of BBC
common stock, invested $3.9 million in marketable securities to cover two
semi-annual interest payments in accordance with the related indenture agreement
and the balance of net proceeds are available for general corporate purposes.
Presently, BBC has no significant operations other than those related to its
ownership of BankAtlantic and does not require funds other than to pay certain
operating expenses and interest expense on its outstanding debentures. It is
anticipated that funds for payment of these expenses will be obtained 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 stated its
intention to pay regular quarterly cash dividends on its common stock.
Current regulations applicable to the payment of cash dividends by savings
institutions impose limits on capital distributions based on an institution's
regulatory capital levels and net income. An institution that meets all of its
fully phased-in capital requirements (both before and after giving effect to the
distribution) and is not in need of more than normal supervision would be a
"Tier 1 association". Upon prior notice to, and non-objection by, the OTS, a
Tier 1 association may make capital distributions during a calendar year up to
the greater of (1) 100% of net income for the current calendar year plus 50% of
its capital surplus or (ii) 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval.
An institution that meets its minimum regulatory capital requirements but does
not meet its fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of its
net income over the most recent four-quarter period, depending on the
institution's risk-based capital level. A "Tier 3 association" is defined as an
institution that does not meet all of its minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS. Savings institutions must provide the OTS with at
least 30 days written notice before making any capital distribution. All capital
distributions are subject to the OTS' right to object to a distribution on
safety and soundness grounds.
3. EXCHANGE TRANSACTIONS
During 1991, the Company exchanged (the "1991 Exchange") approximately $15.4
million (the "Original Principal Amount") of its subordinated unsecured
debentures (the "Debentures") for all of the assets and liabilities of three
affiliated limited partnerships, I.R.E. Real Estate Fund, Ltd. - Series 25,
I.R.E. Real Estate Fund, Ltd. Series 27 and I.R.E. Real Estate Income Fund, Ltd.
The major assets and liabilities of these partnerships consisted principally of
eight commercial real estate properties and related non-recourse mortgage debt.
During 1989, the Company exchanged (the "1989 Exchange") approximately $30
million (the "Original Principal Amount") of its subordinated unsecured
debentures (the "Debentures") for all of the assets and liabilities of three
affiliated limited partnerships, I.R.E. Real Estate Fund, Ltd. - Series 21,
I.R.E. Real Estate Fund, Ltd. Series 23 and I.R.E. Real Estate Fund, Ltd. -
Series 24. The major assets and liabilities of these partnerships consisted
principally of fourteen commercial real estate properties, and related
non-recourse mortgage debt. Of the properties acquired, one property is still
owned by the Company at December 31, 1996 and another property will be
transferred to an entity in which the Company has a 50% interest with an
effective date of transfer of October 1, 1996.
Numerous lawsuits were filed against the Company in connection with both the
1989 and 1991 Exchange offers. All of these lawsuits have now been settled. In
connection with the settlements, the Company deposited $25.5 million through
December 31, 1996 along with an additional $5.1 million in March 1997 into
escrow accounts. Payments have been made and are currently being made to class
members under these settlements. At December 31, 1996 and March 15, 1997,
approximately $10.5 million and $15.0 million, respectively, remained in the
escrow accounts.
The amounts that will be paid under these settlements can not be determined with
certainty because the amount of settlement depends upon whether the class member
still owns the debenture issued to them in the exchange transaction ("Class
Members Still Owning Debentures") or whether the class member sold the debenture
transferred to them in the exchange transaction ("Class Members No Longer Owning
Debentures"). The determination of which group a debenture holder falls into is
complicated by the fact that when a transfer of ownership occurs, the transfer
may not be a bona fide sale transaction (i.e., involved a transfer to street
name or to a family member). When a debenture is held by a Class Member Still
Owning Debentures, the amount of gain recognized on that debenture is greater
because the debenture and any related accrued interest is removed from the books
whereas if the debenture was sold to a non class member, a settlement payment is
made to the Class Member No Longer Owning the Debenture and the debenture and
all related accrued interest remains on the books in the name of the current
holder of the debenture. When the settlements were recorded, the gain recorded
was based upon the determination that if the debenture had been transferred
since issue, the debenture was classified in the group of Class Members No
Longer Owning Debentures. As debentures were presented for payment, if a
determination was made that the debenture belonged in the group of Class Members
Still Owning Debentures, an adjustment was made and additional gain was
recognized. Additionally, Class Members No Longer Owning Debentures had/have a
specified time period for filing a claim and as the determination of the claim
amounts are made and when the time period expires an adjustment is made and
additional gain is recognized. Gains on the above settlements of approximately
$853,000, $3.2 million and $22.7 million were recognized in 1996, 1995 and 1994,
respectively. The time period for filing a claim for the 1991 Exchange and
Meador claimants has expired and the time period for Purcell claimants expires
in January 1998.
At December 31, 1996, the redeemed debenture liability for the 1989 and 1991
Exchange litigation was approximately $14 million and $2.2 million,
respectively. Additionally, at December 31, 1996 the escrow for redeemed
debenture liability for the 1989 Exchange litigation was approximately $10.5
million for payment under the above settlements. The 1991 Exchange settlement
agreements provide for a release from the escrow any balances remaining at the
end of June 1996 and accordingly, approximately $3.0 million was released from
escrow. The Meador and Purcell 1989 Exchange settlement agreement provides for a
release from the escrow any balances remaining at January 18, 1998 and January
10, 2000, respectively.
The components of the gain from the settlement of the 1991 Exchange litigation
are as follows (in thousands):
1996 1995 1994
---- ---- ----
Adjustment of basis in the properties
acquired in debenture exchange, net $ - 273 6,713
Decrease in other assets - (9) (323)
Decrease in exchange debentures, net 114 286 9,630
Decrease in deferred interest on the
exchange debentures 141 262 5,454
----- ----- -------
255 812 21,474
Redeemed debenture liability (133) 103 (12,240)
----- ----- -------
Pre-tax gain on the 1991 Exchange settlement $ 122 915 9,234
===== ===== =======
The components of the gain from the settlement of the 1989 Exchange litigation
are as follows (in thousands):
1996 1995 1994
---- ---- ----
Adjustment of basis in the properties acquired
in debenture exchange, net $ - - 756
Decrease in other assets - (34) (292)
Decrease in exchange debentures, net 758 2,549 19,515
Decrease in deferred interest on exchange
debentures 522 1,934 8,705
----- ----- -------
1,280 4,449 28,684
Redeemed debenture liability 62 (661) (14,960)
----- ----- -------
Pre-tax gain on the 1989 Exchange litigation $ 1,342 3,788 13,724
===== ===== =======
In connection with the settlements of the above litigation, the Company
collected $2.5 million in 1994 from its insurance carrier under its liability
coverage. Such insurance proceeds were utilized to reimburse the Company for
expenses previously incurred and expensed with respect to the above litigation.
In June 1994, ABC Broadcasting Companies, Inc. and William H. Wilson
(collectively "ABC") attempted to intervene in the Purcell Litigation. By
attempting to intervene, ABC sought, for the purposes of defending their conduct
in a defamation lawsuit brought against them by BFC and Alan B. Levan, to
prevent the settlement of the Purcell Litigation and to obtain the protection of
the judgment by the District Court following the jury's verdict. On June 30,
1994, the District Court entered an order denying ABC's motion to intervene. On
September 12, 1994, the District Court entered a final judgment which approved
and ratified the settlement agreement and set aside, vacated, dissolved and
nullified the December 18, 1992 jury verdict and the District Court's December
18, 1992 judgment (the "Final Judgment"). On October 5, 1994, ABC filed an
appeal of the Final Judgment and an appeal of the order entered by the District
Court denying ABC the right to intervene in the Purcell Litigation. Such appeal
was denied and ABC filed for a hearing before the Supreme Court and in October
1996, the hearing was denied. Therefore, the Final Judgment is final for
appellate purposes. The payment of amounts due to the Purcell Class commenced in
January 1997.
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, outstanding 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 all of its litigation is finalized and the
identity of holders due interest has been determined with reasonable certainty.
The Debentures in the 1991 Exchange bear interest at a rate equal to 10.5% per
annum until March 31, 1992, 11.5% per annum thereafter until March 31, 1993 and
12.5% per annum thereafter until maturity on July 1, 2011. The Debentures in the
1989 Exchange bear interest at a rate equal to 8% per annum until June 30, 1990,
9% per annum thereafter until June 30, 1991, and 10% thereafter until maturity
on July 1, 2009. For financial statement purposes, the Debentures in the 1991
and 1989 Exchange have been discounted to yield 19% and 12%, respectively, over
their term. Any interest not paid quarterly by the Company ("Deferred Interest")
will accrue interest at the same rate as the Debentures until paid and after
eight quarter of interest not paid by the Company the interest rate on the
Debentures in the 1991 and 1989 Exchanges will increase to, and remain at, 13%
and 12%, respectively, per annum until maturity. No dividends may be paid to the
holders of any equity securities of the Company while any deferred interest
remains unpaid. Since December 31, 1991, the Company has deferred the interest
payments relating to the debentures issued in both the 1989 Exchange and the
1991 Exchange and therefore, the interest on the debentures in the 1991 and 1989
Exchange is now 13% and 12%, respectively per annum. The deferred interest on
the exchange debentures was approximately $2.8 million and $2.7 million at
December 31, 1996 and 1995, respectively.
Through December 31, 1996, six properties acquired in the 1991 Exchange were
sold to unaffiliated third parties. The properties had an aggregate sales price
of approximately $41.6 million. Stated mortgage debt of approximately $25.7
million was eliminated including the remaining $2.0 million balance on a $5.0
million note payable. Cash proceeds from the sales, after prorations and closing
costs, of approximately $12.5 million was received.
Through December 31, 1996, ten properties acquired in the 1989 Exchange were
sold to unaffiliated third parties. The properties had an aggregate sales price
of approximately $42.3 million. Stated mortgage debt of approximately $21.1
million was eliminated and cash proceeds, after prorations and closing costs, of
approximately $20.0 million was received.
4. SECURITIES AVAILABLE FOR SALE
Included in securities available for sale at December 31, 1996 and 1995 was
approximately $6,819,000 and $5,105,000 of U.S. Treasury Bills and other
investments, respectively. Market value at December 31, 1996 and 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 third quarter of 1996, this
Letter of Credit was canceled and the collateral was released. In December 1996,
the Company invested $150,000 in Series A Preferred Stock of an unaffiliated
entity. At December 31, 1996, the market value of this investment approximates
book value.
5. MORTGAGE NOTES AND RELATED RECEIVABLES - NET
Mortgage notes and related receivables as of December 31, 1996 and 1995 are
summarized below (in thousands):
1996 1995
---- ----
Originating from:
Investment properties $ 3,974 7,156
Less: Principally, deferred profit (1,022) (2,121)
Valuation allowance (772) (934)
------ ------
2,180 4,101
Other - 1,067
------ ------
Total $ 2,180 5,168
====== ======
In 1996, the Company recorded a loss of approximately $474,000 in connection
with the disposition of mortgage notes and investments, net from affiliated
limited partnerships. During 1996, such limited partnerships were liquidated. In
connection with the disposition of the mortgage notes, the Company received
approximately $297,000 of accrued interest that was not previously recorded on
the books. Such interest has been recorded in interest income and is not
included below. The components of the 1996 loss on disposition of mortgage notes
and investment, net are as follows:
1996
----
Mortgage receivables $ 1,328
Less: Principally, deferred profit (947)
Valuation allowance (162)
219
Investment in Limited Partnerships, net 255
-----
Net loss $ 474
=====
During 1996, the Company received approximately $1.7 million resulting from the
satisfaction of loans due from affiliated limited partnerships, upon the sale of
the partnerships' properties. Also, during 1996 approximately $1.1 million was
received for a loan due from an unaffiliated third party.
Through September 1994, the Company had attempted to negotiate an extension of a
$1.0 million balloon payment on a note payable that matured in June 1993.
However, the lender exercised the acceleration provision on the note and in
September 1994, the underlying security that consisted of five wrap mortgage
receivables from affiliated limited partnerships was transferred to an affiliate
of the lender. In September 1994, the Company removed the related receivables
and payables from its books but deferred the gain because negotiations with the
lender were ongoing. At that time the Company remained liable to the lender for
the difference between the balance owed at the time of the acceleration and the
amount the lender sold the underlying security for. The Company continued
negotiations with the lender and in September 1995, an agreement was reached
whereby the lender was paid $500,000, two of the wrap mortgage receivables were
transferred to the affiliated limited partnerships and three of the wrap
mortgage receivables were transferred to the Company. Further, the Company was
released from any further liability to the lender. The three wrap mortgage
receivables transferred to the Company were reinstated on the Company's books at
their former carrying value reduced by payments made between September 1994 and
September 1995. The Company accounted for this transaction as a debt
extinguishment and accordingly reflected the gain on the transaction as an
extraordinary item in its financial statements. The components of the deferred
gain in 1994 and the gain recognized in 1995 are as follows:
1995 1994
---------- --------
Mortgage notes and related receivables, net $(1,728,527) (3,212,862)
Underlying mortgage payables 1,520,607 2,757,299
Other liabilities 52,648 91,345
Credit from lender on sale of receivables 720,000 720,000
Balance forgiven by lender 260,768 -
----------
Gain deferred 355,782
---------- ==========
Pre-Tax Gain recognized $ 825,496
==========
In December 1995, the Company recorded a pre-tax loss on forgiveness of debt of
approximately $147,000 and accordingly removed the mortgage receivable, net due
from an affiliated limited Partnership. This limited Partnership in November
1995 sold its property and the remaining mortgage payable due to a subsidiary
of BFC was forgiven. The Company has accounted for this transaction as an
extraordinary item.
6. REAL ESTATE ACQUIRED IN DEBENTURE EXCHANGE
Real estate acquired in debenture exchange consists of the following (in
thousands):
December 31
-----------
Estimated Lives 1996 1995
--------------- ---- ----
Land - $ 1,062 1,414
Buildings and improvements 4 to 31.5 years 10,401 13,426
Investment in real estate, net 2,652 -
------ ------
14,115 14,840
Less:
Accumulated depreciation 3,319 3,355
Deferred profit 413 413
------ ------
3,732 3,768
------ ------
$ 10,383 11,072
====== ======
During 1996, the Company agreed to sell, effective October 1, 1996, a 50%
interest in a property acquired in the 1989 Exchange. When the transaction is
completed, the remaining 50% interest in the property will be 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 will
be deferred and is reducing the Company's carrying value reflected above.
Condensed operations and significant cash flows for real estate acquired in the
debenture Exchange is as follows for the year ended December 31, 1996, 1995 and
1994 (in thousands) (a):
1996 1995 1994
---- ---- ----
Operating Information:
Revenues:
Property operations $ 2,671 2,590 5,079
Net gain on sale
of real estate - - 2,988
Deferred gain on dispositions
of real estate - - (197)
----- ----- -----
Net revenues 2,671 2,590 7,870
----- ----- -----
Cost and expenses:
Mortgage interest 1,146 1,257 1,951
Depreciation 763 746 1,403
Property operating expenses 758 986 2,217
Provision to state real estate
at fair value - - 531
----- ----- -----
Total costs and expenses 2,667 2,989 6,102
----- ----- -----
Excess (deficit) of revenues
over expenses 4 (399) 1,768
===== ===== =====
Cash Flow Information:
Operating activities:
Excess (deficit) of revenues
over expenses $ 4 (399) 1,768
Depreciation 763 746 1,403
Net gain on dispositions of
real estate - - (2,791)
Write down of real estate - - 531
----- ----- -----
Cash provided by
operating activities 767 347 911
----- ----- -----
Investing activities:
Proceeds from sales of
real estate - - 4,283
Property improvements (74) (375) (436)
----- ----- -----
Net cash provided (used) by
investing activities (74) (375) 3,847
----- ----- -----
Total cash provided (used) $ 693 (28) 4,758
===== ===== =====
(a) Operating and cash flow information does not include interest expense for
the debentures issued in connection with the acquisition of this real estate.
Interest on mortgages payable, interest on other investment securities, gain on
dispositions of real estate, provision for loss on real estate and legal fees
associated with the 1989 and 1991 Exchange are not included in "Earnings on real
estate operation, net" in the accompanying statements of consolidated
operations. See also note 3 for additional information on the debenture Exchange
and sale of properties.
7. REAL ESTATE HELD FOR DEVELOPMENT AND SALE
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 a limited
partnership that entitles it to receive approximately 5% of any future profits
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.
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"). The acquisition was expected to close during 1996, however,
because of disagreements with the owner the contract was canceled and the entity
controlled by the Company received a return of its deposit in February 1997.
8. MORTGAGES PAYABLE AND OTHER BORROWINGS
Mortgages payable and other borrowings at December 31, 1996 and 1995 are
summarized as follows (in thousands):
Approximate
Type of Debt Maturity Interest Rate 1996 1995
------------ -------- ------------- ---- ----
Related to mortgage 6% - Prime
receivables 1997-2010 plus 1% $ 1,877 3,088
Related to real estate 1997-1997 9.75%- Prime
plus 1.5% 20,457 20,630
Other borrowings 1997 Prime-Prime
plus 1% 3,164 3,898
------ ------
$ 25,498 27,616
====== ======
All mortgage payables and other borrowings above are from unaffiliated parties.
Included in 1996 and 1995 amounts related to other borrowings is approximately
$3.0 and $3.4 million, respectively, due to financial institutions.
As indicated on the above table, mortgage payable and other borrowings related
to mortgage receivables decreased due to the satisfaction of loans upon the sale
of affiliated limited partnerships properties and the satisfaction of a $300,000
working capital loan.
In December 1994, the Company established a broker line of credit in the amount
of $850,000 which is currently collateralized by 170,000 shares of BankAtlantic
Bancorp, Inc. Class B common stock. At December 31, 1996, the outstanding
balance on the above line was approximately $131,000.
At December 31, 1996 the aggregate principal amount of the above indebtedness
maturing in each of the next five years is approximately as follows (in
thousands):
Years ended
December 31, Amount
------------ ------
1997 $ 21,180
1998 555
1999 2,492
2000 173
2001 186
Thereafter 912
------
$ 25,498
======
The majority of the Company's marketable securities, mortgage receivables and
real estate acquired in the 1989 and 1991 debenture Exchange are as to real
estate and marketable securities, encumbered by, or, as to mortgages receivable,
subordinate to mortgages payable and other debt.
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 has entered into an agreement for forbearance and an
extension agreement which extends the maturity through April 1997. Other sources
of financing is currently being negotiated. The net book value of Burlington
Manufacturers Outlet Center on December 31, 1996 was approximately $7.7 million.
There is no recourse against the Company on the existing first mortgage.
9. INCOME TAXES
The provision for income tax expense (benefit) consists of the following (in
thousands):
For the Years Ended
December 31,
--------------------------
1996 1995 1994
---- ---- ----
Current:
Federal $ (124) - 29
State 15 - -
------ ------ ------
(109) - 29
------ ------ ------
Deferred :
Federal 2,598 - (2,038)
State 435 - -
------ ------ ------
3,033 - (2,038)
------ ------ ------
Total $ 2,924 - (2,009)
====== ====== ======
Current taxes applicable to extraordinary items were $46,000 and none for 1996
and 1994. In 1996, 1995 and 1994 deferred taxes applicable to extraordinary
items were $611,000, $1,633,000 and $214,000, respectively.
A reconciliation from the statutory federal income tax rates of 35% in 1996,
1995 and 1994, to the effective tax rate is as follows (in thousands):
Year ended December 31,
-----------------------
1996 (1) 1995 (1) 1994 (1)
-------- -------- --------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Expected tax expense 3,144 35.0 1,481 35.0 1,020 35.0
Provision for state
taxes net of federal
benefit 321 3.6 151 3.6 104 3.6
Dividend received
deduction (272) (3.0) (253) (5.8) - -
Change in the
valuation allowance
as a result of items
other than
extraordinary (2) - - (1,377) (31.6) (3,133) (107.6)
Other, net (269) (3.0) (2) (1.2) - -
------ ----- ------ ------ ------ ------
2,924 32.6 - - (2,009) (69.0)
====== ===== ====== ====== ====== ======
- ----------
(1) Expected tax is computed based upon earnings (loss) before income
taxes, cumulative effect of change in accounting for income taxes and
extraordinary items.
(2) The remaining charge in the deferred tax asset valuation allowance in
1995 and 1994 relates to income generated from the extraordinary item.
The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and tax liabilities at December 31, 1996
and 1995 were (in thousands):
1996 1995
---- ----
Deferred tax assets:
Alternative Minimum Tax Credit carryforward $ - 143
Mortgages receivable 287 361
Litigation accruals 1,571 3,107
Other liabilities 106 135
Other assets 10 231
Net operating loss carryforwards 6,215 5,716
------ ------
Total gross deferred tax assets 8,189 9,693
Less:
Valuation allowance - -
Deferred tax assets after
valuation allowance 8,189 9,693
Deferred tax liabilities:
Real estate, net 1,496 1,745
Investment in BankAtlantic 11,763 9,304
Exchange Debentures 207 277
------ ------
Total gross deferred tax liabilities 13,466 11,326
------ ------
Net deferred tax liability $ 5,277 1,633
====== ======
At December 31, 1996, the Company believes it will utilize its deferred tax
assets through taxable income generated in future years by the reversal of
deferred tax liabilities existing as of December 31, 1996.
At December 31, 1996, the Company had estimated state net operating loss carry
forwards for state income tax purposes of approximately $12,724,000 of which
$253,000 expires in 2003, $585,000 expires in 2004, $2,757,000 expires in 2005,
$2,001,000 expires in 2006, $4,235,000 expires in 2007, $2,332,000 expires in
2008 and $561,000 expires in 2011. The Company also has a net operating loss
carry forward for federal income tax purposes of approximately $16,112,000 of
which $4,621,000 expires in 2006, $7,199,000 expires in 2007, $3,322,000 expires
in 2008 and $970,000 expires in 2011. BBC is not included in the Company's
consolidated tax return.
The Company received income tax refunds of approximately $16,000 and $229,000
during the years ended December 31, 1996 and 1995, respectively, and made income
tax payments of approximately $122,000 and $213,500 during the years ended
December 31, 1996 and 1995, respectively.
10. STOCKHOLDERS' EQUITY
The Company's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of $.01 par value preferred stock. The Board of Directors has
the authority to divide the authorized preferred stock into series or classes
having the relative rights, preferences and limitations as may be determined by
the Board of Directors without the prior approval of shareholders. The Board of
Directors has the power to issue this preferred stock on terms which would
create a preference over the Company's common stock with respect to dividends,
liquidation and voting rights. No further vote of security holders would be
required prior to the issuance of the shares.
The Company's Articles of Incorporation authorize the Company to issue
20,000,000 shares of Special Class A Common Stock, par value $.01 per share. To
the extent permitted by law, the Special Class A Common Stock may be issued in
one or more series as determined from time to time by the Board of Directors and
having the relative rights and preferences determined by the Board of Directors
which are set forth in the Articles of Incorporation. However, in no event will
the voting rights of shares of Special Class A Common Stock equal or exceed the
voting rights of the Company's present Common Stock. At such time as the Board
of Directors authorizes the issuance of the newly created Special Class A Common
Stock the Company's presently outstanding Common Stock will be automatically
redesignated Class B Common Stock and holders thereof shall have the right at
any time to convert their shares to shares of the Special Class A Common Stock
on a one-for-one basis at the holder's sole election.
On January 10, 1997, the Board of Directors of BFC Financial Corporation adopted
a Shareholder Rights Plan. As part of the Rights Plan, the Company declared a
dividend distribution of one preferred stock purchase right (the "Right") for
each outstanding share of BFC's common stock to shareholders of record on
January 21, 1997. Each Right will become exercisable only upon the occurrence of
certain events, including the acquisition of 20% or more of BFC's common stock
by persons other than the existing control shareholders (as specified in the
Rights Plan), will entitle the holder to purchase either BFC stock or shares in
the acquiring entity at half the market price of such shares. The Rights may be
redeemed by the Board of Directors at $.01 per Right until the tenth day
following the acquisition of 20% or more of BFC's common stock by persons other
than the existing shareholders. The Board may also, in its discretion, extend
the period for redemption. The Rights will expire on January 10, 2007.
11. EARNINGS ON RENTAL REAL ESTATE OPERATIONS, NET
Following are the components of earnings on real estate rental operations, net
for each of the years in the three year period ending December 31, 1996 (in
thousands):
1996 1995 1994
---- ---- ----
Deferred profit recognized $ 152 161 58
Operations of properties acquired in
debenture Exchange (see note 6) 1,151 872 1,648
Other property operations - - 29
----- ----- -----
$ 1,303 1,033 1,735
===== ===== =====
12. RELATED PARTY TRANSACTIONS
Related party transactions arise from transactions with affiliated entities. In
addition to transactions described in notes elsewhere herein, a summary of
significant originating related party transactions is as follows (in thousands):
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Property management fee revenue $ 90 78 76
==== ==== ====
Reimbursement revenue for
administrative, accounting
and legal services $ 121 91 112
==== ==== ====
The Company has a 49.5% interest and affiliates and third parties have a 50.5%
interest in a limited partnership formed in 1979, for which the Company's
Chairman serves as the individual General Partner. The partnership's primary
asset is real estate subject to net lease agreements. The Company's cost for
this investment approximately $441,000 was written off in 1990 due to the
bankruptcy of the entity leasing the real estate. Any recovery will be
recognized in income when received.
Included in other assets at December 31, 1996, 1995 and 1994, was approximately
$125,000, $704,000 and $201,000, respectively due from affiliates.
Alan B. Levan, President and Chairman of the Board of the Company also serves as
Chairman of the Board and Chief Executive Officer of BankAtlantic Bancorp, Inc.
and BankAtlantic.
John E. Abdo, a director of the Company also serves as Vice Chairman of the
Board of Directors of BBC and BankAtlantic and is President of BankAtlantic
Development Corporation a wholly owned subsidiary of BankAtlantic.
Florida Partners Corporation owns 133,314 shares of the Company's common stock.
Alan B. Levan is the principal shareholder and a member of the Board of Florida
Partners Corporation. Glen R. Gilbert, Senior Vice President and Secretary of
the Company holds similar positions at Florida Partners Corporation.
The trustee for the escrow account with respect to the redeemed debenture
liability maintains such account at BankAtlantic.
13. EMPLOYEE BENEFIT PLANS
The Company's Stock Option Plan provides for the grant of stock options to
purchase shares of the Company's common stock. The plan provided for the grant
of both incentive stock options and non-qualifying options. The exercise price
of a stock option will not be less than the fair market value of the common
stock on the date of the grant and the maximum term of the option is ten years.
The following table sets forth information on all outstanding options:
Options Price per Share
------- ---------------
Outstanding at December 31, 1993 10,000 4.50 to 4.50
Issued 215,000 4.50 to 4.95
-------
Outstanding at December 31, 1994 225,000 4.50 to 4.95
Issued 210,000 4.25 to 4.67
-------
Outstanding at December 31, 1995 435,000 4.25 to 4.95
Exercised (22,000) 4.50 to 4.95
-------
Outstanding at December 31, 1996 413,000 4.25 to 4.95
=======
Exercisable at December 31, 1996 342,998
=======
Available for grant at December 31, 1996 315,000
=======
The weighted average exercise price of options outstanding at December 31, 1996,
1995 and 1994 was $4.78, $4.78 and $4.90, respectively. The weighted average
price of options exercised during the year was $4.75 for 1996. No options were
exercised in either 1995 or 1994.
At December 31, 1996, non-qualifying stock options for 410,000 shares of common
stock have been granted including 10,000 shares to non-employee directors and
incentive stock options for 25,000 shares of common stock have been granted. Of
the options outstanding at December 31, 1996, 10,000 expire in 2003, 193,000
expire in 2004 and 210,000 expire in 2005. During the year ended December 31,
1996 12,000 of non-qualifying and 10,000 of incentive stock options issued under
the Company's Stock Option Plan were exercised resulting in an increase to
stockholders' equity of approximately $182,000, including a tax effect of
approximately $78,000 to additional paid in capital.
The adoption of FAS 123 under the fair value based method would have increased
compensation expense by approximately $138,000 and $539,000 for the years ended
December 31, 1996 and 1995, respectively. The effect of FAS 123 under the fair
value based method would have effected net income and earnings per share as
follows:
For the Years Ended
December 31,
------------
1996 1995
---- ----
Net income:
As reported $ 6,911 7,932
Proforma 6,826 7,601
Income per common and common equivalent
share:
As reported 3.00 3.57
Proforma 2.97 3.42
Income per common and common equivalent
share assuming full dilution:
As reported 2.98 3.54
Proforma 2.94 3.39
The option model used to calculate the FAS 123 compensation adjustment was the
Black-Scholes model with the following grant date fair values and assumptions:
Number Grant Risk Expected
of Date Type Free ------------------------
Date of Options Fair of Exercise Interest Life Vola- Dividend
Grant Granted Value Grant Price Rate (Years) tility Yield
----- ------- ----- ----- ----- ---- ------- ------ -----
2/7/95 200,000 $3.291 NQ 4.675 7.143% 8 74.81% 0%
2/7/95 10,000 $3.033 ISO 4.250 7.143% 6 74.81% 0%
The employee turnover was considered to be none. The weighted average fair value
of options granted during the year ended December 31, 1995 was $3.28.
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
Options Outstanding Options Exercisable
------------------------------- -------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Contractual Life Price at 12/31/96 Price
--------------- ----------- ---------------- ----- ----------- -----
$4.50 to $4.95 413,000 7.6 Years $4.78 342,998 $4.81
The Company has an employee's profit-sharing plan which provides for
contributions to a fund of a sum as defined, but not to exceed the amount
permitted under the Internal Revenue Service Code as deductible expense. The
provision charged to operations was approximately $10,000 for the year ended
December 31, 1996 and 1995 and $2,500 for the year ended December 31, 1994.
Contributions are funded on a current basis.
14. LITIGATION
The following is a description of certain lawsuits to which the Company is or
has been a party.
Timothy J. Chelling vs. BFC Financial Corporation, Alan B. Levan, I.R.E.
Advisors Series 21, Corp. and First Equity Corporation, U.S. District Court,
Southern District of Florida Case No. 89-1850-Civ-Ryscamp. John D. Purcell and
Debra A. Purcell vs. BFC Financial Corporation, Alan B. Levan, Scott Kranz,
Frank Grieco, I.R.E. Advisors Series 23, Corp. and First Equity Corporation,
U.S. District Court, Southern District of Florida, Case No. 89-1284-Civ-Ryskamp.
William A. Smith and Else M. Smith vs. BFC Financial Corporation, Alan B. Levan
and I.R.E. Advisors Series 24, Corp. and First Equity Corporation, U.S. District
Court, Southern District of Florida, Case No. 89-1605-Civ-Ryscamp.
These actions were filed by the plaintiffs as class actions during September
1989, June 1989 and August 1989, respectively. The actions arose out of an
Exchange Offer made by the Company to the limited partners of I.R.E. Real Estate
Fund, Ltd. - Series 21, I.R.E. Real Estate Fund, Ltd. - Series 23, and I.R.E.
Real Estate Fund, Ltd. - Series 24. The plaintiffs were limited partners of the
above named partnerships who did not consent to the Exchange Offer. The Exchange
Offer was made through the solicitation of consents pursuant to a Proxy
Statement/Prospectus dated February 14, 1989 and was approved by the holders of
a majority of the limited partnership interests of each of the Partnerships in
March 1989. Messrs. Levan, Grieco and Kranz served as individual general
partners of each of the Partnerships, and Mr. Levan is the President and a
director of the Company.
In June 1994, the parties entered into an agreement to settle this action
pursuant to which BFC agreed to pay approximately fifty-six percent (56%) of the
face amount of the outstanding debentures held by class members and the
debentures will be canceled pursuant to the procedures outlined in the
agreement. Following an appeal in this matter, in January 1997, the Company
commenced payments to class members under the settlement.
Alan B. Levan and BFC Financial Corporation v. Capital Cities/ABC, Inc. and
William H. Wilson, in the United States District Court for the Southern District
of Florida, Case No. 92-325-Civ-Atkins. On November 29, 1991, The ABC television
program 20/20 broadcast a story about Alan B. Levan and BFC which purportedly
depicted some securities transactions in which they were involved. The story
contained numerous false and defamatory statements about the Company and Mr.
Levan and, February 7, 1992, a defamation lawsuit was filed on behalf of the
Company and Mr. Levan against Capital Cities/ABC, Inc. and William H. Wilson,
the producer of the broadcast. In December 1996, a jury found in favor of the
Company and Mr. Levan and awarded a compensatory judgment of $1.25 million to
the Company and $8.75 million to Mr. Levan. Capital Cities/ABC, Inc. and William
H. Wilson have filed a motion for a rehearing in this matter. That motion is
currently pending. The Company will recognize such amount, less applicable
attorneys' fees, in income upon receipt.
Mark Gallegos, et. al., (formerly Cheryl and Wayne Hubbell, et al.) vs. I.R.E.
Advisors Series 26, Corp. et al., in the California Superior Court in Los
Angeles, California, Case No. BC049913. This action was filed as a class action
during March 1992 on behalf of all purchasers of I.R.E. Real Estate Fund, Ltd. -
Series 25, I.R.E. Real Estate Fund, Ltd. - Series 26, I.R.E. Real Estate Fund,
Ltd. - Series 27, I.R.E. Real Estate Growth Fund, Ltd. - Series 28 and I.R.E.
Real Estate Income Fund, Ltd. against the managing and individual general
partners of the above named partnerships and the officers and directors of those
entities. The plaintiffs alleged that the offering materials distributed in
connection with the promotions of these limited partnerships contained
misrepresentations of material fact and that the defendants misrepresented and
concealed material facts from the plaintiffs during the time the partnerships
were in existence. The complaint asserts two causes of action for fraud, one of
which is based on a claim for intentional misrepresentation and concealment and
one of which is based on a claim of negligent misrepresentation. The complaint
also contains a claim for breach of fiduciary duty. The complaint seeks
unspecified compensatory and punitive damages, attorneys' fees and costs.
Plaintiffs filed a third amended complaint which defendants answered in April
1993. In May 1993, a motion to dismiss was filed by the plaintiffs to dismiss
all claims relating to I.R.E. Real Estate Fund, Ltd.-Series 25, I.R.E. Real
Estate Fund, Ltd.-Series 27 and I.R.E. Real Estate Income Fund, Ltd., whether
exchange related or not only leaving claims against I.R.E. Real Estate Fund,
Ltd. - Series 26 and I.R.E. Growth Fund, Ltd. - Series 28. This motion was
approved by the Court in September 1994.
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, approximately $3.7 million was placed in escrow to rescind sales and in
March 1997, approximately $1.0 million was placed in escrow for attorneys' fees.
Final settlement of this matter is subject to notice to class members and
approval of the Courts.
Short vs. Eden United, Inc., et al. in the Marion County Superior Court, State
of Indiana. Civil Division Case No. S382 0011. In January, 1982, an individual
filed suit against a subsidiary of the Company, Eden United, Inc. ("Eden"),
seeking return of an earnest money deposit held by an escrow agent and
liquidated damages in the amount of $85,000 as a result of the failure to close
the purchase and sale of an apartment complex in Indianapolis, Indiana and
unspecified damages based on fraud and interference with contract. Eden was to
have purchased the apartment complex from a third party and then immediately
resell it to plaintiff. The third party was named as a co-defendant and such
third party also filed a cross claim against Eden, seeking to recover the
earnest money deposit. After trial, subsequent appeals and hearings on remand,
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 prejudgment interest, set the date for computation of
postjudgment 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 was 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 and in March 1996 such hearing
was denied. Based upon the ruling, preliminary computations by the Company
indicate that the total loss to the Company could be approximately $500,000 not
the $4.5 million dollars previously established as a provision in connection
with this litigation. Both parties have filed suggested Forms of Entry of
Judgment on Remand with the trial court, but the trial court has yet to decide
which, if any, of the versions it will utilize, therefore, the amount of the
final judgment in this case can still not be determined. The appeal bond in this
matter has been reduced by the Court to $800,000. At December 31, 1996, the
Company had an accrual of approximately $3 million included in other liabilities
with respect to this matter. Such accrual will not be adjusted until such time
as a final judgment is issued and all rights of appeal have expired.
15. QUARTERLY FINANCIAL INFORMATION (unaudited)
Following is quarterly financial information for the years ended 1996 and 1995
(in thousands, except per share data):
Quarter Ended
-------------
1996 Mar 31, Jun 30, Sep 30, Dec 31, Total
- ---- ------- ------- ------- ------- -----
Revenues $ 10,372 598 956 1,377 13,303
Costs and expenses 8,121 1,664 1,573 1,613 12,971
Income (loss) before
extraordinary item 3,069 1,531 (41) 1,499 6,058
Net income (loss) 3,818 1,537 (41) 1,597 6,911
====== ===== ===== ===== =====
Income (loss) per common
and common equivalent
share before extraordinary
items $ 1.38 .67 (.02) .63 2.63
Extraordinary items .33 - - .04 .37
----- ----- ---- ----- -----
Net income (loss) per common
and common equivalent share $ 1.71 .67 (.02) .67 3.00
===== ===== ==== ===== =====
Income (loss) per common and
common equivalent share
assuming full dilution
before extraordinary items $ 1.37 .67 (.02) .63 2.61
Extraordinary items .33 - - .04 .37
----- ----- ---- ----- -----
Net income (loss) per common
and common equivalent share
assuming full dilution $ 1.70 .67 (.02) .67 2.98
===== ===== ==== ===== =====
During the first, second and fourth quarter of 1996, the Company recognized
extraordinary gains of approximately $749,000, $6,000 and $98,000 related to
revising the estimate of the amount of the settlement liability on the 1989 and
1991 Exchange transactions. In March 1996, Cypress Creek was sold to an
unaffiliated third party for approximately $9.7 million. The cost of sale was
approximately $6.4 million.
Quarter Ended
-------------
1995 Mar 31, Jun 30, Sep 30, Dec 31, Total
- ---- ------- ------- ------- ------- -----
Revenues 543 1,173 571 1,005 3,292
Costs and expenses 1,746 1,861 1,616 2,258 7,481
Income (loss) before
extraordinary item 964 1,744 1,361 161 4,230
Net income 964 1,744 2,416 2,808 7,932
===== ===== ===== ===== =====
Income per common and
common equivalent
share before
extraordinary items $ .47 .81 .60 .07 1.90
Extraordinary items - - .46 1.16 1.67
----- ----- ----- ----- -----
Net income per common
and common equivalent
share $ .47 .81 1.06 1.23 3.57
===== ===== ===== ===== =====
Income per common and
common equivalent
share assuming full
dilution before
extraordinary items $ .47 .79 .59 .07 1.89
Extraordinary items - - .46 1.16 1.65
----- ----- ----- ----- -----
Net income per common
and common equivalent
share assuming full
dilution $ .47 .79 1.05 1.23 3.54
===== ===== ===== ===== =====
During the third quarter of 1995, the Company recognized an extraordinary gain
of approximately $230,000 related to revising the estimate of the amount of the
settlement liability on the 1991 Exchange transaction and an extraordinary gain
of approximately $825,000 attributable to the extinguishment of debt on a note
payable.
During the fourth quarter of 1995, the Company recognized an extraordinary gain
of approximately $3.0 million related to revising the estimate of the amount of
the settlement liability on the 1989 and 1991 Exchange transactions and an
extraordinary loss of approximately $365,000 related to the forgiveness of debt
on a mortgage receivable due from an affiliate.
16. Consolidated Statements of Cash Flows
In addition to the non-cash investing and financing activities described
elsewhere herein, other non-cash investing and financing activities are as
follows:
December 31,
------------
1996 1995 1994
---- ---- ----
The reclassification of redeemable common
stock to additional paid-in capital due to the
cancellation of a shareholder agreement $ - - 5,776
The net gains associated with the settlements of
the Exchange litigation, net of income taxes 853 3,242 22,744
The change in stockholders' equity resulting from
the Company's proportionate share of BBC's net
unrealized appreciation on securities available
for sale, less related deferred income taxes (2,328) 2,546 93
Deferred gain from debt restructuring - - 356
Gain from extinguishment of debt,
net of income taxes - 460 -
Reinstatement of mortgage receivables
related to extinguishment of debt - 1,484 -
Reinstatement of mortgage payables
related to extinguishment of debt - 976 -
Transfers from escrow accounts to reflect payments
on the redeemed debenture liability 537 3,697 8,923
Effect of issuance by BBC of BBC Class A
common stock to Shareholders other than BFC 1,274 1,252 15
Net effect of other BBC capital transactions (335) - -
Mortgages eliminated in connection with the
disposition of real estate acquired
in debenture Exchanges - - 11,112
Loss on disposition of mortgage notes
and investment, net 474 - -
Increase in equity for the tax effect related to
the exercise of employee stock options 77 - -
BBC dividends on common stock
declared and paid in subsequent period 227 215 191
Interest paid on borrowings 2,396 2,520 2,323
17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated fair value
of the Company's financial instruments presented in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" (FAS 107) issued by the
FASB.
Management has made estimates of fair value discount rates that it believes to
be reasonable. However, because there is no market for many of these financial
instruments, management has no basis to determine whether the fair value
presented would be indicative of the value negotiated in an actual sale. The
Company's fair value estimates do not consider the tax effect that would be
associated with the disposition of the assets or liabilities at their fair value
estimates. Due to the lack of an active trading market on the exchange
debentures, fair value is presumed to equal carrying value.
The following table presents information for the Company's financial instruments
as of December 31, 1996 and 1995
(in thousands):
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
Cash and cash equivalents $ 1,796 1,796 1,152 1,152
Securities available for sale 6,819 6,819 5,105 5,105
Mortgage notes and related
receivables, net 2,180 2,180 5,168 5,168
Financial liabilities:
Mortgage payables and other
borrowings 25,498 25,498 27,616 27,616
Exchange debentures, net 2,953 2,953 3,810 3,810
======== ====== ======= =======
18. 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.
================================================================================
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Items 10 through 13 is incorporated by reference to the Company's definitive
proxy statement to be filed with the Securities and Exchange Commission, no
later than 120 days after the end of the year covered by this Form 10-K, or,
alternatively, by amendment to this Form 10-K under cover of Form 10K/A not
later than the end of such 120 day period.
Item 14 (d), financial statements of subsidiaries not consolidated and fifty
percent or less owned persons, is incorporated by reference to the annual report
on Form 10-K of BankAtlantic Bancorp, Inc. for the fiscal year end December 31,
1996, Commission File Number 33-81972, filed with the Securities and Exchange
Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)-1 Financial Statements - See Item 8
(a)-2 Financial Statement Schedules - All schedules are omitted as the
required information is either not applicable or presented in the
financial statements or related notes.
(a)-3 Index to Exhibits
(3) Articles of Incorporation, as amended - See Exhibit (3) of
Registrant's Annual Report on Form 10-K for the year ended December
31, 1989. By-laws - See Exhibit E of Proxy Statement/Prospectus dated
June 20, 1980.
(12) Statement re computation of ratios - Ratio of earnings to fixed
charges - attached as Exhibit 12.
(22) Subsidiaries of the registrant:
State of
Name Organization
-------------------------------------- ------------
BankAtlantic Bancorp, Inc. Florida
Realty 2000 Corporation Florida
Eden Services, Inc. Florida
Eden United, Inc. Florida
First Pensacola Mortgage Company, Inc. Florida
U.S. Capital Securities, Inc. Florida
I.R.E. Property Analysts, Inc. Florida
I.R.E. Realty Advisory Group, Inc. Florida
I.R.E. Real Estate Investments, Inc. Florida
I.R.E. Real Estate Investments, Series 2, Inc. Florida
I.R.E. Property Management, Inc. Florida
I.R.E. Real Estate Funds, Inc. Florida
I.R.E. Advisors Series 21, Corp. Florida
I.R.E. Advisors Series 23, Corp. Florida
I.R.E. Advisors Series 24, Corp. Florida
I.R.E. Advisors Series 25, Corp. Florida
I.R.E. Advisors Series 26, Corp. Florida
I.R.E. Advisors Series 27, Corp. Florida
I.R.E. Advisors Series 28, Corp. Florida
I.R.E. Advisors Series 29, Corp. Florida
I.R.E. Income Advisors Corp. Florida
I.R.E. Pension Advisors, Corp. Florida
I.R.E. Pension Advisors II, Corp. Florida
Cypress Creek Partners, Inc. Delaware
Center Port Development, Inc. Florida
(23) Consents of experts and counsel - Accounts' Consent of KPMG Peat
Marwick LLP is attached as Exhibit 23.
(27) Financial data schedule - Attached as Exhibit 27.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
A report on Form 8-K dated January 10, 1997 was filed disclosing that
the Board of Directors of BFC Financial Corporation adopted a
Stockholder Rights Plan.
(c) Exhibits - See 14(a) - 3 above.
(d) Financial statements of subsidiaries not consolidated and fifty
percent or less owned persons:
Annual report on Form 10-K for the fiscal year end December 31, 1996
of BankAtlantic Bancorp, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Registrant
By: /S/ Alan B. Levan March 21, 1997
-----------------------------------
Alan B. Levan, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/S/ Alan B. Levan March 21, 1997
- ----------------------------------------
ALAN B. LEVAN, Director and
Principal Executive Officer
/S/ Glen R. Gilbert March 21, 1997
- ----------------------------------------
GLEN R. GILBERT, Chief Financial Officer
/S/ John E. Abdo March 21, 1997
- ----------------------------------------
JOHN E. ABDO, Director
/S/ Earl Pertnoy March 21, 1997
- ----------------------------------------
EARL PERTNOY, Director
/S/ Carl E.B. McKenry, Jr. March 21, 1997
- ----------------------------------------
CARL E. B. McKENRY, JR., Director