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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, 1998
Commission File Number
0-9811
BFC FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2022148
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(State of Organization) (IRS Employer Identification Number)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida 33304
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(Address of Principal Executive Office) (Zip Code)
(954)760-5200
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock $.01 par Value None
Class B Common Stock $.01 par Value None
- ----------------------------------- --------------------------------------
(Title of Class) (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 ]
Aggregate market value of the voting and nonvoting common equity
held by non-affiliates of the Registrant:
As of March 25, 1999 $18,873,083
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
Class A common stock of $.01 par value, 6,453,994 shares outstanding.
Class B Common stock of $.01 par value, 2,355,407 shares outstanding.
Documents Incorporated by Reference in Part IV of this Form 10-K:
Form 8-A filed October 16, 1997; Exhibit A of Registrant's Definitive Proxy
Statement dated September 24, 1997, Annual Report on Form 10-K for the year
ended December 31, 1998 of BankAtlantic Bancorp, Inc.
PART I
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, that involve substantial risks and
uncertainties. When used in this report, the words "anticipate", "believe",
"estimate", "may", "intend", "expect" and similar expressions identify certain
of such forward-looking statements. Actual results could differ materially from
these forward-looking statements. 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 factors (both generally
and particularly in areas where the Company or its subsidiaries operate or hold
assets), interest rates, competitive and other factors affecting the operations,
markets, products and services, and expansion strategies of the Company and its
subsidiaries including BBC and BankAtlantic and the other factors discussed
elsewhere in this report and in the documents filed by the Company with the
Securities and Exchange Commission. Many of these factors are beyond the
Company's control.
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 unitary savings bank holding company as a consequence of its ownership
interest in the common stock of BankAtlantic Bancorp, Inc. ("BBC"). BBC is also
a unitary savings bank holding company which owns 100% of the outstanding stock
of BankAtlantic, A Federal Savings Bank ("BankAtlantic") and its subsidiaries
and Ryan Beck & Co., Inc., ("RBCO") and its subsidiaries, an investment banking
and securities brokerage firm.
At December 31, 1998, the Company's ownership in BBC Class A Common Stock and
Class B Common Stock was approximately 25% and 47%, respectively, in the
aggregate representing 31% of all of the outstanding BBC Common Stock. The
Company's principal business is the ownership of BankAtlantic through BBC.
The Company acquired control of BBC in 1987 for a total investment of
approximately $43 million. From 1987 through June 1993, the Company increased
its ownership in BBC and BBC was consolidated in the Company's financial
statements from October 1987 through November 1993. In November 1993, the
Company's ownership of BBC decreased from 77.83% to 48.17%, as a consequence of
the Company's and BBC's sales of shares of BBC Common Stock. Since 1993, BBC has
not been consolidated in the Company's financial statements because the
Company's ownership of BBC was less than 50%. BBC represented approximately 97%
of the Company's consolidated assets when it was consolidated with the Company.
At December 31, 1998, based on the equity method of accounting for the Company's
investment in BBC, the investment represented approximately 82% of the Company's
consolidated assets.
Historically, BBC's primary activities have related to its ownership of 100% of
BankAtlantic's capital stock. BankAtlantic is a federally-chartered,
federally-insured savings bank organized in 1952, which provides a full range of
commercial banking products and services directly and through subsidiary
corporations. The principal business of BankAtlantic is attracting checking and
savings deposits from the public and general business customers and using these
deposits to originate or acquire commercial, small business, residential and
consumer loans and make permitted investments such as the purchase of
mortgage-backed securities, tax certificates and other investment securities.
BankAtlantic currently operates in 17 Florida counties through 67 branch offices
located primarily in Miami-Dade, Broward and Palm Beach Counties in South
Florida as well as branches located throughout Florida in Walmart SuperStores.
As reported by an independent reporting service, BankAtlantic is the second
largest independent financial institution headquartered in the State of Florida
based on deposits at September 30, 1998. BankAtlantic is regulated and examined
by the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance
Corporation ("FDIC") and its deposit accounts are insured up to applicable
limits by the FDIC.
In 1998, BBC acquired Leasing Technologies, Inc. ("LTI") an equipment leasing
company. LTI was subsequently contributed to BankAtlantic during the second
quarter of 1998 and operates as a subsidiary of BankAtlantic. In 1998, BBC
acquired Ryan, Beck & Co., Inc. ("Ryan Beck"), an investment banking firm that
underwrites, distributes and trades tax-exempt securities and provides capital
raising and advisory services to the financial services industry. BBC has also
engaged in real estate development and investment activities through
BankAtlantic's wholly-owned subsidiary, and its ownership of BankAtlantic
Development Corp., ("BDC") St. Lucie West Holding Corp. ("SLWHC"), the developer
of a master planned residential, commercial and industrial community in St.
Lucie County, Florida, and through several minority interest investments in real
estate development projects in South Florida. However, the Board of Directors of
BBC has announced that it is considering the spin-off of BBC's real estate and
development business through a distribution to BBC's shareholders of the capital
stock of BankAtlantic Development Corp., a wholly-owned subsidiary of
BankAtlantic. The spin-off is subject to a number of conditions including the
receipt of board approval and regulatory approvals. If the spin-off is
effectuated as currently proposed, the Company would receive approximately 31%
of the outstanding stock of the real estate subsidiary in the distribution
initially making it the largest shareholder.
In addition to its investment in BBC, the Company owns and manages real estate.
Since its inception in 1980, and prior to acquiring control of BBC, the
Company's primary business was the organization, sale and management of real
estate investment programs. A subsidiary of the Company continues to serve 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. The Company ceased the organization
and sale of real estate investment programs in 1987.
Real Estate and Other Activities
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 $1.7 million which were received in
connection with the sale of properties previously owned by the Company. Further,
in recent years, the Company has made additional real estate investments. In
1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo, Vice Chairman of the Board, and certain of his affiliates
(the "Abdo Group"). Under the arrangement, the Company and the Abdo Group will
share equally in profits after interest earned by the Company on advances made
by the Company. The Company bears any risk of loss under the arrangement with
the Abdo Group.
The Company has acquired interests in two properties pursuant to this
arrangement with the Abdo Group. 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 its share of the profit from the transaction,
which is included in the cost of sale of real estate. As part of the sale of the
Cypress Creek property, the Company received a limited partnership interest in
an unaffiliated limited partnership that will entitle it to receive
approximately 4.5% of any profits from the development and operation of the
property. In January 1999, the Company received approximately $259,000 when the
limited partnership was liquidated. In December 1994, an entity controlled by
the Company acquired from an unaffiliated seller approximately 70 acres of
unimproved land known as the "Center Port" property in Pompano Beach, Florida.
Through December 31, 1998, approximately 42 acres of the Center Port property
had been sold to unaffiliated third parties for approximately $11.7 million and
the Company recognized net gains from the sales of real estate of approximately
$2.8 million. Included in cost of sales is approximately $2.0 million
representing the Abdo Group's profit participation from the transaction.
Approximately $8.0 million of the proceeds from the sales were utilized to
reduce the borrowing for which the Center Port property serves as partial
collateral. At December 31, 1998, the balance on this borrowing was
approximately $1,000 and was due to an unaffiliated lender. Payment of any
profit participation to the Abdo Group will be deferred until the lender is
repaid. The remainder of the Center Port property is currently being marketed
for sale.
In October 1996, the Company sold a 50% interest in Delray Industrial Park,
located in Delray Beach, Florida. Since the Company was the sole maker on the
non-recourse mortgage note on the property and since the Company maintained a
50% interest in the subject property, the gain on the sale of approximately
$632,000 was deferred, reducing the Company's carrying value in the real estate
and the mortgage remained on the Company's books. During May 1998, the property
was refinanced with the other 50% owner also becoming liable for the amount owed
under the note. At that time, the Company recognized 50% of the $632,000
deferred profit on the transaction, and removed the mortgage from the Company's
books. The remaining investment in the property is reflected using the equity
method of accounting.
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, 1998.
Holding Company Regulation
As the holder of approximately 31% of all of BBC's outstanding Common Stock, BFC
is a unitary savings bank holding company subject to regulatory oversight by the
OTS. As such, the Company is required to register with and be subject to OTS
examination, supervision and certain reporting requirements. In addition, BBC is
subject to the same oversight by the OTS as discussed herein with respect to the
Company.
BankAtlantic is a member of the Federal Home Loan Bank ("FHLB") system and its
deposit accounts are insured up to applicable limits by the FDIC. BankAtlantic
is subject to supervision, examination and regulation by the OTS and to a lesser
extent by the FDIC as the insurer of its deposits. As a member of the FHLB
System, BankAtlantic is also subject to limited regulation by the Federal
Reserve Board. BankAtlantic must file reports with the OTS and the FDIC
concerning its activities and financial condition, in addition to obtaining
regulatory approvals prior to entering into certain transactions. The OTS and
the FDIC periodically review BankAtlantic's compliance with various regulatory
requirements. The regulatory structure also gives regulatory authorities
extensive discretion with respect to the classification of non-performing and
other assets and the establishment of adequate loan loss reserves for regulatory
purposes.
The Home Owner's Loan Act ("HOLA") prohibits a savings bank holding company from
directly or indirectly acquiring control, including through an acquisition by
merger, consolidation or purchase of assets, of any savings association (as
defined in Section 3 of the Federal Deposit Insurance Act) or any other savings
and loan or savings bank holding company, without prior OTS approval. In
considering whether to grant approval for any such transaction, the OTS will
take into consideration a number of factors, including the competitive effects
of the transaction, the financial and managerial resources and future prospects
of the holding company and its bank or thrift subsidiaries following the
transaction, and the compliance records of such subsidiaries with the Community
Reinvestment Act. Generally, a savings bank holding company may not acquire more
than five percent of the voting shares of any savings association unless by
merger, consolidation or purchase of assets, in each case subject to prior OTS
approval. Another provision of HOLA permits a savings bank holding company to
acquire up to 15% of the voting shares of certain undercapitalized savings
associations.
Federal law allows the Director of the OTS to take substantive action when it
determines that there is reasonable cause to believe that the continuation by a
savings bank holding company of any particular activity constitutes a serious
risk to the financial safety, soundness, or stability of a savings bank holding
company's subsidiary savings institution. The Director of the OTS has oversight
authority for all holding company affiliates, not just the insured institution.
Specifically, the Director of the OTS may, as necessary: (i) limit the payment
of dividends by the savings institution, (ii) limit transactions between the
savings institution, the holding company and the subsidiaries or affiliates of
either, or (iii) limit any activities of the savings institution that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings institution
The Company will remain a unitary savings bank holding company under applicable
law until it (or BBC) acquires as a separate subsidiary another savings
institution or savings institution holding company. A savings bank holding
company whose sole subsidiary qualifies as a qualified thrift lender ("QTL")
generally has the broadest authority to engage in various types of business
activities with little to no restrictions on its activities. A holding company
that acquires another institution and maintains it as a separate subsidiary or
whose sole subsidiary fails to meet the QTL test will become subject to the
activities limitations applicable to multiple savings bank holding companies. In
general, a multiple savings bank holding company (or subsidiary thereof that is
not an insured institution) may not commence, or continue for more than a
limited period of time after becoming a multiple savings bank holding company
(or a subsidiary thereof), any business activity other than (i) furnishing or
performing management services for a subsidiary insured institution, (ii)
conducting an insurance agency or an escrow business, (iii) holding, managing or
liquidating assets owned by or acquired from a subsidiary insured institution,
(iv) holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by the OTS by regulation as of March 5, 1987 to
be engaged in by multiple savings bank holding companies, or (vii) subject to
prior approval of the OTS, those activities authorized by the Federal Reserve
Board as permissible investments for bank holding companies. These restrictions
do not apply to a multiple savings bank holding company if (a) all, or all but
one, of its insured institution subsidiaries were acquired in emergency thrift
acquisitions or assisted acquisitions and (b) all of its insured institution
subsidiaries are QTLs.
BankAtlantic and BBC are subject to restrictions in their dealings with the
Company and any other companies that are affiliates of the Company under HOLA
and certain provisions of the Federal Reserve Act that are made applicable to
savings institutions by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 and OTS regulations.
Restrictions on BBC's Ability to Pay Dividends to the Company
While there is no assurance that BBC will pay dividends in the future, BBC has
paid a regular quarterly dividend to its common stockholders since August 1993.
Each share of BBC Class A Common Stock is entitled to receive cash dividends
equal to at least 110% of any cash dividends declared and paid on the BBC Class
B Common Stock. Management of BBC has indicated that it will seek to declare
regular quarterly cash dividends on the BBC Common Stock. However, the payment
of dividends by BBC is subject to declaration by BBC's Board of Directors and
will depend upon, among other things, the results of operations, financial
condition and cash requirements of BBC and on the ability of BankAtlantic to pay
dividends or otherwise advance funds to BBC, which in turn is subject to OTS
regulations and is based upon BankAtlantic's regulatory capital levels and net
income.
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.
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 or
the FDIC. At December 31, 1998, BankAtlantic met the capital requirements of a
"well capitalized" institution as defined 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, 1998, BFC Financial Corporation employed 8 full-time employees
and 1 part-time employee. 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.
o A parcel of land located in Springfield, Massachusetts containing
approximately 4.4 acres subject to an estate for years expiring in
July 2006.
o A parcel of land located in Aurora, Illinois containing approximately
4.4 acres subject to an estate for years expiring in July 2006.
o A parcel of land located in Fort Lauderdale, Florida, referred to
herein as the Center Port property, containing approximately 70 acres
of which approximately 42 acres have been sold through December 31,
1998.
o A shopping center known as the Burlington Manufacturers Outlet Center
located in Burlington, North Carolina containing approximately 280,265
leaseable square feet of which 15,000 square feet have been sold
through December 31, 1998.
o A 50% interest in an industrial park known as Delray Industrial Park
located in Delray Beach, Florida containing approximately 134,237
leaseable square feet.
ITEM 3. LEGAL PROCEEDINGS
The following is a description of certain lawsuits to which the Company is a
party.
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 the Company which
purportedly depicted a number of securities transactions in which Mr. Levan and
the Company were involved. The story contained numerous false and defamatory
statements about the Company and Mr. Levan and, on 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 an appeal in
this matter. That appeal is currently pending.
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, 1998.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Prior to October 1997, the Company's outstanding capital stock consisted of a
single class of common stock. On October 6, 1997, the Board of Directors of the
Company declared a five for four stock split effected in the form of a 25% stock
dividend, payable in shares of the Company's newly authorized Class A Common
Stock. The Class A Common Stock was a newly authorized series of the Company's
capital stock and no shares were outstanding prior to the dividend. Pursuant to
the Company's Articles of Incorporation, the Company's then existing common
stock was automatically redesignated as Class B Common Stock without changing
any of its rights and preferences upon the authorization by the Board of the
stock dividend. The Class A Common Stock and the Class B Common Stock have
substantially identical terms except that (i) the Class B Common Stock is
entitled to one vote per share while the Class A Common Stock will have no
voting rights other than those required by Florida law and (ii) each share of
Class B Common Stock is convertible at the option of the holder thereof into one
share of Class A Common Stock.
On January 15, 1998, the Board of Directors of the Company declared a three for
one stock split effected in the form of a stock dividend of two shares of Class
A common stock for each share of outstanding Class A and Class B common stock.
Due to accounting and tax considerations, outstanding options to purchase Class
B common stock previously granted under the Company's stock option plans were
adjusted to reflect additional Class B stock options instead of options on Class
A common stock. Where appropriate, amounts throughout this report have been
adjusted to reflect the stock splits. No cash dividends have been paid by
Registrant since its inception.
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 Class B 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 Class B
common stock by persons other than the then 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 Class B 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.
The following table sets forth, for the periods indicated, the high bid and low
asking prices of the Class A Common Stock and the Class B Common Stock, as
reported by the National Quotation Bureau, L.L.C. The Company's Class A and
Class B common stock trades on the OTC Bulletin Board under the symbol BFCFA and
BFCFB, respectively.
Year:
Class A Common Stock Class B Common Stock Price
-------------------- --------------------------
Quarter High Low High Low
------- ---- --- ---- ---
1998:
1st Quarter $ 15.50 $ 9.34 $ 15.17 $ 9.33
2nd Quarter $ 12.63 $ 9.25 $ 12.75 $ 9.00
3rd Quarter $ 11.63 $ 6.25 $ 10.88 $ 6.00
4th Quarter $ 7.13 $ 4.00 $ 7.75 $ 5.00
1997:
1st Quarter n/a n/a $ 3.73 $ 3.00
2nd Quarter n/a n/a $ 4.00 $ 3.13
3rd Quarter n/a n/a $ 10.13 $ 3.93
4th Quarter $ 10.17 $ 9.33 $ 10.40 $ 7.33
1996:
1st Quarter n/a n/a $ 2.07 $ 1.67
2nd Quarter n/a n/a $ 2.47 $ 2.07
3rd Quarter n/a n/a $ 3.73 $ 2.13
4th Quarter n/a n/a $ 3.93 $ 3.07
On March 25, 1999 there were approximately 1,030 record holders of the Class A
common stock and 991 record holders of Class B common stock.
The last sale price during 1998 of the Company's Class A and Class B common
stock as reported to the Registrant by the National Quotation Bureau was $6.50
and $7.25 per share, respectively.
There are no restrictions on the payment of cash dividends by Registrant except
that no cash 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 $2.2 million at December 31, 1998.
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,
including BFC. The source of funds for payment by BBC of dividends to BFC is
currently dividend payments received by BBC from BankAtlantic.
ITEM 6. Selected Consolidated Financial Data
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data
(In thousands, except for per share data and percents)
For the years ended December 31,
--------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Revenues $ 12,658 16,354 21,661 11,711 27,289
Costs and expenses 12,707 3,366 12,679 7,481 24,376
Income (loss) before income
taxes and extraordinary items (49) 12,988 8,982 4,230 2,913
Provision for income taxes
(benefit) (368) 4,222 2,924 -- (2,009)
Extraordinary items,
net of income taxes 61 (f) 1,052 (g) 853 (h) 3,702 (i) 22,744 (j)
Net income 380 9,818 6,911 7,932 27,666
Common Stock (d):
Basic earnings per share (e)
Before Extraordinary items 0.04 1.10 0.78 0.55 0.64
Extraordinary items 0.01 0.13 0.11 0.48 2.95
Net income 0.05 1.23 0.89 1.03 3.59
Diluted earnings per share (e)
Before Extraordinary items 0.04 1.00 0.73 0.55 0.64
Extraordinary items -- 0.12 0.10 0.48 2.95
Net income 0.04 1.12 0.83 1.03 3.59
Basic weighted average of common
shares outstanding (e) 7,954 7,938 7,811 7,709 7,709
Diluted weighted average of common
shares outstanding (e) 9,101 8,731 8,347 7,709 7,709
Ratio of earnings to fixed charges (c) 2.33 1.69 1.33 0.26 0.47
Dollar deficiency of earnings to
fixed charges (c) -- -- -- 3,370 4,374
December 31,
--------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Investment in BankAtlantic
Bancorp, Inc. ("BBC") 74,565 72,185 59,039 52,662 43,768
Loans receivable, net 1,740 1,859 2,180 5,168 4,904
Securities available for sale 2,218 1,478 6,819 5,105 5,869
Investment
real estate, net (k) 6,172 9,700 10,383 11,072 11,169
Real estate held for development
and sale 1,811 6,474 6,497 10,211 9,912
Total assets 91,257 98,871 98,841 96,896 91,291
Subordinated debentures, net 6,736 7,263 19,135 19,774 25,011
Mortgages payable
and other borrowings 10,784 22,943 25,498 27,616 26,618
Deferred interest on the
subordinated debentures 2,217 2,106 2,806 2,722 3,494
Stockholders' equity 57,631 54,142 41,462 35,758 26,532
Book value per share (e) 7.24 6.81 5.26 4.64 3.44
Book value per share
assuming market value of BBC (e) 7.45 13.27 7.01 10.22 5.33
Return on assets (a) 0.39 % 10.5 % 7.0 % 8.5 % 30.8 %
Return on equity (a) 0.67 % 21.1 % 17.7 % 26.4 % 327.9 %
Equity to assets ratio (a) 58.7 % 49.7 % 39.4 % 32.3 % 9.4 %
- ----------
(a) Ratios were computed using quarterly averages.
(b) Since its inception, the Company has not paid any dividends.
(c) The operations of BBC have been eliminated since there is a dividend
restriction between BBC's primary subsidiary, BankAtlantic, and BBC.
(d) Prior to 1997 there were no Class A common shares outstanding. All shares
outstanding prior to 1997 were Class B common shares. While the Company has
two classes of common stock outstanding, the two-class method is not
presented because the company's capital structure does not provide for
different dividend rates or other preferences, other than voting rights,
between the two classes.
(e) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 of BFC Financial
Corporation's Class A Common Stock and 500,000 shares of BFC Financial
Corporation Class B Common Stock. Because the Company owns 45.5% of the
outstanding common stock of RAG, 624,938 shares of Class A Common Stock and
227,500 shares of Class B Common Stock are eliminated from the number of
shares outstanding for purposes of computing earnings per share and book
value per share.
(f) Gain from extinguishment of debt of $61,000, net of income taxes of
$39,000.
(g) Gain on settlements of Exchange litigation of approximately $756,000, net
of income taxes of $475,000, net gain from extinguishment of debt of
$115,000, net of income taxes of $72,000 and net gain from debt
restructuring of approximately $181,000, net of income taxes of $114,000.
(h) Gain on settlements of Exchange litigation of approximately $853,000, net
of income taxes of $611,000.
(i) Gain from extinguishment of debt of approximately $460,000, net of income
taxes of $218,000 and gain on settlements of Exchange litigation of
approximately $3.2 million, net of income taxes of $1.5 million.
(j) Gain on settlements of Exchange litigation, net of income taxes of
$214,000.
(k) Investment real estate, net represents the properties acquired in the 1989
and 1991 Exchange.
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") is a unitary
savings bank holding company which owns in the aggregate approximately 31.3% of
the outstanding BankAtlantic Bancorp, Inc. ("BBC") Common Stock. BBC is the
holding company for BankAtlantic, A Federal Savings Bank ("BankAtlantic") and
owns 100% of its outstanding common stock. The Company's ownership interest in
BBC has been recorded by the purchase method of accounting. Based on the equity
method of accounting, the Company's investment in BBC represents approximately
82% of the Company's consolidated assets as of December 31, 1998. At December
31, 1998, the Company owned 6,578,671 shares of BBC Class A Common Stock and
4,876,124 shares of BBC Class B Common Stock representing 31.3% of all
outstanding BBC Common Stock. At December 31, 1998, the Company's ownership in
the outstanding BBC Class A and B Common Stock was approximately 25% and 47%,
respectively. The aggregate market value of the Company's investment in BBC at
December 31, 1998 was approximately $77.1 million or approximately $2.5 million
in excess of the carrying value in the financial statements.
On October 6, 1997, the Board of Directors of the Company declared a five for
four stock split effected in the form of 25% stock dividend, payable in shares
of the Company's newly authorized Class A Common Stock. The Class A Common Stock
was a newly authorized series of the Company's capital stock and no shares were
outstanding prior to the dividend. Pursuant to the Company's Articles of
Incorporation, the Company's then existing common stock was automatically
redesignated as Class B Common Stock without changing any of its rights and
preferences upon the authorization by the Board of the stock dividend. On
January 15, 1998, the Board of Directors of the Company declared a three for one
stock split effected in the form of a stock dividend of two shares of Class A
Common Stock for each share of outstanding Class A and Class B Common Stock. Due
to accounting and tax considerations, outstanding options to purchase Class B
Common Stock previously granted under the Company's stock option plans were
adjusted to reflect additional Class B stock options instead of options on Class
A Common Stock.
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,
1998, a subsidiary of the Company continues to serve 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. 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
The Company's basic and diluted earnings per share for common stock were $.05
and $.04 for the year ended December 31, 1998, $1.23 and $1.12 for the year
ended December 31, 1997 and $.89 and $.83 for the year ended December 31, 1996,
respectively.
Net income for the year ended December 31, 1998, 1997 and 1996 was approximately
$380,000, $9.8 million and $6.9 million, respectively. Operations for 1998 and
1997 included extraordinary gains, net of income taxes, of $61,000 and $115,000,
respectively, from extinguishment of debt. Operations for 1997 and 1996 included
extraordinary gains, net of income taxes of approximately $756,000 and $853,000,
respectively, net of income taxes, due to changes in the estimate of the amount
of the settlement liability associated with the exchange litigation. Operations
for 1997 also included an extraordinary gain, net of income taxes, of
approximately $181,000 from debt restructuring.
The Company's equity in BBC's net loss for the year ended December 31, 1998 was
approximately $1.4 million. For the year ended December 31, 1997 and 1996, the
Company's equity in BBC's net income was approximately $12.1 million and $8.7
million, respectively. The Company's 1998, 1997 and 1996 operations included a
net gain on the sale of real estate of approximately $3.2 million, $335,000 and
$3.3 million, respectively. The Company's 1997 operations also included a net
gain on the sale of BBC Class A Common Stock of approximately $1.3 million and
the reversal of a provision for litigation of approximately $2.3 million. The
Company's 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 for
litigation of approximately $292,000. Interest on subordinated debentures was
approximately $492,000, $723,000 and $1.2 million in 1998, 1997 and 1996
operations, respectively. The Company's 1998 operations included a write-down of
an investment in a real estate limited partnership of approximately $184,000.
The 1996 operations included a loss on disposition of mortgage notes and
investment, net of approximately $474,000 due from affiliated limited
partnerships.
The following table shows the components of revenues and the changes between the
periods indicated (in thousands):
1998 1997
For the Years to to
Ended December 31, 1997 1996
------------------ ---- ----
1998 1997 1996 Change Change
---- ---- ---- ------ ------
Interest on mortgage
notes and related
receivables $ 1,108 221 613 887 (392)
Interest and
dividends on
securities available
for sale and
escrow accounts 228 445 694 (217) (249)
Earnings on real
estate rental
operations, net 979 1,034 1,303 (55) (269)
Sale of real estate 11,706 967 9,700 10,739 (8,733)
Net gain from sale
of stock -- 1,349 -- (1,349) 1,349
Equity in earnings
(loss) of BBC (1,397) 12,129 8,650 (13,526) 3,479
Other income, net 34 209 701 (175) (492)
-------- -------- -------- -------- --------
$ 12,658 16,354 21,661 (3,696) (5,307)
======== ======== ======== ======== ========
Interest on mortgage notes and related receivables increased for the year ended
December 31, 1998 as compared to the same period in 1997 primarily due to
recognition of approximately $910,000 of interest earned on advances associated
with the development and construction of the Center Port property. Interest on
mortgage notes and related receivables decreased for the year ended December 31,
1997 as compared to the same period in 1996 primarily due to the satisfaction of
a loan receivable in 1996, the reduction of the amount of mortgage note
receivables from affiliated limited partnerships held by the Company and
proceeds received during 1996 of approximately $297,000 for interest due from
affiliated limited partnerships that had not been accrued in prior years.
Interest and dividends on securities available for sale and escrow accounts
decreased for the year ended December 31, 1998 as compared to the 1997 and 1996
periods primarily due to decreases in investable funds.
Earnings on real estate rental operations include earnings from investment real
estate and deferred profit recognition on sales of real estate by the Company
and its subsidiaries other than BBC. Earnings on real estate rental operations,
net decreased for the year ended December 31, 1998, as compared to the same
period in 1997 primarily due to an increase in landscaping maintenance and
repairs and maintenance at Burlington Manufacturers Outlet Center ("BMOC").
Earnings on real estate rental operations, net decreased for the year 1997 as
compared to the same period in 1996 primarily due to the sale of a 50% interest
in a property and the accounting for the remaining ownership under the equity
method and a decrease in deferred profit recognition primarily due to the
satisfaction of mortgage notes in 1996 due from affiliated limited partnership.
This decrease was offset in part by an increase in net operating income at BMOC.
During 1998, the Company sold approximately 38 acres of the Center Port property
to unaffiliated third parties for approximately $10.9 million and recognized a
net gain from the sale of real estate of approximately $2.6 million. In October
1998, the Company sold approximately 15,000 square feet of the BMOC property to
an unaffiliated third party for $500,000 and the company recognized a net gain
from the sale of real estate of approximately $301,000. In 1996, the Company
sold a 50% interest in a property located in Delray Beach, Florida, included in
investment real estate, net. Since the Company was the maker on the non-recourse
mortgage note on the Delray Beach property and since the Company maintained a
50% interest in the subject property, the gain on the sale of approximately $0.6
million was deferred. During the quarter ended June 30, 1998, 50% of the
deferred profit of approximately $0.3 million was recognized upon refinancing
the property's mortgage note. The remaining deferred profit will be recognized
upon the sale of the remaining interest in the property is sold.
In February 1997, the Company sold 12.7 acres of land located in Birmingham,
Alabama to an unaffiliated third party for approximately $149,000 and a net gain
on the sale of approximately $131,000 was recognized in 1997. In August 1997,
approximately four acres of the Center Port property were sold to unaffiliated
third parties for approximately $818,000 and the company recognized a net gain
from the sale of real estate of approximately $204,000. In June 1994, an entity
controlled by the Company acquired from an independent third party 23.7 acres of
unimproved land know as "Cypress Creek" located in Fort Lauderdale, Florida. In
March 1996, Cypress Creek was sold to an unaffiliated third party for
approximately $9.7 million and the company recognized a net gain of
approximately $3.3 million.
In June 1997 and January 1997, the Company sold an aggregate of 449,805 shares
of BBC's Class A Common Stock. Net proceeds received from these sales amounted
to approximately $3.7 million and a net gain of approximately $1.3 million was
recognized in 1997.
BBC's net income (loss) available for common shareholders for each of the years
in the three year period ended December 31, 1998 are summarized below (in
thousands):
1998 1997
For the Years to to
Ended December 31, 1997 1996
------------------ ---- ----
1998 1997 1996 Change Change
---- ---- ---- ------ ------
Income from
continuing operations $ 10,186 23,658 17,639 (13,472) 6,019
Income (loss) from
discontinued operations,
net of taxes (18,220) 4,111 1,372 (22,331) 2,739
-------- -------- -------- -------- --------
Net income (loss) $ (8,034) 27,769 19,011 (35,803) 8,758
======== ======== ======== ======== ========
The Company's equity in BBC's net loss for the year ended December 31, 1998 was
approximately $1.4 million. The Company's equity in BBC's net income for the
year ended December 31, 1997 and 1996 was approximately $12.1 million and $8.7
million, respectively. The decrease in the Company's equity in earnings of BBC
for the year 1998 as compared to 1997 was due to a decrease in earnings by BBC.
BBC's income from continuing operations decreased by 57% during the year ended
December 31, 1998 compared to the same period during 1997. The primary reasons
for the decline in income from continuing operations during 1998 compared to
1997 was:
1) a significant increase in the provision for loan losses resulting from
recent delinquency trends in the consumer indirect and small business
loan portfolios and growth in small business loans,
2) an increase in employee compensation and benefits (excluding RBCO and
real estate operations) reflecting the hiring of more than 100 new
officers and employees to expand BankAtlantic's product lines and
improve customer service on existing product lines,
3) higher occupancy expenses due to the opening of 10 branches and the
expansion of BankAtlantic's ATM network ,
4) increased advertising and promotion expenses to introduce
BankAtlantic's new corporate logo and to promote new product lines,
5) increased expenses associated with the higher administrative costs of
managing a larger branch and ATM network, and
6) restructuring charges and write-downs.
The above items were partially offset by an increase in net interest income due
to a larger loan portfolio, income from real estate operations and a net pension
curtailment gain.
BBC determined in December 1998 to discontinue the mortgage servicing business
("MSB"). Included in the loss from discontinued operations during the year ended
December 31, 1998 was a $6.1 million provision for the disposal of the MSB (net
of income taxes). The remaining loss from discontinued operations during 1998
primarily resulted from rapidly declining interest rates during 1998 causing
prepayments and declines in the value of the mortgage sevicing rights "MSR")
asset.
The increase in equity in earnings of BBC in 1997 as compared to 1996 was due to
an increase in earnings by BBC, offset in part by the Company's decreased
ownership percentage in BBC. BBC's income from continuing operations increased
by 34% during the year ended December 31, 1997 compared to the same period
during 1996. The primarily reasons for the increase in income from continuing
operations during 1997 compared to 1996 was:
1) an increase in net interest income resulting from the purchase of
wholesale residential loans and the October 1996 acquisition of Bank
of North America ("BNA"),
2) increased noninterest income from trading securities gains, gains on
sales of loans held for sale, and gains on sales of securities
available for sale, and
3) higher fee income from loans, deposits, and ATM customers due to an
expanded branch and ATM network and a larger loan portfolio.
The increase in income from discontinued operations during the year ended
December 31, 1997 compared to the 1996 period resulted from higher gains on the
sale of mortgage servicing rights.
The Company's ownership in BBC at December 31, 1998, 1997 and 1996 was 31.3%,
35.6% and 41.5%, respectively, of all outstanding BBC Common Stock. The decrease
in ownership at December 31, 1998 as compared to 1997 was attributable to BBC's
issuance of Class A Common Stock to acquire RBCO and LTI. This decrease was
offset in part by reductions in the outstanding shares of BBC Common Stock
primarily due to BBC's repurchases of its shares. The decrease in ownership at
December 31, 1997 as compared to 1996 was primarily due to BBC's issuance of
4,312,500 shares of BBC Class A Common Stock in a public offering during
November 1997 and the sale of 449,805 shares of BBC Class A Common Stock by the
Company during 1997. This decrease was offset in part by reductions in the
outstanding shares of BBC Common Stock primarily due to the repurchase by BBC of
its shares. The following table gives information regarding the Company's
ownership interest in BBC at the dates indicated:
BBC BBC
Class A Class B
Common Common Total
Stock Stock Outstanding
----- ----- -----------
December 31, 1996 35.1% 46.2% 41.5%
December 31, 1997 30.6% 45.6% 35.6%
December 31, 1998 25.1% 47.1% 31.3%
Other income decreased for the year ended December 31, 1998 as compared to the
same period in 1997 primarily due to proceeds received during the 1997 period
relating to a loan from an affiliate which was written-off in prior years. Other
income, net was less for the year ended December 31, 1997 as compared to the
1996 period primarily due to a net gain in 1996 of approximately $211,000
associated with the settlement of litigation attributable to the cleanup of
contamination on a property formerly owned by the Company and $142,000 which was
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.
The following table shows the components of costs and expenses and the changes
between the periods indicated (in thousands):
1998 1997
For the Years to to
Ended December 31, 1997 1996
------------------ ---- ----
1998 1997 1996 Change Change
---- ---- ---- ------ ------
Interest on subordinated
debentures $ 492 723 1,238 (231) (515)
Interest on mortgage
payables and other
borrowings 1,420 1,996 2,396 (576) (400)
Cost of sale of real
estate 8,525 632 6,420 7,893 (5,788)
Loss on disposition of
mortgage notes
and investment, net -- -- 474 -- (474)
Write-down of
investment 184 -- -- 184 --
Expenses related to
real estate held for
development and
sale, net 68 130 154 (62) (24)
Employee compensation
and benefits 1,190 1,153 1,153 37 --
Occupancy
and equipment 50 40 44 10 (4)
Reversal of provision
for litigation -- (2,272) (292) 2,272 (1,980)
General and
administrative, net 778 964 1,092 (186) (128)
------- ------- ------- ------- -------
$12,707 3,366 12,679 9,341 (9,313)
======= ======= ======= ======= =======
Interest on subordinated debentures decreased for the year ended December 31,
1998 as compared to the same periods in 1997 and 1996 primarily due to reduction
in the outstanding amount of Debentures and the accrual of interest on certain
Debentures during 1996 related to the delayed funding of the 1989 Exchange
settlement liability.
Interest on mortgage payables and other borrowings decreased for year ended
December 31, 1998 as compared to the same period in 1997 primarily due to a
reduction in borrowings. Interest on mortgage payables and other borrowings
decreased for the year ended December 31, 1997 as compared to the same period in
1996 primarily due to the sale during 1996 of a 50% interest in a property
acquired in the 1989 Exchange and a reduction in borrowings.
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 dissolved and
liquidated.
In June 1998, the Company reduced its carrying value on an investment in an
affiliated partnership by $184,000.
The expenses relating to real estate held for development and sale, net
represent the Company's expenses and revenues relating to the Center Port
property located in Pompano Beach, Florida and a 50% interest in a property
located in Delray Beach, Florida. Expenses relating to real estate held for
development and sale, net decreased for the year ended December 31, 1998 as
compared to the same period in 1997 primarily due to decreased property taxes
and administrative expenses at the Center Port property. Expenses relating to
real estate held for development and sale, net decreased for the year ended
December 31, 1997 as compared to the same period in 1996 primarily due to a
decrease in real estate taxes, land clearing, association fees and professional
services at the Center Port property. This decrease was offset in part by
increases in administrative expenses at the Center Port property and a net loss
of approximately $27,000 associated with the Delray property.
Employee compensation and benefits increased for the year ended December 31,
1998 as compared to the same period in 1997 primarily due to an increased
contribution to the employee's profit sharing plan and an increase in the number
of personnel.
In connection with the litigation entitled Short vs. Eden, et al., the Company
at December 31, 1996 had an accrual of approximately $3.0 million included in
other liabilities. The Company in April 1997 disbursed approximately $783,000
and received a release and satisfaction of judgment. Accordingly, the remaining
accrual of approximately $2.3 million was reversed during the quarter ended June
30, 1997. In connection with the litigation entitled Kugler, et al. v. I.R.E.
Real Estate Income Fund, Ltd., the Company in October 1996 placed approximately
$3.7 million in escrow to fund the rescission of sales and in March 1997,
approximately $1.0 million was placed in escrow for plaintiffs attorneys' fees.
In 1996 the Company recorded an adjustment to the accrual associated with the
Kugler litigation in the amount of $292,000. On April 30, 1997, the Court
approved the Kugler settlement.
General and administrative, net, decreased for the year ended December 31, 1998
as compared to the same period in 1997 primarily due to decreased legal fees,
trustee fees and amortization expense. This decrease was offset in part by an
increase in intangible taxes. General and administrative, net decreased for the
year ended December 31, 1997 as compared to the same period in 1996 primarily
due to decreased legal fees. This decrease was offset in part by increases in
trustee fees, intangible taxes, professional and consulting fees associated with
the ABC litigation and the elimination of reimbursements of administrative costs
from an affiliated partnership which was liquidated in 1996.
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. 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. As of December 31, 1998, 1997 and 1996, the Company's deferred income
taxes were approximately $13.2 million, $11.7 million and $5.3 million,
respectively. The increase in deferred income taxes at December 31, 1998 as
compared to December 31, 1997 was primarily due to the tax effect on the
increase in the investment in BBC of approximately $2.4 million. The increase in
deferred income taxes at December 31, 1997 as compared to December 31, 1996 was
primarily due to the tax effect on the increase in the investment in BBC of
approximately $13.1 million.
Financial Condition
The Company's total assets at December 31, 1998 and December 31, 1997 were $91.3
million and $98.9 million, respectively. The majority of the difference at
December 31, 1998 as compared to December 31, 1997 was due to decreases in (i)
real estate held for development and sale, (ii) investment real estate, net and
(iii) other assets. These decreases were offset in part by the increase in
investment in BBC and securities available for sale.
Securities available for sale increased primarily due to the investment of funds
received from the sale of real estate at the Company's Center Port and BMOC
properties and the availability of funds provided from the release of the Meador
(1989 Exchange) settlement. This increase in securities available for sale was
offset in part by sales of securites to fund the advances for development and
construction costs at the Company's Center Port property.
Real estate held for development and sale decreased primarily due to the sale of
38 acres of the Company's Center Port property. This decrease in real estate
held for development and sale, net was offset in part by an increase in
development and construction costs at the property.
The Company in 1996 sold a 50% interest in a property included in investment
real estate. Since the Company was the sole maker on the non-recourse mortgage
note on the property and since the Company maintained 50% interest in the
subject property, the gain on the sale of approximately $632,000 was deferred,
reducing the Company's carrying value in real estate, and the mortgage remained
on the Company's books. During May 1998, the property was refinanced with the
other 50% owner also becoming liable for the amount owed under the note. At that
time, the Company recognized 50% of the deferred profit on the transaction, and
removed the mortgage note and investment real estate entries relating to the
property from the Company's Consolidated Statements of Financial Condition. The
remaining investment in the property is included in investment real estate using
the equity method of accounting. In October 1998, the Company sold one building,
approximately 15,000 square feet, at the BMOC property for $500,000. The Company
recognized a net gain on the sale of real estate of approximately $301,000.
Investment in BBC increased by $2.4 million due to the net effect of other BBC
capital transactions of approximately $4.1 million primarily attributable to
BBC's issuance of Class A Common Stock to acquire RBCO and LTI and the increase
in BBC's net unrealized appreciation on securities available for sale, net of
deferred income taxes of approximately $878,000. This increase was offset in
part by the equity in the loss of BBC of approximately $1.4 million and
dividends of approximately $1.2 million in 1998.
Other assets decreased due to the 1997 release from escrow of approximately $2.1
million that had been placed in an escrow account related to the settlement of
litigation and payments made from the escrow accounts in accordance with the
terms of the settlements of litigation. The settlement agreement provided for a
release from escrow of any balances remaining at the end of a specified period
and accordingly, approximately $2.1 million was released from escrow in January
1998. Any balances remaining in the escrow accounts under litigation settlements
will be released to the Company in January 2000.
Subordinated debentures and deferred interest on the subordinated debentures
decreased primarily due to the redemption of Debentures.
Mortgages payable and other borrowings decreased primarily due to the (i)
repayment of approximately $1.5 million on a revolving line of credit, (ii)
repayment of approximately $7.2 million upon the sale of approximately 38 acres
at the Center Port property and (iii) principal payments made on loans according
to their terms.
Purchase Accounting
The acquisition of BBC was accounted for as a purchase and accordingly, the
assets and liabilities acquired were 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 each of the years ended December 31,
1998 and 1997 by approximately $ 741,000 and $545,000 in 1996. 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 and accretion of the adjustments to net assets acquired resulting
from the use of the purchase method of accounting will remain at a similar level
for 1999 and anticipates an increase in earnings from 2000 to 2003 of
approximately $52,000 per year.
Excess cost over fair value of net assets acquired at December 31, 1998 and
1997, was approximately $454,000 and $577,000, respectively. Such excess cost
over fair value of net assets acquired is included in the investment in BBC in
the accompanying statements of financial condition.
Liquidity and Capital Resources
Pursuant to the terms of the applicable escrow agreements, approximately $2.1
million was released during January 1998 from escrow accounts established to
fund payment on Debentures that had been called for redemption. At December 31,
1998, approximately $2.7 million remained to fund future payments. Any amounts
remaining in escrow in January 2000 will be released to the Company and any
future payments on the called Debentures will be paid from the Company's working
capital. At December 31, 1998, there was approximately $5.3 million of called
but unpresented Debentures. The Company is not obligated to pay interest on
Debentures once they are called for redemption.
Pursuant to the terms of the Company's approximately $1.5 million of Debentures
which are outstanding and not called for redemption, the Company may elect to
defer interest payments on the outstanding Debentures if management of the
Company determines in its discretion that the payment of interest would impair
the operations of the Company. Items considered in the decision to defer the
interest payment would include, among other items, the ability to identify which
Debentures are held by Holders in Due Course and current operating expenses.
Since December 31, 1991, the Company has deferred interest payments on its
Debentures.
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 interest earned on advances made by 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 received a limited
partnership interest in an unaffiliated limited partnership that will entitle it
to receive approximately 4.5% of any profits from development and operation of
the property. In January 1999, the Company received approximately $259,000 when
the limited partnership was liquidated. In December 1994, an entity controlled
by the Company acquired from an unaffiliated seller approximately 70 acres of
unimproved land known as the "Center Port" property in Pompano Beach, Florida.
Through December 31, 1998, 42 acres had been sold from the Center Port property
to unaffiliated third parties for approximately $11.7 million and the Company
recognized net gains from the sale of real estate of approximately $2.8 million.
Included in cost of sales is approximately $2.0million, representing the Abdo
Group's profit participation from the transactions. All proceeds from the sale
were utilized to reduce the borrowing for which the Center Port property serves
as partial collateral. At December 31, 1998, the balance on this borrowing was
approximately $1,000 and was due to an unaffiliated lender. Payment of profit
participation to the Abdo Group will be deferred until the lender and the
Company are repaid on loans, advances and interest. The remainder of the Center
Port property is currently being marketed for sale.
On February 11, 1999, BFC Financial Corporation filed a Form S-1 registration
statement with the Securities and Exchange Commission. The registration
statement would register approximately 1,000,000 shares of Class A Common Stock
and approximately $15,000,000 of subordinated debentures. The net proceeds from
the Offerings will be used to redeem the Company's outstanding unsecured
subordinated debentures including the payment of deferred interest thereon
(totaling approximately $4.0 million). The Company intends to use the balance of
the net proceeds from the offerings for the acquisition of additional shares in
affiliated companies, for investments in the securities of publicly-traded or
privately held companies and for general corporate purposes.
As previously indicated the Company holds approximately 31.3% of all outstanding
BBC Common Stock. BBC has paid a regular quarterly dividend since its formation
and management of BBC has indicated that it currently anticipates that it will
pay regular quarterly cash dividends on the BBC Common Stock. The availability
of funds for the payment of dividends by BBC is dependent upon BankAtlantic's
ability to pay dividends to BBC. The Company's cash position and its ability to
meet its obligations will in part be dependent on the financial condition of BBC
and the payment by BBC of dividends to its shareholders, including the Company.
Currently, BBC pays a quarterly dividend of $.0275 and $.025 per share for Class
A and Class B Common Stock, respectively. BBC's principal source of cash flow is
dividends from BankAtlantic. BBC's annual debt service associated with its
$246.9 million of 9%, 6-3/4% and 5-5/8% Debentures and Trust Preferred
Securities is approximately $18.0 million. BBC also obtains funds from the
exercise of its outstanding stock options, through the sale of common shares and
from the issuance of debt securities.
At December 31, 1998, BankAtlantic's core, Tier 1 risk-based and total
risk-based capital ratios were 8.48%, 12.67% and 13.92%, respectively. Based on
these capital ratios, BankAtlantic meets the definition of a well-capitalized
institution.
Cash Flows
A summary of the Company's consolidated cash flows follows (in thousands):
For the Years Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
Net cash provided (used) by:
Operating activities $ (1,252) (8,925) (5,485)
Investing activities 10,770 10,812 8,142
Financing activities (9,467) (3,079) (2,013)
-------- -------- --------
Increase (decrease) in cash
and cash equivalents $ 51 (1,192) 644
======== ======== ========
The primary sources of funds to the Company for the year ended December 31, 1998
were release of funds from escrow accounts, proceeds received from the sale of
real estate, principal reductions on loan receivables, proceeds from redemption
and maturities of securities available for sale, revenues from property
operations, and dividends from BBC. These funds were primarily utilized to
reduce mortgage payables and other borrowings, to fund development and
construction costs at the Center Port property, to purchase securities available
for sale, and to fund operating expenses and general and administrative
expenses. Funds received from the sale of real estate were primarily utilized to
reduce related mortgage debt at the Center Port property.
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.
BFC does not believe that inflation has had any material impact on the Company.
Inflation could also have an effect on the market value of the Company's
ownership in its BBC Common Stock. 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.
Market Risk
Market risk is defined as the risk of loss arising from adverse changes in
market valuation which arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. The Company's primary
market risk is equity risk through its investment in BBC.
Equity Pricing Risk
The Company's primary equity investment is its investment in BBC. This
investment was entered into for purposes other than trading purposes. Since this
investment is carried using the equity method of accounting, changes in market
price of BBC stock would not have a direct impact on the financial statements,
however, a change in market price could likely have an impact on the investment
community's view of the Company. The following table shows changes in the market
value of the Company's investment in BBC at December 31, 1998 based on
percentage changes in market price. Actual future price changes may be different
from the changes identified in the table below (in thousands):
Percent
Change In Market
Market Price Value
------------ -----
20.00% $ 92,515
10.00% 84,806
0.00% 77,096
(10.00)% 69,386
(20.00)% 61,677
Management does not believe that market risk on other equity instruments would
have a significant impact on the financial condition of the Company.
Below is an analysis of BBC's equity pricing risk at December 31, 1998. The
following are hypothetical changes in the fair value of BBC's trading, available
for sale securities at December 31, 1998 based on percentage changes in fair
value. Actual future price appreciation or depreciation may be different from
the changes identified in the table below.
Available Securities Total
Percent Trading for Sale Sold Not Dollar
Change in Securities Securities Yet Change from
Fair Value Fair Value Fair Value Purchased 0%
---------- ---------- ---------- --------- ---------
(dollars in thousands)
20 % $36,006 $20,516 $ 3,446 $ 9,994
10 % 33,006 18,807 3,159 4,998
0 % 30,005 17,097 2,872 0
(10)% 27,005 15,387 2,585 (4,998)
(20)% 24,004 13,678 2,298 (9,994)
During 1998, the BBC began trading government securities which are generally
bought and sold on the same day. In addition, RBCO is a market maker in equity
securities which could, from time to time require them to hold securities during
declining markets. BBC attempts to manage its equity price risk by maintaining a
relatively small portfolio of securities and evaluating equity securities as
part of the BBC's overall asset and liability management process.
Interest Rate Risk
The majority of BBC's assets and liabilities are monetary in nature subjecting
BBC to significant interest rate risk. BBC has developed a model using vendor
software to quantify its interest rate risk. A sensitivity analysis was
performed measuring BBC's potential gains and losses in net portfolio fair
values of interest rate sensitive instruments at December 31, 1998 resulting
from a change in interest rates. Interest rate sensitive instruments included in
the model were BBC's:
o loan portfolio,
o debt securities available for sale,
o investment securities,
o FHLB stock,
o mortgage servicing rights,
o Federal Funds sold,
o deposits,
o advances from FHLB,
o securities sold under agreements to repurchase,
o Federal Funds purchased,
o Subordinated Debentures,
o Trust Preferred Securities and
o off-balance sheet loan commitments.
BBC has no off-balance sheet derivatives other than fixed rate loan commitments
aggregating $71.8 million at December 31, 1998.
The model calculates the net potential gains and losses in net portfolio fair
value by:
1) discounting anticipated cash flows from existing assets, liabilities
and off-balance sheet contracts at market rates to determine fair
values at December 31, 1998,
2) discounting the above expected cash flows based on instantaneous and
parallel shifts in the yield curve to determine fair values,
3) the difference between the fair value calculated in (i) and (ii) is
the potential gains and losses in net portfolio fair values.
Management of BBC has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no quoted market for many
of these financial instruments, management of BBC has no basis to determine
whether the fair value presented would be indicative of the value negotiated in
an actual sale. BankAtlantic'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.
The prepayment assumptions used in the model are disclosed in BankAtlantic's
Cumulative Rate Sensitivity GAP at December 31, 1998. Subordinated debentures
and Trust Preferred Securities were valued for this purpose based on their
contractual maturities or redemption date. BBC's interest rate risk policy has
been approved by the Board of Directors and establishes guidelines for tolerance
levels for net portfolio value changes based on interest rate volatility.
Management has maintained the portfolio within these established tolerances.
Presented below is an analysis of BBC's interest rate risk at December 31, 1998
as calculated utilizing BBC's model. The table measures changes in net portfolio
value for instantaneous and parallel shifts in the yield curve in 100 basis
point increments up or down.
Net Portfolio
Changes Value Dollar
in Rate Amount Change
------- ------ ------
(dollars in thousands)
+200 bp $ 297,510 $ (70,272)
+100 bp $ 351,652 $ (16,130)
0 bp $ 367,782 $ 0
(100) bp $ 310,908 $ (56,874)
(200) bp $ 259,775 $(108,007)
Certain assumptions by BBC in assessing the interest rate risk were utilized in
preparing the preceding table. These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates, and market values of certain assets under
various interest rate scenarios and repricing of certain borrowings.
It was also assumed that delinquency rates would not change as a result of
changes in interest rates although there can be no assurance that this would be
the case. Even if interest rates change in the designated increments, there can
be no assurance that BBC's assets and liabilities would perform as indicated in
the table above. In addition, a change in U.S. Treasury rates in the designated
amounts, accompanied by a change in the shape of the yield curve could cause
significantly different changes to the fair values than indicated above.
Furthermore, the result of the calculations in the preceding table are subject
to significant deviations based upon actual future events, including
anticipatory and reactive measures which the BBC may take in the future.
Year 2000 Considerations
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. The
consequences of incomplete or untimely resolution of year 2000 issues represent
an uncertainty that could affect future financial results. The year 2000 issue
affects virtually all companies and organizations.
The Company's computer system is composed of seven personal computers running on
a Windows NT network. The Company's primary in-house computer applications
consist of general ledger, accounts payable, property management, spreadsheet
and database applications. The personal computers have been tested and found to
be year 2000 compliant. The vendor of the general ledger, accounts payable and
property management packages have indicated that their software is also year
2000 compliant. The spreadsheet and database applications utilized are the most
recent versions available from Microsoft. Accordingly, the Company does not
expect to expend material amounts to third parties to remediate any year 2000
problems. Should any of the above systems fail, the Company believes it would be
able to process its data and monitor its accounts through manual systems or
other alternative means. Additionally, the Company does not anticipate that it
will have any material expenditure with respect to real estate owned by the
Company.
With respect to the Company's subsidiary BBC, BBC has undertaken various
initiatives intended to ensure that computer applications will function properly
with respect to dates in the year 2000 and thereafter. BBC has established a
year 2000 action plan which was presented to the Board of Directors on December
2, 1997. The action plan was developed using the guidelines outlined in the
Federal Financial Institutions Examination Council's "The Effect of 2000 on
Computer Systems". The six phases of BBC's action plan are: (1) Awareness -
Define the Year 2000 issues, gain executive level support, establish a project
team and develop a strategy which encompasses technology and business issues,
(2) Assessment - Assess the size and complexity of the issues and detail the
magnitude of the effort necessary to address them, (3) Renovation - Code
enhancements, hardware and software upgrades, and system replacements, (4)
Validation - Testing of software, system components and connections between
systems, (5) Implementation - Systems should be certified as Year 2000 ready by
the business users, and (6) Contingency planning - determination of strategy to
handle the most likely worst case scenarios on year 2000 issues.
BBC believes that it has completed the awareness and assessment phases of its
action plan. Renovation, validation and implementation phases were approximately
80% completed at December 31, 1998 with anticipated 95% and 100% completion as
of March 31, 1999 and June 30, 1999, respectively. The contingency planning
phase was 50% completed as of December 31, 1998, and is scheduled to be 90%
complete as of March 31, 1999 and 100% completed as of June 30, 1999.
Although BBC expects to meet its action plan schedule, there is no assurance
that this timetable will be completed according to schedule.
The majority of BBC's mission critical information technology system structure
("IT") has been outsourced to third party vendors. BBC's internal IT primarily
consists of a minicomputer for item processing and a personal computer based
wide area network. The wide area network's primary function is to communicate
with third party service bureaus and secondarily to run non-critical personal
computer applications such as E-mail, word processing and spreadsheet programs.
BBC has various non-IT systems with embedded microcontrollers, including but not
limited to, vault security equipment, branch security equipment, telephone
systems, circuit boards on building equipment, building elevators, and
appliances. The above IT and non-IT systems could fail or create erroneous
results by or at the year 2000.
BBC relies on third party vendors to perform loan, deposit, general ledger and
other application processing. BBC is monitoring the progress of these third
party vendors in meeting their year 2000 obligations and is actively involved in
the implementation and testing of the modified application programs. The third
party vendors completed the update of the application programs during the fourth
quarter of 1998 with BBC testing the programs during the first quarter of 1999.
Although BBC currently has no indication that its third party vendors will not
be able to operate as a result of year 2000 related problems, there is no
assurance that these third party vendors will meet their obligations to BBC.
Included in BBC's Statement of Operations during the year ended December 31,
1998 were $210,000 of third party expenses related to the year 2000 action plan.
BBC estimates that it will spend approximately $100,000 on year 2000 consulting
services, $300,000 on software and hardware maintenance specifically related to
year 2000, $100,000 on RBCO system upgrades and consulting services and $100,000
for contingency planning during the year ended December 31, 1999. The above
items will be expensed as incurred and do not include employee compensation
allocated for time spent on the year 2000 project.
Risk factors associated with the year 2000 event include the risk that the BBC's
business could be disrupted due to vendors, suppliers, and customer system
failures, or even the possible loss of electrical power or phone service. BBC is
currently assessing the probability of these events occurring and is formulating
contingency plans. BBC could be also subjected to litigation due to year 2000
noncompliance from customers, borrowers and suppliers as a result of both
internal and third party system failures. BBC as part of its action plan has
sent brochures to customers, and questionnaires to borrowers and suppliers, and
as mentioned above is addressing both IT and non-IT year 2000 issues. Further,
the credit quality of BBC's loans may be affected by the failure of a borrower's
operating or other systems as a consequence of a year 2000 issue or the related
failure of a borrower's key suppliers, customers, or service providers resulting
in higher provisions for loan losses. BBC's underwriting and credit policies
include consideration of a borrower's potential year 2000 issues. There is no
assurance that BBC's borrowers will be able to meet their obligations to BBC if
these borrowers experience year 2000 problems.
Certain assets of BBC may have to be replaced, based on upgrades to equipment
and software that are part of BBC's normal business needs, rapidly developing
technology, and a three year capital equipment and software replacement plan.
BBC does not anticipate impairment or significant replacement of assets related
to the year 2000 issue.
There is no assurance that the foregoing has identified all costs, risks or
possible losses which BBC may experience associated with year 2000 issues. The
failure to correct a material year 2000 problem could result in an interruption
in, or a failure of, certain normal business activities or operations. Such
failures could materially and adversely affect BBC's results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the year 2000 problem, resulting in part from the uncertainty of the year 2000
readiness of third-party suppliers, borrowers and customers, BBC is unable to
determine at this time whether the consequences of year 2000 failures will have
a material impact on BBC's results of operations, liquidity or financial
condition. The goal of the Year 2000 Project is to significantly reduce BBC's
level of uncertainty about the year 2000 problem and, BBC believes that, with
the implementation of new business systems and completion of the project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
ITEM 8. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Financial Condition - December 31, 1998 and
1997
Consolidated Statements of Operations - For each of the Years in the
Three Year Period ended December 31, 1998
Consolidated Statements of Stockholders' Equity and Comprehensive
Income - For each of the Years in the Three Year Period ended December
31, 1998
Consolidated Statements of Cash Flows - For each of the Years in the
Three Year Period ended December 31, 1998
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, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the years in the three year
period ended December 31, 1998. 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Fort Lauderdale, Florida
March 2, 1999
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
December 31, 1998 and December 31, 1997
(in thousands, except share data)
Assets
1998 1997
---- ----
Cash and cash equivalents $ 655 604
Securities available for sale 2,218 1,478
Investment in BankAtlantic Bancorp, Inc. ("BBC") 74,565 72,185
Mortgage notes and related receivables, net 1,740 1,859
Investment real estate, net 6,172 9,700
Real estate held for development and sale 1,811 6,474
Other assets 4,096 6,571
------- -------
Total assets $91,257 98,871
======= =======
Liabilities and Stockholders' Equity
Subordinated debentures, net 6,736 7,263
Deferred interest on the subordinated debentures 2,217 2,106
Mortgage payables and other borrowings 10,784 22,943
Other liabilities 683 706
Deferred income taxes 13,206 11,711
------- -------
Total liabilities 33,626 44,729
Commitments and contingencies
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value,
authorized 20,000,000 shares; issued and
outstanding 6,453,994 in 1998 and 1997 58 58
Class B common stock, of $.01 par value; authorized
20,000,000 shares; issued and outstanding
2,355,407 in 1998 and 2,346,907 in 1997 21 21
Additional paid-in capital 26,095 23,525
Retained earnings 30,660 30,280
------- -------
Total stockholders' equity before BBC
accumulated other comprehensive income 56,834 53,884
BBC accumulated other comprehensive income-
net unrealized appreciation on securities
available for sale, net of deferred income taxes 797 258
------- -------
Total stockholders' equity 57,631 54,142
------- -------
Total liabilities and stockholders' equity $91,257 98,871
======= =======
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, 1998
(in thousands, except per share data)
1998 1997 1996
---- ---- ----
Revenues:
Interest on mortgage notes and
related receivables $ 1,108 221 613
Interest and dividends on securities
available for sale and escrow accounts 228 445 694
Earnings on real estate rental
operations, net 979 1,034 1,303
Sale of real estate 11,706 967 9,700
Net gain from sale of stock -- 1,349 --
Equity in earnings (loss) of BBC (1,397) 12,129 8,650
Other income, net 34 209 701
-------- -------- --------
Total revenues 12,658 16,354 21,661
-------- -------- --------
Costs and expenses:
Interest on subordinated debentures 492 723 1,238
Interest on mortgages payable
and other borrowings 1,420 1,996 2,396
Cost of sale of real estate 8,525 632 6,420
Loss on disposition of mortgage
notes and investment, net -- -- 474
Write-down of investment 184 -- --
Expenses related to real estate held
for development and sale, net 68 130 154
Employee compensation and benefits 1,190 1,153 1,153
Occupancy and equipment 50 40 44
Reversal of provision for litigation -- (2,272) (292)
General and administrative, net 778 964 1,092
-------- -------- --------
Total cost and expenses 12,707 3,366 12,679
-------- -------- --------
Income (loss) before income taxes
and extraordinary items (49) 12,988 8,982
Provision (benefit) for income taxes (368) 4,222 2,924
-------- -------- --------
Income before extraordinary items 319 8,766 6,058
Extraordinary items:
Net gain from debt restructuring, net of
income taxes of $114,000 in 1997 -- 181 --
Net gain from extinguishment of debt,
net of income taxes of $39,000 in 1998
and $72,000 in 1997 61 115 --
Gain on settlements of Exchange
litigation, net of income taxes of
$475,000 in 1997 and $611,000 in 1996 -- 756 853
-------- -------- --------
Net income $ 380 9,818 6,911
======== ======== ========
Basic earnings per share:
Before extraordinary items $ 0.04 1.10 0.78
Extraordinary items 0.01 0.13 0.11
-------- -------- --------
Net income $ 0.05 1.23 0.89
======== ======== ========
Diluted earnings per share:
Before extraordinary items $ 0.04 1.00 0.73
Extraordinary items -- 0.12 0.10
-------- -------- --------
Net income $ 0.04 1.12 0.83
======== ======== ========
Basic weighted average shares
outstanding 7,954 7,938 7,811
======== ======== ========
Diluted weighted average shares
outstanding 9,101 8,731 8,347
======== ======== ========
See accompanying notes to consolidated financial statements.
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and
Comprehensive Income For each of the years in the three
year period ended December 31, 1998
(in thousands)
Addi-
Compre- Class A Class B tional
hensive Common Common Paid-in Retained
income Stock Stock Capital Earnings Other Total
------ ----- ----- ------- -------- ----- -----
Balance at December 31, 1995 $ -- 20 19,490 13,609 2,639 35,758
Comprehensive income
Net income $ 6,911 -- -- -- 6,911 -- 6,911
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (1,230)
Reclassification adjustment
for gains included
in net income (1,098)
------
Other comprehensive income (loss) (2,328)
------
Comprehensive income $ 4,583
======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- 939 -- -- 939
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (2,328) (2,328)
Exercise of stock options -- 1 181 -- -- 182
------- ------- ------- ------- ------- -------
Balance at December 31, 1996 $ -- 21 20,610 20,520 311 41,462
Comprehensive income
Net income $ 9,818 -- -- -- 9,818 -- 9,818
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 194
Reclassification adjustment
for gains included
in net income (247)
------
Other comprehensive income (loss) (53)
------
Comprehensive income $ 9,765
======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- 2,759 -- -- 2,759
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (53) (53)
5 for 4 stock split 5 -- -- (5) -- --
3 for 1 stock split 53 -- -- (53) -- --
Exercise of stock options -- -- 156 -- -- 156
------- ------- ------- ------- ------- -------
Balance at December 31, 1997 $ 58 21 23,525 30,280 258 54,142
Comprehensive income
Net income $ 380 -- -- -- 380 -- 380
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 821
Reclassification adjustment
for gains included
in net income (282)
------
Other comprehensive income 539
------
Comprehensive income $ 919
======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- 2,510 -- -- 2,510
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- 539 539
Exercise of stock options -- -- 60 -- -- 60
------- ------- ------- ------- ------- -------
Balance at December 31, 1998 $ 58 21 26,095 30,660 797 57,631
======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For each of the years in three year period ended
December 31, 1998
(In thousands)
For the years ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
Operating activities:
Income before extraordinary items $ 319 8,766 6,058
Adjustments to reconcile income
before extraordinary items to net cash
(used in) operating activities:
Equity in (earnings) loss of BBC 1,397 (12,129) (8,650)
Depreciation 575 683 772
Expenses related to real estate held for
development and sale, net 68 130 154
Provision (benefit) for income taxes (368) 4,222 3,033
Amortization on subordinated debentures 11 13 15
Accretion of discount on loans receivable (40) (45) (152)
Increase in real estate development
and construction costs (2,631) (388) --
Gain on sale of real estate, net (3,181) (335) (3,280)
Net gain from sale of stock -- (1,349) --
Loss on disposition of mortgage notes and
investment, net -- -- 474
Proceeds received from litigation settlement -- -- 1,109
Gain from litigation cost, net -- -- (211)
Reversal of provision for litigation -- (2,272) --
Fundings for litigation settlement -- (1,801) (3,690)
Increase in the escrows for called
debenture liability -- (5,158) (4,653)
Proceeds from escrow for called
debenture liability 2,166 -- 2,903
Increase in deferred interest on the
subordinated debentures 482 656 747
Accrued interest income on escrow accounts (124) (237) (161)
Interest accrued regarding called
debenture liability -- 52 475
Increase (decrease) in other liabilities (94) 45 (961)
Decrease in other assets 168 222 533
-------- -------- --------
Net cash used in operating activities (1,252) (8,925) (5,485)
-------- -------- --------
Investing activities:
Proceeds from the sales of
investment real estate 495 128 --
Proceeds from the sale of real estate held
for development and sale, net -- -- 6,480
Proceeds from the sale of stock -- 3,720 --
Deposits received for sale of real estate -- -- --
Common stock dividends received from BBC 1,187 1,025 883
Purchase of securities available for sale -- (19,225) (47,153)
Proceeds from redemption and maturities
of securities available for sale (788) 24,535 45,475
Principal reduction on mortgage notes and
related receivables, net 159 182 2,806
Decrease (increase) in real estate
held for development and sale 9,800 490 (275)
Addition to office properties and equipment -- (21) --
Improvements to investment real estate (83) (22) (74)
-------- -------- --------
Net cash provided by investing activities 10,770 10,812 8,142
-------- -------- --------
Financing activities:
Issuance of common stock 35 91 105
Increase in borrowings -- 9,144 --
Repayments of borrowings (9,502) (12,314) (2,118)
-------- -------- --------
Net cash used in
financing activities (9,467) (3,079) (2,013)
-------- -------- --------
Increase (decrease) in cash
and cash equivalents 51 (1,192) 644
Cash and cash equivalents
at beginning of period 604 1,796 1,152
-------- -------- --------
Cash and cash equivalents at
end of period $ 655 604 1,796
======== ======== ========
See accompanying notes to consolidated financial statements.
BFC Financial Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 1998, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation - BFC Financial Corporation ("BFC" or
the "Company") is a unitary savings bank holding company as a consequence of its
ownership of the Common Stock of BankAtlantic Bancorp, Inc. ("BBC").
BankAtlantic, a Federal Savings Bank, ("BankAtlantic") is a wholly-owned
subsidiary of BankAtlantic Bancorp ("BBC"). The Company's primary asset is the
capital stock of BBC and its primary activities currently relate to that asset.
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 valuation allowance for real estate and the allowance for
mortgage notes and related receivables.
The financial statements and notes to consolidated financial statements of
BankAtlantic Bancorp, Inc. and Subsidiaries are incorporated herein by
reference.
Principles of Consolidation - The consolidated financial statements reflect the
activities of BFC and its wholly owned subsidiaries. Because the Company's
ownership in BBC is less than 50%, the Company's investment in BBC is carried on
the equity method.
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 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 other than temporarily 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 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 - Investment real estate is held for use. Real estate held for
development and sale includes land held for development and land held for sale.
Costs clearly associated with the development of a specific parcel are
capitalized as a cost of that parcel. Indirect land development costs are
allocated to parcels based upon the the square footage of parcels benefited.
Land costs were allocated to the various parcels based upon the relative sales
value method. Real estate held for sale is stated at the lower of carrying
amount or fair value less cost to sell. Real estate held for development is
evaluated for impairment based upon the undiscounted future cash flows of the
property compared to the carrying value of the property. If the undiscounted
future cash flows are lower than the carrying value of the property, a valuation
allowance is established for the difference between the carrying amount of the
parcel and the fair value of the parcel, less cost to sell. The fair value of
real estate is evaluated based on existing and anticipated market conditions.
The evaluation takes into consideration the current status of the property,
various restrictions, carrying costs, costs of disposition and any other
circumstances which may affect estimated fair value.
Profit or loss on real estate sold is recognized in accordance with Statement of
Financial Accounting Standard No. 66, "Accounting for Sales of Real Estate". Any
estimated loss is recognized in the period in which it becomes apparent.
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of -
Long-lived assets and assets held for sale are 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 Company
estimates 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 the Company expects to
hold and use is based on the fair value of the asset.
Depreciation - 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 4 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 BBC was acquired at different times. In some acquisitions, the fair
market value of the net assets of BBC were greater than the Company's cost. At
other acquisitions, the Company's cost was in excess of the fair market value of
BBC'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. 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. Some minor increases in ownership of
BBC were recorded utilizing BBC'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. That evaluation includes a review of current and estimated
future earnings and dividend paying ability.
Earnings Per Share - While the Company has two classes of common stock
outstanding, the two-class method is not presented because the Company's capital
structure does not provide for different dividend rates or other preferences,
other than voting rights, between the two classes. Basic earnings per share
excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if options to issue common
shares were exercised. Common stock options, if dilutive, are considered in the
weighted average number of dilutive common shares outstanding. The options are
included in the weighted average number of dilutive common shares outstanding
based on the treasury stock method. For all periods, the shares issued in
connection with a 1984 acquisition are considered outstanding after elimination
of the Company's ownership of the shares issued in the acquisition,
respectively.
Stock Splits - On October 6, 1997, the Board of Directors of the Company
declared a five for four stock split effected in the form of 25% stock dividend,
payable in shares of the Company's newly authorized Class A Common Stock. The
Class A Common Stock was a newly authorized series of the Company's capital
stock and no shares were outstanding prior to the dividend. Pursuant to the
Company's Articles of Incorporation, the Company's then existing common stock
was automatically redesignated as Class B Common Stock without changing any of
its rights and preferences upon the authorization by the Board of the stock
dividend. The Class A Common Stock and the Class B Common Stock have
substantially identical terms except that (i) the Class B Common Stock is
entitled to one vote per share while the Class A Common Stock will have no
voting rights other than those required by Florida law and (ii) each share of
Class B Common Stock is convertible at the option of the holder thereof into one
share of Class A Common Stock. On January 15, 1998, the Board of Directors of
the Company declared a three for one stock split effected in the form of a stock
dividend of two shares of Class A Common Stock for each share of outstanding
Class A and Class B Common Stock. Due to accounting and tax considerations,
outstanding options to purchase Class B Common Stock previously granted under
the Company's stock option plans were adjusted to reflect additional Class B
stock options instead of options on Class A Common Stock. Where appropriate,
amounts throughout this report have been adjusted to reflect the stock splits.
Stock Based Compensation Plans - The Company maintains both qualifying and
non-qualifying stock-based compensation plans for its employees and directors.
The Company has elected to account for its employee stock-based compensation
plans under APB No. 25.
Reclassifications - For comparative purposes, certain prior year balances have
been reclassified to conform with the 1998 financial statement presentation.
2. INVESTMENT IN BANKATLANTIC BANCORP, INC.
The Company has acquired its 31.3% ownership of all outstanding BBC Common Stock
at December 31, 1998 through various acquisitions and sales. Where appropriate,
amounts throughout this report of all BBC share and per share amounts have been
adjusted for stock splits declared by BBC. BBC's Class A Common Stock is
non-voting and 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, 1998, the Company owned 6,578,671 shares of BBC Class A Common Stock and
4,876,124 shares of BBC Class B Common Stock. The aggregate market value of the
Company's investment in BBC at December 31, 1998 was approximately $77.1 million
or approximately $2.5 million in excess of the carrying value in the financial
statements. The following table reflects BFC's percentage ownership in BBC:
Class A Class B
Common Common Total
Stock Stock Outstanding
----- ----- -----------
December 31, 1996 35.1% 46.2% 41.5%
December 31, 1997 30.6% 45.6% 35.6%
December 31, 1998 25.1% 47.1% 31.3%
A reconciliation of the carrying value in BBC to BBC's Stockholders equity at
December 31, 1998 and 1997 is as follows:
1998 1997
---- ----
BBC stockholders' equity $ 240,440 207,171
Ownership percentage 31.3% 35.6%
----- -----
75,340 73,691
Purchase accounting adjustments (775) (1,506)
------- ------
Investment in BBC $ 74,565 72,185
======= =======
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 each of the years ended
December 31, 1998 and 1997 by approximately $741,000 and $545,000 in 1996. Such
amounts are included in equity in earnings (loss) of BBC. 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
for 1999 and anticipates an increase in earnings from 2000 to 2003 of
approximately $52,000 per year.
Excess cost over fair value of net assets acquired at December 31, 1998 and
1997, was approximately $454,000, $577,000 and $700,000, respectively. Excess
cost over fair value of net assets acquired at December 31, 1998 and 1997 is
included in the investment in BBC in the accompanying statements of financial
condition, in addition to other unamortized purchase accounting adjustments. The
excess cost over fair value of net assets acquired will be fully amortized in
2002.
In June 1998 BBC acquired Ryan, Beck & Co., Inc. ("RBCO"), an investment banking
firm that is principally engaged in the underwriting, distribution and trading
of tax-exempt obligations and bank and thrift equity and debt securities. BBC
acquired all of RBCO's outstanding shares of common stock in exchange for shares
of BBC's Class A common stock in an acquisition accounted for under the purchase
method of accounting. Upon acquisition of RBCO, BBC assumed all options
outstanding under RBCO's existing stock option plans, resulting in the
additional issuance of options to purchase 314,145 shares of Class A Common
Stock at various exercise prices based upon the exercise prices of the assumed
options. The RBCO acquisition agreement provided for the establishment of an
incentive and retention pool, under which shares of BBC's Class A Common Stock
representing 20% of the total transaction value were allocated to key employees
of RBCO. The retention pool consists of 683,362 shares of restricted Class A
Common Stock, which will vest in four years to employees who remain for the
period. BFC's ownership percentage of BBC as of December 31, 1998, excludes the
shares of restricted Class A Common Stock.
In March 1998, BBC acquired Leasing Technology Inc. ("LTI"), a company engaged
in the equipment leasing and finance business. BBC issued 718,413 shares of
Class A Common Stock to acquire LTI. Upon regulatory approval, on June 30, 1998,
BBC contributed LTI at its book value to BankAtlantic.
Pursuant to previously announced plans by BBC to purchase shares of its common
stock, during the year ended December 31, 1998, BBC paid $10.9 million to
repurchase and retire 769,500 shares of Class B Common Stock.
During the year ended December 31, 1998, BBC issued 907,319 shares of Class A
Common Stock upon the conversion of $5.9 million in principal amount of BBC's 6
3/4% Convertible Subordinated Debentures due 2006.
On February 3, 1998, BBC's shareholders increased the authorized shares of BBC's
Class A and Class B Common Stock to 80 million shares and 45 million shares,
respectively.
The decrease in the ownership percentage at December 31, 1998 from 35.6% to
31.3% of all outstanding common stock of BBC was primarily due to BBC's issuance
of Class A Common Stock to acquire RBCO and LTI. This decrease was offset in
part by changes in BBC's outstanding common stock primarily due to BBC's
repurchases of its shares. The decrease in the ownership percentage at December
31, 1997 from 41.5% to 35.6% of all outstanding common stock of BBC was
primarily due to the issuance by BBC of 4,312,500 shares of Class A Common Stock
in a public offering and the sale of 449,805 shares of BBC's Class A Common
Stock by the Company. This decrease in the ownership was offset in part during
the year ended December 31, 1997 by the net effect of other BBC capital
transactions such as BBC's repurchase of 1,040,625 shares of Class A and 365,625
shares of Class B Common Stock, the conversion of 6 3/4% debentures into 57,252
shares of BBC Class A common and the issuance of additional shares in connection
with BBC's stock option plans.
On November 25, 1997, in a dual public offering, BBC issued 4,312,500 shares of
Class A Common Stock and $100.0 million of 5 5/8% convertible subordinated
debentures ("5 5/8% Debentures"). The net proceeds to BBC from the sale of Class
A Common Stock was $43.4 million, net of $107,000 of offering costs and from the
sale of the 5 5/8% Debentures, $96.5 million, net of $3.5 million of offering
costs. The 5 5/8% Debentures are convertible at an exercise price of $12.94 per
share into an aggregate of 7,727,975 shares of Class A Common Stock.
During 1997, the Company sold 449,805 shares of BankAtlantic Bancorp, Inc. Class
A Common Stock. Net proceeds received from these sales amounted to approximately
$3.7 million and a net gain of approximately $1.3 million was recognized.
In March 1997, BBC formed BBC Capital Trust I ("BBC Capital"). BBC Capital is a
statutory business trust which was formed for the purpose of issuing 9 1/2%
Cumulative Trust Preferred Securities ("Preferred Securities") and investing the
proceeds thereof in Junior Subordinated Debentures of BBC. In a public offering
in April 1997, BBC Capital issued 2.99 million shares of Preferred Securities
for proceeds of approximately $75 million. BBC Capital used the gross proceeds
received from the sale of the Preferred Securities to purchase $71.8 million of
9 1/2% Junior Subordinated Debentures from BBC, which mature on June 30, 2027.
The net proceeds from the sale of the Junior Subordinated Debentures were
utilized as follows: $21.2 million was used by BankAtlantic to acquire St. Lucie
West Holding Corp. and subsidiaries and to invest in a real estate joint
venture, $12.2 million was used to repurchase BBC's Common Stock and the
remaining proceeds is being utilized by BBC for general corporate purposes. St.
Lucie West Holding Corp. is the developer of the master planned community of St.
Lucie West, located in St.
Lucie County, Florida.
In March 1996, BBC issued 2.80 million shares of Class A Common Stock in an
underwritten public offering at $6.14 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
395,027 shares of Class A 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 356,445 and 175,781 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.
During 1996, BBC issued $57.5 million of 6 3/4% convertible debentures due July
1, 2006, (the 6 3/4% Debentures"). The 6 3/4% debentures are convertible into
Class A Common Stock at an exercise price of $6.55 per share. Net proceeds to
BBC were $55.2 million net of underwriting discount and offering expenses. The
net proceeds were utilized by BankAtlantic for the acquisition of Bank of North
America ("BNA") and general corporate purposes by BBC and BankAtlantic.
BBC's principal assets include the capital stock of BankAtlantic and its
subsidiaries and RBCO. BBC's principal source of cash flow is dividends from
BankAtlantic. BBC's annual debt service associated with its $246.9 million of
9%, 6 3/4%, 5 5/8% Debentures and Trust Preferred Securities is approximately
$18 million and its estimated current annual dividends to common shareholders is
$4 million. BBC also obtains funds through the exercise of stock options as
previously noted, through the sale of common shares and issuance of debt
securities. 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. 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.
At December 31, 1998, BankAtlantic met the definition of a Tier 1 association.
3. SUBORDINATED DEBENTURES
During 1989 and 1991, the Company exchanged (the "Exchange Transactions")
approximately $45.4 million of its subordinated unsecured debentures (the
"Debentures") for all of the assets and liabilities of six affiliated limited
partnerships. The major assets and liabilities of these partnerships consisted
principally of 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, 1998 and 1997.
The Company deposited $30.6 million into escrow accounts in connection with the
settlement of litigation that arose pertaining to the Exchange Transactions. All
of the funding required in connection with the Exchange settlements has been
provided. Payments on the settlement relating to one of the 1989 Exchange
litigation settlements commenced in January 1997. Payments on all other
settlements had commenced prior to that date. The final time period for filing a
claim in the settlements expired in January 1998. Pursuant to terms of escrow
agreements, during January 1998 approximately $2.1 million and during June 1996
approximately $3.0 million was released from escrow accounts established to fund
payment on subordinated debentures that had been called. Any amounts remaining
in escrow in January 2000 will be released to the Company and after that date
any payments on the called debentures will be paid directly by the Company.
Included in subordinated debentures at December 31, 1998, 1997 and 1996, was
approximately $5.4 million, $ 5.5 million and $16.2 million, respectively, of
debentures that have been called. Such debentures do not bear interest. Included
in other assets at December 31, 1998, 1997 and 1996 was approximately $2.7
million, $5.0 million and $10.5 million held in escrow accounts related to a
portion of these called debentures.
Initially, the amount that was to be paid under these settlements was not
determined with certainty because the amount of settlement depended upon whether
the class member still owned 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 was 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 a specified time period for filing a claim and as the
determination of the claim amounts were made and when the time period expired an
adjustment was made and additional gain was recognized. Extraordinary gains, net
of income taxes of approximately $756,000 and $853,000 were recognized for the
years ended December 31, 1997 and 1996, respectively, based upon claims made and
paid pursuant to the settlements of litigation relating to Class Members No
Longer Owning Debentures (as defined).
The components of the gain from the settlements of litigation are as follows (in
thousands):
For the years ended
December 31,
------------
1997 1996
---- ----
Decrease in subordinated debentures, net $ 710 872
Decrease in deferred interest on the
subordinated debentures 735 663
----- -----
1,445 1,535
Called debenture liability (214) (71)
----- ------
Pre-tax gain on settlement of litigation 1,231 1,464
Income taxes 475 611
----- -----
Net gain on settlements of litigation $ 756 853
===== =====
For financial statement purposes, the Debentures in the 1991 and 1989 Exchange
Transactions have been discounted to yield 19% and 12%, respectively, over their
term. The interest on the debentures in the 1991 and 1989 Exchange Transactions
is 13% and 12%, respectively per annum. As a result of the litigation
settlements, the Company's obligation to pay interest on debentures is limited
to only those debentures held by persons that acquired debentures in an arms
length transaction prior to the date on which the settlements were reached
("Holders in Due Course"), or debentures held by persons that opted out of the
litigation. Pursuant to the terms of the debentures, 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. Any interest not paid quarterly by the Company
("Deferred Interest") will accrue interest at the same rate as the Debentures
until paid. Items considered in the decision to defer the interest payment would
include, among other items, the ability to identify which debentures are held by
Holders in Due Course and current operating expenses. Since December 31, 1991,
the Company has deferred interest payments on its subordinated debentures. The
deferred interest on the subordinated debentures at December 31, 1998 and 1997
was approximately $2.2 million and $2.1 million, respectively. No dividends may
be paid to the holders of any equity securities of the Company while any
deferred interest remains unpaid.
During the year ended December 31, 1998, the Company reacquired approximately
$603,000 of debentures and accrued interest for approximately $503,000 resulting
in a gain of approximately $100,000. Such gain is reflected as an extraordinary
item, net of income taxes of $39,000 in the accompanying financial statements.
During the year ended December 31, 1997, the Company reacquired approximately
$1,147,000 of debentures and accrued interest for approximately $960,000,
resulting in a gain of approximately $187,000. Such gain is reflected as an
extraordinary item, net of income taxes of $72,000 in the accompanying financial
statements.
4. SECURITIES AVAILABLE FOR SALE
The composition of securities available for sale at December 31, 1998 and 1997
is as follows (in thousands):
1998 1997
---- ----
U.S. Treasury Bills $ 1,802 1,072
Investment in preferred stock 343 343
Other 73 63
----- ------
$ 2,218 1,478
===== =====
5. MORTGAGE NOTES AND RELATED RECEIVABLES - NET
Mortgage notes and related receivables as of December 31, 1998 and 1997 are
summarized below (in thousands):
1998 1997
---- ----
Originating from:
Investment properties $ 3,375 3,533
Less: Principally, deferred profit (863) (902)
Allowance for impairment (772) (772)
------ ------
Total $ 1,740 1,859
===== =====
In January 1997, mortgage notes and related receivables, net, decreased due to
the conversion of approximately $184,000 of a note due from an affiliated
limited partnership to an equity position in the partnership.
In 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.
6. INVESTMENT REAL ESTATE
Investment real estate consists of the following (in thousands):
December 31,
------------
1998 1997
---- ----
Land $ 1,031 1,062
Buildings and improvements 10,203 10,424
Other real estate 86 3,257
-------- -------
11,320 14,743
Less:
Accumulated depreciation 4,431 3,998
Deferred profit 717 1,045
-------- -------
5,148 5,043
------- -------
$ 6,172 9,700
====== ======
In October 1998, the Company sold approximately 15,000 square feet of the BMOC
property to an unaffiliated third party for $500,000 and the Company recognized
a net gain from the sale of real estate of approximately $301,000.
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 1996 relating to this matter.
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 interest earned by the Company on advances
made by 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 received
a limited partnership interest in an unaffiliated limited partnership that will
entitle it to receive approximately 4.5% of any profits from development and
operation of the property. In January 1999, the Company received approximately
$259,000 when the limited partnership was liquidated. In December 1994, an
entity controlled by the Company acquired from an unaffiliated seller
approximately 70 acres of unimproved land known as the "Center Port" property in
Pompano Beach, Florida. Through December 31, 1998, 42 acres had been sold from
the Center Port property to unaffiliated third parties for approximately $11.7
million and the Company recognized net gains from the sale of real estate of
approximately $2.8 million. Included in cost of sales is approximately $2.0
million, representing the Abdo Group's profit participation from the
transactions. All proceeds from the sale were utilized to reduce the borrowing
for which the Center Port property serves as partial collateral. The current
balance on this borrowing is approximately $1,000. Payment of profit
participation to the Abdo Group will be deferred until the lender and the
Company are repaid on loans, advances and interest. The remainder of the Center
Port property is currently being marketed for sale.
8. MORTGAGES PAYABLE AND OTHER BORROWINGS
Mortgages payable and other borrowings at December 31, 1998 and 1997 are
summarized as follows (in thousands):
Approximate December 31,
Type of Debt Maturity Interest Rate 1998 1997
------------ -------- ------------- ---- ----
Related to mortgage
receivables 1999-2010 6% - 9.75% $ 1,434 1,633
Related to real estate 1999-2007 9.20%- Prime
plus 1.5% 8,999 19,460
Other borrowings 1999 Prime-Prime
plus 1% 351 1,850
------- ------
$ 10,784 22,943
====== ======
All mortgage payables and other borrowings above are from unaffiliated parties.
Included in other borrowings at December 31, 1998 and 1997 is approximately
$351,000 and $1.8 million, respectively, due to financial institutions.
The Company in 1996 sold a 50% interest in the Delray Industrial Park, located
in Delray Beach, Florida. Since the Company was the sole maker on the
non-recourse mortgage note on the property and since the Company maintained a
50% interest in the subject property, the gain on the sale of approximately
$632,000 was deferred, reducing the Company's carrying value in real estate and
the mortgage remained on the Company's books. During May 1998, the property was
refinanced with the other 50% owner also liable under the note. At that time,
the Company recognized 50% of the deferred profit on the transaction, and
removed the mortgage from the Company's books. The remaining investment in the
property is included in investment real estate using the equity method of
accounting.
On October 29, 1996, a balloon payment of approximately $9.4 million was due on
the mortgage note that was secured by the Burlington Manufacturers Outlet
Center. Such payment was not made and the Company entered into an agreement for
forbearance and an extension agreement, which extended the maturity through
April 1997. In April 1997, new financing was obtained from an unaffiliated
lender and the previous mortgage note was satisfied. The principal amount of the
new financing was approximately $9.1 million, the note bears interest at a rate
of 9.2% per annum, requires monthly payments of $77,992 and matures on May 1,
2007. Upon satisfaction of the previous mortgage note, the Company recognized an
extraordinary gain of approximately $181,000 from debt restructuring, net of
income taxes.
In August 1997, a $3.5 million note due in September 1999 was converted to a
revolving line of credit, requiring only interest payments at prime plus 1% and
a maximum amount of $2,857,600. At December 31, 1998 and 1997 the balance due on
the revolving line of credit was $350,000 and $1.8 million, respectively.
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, 1998, the outstanding
balance on the above line was zero.
At December 31, 1998 the aggregate principal amount of the above indebtedness
maturing in each of the next five years is approximately as follows (in
thousands):
Year ended
December 31, Amount
------------ ------
1999 $ 612
2000 281
2001 307
2002 325
2003 246
Thereafter 9,013
------
$ 10,784
======
The majority of the Company's marketable securities, mortgage receivables, real
estate held for development and sale and investment real estate, net are as to
real estate and marketable securities, encumbered by, or, as to mortgages
receivable, subordinate to mortgages payable and other debt. In the aggregate,
approximately 10.4% of the shares of common stock of BBC owned by BFC are
pledged as collateral on mortgages payable and other borrowings.
9. INCOME TAXES
The provision for income tax expense (benefit) for the years ended December 31,
1998, 1997 and 1996 consists of the following (in thousands):
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Current:
Federal $ 90 - (124)
State - - 15
----- ----- -----
90 - (109)
----- ----- -----
Deferred :
Federal (394) 3,621 2,598
State (64) 601 435
----- ----- -----
(458) 4,222 3,033
----- ----- -----
Total $ (368) 4,222 2,924
===== ===== =====
For the years ended December 31, 1998, 1997 and 1996, deferred income taxes
applicable to extraordinary items were $39,000, $661,000 and $611,000,
respectively.
A reconciliation from the statutory federal income tax rate of 35% for the years
ended December 31, 1998, 1997and 1996 to the effective tax rate is as follows
(in thousands):
Year ended December 31,
-----------------------
1998(1) 1997(1) 1996(1)
Amount Amount Amount
------ ------ ------
Expected tax
expense (benefit) (17) 4,546 3,144
Provision (benefit) for
state taxes net of
federal benefit (42) 410 321
Dividend received
deduction (333) (287) (272)
Other, net 24 (447) (269)
----- ----- -----
(368) 4,222 2,924
===== ===== =====
- ----------
(1) Expected tax is computed based upon income (loss) before extraordinary
items.
The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and tax liabilities at December 31, 1998,
1997 and 1996 were (in thousands):
December 31,
------------
1998 1997 1996
---- ---- ----
Deferred tax assets:
Mortgages receivable $ 283 284 287
Litigation accruals -- -- 1,571
Other liabilities 118 134 106
Other assets 74 53 10
Alternative minimum tax credit 66 -- --
Net operating loss carryforwards 5,649 6,945 6,215
------ ------ ------
Total gross deferred tax assets 6,190 7,416 8,189
Less:
Valuation allowance -- -- --
------ ------ ------
Deferred tax assets after
valuation allowance 6,190 7,416 8,189
Deferred tax liabilities:
Real estate, net 722 1,353 1,496
Investment in BBC 18,574 17,656 11,763
Subordinated Debentures 100 118 207
------ ------ ------
Total gross deferred tax liabilities 19,396 19,127 13,466
------ ------ ------
Net deferred tax liability $13,206 11,711 5,277
====== ====== ======
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, 1998.
At December 31, 1998, the Company had estimated state and federal net operating
loss carry forwards as follows (in thousands):
Expiration
Year State Federal
---- ----- -------
2005 $ 1,303 --
2006 2,001 1,309
2007 4,235 7,199
2008 2,332 3,322
2011 1,662 1,831
2012 669 984
-------- ------
$ 12,202 14,645
======== ======
The Company received income tax refunds of approximately $70,000 and $16,000
during the years ended December 31, 1997 and 1996, respectively, and none in
1998. The Company made income tax payments of approximately $62,000 and $122,000
during the years ended December 31, 1998 and 1996, respectively and none in
1997. BBC is not included in the Company's consolidated tax return.
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 both a
Class A Common Stock, par value $.01 per share and a Class B Common Stock, par
value $.01 per share. The Class A Common Stock and the Class B Common Stock have
substantially identical terms except that (i) the Class B Common Stock is
entitled to one vote per share while the Class A Common Stock will have no
voting rights other than those required by Florida law and (ii) each share of
Class B Common Stock is convertible at the option of the holder thereof into one
share of Class A Common Stock.
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 Class B 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 Class B
Common Stock by persons other than the existing control shareholders (as
specified in the Rights Plan), and 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 Class B
Common Stock by persons other than the existing controlling 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 ended December 31, 1998 (in
thousands):
Year ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Operations from
investment real estate (see note 6) $ 939 989 1,151
Deferred profit recognized 40 45 152
---- ---- -----
$ 979 1,034 1,303
===== ===== =====
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
originating related party transactions is as follows (in thousands):
Year ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Property management fee revenue $ 9 10 90
=== === ===
Reimbursement revenue for
administrative, accounting
and legal services $41 52 121
=== === ===
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. In March 1999, the partnership sold 31 of
the 34 convenience stores that it owned resulting in a net gain to the Company
of approximately $200,000 that will be recognized during the first quarter of
1999.
Included in other assets at December 31, 1998, 1997 and 1996 was approximately
$202,000, $158,000 and $125,000 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, Vice Chairman of the Board of the Company also serves as Vice
Chairman of the Board of Directors of BBC and BankAtlantic and is a director and
President of BankAtlantic Development Corporation ("BDC"), a wholly owned
subsidiary of BankAtlantic.
Glen R. Gilbert, Executive Vice President of the Company also serves as a
director and Vice President of BDC.
Florida Partners Corporation owns 133,314 shares of the Company's Class B Common
Stock and 366,615 shares of the Company's Class A Common Stock. Alan B. Levan is
the principal shareholder and a member of the Board of Florida Partners
Corporation. Glen R. Gilbert, Executive Vice President and Secretary of the
Company holds similar positions at Florida Partners Corporation.
The trustee for the escrow account with respect to the called 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:
Class B
Outstanding
Options Price per Share
--------- ---------------
Outstanding at December 31, 1995 1,631,250 1.13 to 1.32
Exercised (82,497) 1.20 to 1.32
---------
Outstanding at December 31, 1996 1,548,753 1.13 to 1.32
Issued 918,750 4.07 to 4.47
Exercised (72,096) 1.13 to 1.32
---------
Outstanding at December 31, 1997 2,395,407 1.13 to 4.47
Issued 532,500 10.33 to 10.33
Exercised (8,500) 4.07 to 4.07
---------
Outstanding at December 31, 1998 2,919,407 1.13 to 10.33
=========
Exercisable at December 31, 1998 2,193,782 1.13 to 4.47
=========
Available for grant at December 31, 1998 725,625
=========
The weighted average exercise price of options outstanding at December 31, 1998,
1997 and 1996 was $3.90, $2.47 and $1.28, respectively. The weighted average
price of options exercised was $4.07, $1.24 and $1.27 during the years 1998,
1997 and 1996, respectively.
The adoption of FAS 123 under the fair value based method would have increased
compensation expense by approximately $3,099,000, $1,066,000 and $138,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. The effect of
FAS 123 under the fair value based method would have affected net income and
earnings per share as follows:
For the Year Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
Net income:
As reported $ 380 9,818 6,911
Proforma (1,441) 9,164 6,826
Basic earnings per share:
As reported .05 1.23 .89
Proforma (.18) 1.15 .87
Diluted earnings per share:
As reported .04 1.12 .83
Proforma (.16) 1.05 .82
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 of Risk Free Expected Expected
Date of Options Grant Date Type of Exercise Interest Life Expected Dividend
Grant Granted Fair Value Grant Price Rate (Years) Volatility Yield
----- ------- ---------- ----- ----- ---- ----- ---------- -----
2/7/95 750,000 $0.878 NQ $ 1.247 7.143% 8 74.81% 0%
2/7/95 37,500 $0.878 ISO $ 1.133 7.143% 6 74.81% 0%
7/1/97 49,176 $1.623 ISO $ 4.067 5.800% 6 27.40% 0%
7/1/97 119,574 $1.849 NQ $ 4.067 5.820% 7.5 27.40% 0%
7/1/97 750,000 $1.703 NQ $ 4.467 5.820% 7.5 27.40% 0%
1/13/98 532,500 $5.873 * $10.334 5.530% 7.5 44.46% 0%
- ----------
* both non-qualified and incentive stock option were granted.
The employee turnover was considered to be none. The weighted average fair value
of options granted during the years ended December 31, 1998, 1997 and 1995 was
$5.87, $1.71 and $0.87, respectively.
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
Options Outstanding Options Exercisable
--------------------------------------------------------- --------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
$1.13 to $1.32 1,476,657 5.6 Years $1.28 1,476,657 $1.28
$4.07 to $4.47 910,250 8.4 Years $4.40 450,875 $4.40
$10.34 to $10.34 532,500 9.0 Years $10.34 266,250 $10.34
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 $20,000 for the year ended
December 31, 1998 and $10,000 for each of the years ended December 31, 1997 and
1996, respectively. 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.
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 on 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 an appeal in this matter. That appeal is currently pending.
The Company will recognize such amount, less applicable attorneys' fees, in
income upon receipt.
Kugler, et.al., (formerly Martha Hess, et. al.), v. I.R.E. Real Estate Income
Fund, et al. In connection with the above referenced matter, 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. On
April 30, 1997, the Courts approved the Kugler settlement and amounts were paid.
Short vs. Eden United, Inc., et al. in the Marion County Superior Court, State
of Indiana. Civil Division Case No. S382 0011. In connection with certain
litigation related to the purchase and sale of an apartment complex in Indiana,
in April 1997, the Company paid approximately $783,000 and received a release
and satisfaction of judgment. At December 31, 1996, the Company had an accrual
of approximately $3.0 million included in other liabilities with respect to this
matter. The remaining accrual in the amount of approximately $2.3 million was
reversed during 1997.
The Company is also a party to certain other litigation arising in the ordinary
course of its business. Management does not believe such litigation will have a
material adverse affect on its financial condition or results of operations.
15. QUARTERLY FINANCIAL INFORMATION (unaudited)
Following is quarterly financial information for the years ended December 31,
1998, 1997 and 1996 (in thousands, except per share data):
1998 Quarter Ended
------------------
Mar 31, Jun 30, Sep 30, Dec 31, Total
------ ------- ------- ------- -----
Revenues $2,431 6,400 1,953 1,874 12,658
Costs and expenses 1,129 3,645 4,067 3,866 12,707
Income (loss) before
extraordinary item 991 1,753 (1,196) (1,229) 319
Net income (loss) 991 1,770 (1,152) (1,229) 380
====== ====== ====== ====== ======
Basic earnings (loss) per share:
Before extraordinary items .13 .22 (.15) (.15) .04
Extraordinary items -- -- .01 -- .01
------ ------ ------ ------ ------
Net income (loss) .13 .22 (.14) (.15) .05
====== ====== ====== ====== ======
Diluted earnings (loss) per share:
Before extraordinary items .11 .19 (.13) (.14) .04
Extraordinary items -- -- -- -- --
------ ------ ------ ------ ------
Net income (loss) .11 .19 (.13) (.14) .04
====== ====== ====== ====== ======
Basic weighted average number of
common shares outstanding 7,949 7,952 7,957 7,957 7,954
====== ====== ====== ====== ======
Diluted weighted average number of
common shares outstanding 9,252 9,161 9,049 8,972 9,101
====== ====== ====== ====== ======
During the three month periods ended June 30, 1998, September 30, 1998 and
December 31, 1998, the Company sold approximately 18 acres, 17 acres and 3 acres
of the Center Port property to unaffiliated third parties for approximately $3.4
million, $4.4 million and $3.1 million, respectively. The Company recognized a
net gain from the sale of real estate of approximately $1.0 million, $1.3
million and $267,000 for the three month periods ended June 30, 1998, September
30, 1998 and December 31, 1998, respectively.
Operations for the quarter ended June 30, 1998 and September 30, 1998 included
extraordinary gains of approximately $17,000 and $44,000, respectively, net of
income taxes due to extinguishment of debt.
1997 Quarter Ended
------------------
Mar 31, Jun 30, Sep 30, Dec 31, Total
------- ------- ------- ------- -----
Revenues $3,868 4,488 4,068 3,930 16,354
Costs and expenses 1,422 (884) 1,828 1,000 3,366
Income before extraordinary item 2,156 3,125 1,734 1,751 8,766
Net income 2,273 3,789 1,941 1,815 9,818
====== ====== ===== ===== ======
Basic earnings per share:
Before extraordinary items .27 .39 .22 .22 1.10
Extraordinary items .01 .08 .03 .01 .13
Net income .28 .47 .25 .23 1.23
====== ====== ===== ===== ======
Diluted earnings per share:
Before extraordinary items .25 .37 .20 .19 1.00
Extraordinary items .01 .08 .02 .01 .12
------ ------ ----- ----- ------
Net income .26 .45 .22 .20 1.12
====== ====== ===== ===== ======
Basic weighted average number of
common shares outstanding 7,906 7,949 7,949 7,949 7,938
====== ====== ===== ===== ======
Diluted weighted average number of
common shares outstanding 8,513 8,559 8,790 9,079 8,731
====== ====== ===== ===== ======
During January and June 1997, the Company sold 449,805 shares of BankAtlantic
Bancorp, Inc. Class A Common Stock. Net proceeds received from these sales
amounted to approximately $3.7 million and a net gain of approximately $1.3
million was recognized in 1997.
During the second quarter of 1997, the Company recognized a gain of
approximately $2.3 million for the reversal of a provision for litigation in
connection with the Short vs. Eden et. al. litigation. Also, during the second
quarter of 1997 approximately four acres were sold from the Center Port property
to unaffiliated third parties for approximately $818,000 and the Company
recognized a net gain from the sale of real estate of approximately $204,000.
Included in cost of sales is approximately $204,000 representing the Abdo Group
profit participation from the transaction.
During the first quarter of 1997, the Company sold 12.7 acres located in
Birmingham, Alabama to an unaffiliated third party for approximately $149,000
and the company recognized a net gain on the sale of approximately $132,000.
During the first, second, third and fourth quarter of 1997, the Company
recognized extraordinary gains net of deferred income taxes of approximately
$117,000, $483,000, $92,000 and $64,000, respectively related to revising the
estimate of the amounts to be paid regarding the Exchange Transactions.
1996 Quarter Ended
------------------
Mar 31, Jun 30, Sep 30, Dec 31, Total
------ -------- ------- ------- -----
Revenues $12,664 3,027 1,532 4,438 21,661
Costs and expenses 8,121 1,664 1,573 1,321 12,679
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
====== ====== ===== ===== ======
Basic earnings per share:
Before extraordinary items .39 .20 (.01) .19 .78
Extraordinary items .10 -- -- .01 .11
------ ------ ----- ----- ------
Net income .49 .20 (.01) .20 .89
====== ====== ===== ===== ======
Diluted earnings per share:
Before extraordinary items .38 .18 -- .18 .73
Extraordinary items .09 -- -- .01 .10
------ ------ ----- ----- ------
Net income .47 .18 -- .19 .83
====== ====== ===== ===== ======
Basic weighted average number of
common shares outstanding 7,794 7,794 7,797 7,858 7,811
====== ====== ===== ===== ======
Diluted weighted average number of
common shares outstanding 8,182 8,288 8,328 8,490 8,347
====== ====== ===== ===== ======
During the first, second and fourth quarter of 1996, the Company recognized
extraordinary gains of approximately $749,000, $6,000 and $98,000, respectively,
related to revising the estimate of the amounts to be paid regarding the
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.
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:
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
The net gains associated with the settlements of
litigation, net of income taxes -- 756 853
===== ====== ======
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 539 (53) (2,328)
===== ====== ======
Net gain from extinguishment of debt,
net of income taxes 61 115 --
===== ====== ======
Net gain on debt restructuring,
net of income taxes -- 181 --
===== ====== ======
Transfers from escrow accounts to reflect payments
on subordinated debentures 306 10,930 537
===== ====== ======
Net effect of BBC capital transactions,
net of income taxes 2,510 2,759 939
===== ====== ======
Loss on disposition of mortgage notes
and investment, net -- -- 474
===== ====== ======
Conversion of mortgage receivable to an
equity interest in an affiliated partnership -- 184 --
===== ====== ======
Increase in equity for the tax effect related to
the exercise of employee stock options 25 65 77
===== ====== ======
Deferred profit recognized 316 -- --
===== ====== ======
BBC dividends on common stock
declared and paid in subsequent period 303 288 227
===== ====== ======
Interest paid on borrowings 1,444 2,073 2,396
===== ====== ======
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 subordinated
debentures, fair value is presumed to equal carrying value.
The following table presents information for the Company's financial instruments
as of December 31, 1998 and 1997 (in thousands):
December 31, 1998 December 31, 1997
----------------- -----------------
Carrying Fair Carrying Fair
Value Value Amount Value
----- ----- ------ -----
Financial assets:
Cash and cash equivalents $ 655 655 604 604
Investment in BBC 74,565 77,096 72,185 151,192
Securities available for sale 2,218 2,218 1,478 1,478
Mortgage notes and related
receivables, net 1,740 1,740 1,859 1,859
Escrow for called debentures 2,738 2,738 5,033 5,033
Financial liabilities:
Mortgage payables and other
borrowings 10,784 10,784 22,943 22,943
Subordinated debentures, net 6,736 6,736 7,263 7,263
Deferred interest on debentures 2,217 2,217 2,106 2,106
18. Earnings Per Share
The following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations for each of the years in the three year
period ended December 31, 1998 (in thousands, except per share data):
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Basic Numerator:
Net income $ 380 9,818 6,911
====== ====== ======
Basic Denominator
Weighted average shares outstanding (3) 7,954 7,938 7,811
====== ====== ======
Basic earnings per share $ .05 1.23 .89
====== ====== ======
Diluted Numerator:
Dilutive net income $ 380 9,818 6,911
====== ====== ======
Diluted Denominator
Basic weighted average shares outstanding (3) 7,954 7,938 7,811
Options (2) 1,147 793 536
------ ------ ------
Diluted weighted average shares outstanding 9,101 8,731 8,347
====== ====== ======
Diluted earnings per share $ .04 1.12 .83
====== ====== ======
(1) Prior to 1997 there were no Class A common shares outstanding. All
shares outstanding prior to 1997 were Class B common shares. While the
Company has two classes of common stock outstanding, the two-class
method is not presented because the company's capital structure does
not provide for different dividend rates or other preferences, other
than voting rights, between the two classes.
(2) The number of options considered outstanding shares for diluted
earnings per share is based upon application of the treasury stock
method to the options outstanding as of the end of the period.
(3) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 of BFC
Financial Corporation's Class A Common Stock and 500,000 shares of BFC
Financial Corporation Class B Common Stock. Because the Company owns
45.5% of the outstanding common stock of RAG, 624,938 shares of Class A
Common Stock and 227,500 shares of Class B Common Stock are eliminated
from the number of shares outstanding for purposes of computing
earnings per share.
19. Segment Reporting
The Company has three reportable segments:
o Investment in BBC
o Real estate operations
o Other
Investment in BBC consist of the Company's ownership interest in the common
stock of BBC. The Company's ownership position is carried on the equity method
and as of December 31, 1998, 1997 and 1996 the Company's ownership in BBC was
approximately 31.3%, 35.6% and 41.5% of all of the outstanding BBC Common Stock.
In addition to its investment in BBC, the Company owns and manages real estate,
included in the Consolidated Statements of Financial Condition as investment
real estate, net and real estate held for development and sale. Investment real
estate, net includes the BMOC property and a 50% interest in the Delray
property. The real estate held for development and sale includes land held for
development and land held for sale for the Center Port property, which the
Company owns an interest of 50%. Real estate operations also includes mortgage
notes receivables which relate to the sale of properties previously owned by the
Company. Other segments includes securities available for sale, repurchase
agreements and escrow accounts related to a portion of called debentures.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
The Company evaluates segment performance based on its operating profit (loss)
before tax and overhead allocations. The table below is segment information for
the three years ended December 31, 1998, 1997 and 1996:
Real
Investment Estate
1998 in BBC Operations Other Eliminations Consolidated
------ ---------- ----- ------------ ------------
Total revenues $ (1,397) 13,675 243 137 12,658
====== ====== === === ======
Operating profit (loss) $ (1,397) 3,821 59 137 2,620
====== ====== === ===
Interest on subordinated debentures (492)
Interest on mortgages payable
and other borrowings (159)
Employee compensation and benefits (1,190)
Occupancy and equipment (50)
General and administrative, net (778)
-----
Loss before income taxes
and extraordinary items $ (49)
======
Identifiable assets at December 31, 1998 $ 74,565 10,522 5,366 - 90,453
====== ====== ===== ===
Corporate assets 804
------
Total assets at December 31, 1998 $ 91,257
======
Real
Investment Estate
1997 in BBC Operations Other Eliminations Consolidated
------ ---------- ----- ------------ ------------
Total revenues $ 13,478 2,103 642 131 16,354
====== ===== === === ======
Operating profit (loss) $ 13,478 (407) 642 131 13,844
====== ====== === ===
Interest on subordinated debentures (723)
Interest on mortgages payable
and other borrowings (248)
Reversal of provision for litigation 2,272
Employee compensation and benefits (1,153)
Occupancy and equipment (40)
General and administrative, net (964)
------
Income before income taxes
and extraordinary items $ 12,988
======
Identifiable assets at December 31, 1997 $ 72,185 18,989 6,886 - 98,060
====== ====== ===== ===
Corporate assets 811
------
Total assets at December 31, 1997 $ 98,871
======
Real
Investment Estate
1996 in BBC Operations Other Eliminations Consolidated
------- ------------ ------- ------------- ------------
Total revenues $ 8,650 11,708 1,169 134 21,661
====== ====== ===== === ======
Operating profit $ 8,650 2,585 1,169 134 12,538
====== ====== ===== ===
Interest on subordinated debentures (1,238)
Interest on mortgages payable
and other borrowings (321)
Reversal of provision for litigation 292
Employee compensation and benefits (1,153)
Occupancy and equipment (44)
General and administrative, net (1,092)
------
Income before income taxes
and extraordinary items $ 8,982
======
Identifiable assets at December 31, 1996 $ 59,039 19,686 18,497 - 97,222
====== ====== ===== ===
Corporate assets 1,619
------
Total assets at December 31, 1996 $ 98,841
======
20. Subsequent Event
On February 11, 1999, BFC Financial Corporation filed a Form S-1 registration
statement with the Securities and Exchange Commission. The registration
statement would register approximately 1,000,000 shares of Class A Common Stock
and approximately $15,000,000 of subordinated debentures. The net proceeds from
the Offerings will be used to redeem the Company's outstanding unsecured
subordinated debentures including the payment of deferred interest thereon
(totaling approximately $4.0 million). The Company intends to use the balance of
the net proceeds from the offerings for the acquisition of additional shares in
affiliated companies, for investments in the securities of publicly-traded or
privately held companies and for general corporate purposes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Items 10 through 13 are 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,
1998, Commission File Number 34-027228, 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
3.1 Articles of Incorporation, as amended and restated - See Exhibit 3.1 of
Registrant's Registration Statement on Form 8-A filed October 16, 1997.
3.2 By-laws - See Exhibit (3.1) of Registrant's Registration Statement on Form
8-A filed October 16, 1997.
10.1 BFC Financial Corporation Stock Option Plan - See Exhibit A to Registrant's
Definitive Proxy Statement filed September 24, 1997.
12 Statement re computation of ratios - Ratio of earnings to fixed charges -
attached as Exhibit 12.
21 Subsidiaries of the registrant:
State of
Name Organization
---------------------------------- ------------
BankAtlantic Bancorp, Inc. Florida
Eden Services, Inc. Florida
U.S. Capital Securities, 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. Pension Advisors II, Corp. Florida
Center Port Development, Inc. Florida
I.R.E. BMOC, Inc. Florida
I.R.E. BMOC II, Inc. Florida
23 Consent of KPMG LLP - Attached as Exhibit 23
27 Financial data schedule for the year ended December 31, 1998. - Attached as
Exhibit 27.
99 Financial Statements of Significant Subsidiary - See Annual Report on Form
10-K of BankAtlantic Bancorp, Inc. for the fiscal year end December 31,
1998, Commission File Number 34-027228, filed with the Securities and
Exchange Commission.
(b) Reports on Form 8-K
None
(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, 1998
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 2, 1999
-----------------------------------
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 2, 1999
- ----------------------------------------
ALAN B. LEVAN, Director and
Principal Executive Officer
/S/ Glen R. Gilbert March 2, 1999
- ----------------------------------------
GLEN R. GILBERT, Chief Financial Officer
/S/ John E. Abdo March 2, 1999
- ----------------------------------------
JOHN E. ABDO, Director
/S/ Earl Pertnoy March 2, 1999
- ----------------------------------------
EARL PERTNOY, Director
/S/ Carl E.B. McKenry, Jr. March 2, 1999
- ----------------------------------------
CARL E. B. McKENRY, JR., Director
Exhibit 12
BFC Financial Corporation
Calculation of Ratio of Earnings to Fixed Charges
(In thousands)
Year ended December 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Fixed charges:
Interest $ 1,912 2,719 3,634 4,574 8,276
------- ------- ------- ------- -------
1,912 2,719 3,634 4,574 8,276
======= ======= ======= ======= =======
Earnings (loss):
Pretax earnings (loss)
before extraordinary items (49) 12,988 8,982 4,230 2,913
Eliminate BBC/BankAtlantic 1,397 (12,129) (8,650) (8,419) (8,040)
BBC/BankAtlantic dividends 1,187 1,025 883 819 753
Fixed charges 1,912 2,719 3,634 4,574 8,276
------- ------- ------- ------- -------
$ 4,447 4,603 4,849 1,204 3,902
======= ======= ======= ======= =======
Ratio 2.33 1.69 1.33 0.26 0.47
======= ======= ======= ======= =======
Coverage deficiency $ -- -- -- 3,370 4,374
======= ======= ======= ======= =======
(1) The operations of BBC have been eliminated since there is a dividend
restriction between BBC's primary subsidiary, BankAtlantic, and BBC.
Exhibit 23
ACCOUNTANT'S CONSENT
The Board of Directors
BFC Financial Corporation:
We consent to incorporation by reference in the registration statement on Form
S-8 (Registration No. 333-12543) of BFC Financial Corporation of our report
dated March 2, 1999, relating to the Consolidated Statements of Financial
Condition of BFC Financial Corporation and subsidiaries as of December 31, 1998
and 1997, and the related Consolidated Statements of Operations, Stockholders'
Equity and Comprehensive Income, and Cash Flows for each of the years in the
three-year period ended December 31, 1998, which report appears in the December
31, 1998 annual report on Form 10-K of BFC Financial Corporation.
KPMG LLP
Fort Lauderdale, Florida
March 25, 1999