Attached files
file | filename |
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EX-21.1 - EX-21.1 - Bluegreen Vacations Holding Corp | g22858exv21w1.htm |
EX-31.3 - EX-31.3 - Bluegreen Vacations Holding Corp | g22858exv31w3.htm |
EX-99.1 - EX-99.1 - Bluegreen Vacations Holding Corp | g22858exv99w1.htm |
EX-23.2 - EX-23.2 - Bluegreen Vacations Holding Corp | g22858exv23w2.htm |
EX-31.2 - EX-31.2 - Bluegreen Vacations Holding Corp | g22858exv31w2.htm |
EX-32.1 - EX-32.1 - Bluegreen Vacations Holding Corp | g22858exv32w1.htm |
EX-32.2 - EX-32.2 - Bluegreen Vacations Holding Corp | g22858exv32w2.htm |
EX-31.1 - EX-31.1 - Bluegreen Vacations Holding Corp | g22858exv31w1.htm |
EX-32.3 - EX-32.3 - Bluegreen Vacations Holding Corp | g22858exv32w3.htm |
EX-23.1 - EX-23.1 - Bluegreen Vacations Holding Corp | g22858exv23w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
þ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Fiscal Year Ended December 31, 2009
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number
001-09071
001-09071
BFC Financial Corporation
(Exact name of registrant as specified in its charter)
Florida | 59-2022148 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S Employer Identification No.) |
2100 West Cypress Creek Road | ||
Fort Lauderdale, Florida | 33309 | |
(Address of principal executive office) | (Zip Code) |
(954) 940-4900
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
None.
Securities registered pursuant to Section 12(g) of the Act:
Class A
Common Stock, $.01 par Value
Class B Common Stock, $.01 par Value
(Title of Class)
Class B Common Stock, $.01 par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. YES o NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES o NO x
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x
On June 30, 2009, the aggregate market value of the registrants voting common equity held by
non-affiliates was $10.8 million computed by reference to the closing price of the registrants
Class A Common Stock on such date. The registrant does not have any non-voting common equity.
The number of outstanding shares of each of the registrants classes of common stock, as of March
26, 2010 was as follows:
Class A Common Stock, $.01 par value: 68,521,497 shares outstanding
Class B Common Stock, $.01 par value: 6,854,251shares outstanding
Class B Common Stock, $.01 par value: 6,854,251shares outstanding
Documents Incorporated by Reference
Portions of the registrants Definitive Proxy Statement on Schedule 14A relating to the
registrants 2010 Annual Meeting of Shareholders are incorporated by reference into Part III of
this Form 10-K.
The audited financial statements of Bluegreen Corporation for the three years ended December 31,
2009 are incorporated in Part II of this Form 10-K and are filed as Exhibit 99.1 to this Form 10-K.
BFC Financial Corporation
Annual Report on Form 10-K for the Year Ended December 31, 2009
Annual Report on Form 10-K for the Year Ended December 31, 2009
TABLE OF CONTENTS
PART I |
||||||
Item 1. | 3 | |||||
Item 1A. | 30 | |||||
Item 1B. | 56 | |||||
Item 2. | 57 | |||||
Item 3. | 58 | |||||
Item 4. | 63 | |||||
PART II |
||||||
Item 5. | 64 | |||||
Item 6. | 66 | |||||
Item 7. | 68 | |||||
Item 7A. | 148 | |||||
Item 8. | 152 | |||||
Item 9. | 262 | |||||
Item 9A. | 263 | |||||
Item 9B. | 265 | |||||
PART III |
||||||
Item 10. | 265 | |||||
Item 11. | 265 | |||||
Item 12. | 265 | |||||
Item 13. | 265 | |||||
Item 14. | 265 | |||||
PART IV |
||||||
Item 15. | 266 | |||||
SIGNATURES | 268 |
2
PART I
ITEM 1. BUSINESS
Except for historical information contained herein, the matters discussed in this document
contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act), that involve substantial risks and uncertainties. When used in this
document and in any documents incorporated by reference herein, the words anticipate, believe,
estimate, may, intend, expect and similar expressions identify certain of such
forward-looking statements. Actual results, performance, or achievements could differ materially
from those contemplated, expressed, or implied by the forward-looking statements contained herein.
These forward-looking statements are based largely on the expectations of BFC Financial
Corporation (BFC and, unless otherwise indicated or the context otherwise requires, we, us,
our or the Company) and are subject to a number of risks and uncertainties that are subject to
change based on factors which are, in many instances, beyond the Companys control. When
considering those forward-looking statements, the reader should keep in mind the risks,
uncertainties and other cautionary statements made in this report. The reader should not place
undue reliance on any forward-looking statement, which speaks only as of the date made. This
document also contains information regarding the past performance of our investments and the reader
should note that prior or current performance of investments and acquisitions is not a guarantee or
indication of future performance.
Some factors which may affect the accuracy of the forward-looking statements apply generally
to the financial services, real estate, resort development and vacation ownership, and restaurant
industries, while other factors apply directly to us. Risks and uncertainties associated with BFC,
including its wholly-owned Woodbridge Holdings, LLC subsidiary, include, but are not limited to:
| the impact of economic, competitive and other factors affecting the Company and its subsidiaries, and their operations, markets, products and services; | ||
| adverse conditions in the stock market, the public debt market and other capital markets and the impact of such conditions on the activities of the Company and its subsidiaries; | ||
| the impact of the current economic downturn on the price and liquidity of BFCs common stock and on BFCs ability to obtain additional capital, including that if BFC needs or otherwise believes it is advisable to issue debt or equity securities to fund its operations, it may not be possible to issue any such securities on favorable terms, if at all; | ||
| BFCs shareholders interests may be diluted if additional shares of BFCs common stock are issued, and BFCs public company investments may be diluted if BankAtlantic Bancorp, Bluegreen or Benihana issue additional shares of its stock; | ||
| the performance of entities in which the Company has made investments may not be profitable or their results as anticipated; | ||
| BFC is dependent upon dividends from its subsidiaries to fund its operations, and currently BankAtlantic Bancorp is prohibited from paying dividends and may not pay dividends in the future, whether as a result of such restriction continuing in the future or otherwise, and Bluegreen has historically not paid dividends on its common stock, and even if paid, BFC has historically experienced and may continue to experience negative cash flow; | ||
| the risks associated with the merger of Woodbridge and BFC, including the uncertainty regarding the amount of cash that will be required to be paid to dissenting Woodbridge shareholders; | ||
| the risks related to the indebtedness of Woodbridges subsidiaries, certain of which is in default, including that such subsidiaries may not be successful in restructuring any or all of the debt on acceptable terms, if at all, and the risks related to all such defaults and the rights of the lenders as a result thereof; | ||
| the risks relating to Cores liquidity, cash position and ability to continue operations, including the risk that Core will be obligated to make additional payments under its outstanding development bonds; | ||
| the risk that Cores restructuring activities could cause the lenders under the defaulted loans to foreclose on any property which serves as collateral for the defaulted loans, and Core could be forced to cease or significantly curtail its operations, which would likely result in additional impairment charges and losses beyond those already incurred; | ||
| the risk that creditors of the Companys subsidiaries (or subsidiaries of those companies) may seek to recover distributions previously made by those companies to their respective parent companies; | ||
| risks associated with the securities we hold directly or indirectly, including the risk that we may record further impairment charges with respect to such securities in the event trading prices decline in the future; |
3
| risks associated with the Companys business strategy, including our ability to successfully make investments notwithstanding our current financial and cash position and adverse conditions in the economy and the credit markets; | ||
| the preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions, and our financial condition and operating results may be materially impacted in the future if our estimates, judgments or assumptions prove to be incorrect; and | ||
| the Companys success at managing the risks involved in the foregoing. |
With respect to BFCs subsidiary, BankAtlantic Bancorp, and its subsidiary, BankAtlantic, the
risks and uncertainties include:
| the impact of economic, competitive and other factors affecting BankAtlantic Bancorp and its operations, markets, products and services, including the impact of the changing regulatory environment, a continued or deepening recession, continued decreases in real estate values, and increased unemployment on its business generally, BankAtlantics regulatory capital ratios, and the ability of its borrowers to service their obligations and its customers to maintain account balances; | ||
| credit risks and loan losses, and the related sufficiency of the allowance for loan losses, including the impact on the credit quality of BankAtlantic loans (including those held in the asset workout subsidiary of BankAtlantic Bancorp) of a sustained downturn in the economy and in the real estate market and other changes in the real estate markets in BankAtlantics trade area and where BankAtlantics collateral is located; | ||
| the quality of BankAtlantics real estate based loans including its residential land acquisition and development loans (including Builder land bank loans, Land acquisition and development and construction loans) as well as Commercial land loans, other Commercial real estate loans; and Commercial business loans; and conditions specifically in those market sectors; | ||
| the risks of additional charge-offs, impairments and required increases in our allowance for loan losses; changes in interest rates and the effects of, and changes in, trade, monetary and fiscal policies and laws including their impact on the banks net interest margin; | ||
| new consumer banking regulations and the effect on our service fee income; | ||
| adverse conditions in the stock market, the public debt market and other financial and credit markets and the impact of such conditions on our activities, the value of our assets and on the ability of our borrowers to service their debt obligations and maintain account balances; | ||
| BankAtlantics initiatives not resulting in continued growth of core deposits or increasing average balances of new deposit accounts or producing results which do not justify their costs; | ||
| the success of BankAtlantic Bancorp expense reduction initiatives and the ability to achieve additional cost savings or to maintain the current lower expense structure; | ||
| the impact of periodic valuation testing of goodwill, deferred tax assets and other assets; | ||
| past performance, actual or estimated new account openings and growth may not be indicative of future results; | ||
| BankAtlantic Bancorps cash offers to purchase the outstanding Trust Preferred Securities (TRUPS) are subject to the risk the requisite holders of the particular series of TruPS to which each offer do not consent and tender, and that if received we are not able to obtain financing upon acceptable terms, in amounts sufficient to complete the offers, if at all; and | ||
| BankAtlantic Bancorp success at managing the risks involved in the foregoing. |
With respect to Bluegreen Corporation, the risks and uncertainties include, but are not
limited to:
| changes in economic conditions, generally, in areas where Bluegreen operates, or in the travel and tourism industry; | ||
| the availability of financing; | ||
| increases in interest rates; | ||
| changes in regulations and other factors, all of which could cause Bluegreens actual results, performance or achievements, or industry trends, to differ materially from any future results, performance, or achievements or trends expressed or implied herein. |
4
In addition to the risks and factors identified above and in PART I, Item 1A of this report,
reference is also made to other risks and factors detailed in reports filed by the Company,
BankAtlantic Bancorp and Bluegreen with the Securities and Exchange Commission (the SEC). The
Company cautions that the foregoing factors are not exclusive.
The Company
We are a diversified holding company whose principal holdings include a controlling interest
in BankAtlantic Bancorp, Inc. and its subsidiaries (BankAtlantic Bancorp), a controlling interest
in Bluegreen Corporation and its subsidiaries (Bluegreen), a non-controlling interest in
Benihana, Inc. (Benihana) and an indirect interest in Core Communities, LLC (Core or Core
Communities). As a result of our position as the controlling shareholder of BankAtlantic
Bancorp, we are a unitary savings bank holding company regulated by the Office of Thrift
Supervision (OTS). As of December 31, 2009, we had total consolidated assets of approximately
$6.0 billion and shareholders equity attributable to BFC of approximately $245.1 million.
Historically, BFCs business strategy has been to invest in and acquire businesses in diverse
industries either directly or through controlled subsidiaries. BFC believes that in the short term
that the Companys and shareholders interests are best served by providing strategic support for
its existing investments. In furtherance of this strategy, the Company took several steps in 2009
which it believes will enhance the Companys prospects. Key actions taken in 2009 included the
merger of BFC with Woodbridge Holdings; the purchase of an additional 7% interest in BankAtlantic
Bancorp, increasing our economic interest in BankAtlantic Bancorp to 37% and increasing our voting
interest in BankAtlantic Bancorp to 66%; and the purchase of an additional 23% interest in
Bluegreen increasing our ownership in Bluegreen to 52%. The acquisition of this control position in
Bluegreen resulted in a bargain purchase gain of approximately $183.1 million in the fourth quarter
and net income attributable to BFC of $25.7 million for the year. In addition, we took actions to
restructure Core in recognition of the continued depressed real estate market and its inability to
meet its obligations to its lenders. Over the longer term and as the economy improves, we may look
to increase our ownership in our affiliates or seek to make other opportunistic investments, with
no pre-determined parameters as to the industry or structure of the investment.
On September 21, 2009, we consummated our merger with Woodbridge Holdings Corporation pursuant
to which Woodbridge Holdings Corporation merged with and into Woodbridge Holdings, LLC (Woodbridge), which
continued as the surviving company of the merger and the successor entity to Woodbridge Holdings
Corporation. Pursuant to the terms of the merger, which was approved by each companys shareholders
at their respective meetings held on September 21, 2009, each outstanding share of Woodbridges
Class A Common Stock automatically converted into the right to receive 3.47 shares of our Class A
Common Stock. Shares otherwise issuable to us attributable to the shares of Woodbridges Class A
Common Stock and Class B Common Stock owned by us were canceled in connection with the merger. As
a result of the merger, Woodbridge Holdings Corporations separate corporate existence ceased and
its Class A Common Stock is no longer publicly traded. See Note 3 of the Notes to Consolidated
Financial Statements for additional information about the merger.
On November 16, 2009, we purchased approximately 7.4 million additional shares of Bluegreens
common stock, which increased our ownership in Bluegreen from 9.5 million shares, or 29%, to 16.9
million shares, or 52% of Bluegreens outstanding stock. As a result of the purchase, we now hold a
controlling interest in Bluegreen and, accordingly, have consolidated Bluegreens results since
November 16, 2009 into our financial statements. Any references to Bluegreens results of
operations includes only 45 days of activity for Bluegreen relating to the period from November 16,
2009, the date of the share purchase, through December 31, 2009 (the Bluegreen Interim Period).
Prior to November 16, 2009, our approximate 29% equity investment in Bluegreen was accounted for
under the equity method. See Note 4 of the Notes to Consolidated Financial Statements of this
report for additional information about the Bluegreen share acquisition on November 16, 2009.
As a holding company with controlling positions in BankAtlantic Bancorp and Bluegreen,
generally accepted accounting principles (GAAP) requires the consolidation of the financial
results of both entities. As a consequence, the assets and liabilities of both entities are
presented on a consolidated basis in BFCs financial statements. However, except as otherwise
noted, the debts and obligations of the consolidated entities, including Woodbridge, are not direct
obligations of BFC and are non-recourse to BFC. Similarly, the assets of those entities are not
available to BFC absent a dividend or distribution. The recognition by BFC of income from
controlled entities is determined based on the total percent of economic ownership in those
entities. At December 31, 2009, BFC owned approximately 37% of BankAtlantic Bancorps Class A and
Class B common stock, representing approximately 66% of BankAtlantic Bancorps total voting power.
5
Available Information
Our
corporate website is www.bfcfinancial.com. The Companys annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are
available free of charge through our website, as soon as reasonably practicable after such material
is electronically filed with, or furnished to, the SEC. The Companys Internet website and the
information contained on or connected to it are not incorporated into this Annual Report on Form
10-K.
Business Segments
As a result of the Woodbridge merger on September 21, 2009 and the Bluegreen share acquisition
on November 16, 2009, the Company reorganized its reportable segments to better align its segments
with the current operations of its businesses. The Companys business activities currently consist
of (i) Real Estate and Other Activities and (ii) Financial Services Activities. We currently
report the results of operations through six reportable segments: BFC Activities, Real Estate
Operations, Bluegreen Resorts, Bluegreen Communities, BankAtlantic and BankAtlantic Bancorp Parent
Company. As a result of this reorganization, our BFC Activities segment now includes activities
formerly reported in the Woodbridge Other Operations segment and our Real Estate Operations segment
is comprised of what was previously identified as our Land Division.
The presentation and allocation of the assets, liabilities and results of operations of each
segment may not reflect the actual economic costs of the segment as a stand-alone business. If a
different basis of allocation were utilized, the relative contributions of the segment might differ
but, in managements view, the relative trends in segments would not likely be impacted. See also
Item 7 of this report, Managements Discussion and Analysis of Financial Condition and Results of
Operations and Note 34 of the Notes to Consolidated Financial Statements contained in Item 8 of
this report for a discussion of trends, results of operations, and other relevant information on
each segment.
Real Estate and Other
Our Real Estate and Other business activities include four business segments: BFC Activities,
Real Estate Operations, and Bluegreens two business segments; Bluegreen Resorts and Bluegreen
Communities.
BFC Activities
The BFC Activities segment consists of BFC operations, our investment in Benihana, and the
other operations described below.
BFC operations primarily consists of our corporate overhead and general and administrative
expenses, including the expenses of Woodbridge, the financial results of a venture partnership that
BFC controls and other equity investments, as well as income and expenses associated with BFCs
shared service operations which provides services in the areas of human resources, risk management,
investor relations, executive office administration and other services that BFC provides to
BankAtlantic Bancorp and Bluegreen. This segment also includes investments made by BFC/CCC, Inc.,
our wholly owned subsidiary (BFC/CCC).
6
Investment in Benihana
Benihana is a NASDAQ-listed company with two classes of common shares: Common Stock (BNHN) and
Class A Common Stock (BNHNA). We own 800,000 shares of Benihana Series B Convertible Preferred
Stock (Convertible Preferred Stock). The Convertible Preferred Stock is convertible into an
aggregate of 1,578,943 shares of Benihanas Common Stock at a conversion price of $12.67 per share
of Convertible Preferred Stock, subject to adjustment from time to time upon certain defined
events. Based on the number of currently outstanding shares of Benihanas capital stock, the
Convertible Preferred Stock, if converted, would represent an approximate 19% voting interest and
an approximate 9% economic interest in Benihana. Holders of the Convertible Preferred Stock are
entitled to receive cumulative quarterly dividends at an annual rate equal to $1.25 per share,
payable on the last day of each calendar quarter. The Convertible Preferred Stock is subject to
mandatory redemption of $20 million plus accumulated dividends on July 2, 2014 unless we elect to
extend the mandatory redemption date to a date no later than July 2, 2024. At December 31, 2009,
the closing price of Benihanas Common Stock was $4.20 per share. The market value of the
Convertible Preferred Stock if converted to Benihanas Common Stock at December 31, 2009 would have
been approximately $6.6 million.
In December 2008, the Company performed an impairment evaluation of its investment in the
Convertible Preferred Stock and determined that there was an other-than-temporary decline of
approximately $3.6 million and, accordingly, the investment was written down to its fair value at
that time of approximately $16.4 million. Concurrent with managements evaluation of the
impairment of this investment at December 31, 2008, it made the determination to reclassify this
investment from investment securities to investment securities available for sale. At December 31,
2009, the Companys estimated fair value of its investment in Benihanas Convertible Preferred
Stock was approximately $17.8 million. BFC will continue to monitor this investment to determine
whether any further other-than-temporary impairment charges may be required in future periods. The
estimated fair value of the Companys investment in Benihanas Convertible Preferred Stock was
assessed using the income approach with Level 3 inputs by discounting future cash flows at a market
discount rate combined with the fair value of the underlying shares that BFC would receive upon
conversion of its shares of Benihanas Convertible Preferred Stock. See Note 7 of the Notes to
Consolidated Financial Statements in Item 8 of this report for further information.
Other Operations
Other operations includes the consolidated operations of Pizza Fusion Holdings, LLC (Pizza
Fusion) (which is a restaurant franchisor operating within the quick service and organic food
industries), and the activities of Cypress Creek Capital Holdings, LLC (Cypress Creek Capital)
and Snapper Creek Equity Management, LLC (Snapper Creek) and other investments and joint
ventures. In addition, prior to obtaining a controlling interest in Bluegreen on November 16, 2009,
we accounted for our investment in Bluegreen under the equity method of accounting and Bluegreens
earnings or loss was included in the BFC Activities segment. Historically, the cost of the
Bluegreen investment was adjusted to recognize our interest in Bluegreens earnings or losses. The
difference between a) our ownership percentage in Bluegreen multiplied by its earnings and b) the
amount of our equity in earnings of Bluegreen as reflected in our financial statements related to
the amortization or accretion of purchase accounting adjustments made at the time of the initial
acquisition of Bluegreens common stock in 2002 and a basis difference due to impairment charges
recorded on the investment in Bluegreen, as described in Note 14 of the Notes to Consolidated
Financial Statements.
As part of our overall strategy to diversify our business, during the third quarter of 2009,
we exercised our option to purchase 521,740 shares of Series B Convertible Preferred Stock of Pizza
Fusion at a price of $1.15 per share or an aggregate purchase price of $600,000, resulting in an
ownership interest of approximately 45% in Pizza Fusion. On January 15, 2010 we participated in
Pizza Fusions $3 million private placement by investing another $400,000. As of March 31, 2010,
Pizza Fusion had 18 restaurants, including 2 restaurants owned by Pizza Fusion and 16 franchised
restaurants, operating in nine states and had entered into franchise agreements for an additional
12 stores by September 2010. Pizza Fusion is in its early stages and it will likely require
additional financial support. Pizza Fusion is facing several challenges, including the effect of
the current economic downturn on consumer spending patterns. In addition, adding to the adverse
impact of the economy on the restaurant industry, the tightening of the credit markets has made it
difficult for new franchisees to obtain financing. During 2009, the Company performed its annual
review of goodwill for impairment and determined that the discounted value of estimated cash flows
was below the carrying value of Pizza Fusion, resulting in a write-off of the entire $2.0 million
of goodwill relating to the investment.
7
Real Estate Operations
The Real Estate Operations segment is comprised of the subsidiaries through which Woodbridge
historically conducted its real estate business activities. It includes the operations of Core,
Carolina Oak ,which engaged in homebuilding activities in South Carolina prior to the suspension of
those activities in the fourth quarter of 2008, and Cypress Creek Holdings, LLC (Cypress Creek
Holdings), which engages in leasing activities. These activities are concentrated primarily in
Florida and South Carolina and have included the development and sale of land, the construction and
sale of single family homes and town homes and the leasing of commercial properties and office
space.
Levitt and Sons was included in the Real Estate Operations segment until November 9, 2007 at
which time it filed a voluntary bankruptcy petition and was deconsolidated from our audited
consolidated financial statements. Levitt Commercial was also included in this segment until it
ceased development activities after it sold all of its remaining units in 2007. Levitt Commercial
which is also included in this segment disposed of its last asset in 2007.
Core Communities
Core Communities was founded in May 1996 to develop a masterplanned community in Port St.
Lucie, Florida now known as St. Lucie West. Historically, its activities focused on the development
of a master-planned community in Port St. Lucie, Florida called Tradition, Florida and a community
outside of Hardeeville, South Carolina called Tradition Hilton Head. Until 2009, Tradition,
Florida was in active development as was Tradition Hilton Head, although in a much earlier stage.
As a master-planned community developer, Core Communities historically was engaged in four primary
activities: (i) the acquisition of large tracts of raw land; (ii) planning, entitlement and
infrastructure development; (iii) the sale of entitled land and/or developed lots to homebuilders
and commercial, industrial and institutional end-users; and (iv) the development and leasing of
income producing commercial real estate to commercial, industrial and institutional end-users.
During 2009, the recession continued and the demand for residential and commercial inventory
showed no signs of recovery, particularly in the geographic regions where Cores properties are
located. The decrease in land sales in 2009 and continued cash flow deficits contributed to,
among other things, the deterioration of Cores liquidity. As a result, Core has severely limited
its development expenditures in Tradition, Florida and has completely discontinued development
activity in Tradition Hilton Head. Its assets have been impaired significantly and in an effort to
bring about an orderly liquidation without a bankruptcy filing, Core commenced negotiations with
all of its lenders to restructure its outstanding debt in light of its cash position. Core is
currently in default under the terms of all of its outstanding debt and Core continues to pursue
all options with its lenders, including offering deeds in lieu and other similar transactions
wherein Core would relinquish title to substantially all of its assets. As of February 5, 2010,
with Cores concurrence, a significant portion of the land in Tradition Hilton Head had been placed
under the control of a court appointed receiver. There is no assurance that Core will be
successful in restructuring its debts or achieving an orderly liquidation of its assets. In
consideration of the foregoing, we evaluated Cores real estate inventory for impairment on a
project-by-project basis. As a result of the impairment analyses performed, we recorded impairment
charges of $63.3 million related to Cores real estate inventory to reduce the carrying amount of
Cores real estate inventory to its fair value at December 31, 2009.
In December 2009, Core reinitiated efforts to sell two of its commercial leasing projects (the
Projects) and began soliciting bids from several potential buyers to purchase assets associated
with the Projects. The assets are available for immediate sale in their present condition and Core
determined that it is probable that it will sell the Projects in 2010. Due to this decision, the
assets associated with the Projects that are for sale have been classified as discontinued
operations for all periods presented in accordance with the accounting guidance for the disposal of
long-lived assets. Core has accepted an offer to sell the Projects, which has been approved by the
lender with substantially all of the proceeds going to satisfy its obligations to the lender.
However, there can be no assurance that the transaction will close or that the lender will release
Core from its obligations. See Note 22 of the Notes to Consolidated Financial Statements for
further information.
8
Real Estate
Carolina Oak
In 2007, Woodbridge acquired from Levitt and Sons all of the outstanding membership interests
in Carolina Oak, a South Carolina limited liability company (formerly known as Levitt and Sons of
Jasper County, LLC). The development activities at Carolina Oak, which is within Tradition Hilton
Head, were suspended in the fourth quarter of 2008 as a result of, among other things, a
deterioration in consumer confidence, overall softening of demand for new homes, a decline in the
overall economy, increasing unemployment, a deterioration in the credit markets, and the direct and
indirect impact of the turmoil in the mortgage loan market. In 2009, the housing industry continued
to face significant challenges and Woodbridge made the decision to cease all activities at Carolina
Oak. Furthermore, the lender declared a default of the $37.2 million loan that is collateralized by
the Carolina Oak property. Subsequently, the lender was taken over by the FDIC and accordingly, the
FDIC now holds the loan. While there may be issues with respect to compliance with certain loan
covenants, we do not believe that an event of default occurred. Woodbridge is negotiating with
representatives of the FDIC in an effort to bring about a satisfactory resolution with regard to
the debt; however, the outcome of the negotiations is currently uncertain.
At December 31, 2009 and 2008, we reviewed inventory of real estate at Carolina Oak for
impairment in accordance with the accounting guidance for the impairment or disposal of long-lived
assets. As a result of the analysis, we recorded impairment charges of $16.7 million and $3.5
million in cost of sales for the years ended December 31, 2009 and 2008, respectively, which are
reflected in the Real Estate Operations segment. See Note 12 of the Notes to the Consolidated
Financial Statements for further information.
Cypress Creek Holdings
Since 2005, Cypress Creek Holdings has owned an 80,000 square foot office building in Fort
Lauderdale, Florida. The building was previously 50% occupied by an unaffiliated third party
pursuant to a lease which expired in March 2010. The tenant opted not to renew the lease and
vacated the space as of March 31, 2010. We intend to seek to sell the building or lease the vacant
space in the building to third parties, including our affiliates, in 2010. As of December 31, 2009,
we evaluated the value of the office building for impairment in accordance with the accounting
guidance for the impairment or disposal of long-lived assets and determined that the carrying value
exceeded the fair value. Accordingly, we recorded an impairment charge of $4.3 million in our
statement of operations for the year ended December 31, 2009.
Levitt Commercial
During 2007, the Real Estate Operations segment also included Levitt Commercial, which was
formed in 2001 to develop industrial, commercial, retail and residential properties. In 2007,
Levitt Commercial ceased development activities after it sold all of its remaining units. Levitt
Commercials revenues for the year ended December 31, 2007 amounted to $6.6 million which reflected
the delivery of the 17 flex warehouse units at its remaining development project.
Levitt and Sons
Acquired in December 1999, Levitt and Sons was a developer of single family homes and town
home communities for active adults and families in Florida, Georgia, Tennessee and South Carolina.
Increased inventory levels combined with weakened consumer demand for housing and tightened credit
requirements negatively affected sales, deliveries and margins throughout the homebuilding
industry. Levitt and Sons experienced decreased orders, decreased margins and increased
cancellation rates on homes in backlog. Excess supply, particularly in previously strong markets
like Florida, in combination with a reduction in demand resulting from tightened credit
requirements and reductions in credit availability, as well as buyers fears about the direction of
the market, exerted a continuous cycle of downward cycle of pricing pressure for residential homes.
On November 9, 2007 (the Petition Date), Levitt and Sons and substantially all of its
subsidiaries (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of
Title 11 of the United States Code (the Chapter 11 Cases) in the United States Bankruptcy Court
for the Southern District of Florida (the Bankruptcy Court).
9
Real Estate
In connection with the filing of the Chapter 11 Cases, we deconsolidated Levitt and Sons as of
November 9, 2007, eliminating all future operations from our financial results of operations. As a
result of the deconsolidation of Levitt and Sons, we recorded our interest in Levitt and Sons under
the cost method of accounting. Under cost method accounting, income is recognized only to the
extent of cash received or upon the release of Levitt and Sons from its bankruptcy obligations
through the approval of the Bankruptcy Court, at which time any recorded loss in excess of the
investment in Levitt and Sons is recognized into income. As of November 9, 2007, Woodbridge had a
negative investment in Levitt and Sons of $123.0 million and outstanding advances of $67.8 million
due to Woodbridge resulting in a net negative investment of $55.2 million. Included in the
negative investment was approximately $15.8 million associated with deferred revenue related to
intra-segment sales between Levitt and Sons and Core Communities. During the fourth quarter of
2008, we identified approximately $2.3 million of deferred revenue on intercompany sales between
Core and Carolina Oak that had been misclassified against the negative investment in Levitt and
Sons. As a result, we recorded a $2.3 million reclassification between inventory of real estate and
the loss in excess of investment in subsidiary in the consolidated statements of financial
condition. Accordingly, as of December 31, 2008, our net negative investment was $52.9 million.
During the pendency of the Chapter 11 Cases, we also incurred certain administrative costs in the
amount of $1.6 million and $748,000 for the years ended December 31, 2008 and 2007, respectively,
relating to certain services and benefits provided by us in favor of the Debtors. These costs
included the cost of maintaining employee benefit plans, providing accounting services, human
resources expenses, general liability and property insurance premiums, payroll processing expenses,
licensing and third-party professional fees (collectively, the Post Petition Services). These
costs were not significant in the year ended December 31, 2009.
As previously reported, on February 20, 2009, the Bankruptcy Court entered an order
confirming a plan of liquidation jointly proposed by Levitt and Sons and the Official Committee of
Unsecured Creditors. That order also approved the settlement pursuant to the settlement agreement
that was entered into on June 27, 2008, as amended. No appeal or rehearing of the Bankruptcy
Courts order was filed by any party, and the settlement was consummated on March 3, 2009, at
which time, payment was made in accordance with the terms and conditions of the settlement
agreement. Under cost method accounting, the cost of settlement and the related $52.9 million
liability (less $500,000 which was determined as the settlement holdback and remained as an
accrual pursuant to the settlement agreement), was recognized into income in the first quarter of
2009, resulting in a $40.4 million gain on settlement of investment in subsidiary. In the fourth
quarter of 2009, we accrued approximately $10.7 million in connection with a portion of a tax
refund of which the Levitt and Sons estate is entitled to pursuant to the Settlement Agreement
entered into with the Joint Committee of Unsecured Creditors in the Chapter 11 Cases and, as a
result, the gain on settlement of investment in subsidiary for the year ended December 31, 2009
was $29.7 million. See Note 25 of the Notes to Consolidated Financial Statements for more
information regarding the tax refund.
10
Real Estate
Bluegreen
On November 16, 2009, we purchased approximately 7.4 million additional shares of Bluegreens
common stock, which increased our ownership in Bluegreen from 9.5 million shares, or 29%, to 16.9
million shares or 52% of Bluegreens common stock. As a result of the purchase, we hold a
controlling interest in Bluegreen and, accordingly, have consolidated Bluegreens results since
November 16, 2009 into our financial statements.
Bluegreen is a leading provider of Colorful Places to Live and Play through two divisions:
Bluegreen Resorts and Bluegreen Communities. For the Bluegreen Interim Period, Bluegreen
Resorts sales represented 83% of Bluegreens sales of real estate and Bluegreen Communities
represented 17% of its sales of real estate. Bluegreen Resorts markets, sells and manages real
estate-based vacation ownership interests (VOIs) in resorts generally located in popular,
high-volume, drive-to vacation destinations, which were developed or acquired by Bluegreen or
developed by others. Bluegreen also earns fees from third parties for providing sales, marketing,
mortgage servicing, construction management, title, and resort management services to third party
resort developers and owners. Bluegreen Communities acquires, develops and subdivides property and
markets residential land home sites. The majority of these home sites are sold directly to retail
customers who seek to build a home, in some cases on properties featuring a golf course and related
amenities. Bluegreen Communities recently began offering real estate consulting and other services
to third parties.
Bluegreen Resorts
Bluegreen Resorts has been involved in the vacation ownership industry since its inception in
1994. As of December 31, 2009, Bluegreen managed approximately 222,600 VOI owners, including
approximately 168,500 members in the Bluegreen Vacation Club, and it sells VOIs in the Bluegreen
Vacation Club at 21 sales offices located at resorts located in the United States and Aruba. A
deeded real estate interest in a Bluegreen Vacation Club VOI in any of Bluegreen resorts entitles
the buyer to an annual or biennial allotment of points in perpetuity. Club members may use their
points to stay in one of 27 Bluegreen Vacation Club Club Resorts and 27 other Club Associated
resorts as well as for other vacation options, including cruises and stays at over 4,000 resorts
offered through Resort Condominiums International, LLC (RCI), an external exchange network. Club
members who acquired or upgraded their VOIs on or after November 1, 2007 also have access to 21
Shell Vacation Club (Shell) resorts, through Bluegreens Select Connections joint venture with
Shell. Shell is an unaffiliated privately-held resort developer.
Since Bluegreens inception, it has generated approximately 328,000 VOI sales transactions,
which include 2,593 VOI sales transactions on behalf of third party developers. Bluegreen Resorts
estimated remaining life-of-project sales at December 31, 2009, were approximately $3.3 billion,
which included $1.0 billion of completed inventory. For the Bluegreen Interim Period, Bluegreen Resorts recognized Sales and Segment Operating Profit of $15.3 million
and $3.2 million, respectively.
Bluegreen Resorts uses a variety of methods to attract prospective purchasers of VOIs,
including marketing of mini-vacations either through face-to-face contact at kiosks in retail and
leisure locations or through telemarketing campaigns and marketing to current owners of VOIs.
Bluegreens Bluegreen Vacation Club system permits its VOI owners to purchase a real estate
timeshare interest which provides owners with an annual or biennial allotment of points, which can
be redeemed for occupancy rights at Bluegreen Vacation Club and Club Associate resorts. Bluegreen
believes the Bluegreen Vacation Club allows its VOI owners to customize their vacation experience
in a more flexible manner than traditional fixed-week vacation ownership programs. Bluegreen also
offers a Sampler program. The Sampler program allows package purchasers to enjoy substantially the
same amenities, activities and services offered to Bluegreen Vacation Club members during a
one-year trial period. Bluegreen believes that it benefits from the Sampler program as it gives
them an opportunity to market their VOIs to customers when they use their trial
memberships at Bluegreen resorts and to recapture some of the costs incurred in connection
with the initial marketing to prospective customers.
11
Real Estate
Bluegreens emphasis on cash resulted in Bluegreen providing financing to approximately 68%
of its vacation ownership customers in 2009. Customers are required to make a down payment of at
least 10% of the VOI sales price and typically finance the balance of the sales price over a period
of ten years. In 2009, Bluegreen began incentivizing its sales associates to encourage higher cash
down payments, and Bluegreen has increased both the percentage of its sales that are 100% cash and
its average down payment on financed sales. As of December 31, 2009, Bluegreen serviced $795.9
million of VOI receivables and its on-balance sheet vacation ownership receivables portfolio
totaled approximately $348.7 million in principal amount. See Accounting Pronouncements Not Yet
Adopted for further discussion. Historically Bluegreen has maintained vacation ownership
receivables warehouse facilities and separate vacation ownership receivables purchase facilities to
maintain liquidity associated with its vacation ownership receivables; however, the term
securitization market had experienced significantly reduced activity and transactions that were
consummated were on significantly more adverse terms. As a result of this and other factors,
financial institutions are reluctant to enter into new credit facilities for the purpose of
providing financing on consumer receivables. Several lenders to the timeshare industry, including
certain of Bluegreens lenders, have announced that they either have or will be exiting the resort
finance business or will not be entering into new financing commitments for the foreseeable future.
In addition, the availability of financing for real estate acquisition and development and the
capital markets for corporate debt have likewise been adversely impacted. See Liquidity and
Capital Resources for a further discussion of Bluegreens vacation ownership receivables
facilities and certain risks relating to such facilities.
Bluegreen Communities
Bluegreen Communities focuses on developing and subdividing property and marketing residential
home sites. The majority of sites are sold directly to retail customers who seek to build a home
generally in the future (in some cases on properties featuring a golf course and other related
amenities). Bluegreen Communities has historically sought to acquire and develop land near major
metropolitan centers, but outside the perimeter of intense subdivision development, and in popular
retirement areas. Starting in the fourth quarter of 2008 and in response to the challenging
economic environment, Bluegreen began to sell home sites in only completed sections of its
communities and significantly reduced its overall spending on development activities. As of
December 31, 2009, Bluegreen Communities was actively engaged in marketing and selling home sites
directly to retail consumers in communities primarily located in Texas, Georgia, and North
Carolina. Bluegreen Communities had approximately $100.9 million of inventory at carrying value as
of December 31, 2009. For the year ended December 31, 2009, Bluegreen Communities recognized sales
of $3.1 million and Segment Operating Loss of $3.3 million.
Historically Bluegreen has marketed its communities through a combination of newspaper, direct
mail, television, billboard, internet and radio advertising. Bluegreen Communities also
historically utilized a customer relationship management computer software system to assist it in
compiling, processing, and maintaining information concerning future sales prospects. During 2009,
its marketing of communities shifted to focus on internet advertising, consumer and broker outreach
programs and billboards.
Bluegreen Communities also currently owns and operates two daily fee golf courses which it
believes will increase the marketability of adjacent home sites and communities.
12
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
Financial Services
Our Financial Services business activities are comprised of the operations of BankAtlantic
Bancorp. BankAtlantic Bancorp presents its results in two reportable segments and its results of
operations are consolidated with BFC Financial Corporation. The only assets available to BFC
Financial Corporation from BankAtlantic Bancorp are dividends when and if declared and paid by
BankAtlantic Bancorp. BankAtlantic Bancorp is a separate public company and its management prepared
the following Item 1. Business regarding BankAtlantic Bancorp which was included in BankAtlantic
Bancorps Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities
and Exchange Commission. Accordingly, references to the Company, we, us or our in the
following discussion under the caption Financial Services are references to BankAtlantic Bancorp
and its subsidiaries, and are not references to BFC , Woodbridge or Bluegreen.
BankAtlantic Bancorp is a Florida-based bank holding company and owns BankAtlantic and its
subsidiaries. BankAtlantic provides a full line of products and services encompassing retail and
business banking. The Company reports BankAtlantic Bancorp operations through two business
segments consisting of BankAtlantic and BankAtlantic Bancorp Parent Company. Detailed operating
financial information by segment is included in Note 34 to the Companys consolidated financial
statements. On February 28, 2007, BankAtlantic Bancorp completed the sale to Stifel Financial Corp.
(Stifel) of Ryan Beck Holdings, Inc. (Ryan Beck), a subsidiary engaged in retail and
institutional brokerage and investment banking. As a consequence, BankAtlantic Bancorp exited this
line of business and the results of operations of Ryan Beck are presented as Discontinued
Operations in the Companys consolidated financial statements for the year ended December 31,
2007.
BankAtlantic
Bancorp internet website address is www.bankatlanticbancorp.com. BankAtlantic
Bancorps annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and all amendments to those reports are available free of charge through our website, as soon as
reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
Our Internet website and the information contained in or connected to our website are not
incorporated into, and are not part of this Annual Report on Form 10-K.
As of December 31, 2009, BankAtlantic Bancorp had total consolidated assets of approximately
$4.8 billion and stockholders equity of approximately $142 million.
BankAtlantic
BankAtlantic is a federally-chartered, federally-insured savings bank organized in 1952. It is
one of the largest financial institutions headquartered in Florida and provides traditional retail
banking services and a wide range of business banking products and related financial services
through a network of 100 branches or stores in southeast Florida and the Tampa Bay area,
primarily in the metropolitan areas surrounding the cities of Miami, Ft. Lauderdale, West Palm
Beach and Tampa, which are located in the heavily-populated Florida counties of Miami-Dade,
Broward, Palm Beach, Hillsborough and Pinellas.
BankAtlantics primary business activities have included:
| attracting checking and savings deposits from individuals and business customers, | ||
| originating commercial real estate, middle market, consumer home equity and small business loans, | ||
| purchasing wholesale residential loans, and | ||
| investing in mortgage-backed securities and tax certificates. |
BankAtlantics business strategy
BankAtlantic began its Floridas Most Convenient Bank strategy in 2002, when it introduced
seven-day banking in Florida. This banking initiative has contributed to a significant increase in
core deposits (demand deposit accounts, NOW checking accounts and savings accounts). BankAtlantics
core deposits increased from approximately $600 million as of December 31, 2001 to $2.6 billion as
of December 31, 2009. Additionally, while the increase in core deposits during 2009 may reflect,
in part, market conditions generally, we believe that the implementation of our local market
management strategy in 2008 and our relationship marketing strategy in 2009
have enhanced our visibility in our market, increased customer loyalty and contributed
significantly to the increase in core deposit balances.
13
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
BankAtlantic exceeded all applicable regulatory capital requirements and was considered a
well capitalized financial institution at December 31, 2009. See Regulation and Supervision
Capital Requirements for an explanation of capital standards. Management has implemented
initiatives with a view toward maintaining adequate capital in response to the current adverse
economic environment. These initiatives primarily include the reduction of risk-based asset levels
through loan and securities repayments in the ordinary course, eliminating cash dividends to
BankAtlantic Bancorp Parent Company, and reducing expenses. These initiatives, while important to
maintaining capital ratios, have also negatively impacted operations as the reduction in asset
levels resulted in the reduction in earning assets adversely impacting our net interest income.
Another source of regulatory capital for BankAtlantic was capital contributions from BankAtlantic
Bancorp. During 2009 and 2008, BankAtlantic Bancorp contributed $105 million and $65 million,
respectively, of capital to BankAtlantic. The $105 million capital contribution during 2009 was
partially funded by the completion by BankAtlantic Bancorp of a $75 million rights offering.
BankAtlantic structures its underwriting policies and procedures with a goal of balancing its
ability to offer competitive and profitable products and services to its customers while minimizing
its exposure to credit risk. However, the economic recession and the substantial decline in real
estate values throughout the United States, and particularly in Florida, have had an adverse impact
on the credit quality of our loan portfolio. In response, we have taken steps to attempt to
address credit risk which included:
| Focused efforts and enhanced staffing relating to loan work-outs, collection processes and valuations; | ||
| Substantially reduced the origination of land and residential acquisition, development and construction loans; | ||
| Substantially reduced home equity loan originations through new underwriting requirements based on lower market values of collateral; | ||
| Transferred certain non-performing commercial real estate loans to the Parent Company in March 2008 in exchange for $94.8 million; and | ||
| Froze certain home equity loan unused lines of credit based on declines in borrower credit scores or the value of loan collateral; |
Notwithstanding the above, there is no assurance that the above initiatives will reduce the
credit risk in our loan portfolio. During 2009, our allowance for loan losses increased from
$137.3 million at December 31, 2008 to $187.2 million at December 31, 2009 reflecting the continued
deterioration of economic conditions in our markets.
We also continued our initiatives to decrease operating expenses during 2009. These
initiatives included lowering advertising and marketing expenditures, maintaining reduced store and
call center hours and reducing back-office operations, and staffing levels, and renegotiating
vendor contracts. During 2010, management intends to seek further efficiencies and to maintain
its decreased expense organizational structure. BankAtlantic is also continuing to evaluate its
products and services as well as its delivery systems and back-office support infrastructure with a
view toward enhancing its operational efficiency.
As part of BankAtlantics efforts to diversify its loan portfolio, during 2009, BankAtlantic
focused on originating small business and middle market commercial loans through its retail and
lending networks. BankAtlantic anticipates a continued emphasis on small business and middle
market lending and expects the percentage represented by its commercial real estate and
residential mortgage loan portfolio balances to decline during 2010 through the scheduled repayment
of existing loans and significant reductions in commercial real estate loan originations and
residential loan purchases.
Loan Products
BankAtlantic offers a number of lending products to its customers. Historically, primary
lending products have included residential loans, commercial real estate loans, consumer loans and
small and middle market business loans.
14
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
Residential: Historically, BankAtlantic has purchased residential loans in the secondary
markets that have been originated by other institutions. These loans, which are serviced by
independent servicers, are secured by properties located throughout the United States. Residential
loans are typically purchased in bulk and are generally non-conforming loans under agency
guidelines due to the size of the individual loans (jumbo loans). BankAtlantic set general
guidelines for loan purchases relating to loan amount, type of property, state of residence,
loan-to-value ratios, the borrowers sources of funds, appraised amounts and loan documentation,
but actual purchases will generally reflect availability and market conditions, and may vary from
BankAtlantics general guidelines. Included in these purchased residential loans are interest-only
loans. These loans result in possible future increases in a borrowers loan payments when the
contractually required repayments increase due to interest rate adjustments and when required
amortization of the principal amount commences. These payment increases could affect a borrowers
ability to repay the loan and lead to increased defaults and losses. At December 31, 2009,
BankAtlantics residential loan portfolio included $776.2 million of interest-only loans, $65.2
million of which will become fully amortizing and have interest rates reset in 2010. The credit
scores and loan-to-value ratios for interest-only loans are similar to those of amortizing loans.
BankAtlantic has attempted to manage the credit risk associated with these loans by limiting
purchases of interest-only loans to those originated to borrowers that it believes to be credit
worthy, with loan-to-value and total debt to income ratios within agency guidelines. BankAtlantic
does not purchase or originate sub-prime, option-arm, pick-a-payment or negative amortizing
residential loans. Loans in the purchased residential loan portfolio generally do not have
prepayment penalties. As part of its initiative to reduce assets with a view toward improving
liquidity and regulatory capital ratios, BankAtlantic did not purchase any bulk residential loans
during the year ended December 31, 2009.
BankAtlantic also originates residential loans to customers that are then sold on a servicing
released basis to a correspondent. It also originates and holds certain residential loans, which
are made primarily to low to moderate income borrowers in accordance with requirements of the
Community Reinvestment Act. The underwriting of these loans generally follows government agency
guidelines and independent appraisers typically perform on-site inspections and valuations of the
collateral.
Commercial Real Estate: BankAtlantic provides commercial real estate loans for acquisition,
development and construction of various types of properties including office buildings, retail
shopping centers, residential construction and other non-residential properties. BankAtlantic
also provides loans to acquire or refinance existing income-producing properties. These loans are
primarily secured by property located in Florida. Commercial real estate loans are generally
originated in amounts based upon the appraised value of the collateral or estimated cost to
construct, generally have a loan to value ratio at the time of origination of less than 80%, and
generally require that one or more of the principals of the borrowing entity guarantee these
loans. Most of these loans have variable interest rates and are indexed to either prime or LIBOR
rates.
Historically, we made three categories of commercial real estate loans that we believe have
resulted in significant exposure to BankAtlantic based on declines in the Florida residential real
estate market. These categories are Builder land bank loans, Land acquisition and development
loans, and Land acquisition, development and construction loans. The Builder land bank loan
category consists of land loans to borrowers who have or had land purchase option agreements with
regional and/or national builders. These loans were originally underwritten based on projected
sales of the developed lots to the builders/option holders, and timely repayment of the loans is
primarily dependent upon the sale of the property pursuant to the options. If the lots are not
sold as originally anticipated, BankAtlantic anticipates that the borrower may not be in a
position to service the loan, with the likely result being an increase in nonperforming loans and
loan losses in this category. The Land acquisition and development loan category consists of
loans secured by residential land which was intended to be developed by the borrower and sold to
homebuilders. We believe that the underwriting on these loans was generally more stringent than
Builder land bank loans, as an option agreement with a regional or national builder did not exist
at the origination date. The Land acquisition, development and construction loans are secured by
residential land which was intended to be fully developed by the borrower who also might have
plans to construct homes on the property. These loans generally involved property with a longer
investment and development horizon, and are guaranteed by the borrower or individuals such that it
is expected that the borrower will have the ability to service the debt for a longer period of
time. However, based on the declines in value in the Florida real estate market, all loans
collateralized by Florida real estate expose the Bank to significant risk.
15
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
BankAtlantic has also originated commercial non-residential land loans and commercial
non-residential construction loans. These loans generally have higher credit exposure than
commercial income producing commercial loans. BankAtlantic has significantly decreased the
origination of these commercial land and commercial non-residential construction loans beginning
in 2008.
BankAtlantic has historically sold participations in certain commercial real estate loans
that it originated, and administers the loan and provides participants periodic reports on the
progress of the project for which the loan was made. Major decisions regarding the loans are made
by the participants on either a majority or unanimous basis. As a result, BankAtlantic generally
cannot significantly modify the loans without either majority or unanimous consent of the
participants. BankAtlantics sale of loan participations has the effect of reducing its exposure
on individual projects and was required in some cases, in order to comply with the regulatory
loans to one borrower limitations. BankAtlantic has also purchased commercial real estate loan
participations from other financial institutions and in such cases, BankAtlantic may not be in a
position to control decisions made with respect to the loans.
Standby Letters of Credit and Commitments: Standby letters of credit are conditional
commitments issued by BankAtlantic to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is the same as extending loans to customers.
BankAtlantic may hold certificates of deposit, liens on corporate assets and liens on residential
and commercial property as collateral for letters of credit. BankAtlantic issues commitments for
commercial real estate and commercial business loans.
Consumer: Consumer loans primarily consist of loans to individuals originated through
BankAtlantics retail network. Approximately 97% of consumer loans are home equity lines of
credit secured by a first or second mortgage on the primary residence of the borrower.
Approximately 24% of home equity lines of credit balances are secured by a first mortgage on the
property. Home equity lines of credit have pime-based interest rates and generally mature in 15
years. Other consumer loans generally have fixed interest rates with terms ranging from one to
five years. The credit quality of consumer loans is adversely impacted by increases in the
unemployment rate and declining real estate values. During 2008 and 2009, BankAtlantic experienced
higher than historical losses in this portfolio as a result of deteriorating economic conditions.
In an attempt to address this issue, BankAtlantic has adopted more stringent underwriting criteria
for consumer loans which have had the effect of significantly reducing consumer loan originations.
Middle Market commercial business: BankAtlantic lends on both a secured and unsecured basis,
although the majority of its loans are secured. Middle market business loans are typically
secured by the receivables, inventory, equipment, real estate, and/or general corporate assets of
the borrowers. These loans generally have variable interest rates that are Prime or LIBOR based
and are typically originated for terms ranging from one to five years.
Small Business: BankAtlantic originates small business loans to companies located primarily
in markets within BankAtlantics store network. Small business loans are primarily originated on
a secured basis and generally do not exceed $1.0 million for non-real estate secured loans and
$2.0 million for real estate secured loans. These loans are generally originated with maturities
ranging from one to three years or upon demand; however, loans collateralized by real estate could
have terms of up to fifteen years. Lines of credit extended to small businesses are due upon
demand. Small business loans have either fixed or variable prime-based interest rates.
16
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
The composition of the loan portfolio was (in millions):
As of December 31, | ||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||
Amount | Pct | Amount | Pct | Amount | Pct | Amount | Pct | Amount | Pct | |||||||||||||||||||||||||||||||
Loans receivable: |
||||||||||||||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||||||||||||||
Residential |
$ | 1,550 | 42.35 | 1,930 | 45.34 | 2,156 | 47.66 | 2,151 | 46.81 | 2,030 | 43.92 | |||||||||||||||||||||||||||||
Consumer home equity |
670 | 18.31 | 719 | 16.89 | 676 | 14.94 | 562 | 12.23 | 514 | 11.12 | ||||||||||||||||||||||||||||||
Construction and development |
223 | 6.09 | 301 | 7.07 | 416 | 9.20 | 475 | 10.34 | 785 | 16.99 | ||||||||||||||||||||||||||||||
Commercial |
897 | 24.51 | 930 | 21.85 | 882 | 19.49 | 973 | 21.17 | 979 | 21.18 | ||||||||||||||||||||||||||||||
Small business |
213 | 5.82 | 219 | 5.14 | 212 | 4.69 | 187 | 4.07 | 152 | 3.29 | ||||||||||||||||||||||||||||||
Other loans: |
||||||||||||||||||||||||||||||||||||||||
Commercial business |
154 | 4.21 | 143 | 3.36 | 131 | 2.90 | 157 | 3.42 | 88 | 1.90 | ||||||||||||||||||||||||||||||
Small business non-mortgage |
99 | 2.70 | 108 | 2.54 | 106 | 2.34 | 98 | 2.13 | 83 | 1.80 | ||||||||||||||||||||||||||||||
Consumer |
21 | 0.57 | 26 | 0.61 | 31 | 0.68 | 26 | 0.57 | 27 | 0.59 | ||||||||||||||||||||||||||||||
Residential loans held for sale |
4 | 0.11 | 3 | 0.07 | 4 | 0.09 | 9 | 0.20 | 3 | 0.06 | ||||||||||||||||||||||||||||||
Total |
3,831 | 104.67 | 4,379 | 102.87 | 4,614 | 101.99 | 4,638 | 100.94 | 4,661 | 100.85 | ||||||||||||||||||||||||||||||
Adjustments: |
||||||||||||||||||||||||||||||||||||||||
Unearned discounts (premiums) |
(3 | ) | -0.08 | (3 | ) | -0.07 | (4 | ) | -0.09 | (1 | ) | -0.02 | (2 | ) | -0.04 | |||||||||||||||||||||||||
Allowance for loan losses |
174 | 4.75 | 125 | 2.94 | 94 | 2.08 | 44 | 0.96 | 41 | 0.89 | ||||||||||||||||||||||||||||||
Total loans receivable,
net |
$ | 3,660 | 100.00 | 4,257 | 100.00 | 4,524 | 100.00 | 4,595 | 100.00 | 4,622 | 100.00 | |||||||||||||||||||||||||||||
At March 31, 2008, BankAtlantic transferred $101.5 million of non-performing commercial loans
to a subsidiary of BankAtlantic Bancorp Parent Company.
Included in BankAtlantics commercial and construction and development loan portfolios were
the following commercial residential loans (in millions):
As of December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Builder land bank loans |
$ | 44 | 62 | 150 | ||||||||
Land acquisition and development loans |
172 | 210 | 245 | |||||||||
Land acquisition, development and
construction loans |
11 | 32 | 108 | |||||||||
Total commercial residential
loans (1) |
$ | 227 | 304 | 503 | ||||||||
(1) | At March 31, 2008, $101.5 million of non-performing loans were transferred to a subsidiary of the BankAtlantic Bancorp Parent Company. |
Investments
Securities Available for Sale: BankAtlantic invests in obligations of, or securities
guaranteed by the U.S. government or its agencies, such as mortgage-backed securities and real
estate mortgage investment conduits (REMICs), which are accounted for as securities available for
sale. BankAtlantics securities available for sale portfolio at December 31, 2009 reflects a
decision to seek high credit quality and securities guaranteed by government sponsored enterprises
in an attempt to minimize credit risk in its investment portfolio to the extent possible. The
available for sale securities portfolio serves as a source of liquidity as well as a means to
moderate the effects of interest rate changes. The decision to purchase and sell securities from
time to time is based upon a current assessment of the economy, the interest rate environment, and
capital and liquidity strategies and requirements. BankAtlantics investment portfolio does not
include credit default swaps, commercial paper,
collateralized debt obligations, structured investment vehicles, auction rate securities,
trust preferred securities or equity securities in Fannie Mae or Freddie Mac.
17
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
Tax Certificates: Tax certificates are evidences of tax obligations that are sold through
auctions or bulk sales by various state and local taxing authorities. A tax obligation arises
when the property owner fails to timely pay the real estate taxes on the property. Certain
municipalities bulk sale their entire tax certificates for the prior year by auctioning the
portfolio to the highest bidder instead of auctioning each certificate separately. Tax
certificates represent a priority lien against the real property for the delinquent real estate
taxes. The minimum repayment to satisfy the lien is the certificate amount plus the interest
accrued through the redemption date, plus applicable penalties, fees and costs. Tax certificates
have no payment schedule or stated maturity. If the certificate holder does not file for the deed
within established time frames, the certificate may become null and void and lose its value.
BankAtlantics experience with this type of investment has generally been favorable because the
rates earned are generally higher than many alternative investments and substantial repayments
typically occur over a one-year period. During 2008, BankAtlantic discontinued acquiring tax
certificates through bulk acquisitions as it experienced higher than historical losses from these
types of acquisitions. During 2009 BankAtlantic purchased tax certificates primarily in Florida
and expects that the majority of tax certificates it acquires in 2010 will be in Florida.
The composition, yields and maturities of BankAtlantics securities available for sale,
investment securities and tax certificates were as follows (dollars in thousands):
Corporate | ||||||||||||||||||||
Mortgage- | Bond | Weighted | ||||||||||||||||||
Tax | Backed | and | Average | |||||||||||||||||
Certificates | Securities | Other | Total | Yield | ||||||||||||||||
December 31, 2009 |
||||||||||||||||||||
Maturity: (1) |
||||||||||||||||||||
One year or less |
$ | 79,099 | 2 | 250 | 79,351 | 5.66 | % | |||||||||||||
After one through five years |
33,373 | 123 | | 33,496 | 5.65 | |||||||||||||||
After five through ten years |
| 31,121 | | 31,121 | 4.60 | |||||||||||||||
After ten years |
| 288,046 | | 288,046 | 3.28 | |||||||||||||||
Fair values (2) |
$ | 112,472 | 319,292 | 250 | 432,014 | 4.00 | % | |||||||||||||
Amortized cost (2) |
$ | 110,991 | 307,314 | 250 | 418,555 | 5.35 | % | |||||||||||||
Weighted average yield based
on fair values |
5.66 | 3.41 | 4.30 | 4.00 | ||||||||||||||||
Weighted average maturity (yrs) |
1.30 | 20.65 | 0.67 | 15.69 | ||||||||||||||||
December 31, 2008 |
||||||||||||||||||||
Fair values (2) |
$ | 224,434 | 699,224 | 250 | 923,908 | 5.25 | % | |||||||||||||
Amortized cost (2) |
$ | 213,534 | 687,344 | 250 | 901,128 | 6.00 | % | |||||||||||||
December 31, 2007 |
||||||||||||||||||||
Fair values (2) |
$ | 188,401 | 788,461 | 681 | 977,543 | 5.90 | % | |||||||||||||
Amortized cost (2) |
$ | 188,401 | 785,682 | 685 | 974,768 | 6.06 | % | |||||||||||||
(1) | Except for tax certificates, maturities are based upon contractual maturities. Tax certificates do not have stated maturities, and estimates in the above table are based upon historical repayment experience (generally 2 years). | |
(2) | Equity and tax exempt securities held by BankAtlantic Bancorp Parent Company with a cost of $1.5 million, $3.6 million, and $162.6 million and a fair value of $1.5 million, $4.1 million, and $179.5 million, at December 31, 2009, 2008 and 2007, respectively, were excluded from the above table. At December 31, 2009, equities held by BankAtlantic with a cost of $0.8 million and a fair value of $0.8 million were excluded from the above table. |
18
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
A summary of the amortized cost and gross unrealized appreciation or depreciation of
estimated fair value of tax certificates and investment securities and available for sale
securities follows (in thousands):
December 31, 2009 (1) | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
Cost | Appreciation | Depreciation | Fair Value | |||||||||||||
Tax certificates and investment securities: |
||||||||||||||||
Tax certificates: |
||||||||||||||||
Cost equals market |
$ | 110,991 | 1,481 | | 112,472 | |||||||||||
Securities available for sale: |
||||||||||||||||
Investment securities: |
||||||||||||||||
Cost equals market |
250 | | | 250 | ||||||||||||
Market over cost |
| | | | ||||||||||||
Cost over market |
| | | | ||||||||||||
Mortgage-backed securities: |
||||||||||||||||
Cost equals market |
| | | | ||||||||||||
Market over cost |
285,200 | 11,998 | | 297,198 | ||||||||||||
Cost over market |
22,114 | | 20 | 22,094 | ||||||||||||
Total |
$ | 418,555 | 13,479 | 20 | 432,014 | |||||||||||
1) | The above table excludes BankAtlantic Bancorp Parent Company equity securities with a cost and fair value of $1.5 million at December 31, 2009. At December 31, 2009, equities held by BankAtlantic with a cost and fair value of $0.8 million were excluded from the above table. |
Deposit products and borrowed funds:
Deposits: BankAtlantic offers checking and savings accounts to individuals and business
customers. These include commercial demand deposit accounts, retail demand deposit accounts,
savings accounts, money market accounts, certificates of deposit, various NOW accounts and IRA and
Keogh retirement accounts. BankAtlantic also obtains deposits from brokers and municipalities.
BankAtlantic solicits deposits from customers in its geographic market through marketing and
relationship banking activities primarily conducted through its sales force and store network.
BankAtlantic has primarily solicited deposits at its branches (or stores) through its Floridas
Most Convenient Bank initiative. During 2008, BankAtlantic began participating in the
Certificate of Deposit Account Registry Services (CDARS) program. This program allows
BankAtlantic to offer to its customers federally insured deposits up to $50 million. BankAtlantic
has elected to participate in the FDICs Transaction Account Guarantee Program whereby the FDIC
through June 30, 2010 fully insures BankAtlantics entire portfolio of non-interest bearing
deposits, and interest-bearing deposits with rates at or below fifty basis points and, subject to
applicable terms, insures up to $250,000 of other deposit accounts. See Note 17 of the Notes to
Consolidated Financial Statements for more information regarding BankAtlantics deposit accounts.
Federal Home Loan Bank (FHLB) Advances: BankAtlantic is a member of the FHLB of Atlanta and
can obtain secured advances from the FHLB of Atlanta. These advances can be collateralized by a
security lien against its residential loans, certain commercial loans and its securities. In
addition, BankAtlantic must maintain certain levels of FHLB stock based upon outstanding advances.
See Note 18 of the Notes to Consolidated Financial Statements for more information regarding
BankAtlantics FHLB Advances.
Other Short-Term Borrowings: BankAtlantics short-term borrowings generally consist of
securities sold under agreements to repurchase treasury tax and loan borrowings.
| Securities sold under agreements to repurchase include a sale of a portion of its current investment portfolio (usually mortgage-backed securities and REMICs) at a negotiated rate and an agreement to repurchase the same assets on a specified future date. BankAtlantic issues repurchase agreements to institutions and to its customers. These transactions are collateralized by securities in its investment portfolio but are not insured by the FDIC. See Note 19 of the Notes to Consolidated Financial Statements for more information regarding BankAtlantics Securities sold under agreements to repurchase borrowings. |
| Treasury tax and loan borrowings represent BankAtlantics participation in the Federal Reserve Treasury Investment Program. Under this program the Federal Reserve places funds with BankAtlantic obtained from treasury tax and loan payments received by financial institutions. See Note 20 of the Notes to Consolidated Financial Statements for more information regarding BankAtlantics treasury tax and loan borrowings. |
19
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
BankAtlantics other borrowings have floating interest rates and consist of a mortgage-backed
bond and subordinated debentures. See Notes 22 and 23 of the Notes to Consolidated Financial
Statements for more information regarding BankAtlantics other borrowings.
BankAtlantic Bancorp Parent Company
BankAtlantic Bancorp Parent Company operations primarily consist of financing the capital
needs of BankAtlantic and its subsidiaries and management of the asset work-out subsidiary. In
March 2008, BankAtlantic Bancorp Parent Company used a portion of the proceeds obtained from the
sale of Ryan Beck to Stifel to purchase from BankAtlantic $101.5 million of non-performing loans at
BankAtlantics carrying value. These loans are held in an asset workout subsidiary wholly-owned by
the BankAtlantic Bancorp Parent Company, which has entered into an agreement with BankAtlantic to
service the transferred non-performing loans. BankAtlantic Bancorp Parent Company also has
arrangements with BFC for BFC to provide certain human resources, insurance management, investor
relations, and other administrative services to BankAtlantic Bancorp Parent Company and its
subsidiaries. The largest expense of BankAtlantic Bancorp Parent Company is interest expense on
junior subordinated debentures issued in connection with trust preferred securities. BankAtlantic
Bancorp has the right to defer quarterly payments of interest on the junior subordinated debentures
for a period not to exceed 20 consecutive quarters without default or penalty. During all four
quarters during 2009 and during the first quarter of 2010, BankAtlantic Bancorp notified the
trustees under its junior subordinated debentures that it has elected to defer its quarterly
interest payments. During the deferral period, the respective trusts will likewise suspend the
declaration and payment of dividends on the trust preferred securities. Additionally, during the
deferral period, BankAtlantic Bancorp may not pay dividends on or repurchase its common stock.
BankAtlantic Bancorp Parent Company deferred the interest and dividend payments in order to
preserve its liquidity in response to current economic conditions. In January 2010, BankAtlantic
Bancorp commenced cash offers to purchase the outstanding trust preferred securities. See Note 23
of the Notes to Consolidated Financial Statements for more information regarding BankAtlantic
Bancorps cash tender offer for its trust preferred securities.
BankAtlantic Bancorp Parent Company had the following cash and investments as of December 31,
2009 (in thousands). There is no assurance that we would receive proceeds equal to the estimated
fair value upon the liquidation of the equity securities.
December 31, 2009 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Unrealized | Unrealized | Estimated | |||||||||||||
Value | Appreciation | Depreciation | Fair Value | |||||||||||||
Cash and cash
equivalents |
$ | 14,002 | | | 14,002 | |||||||||||
Equity securities |
1,510 | | 6 | 1,504 | ||||||||||||
Total |
$ | 15,512 | | 6 | 15,506 | |||||||||||
BankAtlantic Bancorp Parent Companys work-out subsidiary had the following loans and real
estate owned as of December 31, 2009:
(in millions) | Amount | |||
Builder land bank loans |
$ | 14 | ||
Land acquisition and development loans |
10 | |||
Land acquisition, development and
construction loans |
15 | |||
Commercial |
9 | |||
Total commercial loans |
48 | |||
Real estate owned |
11 | |||
Total loans and real estate owned |
$ | 59 | ||
20
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
Regulation and Supervision
Holding Company
We are a unitary savings and loan holding company within the meaning of the Home Owners Loan
Act, as amended, or HOLA. As such, we are registered with the Office of Thrift Supervision, or
OTS, and are subject to OTS regulations, examinations, supervision and reporting requirements. In
addition, the OTS has enforcement authority over us. Among other things, this authority permits
the OTS to restrict or prohibit activities that are determined to be a serious risk to the
financial safety, soundness or stability of a subsidiary savings bank.
HOLA prohibits a savings bank holding company, directly or indirectly, or through one or more
subsidiaries, from:
| acquiring another savings institution or its holding company without prior written approval of the OTS; | ||
| acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary savings institution, a non-subsidiary holding company, or a non-subsidiary company engaged in activities other than those permitted by HOLA; or | ||
| acquiring or retaining control of a depository institution that is not insured by the FDIC. |
In evaluating an application by a holding company to acquire a savings institution, the OTS
must consider the financial and managerial resources and future prospects of the company and
savings institution involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.
As a unitary savings and loan holding company, we generally are not restricted under existing
laws as to the types of business activities in which we may engage, provided that BankAtlantic
continues to satisfy the Qualified Thrift Lender, or QTL, test. See Regulation of Federal Savings
Banks QTL Test for a discussion of the QTL requirements. If we were to make a non-supervisory
acquisition of another savings institution or of a savings institution that meets the QTL test and
is deemed to be a savings institution by the OTS and that will be held as a separate subsidiary,
then we would become a multiple savings and loan holding company within the meaning of HOLA and
would be subject to limitations on the types of business activities in which we can engage. HOLA
limits the activities of a multiple savings institution holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act, subject to the prior approval of the OTS, and to
other activities authorized by OTS regulation.
Transactions between BankAtlantic, including any of BankAtlantics subsidiaries, and us or any
of BankAtlantics affiliates, are subject to various conditions and limitations. See Regulation
of Federal Savings Banks Transactions with Related Parties. BankAtlantic must seek approval
from the OTS prior to any declaration of the payment of any dividends or other capital
distributions to us. See Regulation of Federal Savings Banks Limitation on Capital
Distributions.
BankAtlantic
BankAtlantic is a federal savings association and is subject to extensive regulation,
examination, and supervision by the OTS, as its chartering agency and primary regulator, and the
FDIC, as its deposit insurer. BankAtlantics deposit accounts are insured up to applicable limits
by the Deposit Insurance Fund, which is administered by the FDIC. BankAtlantic must file reports
with the OTS and the FDIC concerning its activities and financial condition. Additionally,
BankAtlantic must obtain regulatory approvals prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions, and must submit applications or
notices prior to forming certain types of subsidiaries or engaging in certain activities through
its subsidiaries. The OTS and the FDIC conduct periodic examinations to assess BankAtlantics
safety and soundness and compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which a savings bank can engage
and is intended primarily for the protection of the insurance fund and depositors. The OTS and the
FDIC have significant discretion in connection with their supervisory and enforcement
activities and examination policies. Any change in such applicable activities or policies, whether
by the OTS, the FDIC or the Congress, could have a material adverse impact on us, BankAtlantic, and
our operations.
21
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
The following discussion is intended to be a summary of the material banking statutes and
regulations applicable to BankAtlantic, and it does not purport to be a comprehensive description
of such statutes and regulations, nor does it include every federal and state statute and
regulation applicable to BankAtlantic.
Regulation of Federal Savings Banks
Business Activities. BankAtlantic derives its lending and investment powers from HOLA and the
regulations of the OTS thereunder. Under these laws and regulations, BankAtlantic may invest in:
| mortgage loans secured by residential and commercial real estate; | ||
| commercial and consumer loans; | ||
| certain types of debt securities; and | ||
| certain other assets. |
BankAtlantic may also establish service corporations to engage in activities not otherwise
permissible for BankAtlantic, including certain real estate equity investments and securities and
insurance brokerage. These investment powers are subject to limitations, including, among others,
limitations that require debt securities acquired by BankAtlantic to meet certain rating criteria
and that limit BankAtlantics aggregate investment in various types of loans to certain percentages
of capital and/or assets.
Loans to One Borrower. Under HOLA, savings banks are generally subject to the same limits on
loans to one borrower as are imposed on national banks. Generally, under these limits, the total
amount of loans and extensions of credit made by a savings bank to one borrower or related group of
borrowers outstanding at one time and not fully secured by collateral may not exceed 15% of the
savings banks unimpaired capital and unimpaired surplus. In addition to, and separate from, the
15% limitation, the total amount of loans and extensions of credit made by a savings bank to one
borrower or related group of borrowers outstanding at one time and fully secured by
readily-marketable collateral may not exceed 10% of the savings banks unimpaired capital and
unimpaired surplus. Readily-marketable collateral includes certain debt and equity securities and
bullion, but generally does not include real estate. At December 31, 2009, BankAtlantics limit on
loans to one borrower was approximately $76.6 million. At December 31, 2009, BankAtlantics
largest aggregate amount of loans to one borrower was approximately $37.8 million and the second
largest borrower had an aggregate balance of approximately $36.9 million.
QTL Test. HOLA requires a savings bank to meet a QTL test by maintaining at least 65% of its
portfolio assets in certain qualified thrift investments on a monthly average basis in at least
nine months out of every twelve months. A savings bank that fails the QTL test must either operate
under certain restrictions on its activities or convert to a bank charter. At December 31, 2009,
BankAtlantic maintained approximately 74% of its portfolio assets in qualified thrift investments.
BankAtlantic had also satisfied the QTL test in each of the nine months prior to December 2009 and,
therefore, was a QTL.
Capital Requirements. The OTS regulations require savings banks to meet three minimum capital
standards:
| a tangible capital requirement for savings banks to have tangible capital in an amount equal to at least 1.5% of adjusted total assets; | ||
| a leverage ratio requirement: |
| for savings banks assigned the highest composite rating of 1, to have core capital in an amount equal to at least 3% of adjusted total assets; or | ||
| for savings banks assigned any other composite rating, to have core capital in an amount equal to at least 4% of adjusted total assets, or a higher percentage if warranted by the particular circumstances or risk profile of the savings bank; and |
| a risk-based capital requirement for savings banks to have capital in an amount equal to at least 8% of risk-weighted assets. |
22
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
In determining the amount of risk-weighted assets for purposes of the risk-based capital
requirement, a savings bank must compute its risk-based assets by multiplying its assets and
certain off-balance sheet items by risk-weights assigned by the OTS capital regulations. The OTS
monitors the risk management of individual institutions. The OTS may impose an individual minimum
capital requirement on institutions that it believes exhibit a higher degree of risk.
At December 31, 2009, BankAtlantic exceeded all applicable regulatory capital requirements.
See Note 35 of the Notes to Consolidated Financial Statements for actual capital amounts and
ratios.
There currently are no regulatory capital requirements directly applicable to us as a unitary
savings and loan holding company apart from the regulatory capital requirements for savings banks
that are applicable to BankAtlantic; however, changes in regulations could result in additional
requirements being imposed on us.
Limitation on Capital Distributions. The OTS regulations impose limitations upon certain
capital distributions by savings banks, such as certain cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger
and other distributions charged against capital.
The OTS regulates all capital distributions by BankAtlantic directly or indirectly to us,
including dividend payments. BankAtlantic currently must file an application to receive the
approval of the OTS for a proposed capital distribution, as the total amount of all of
BankAtlantics capital distributions (including any proposed capital distribution) for the
applicable calendar year exceeds BankAtlantics net income for that year-to-date period plus
BankAtlantics retained net income for the preceding two years.
BankAtlantic may not pay dividends to BankAtlantic Bancorp if, after paying those dividends,
it would fail to meet the required minimum levels under risk-based capital guidelines and the
minimum leverage and tangible capital ratio requirements, or in the event the OTS notified
BankAtlantic that it was in need of more than normal supervision. Under the Federal Deposit
Insurance Act, or FDIA, an insured depository institution such as BankAtlantic is prohibited from
making capital distributions, including the payment of dividends, if, after making such
distribution, the institution would become undercapitalized. Payment of dividends by
BankAtlantic also may be restricted at any time at the discretion of the appropriate regulator if
it deems the payment to constitute an unsafe and unsound banking practice.
Liquidity. BankAtlantic is required to maintain sufficient liquidity to ensure its safe and
sound operation, in accordance with OTS regulations.
Assessments. The OTS charges assessments to recover the costs of examining savings banks and
their affiliates, processing applications and other filings, and covering direct and indirect
expenses in regulating savings banks and their affiliates. These assessments are based on three
components:
| the size of the savings bank, on which the basic assessment is based; | ||
| the savings banks supervisory condition, which results in an additional assessment based on a percentage of the basic assessment for any savings bank with a composite rating of 3, 4 or 5 in its most recent safety and soundness examination; and | ||
| the complexity of the savings banks operations, which results in an additional assessment based on a percentage of the basic assessment for any savings bank that has more than $1 billion in trust assets that it administers, loans that it services for others or assets covered by its recourse obligations or direct credit substitutes. |
These assessments are paid semi-annually. BankAtlantics assessment expense during the year
ended December 31, 2009 was approximately $1.2 million.
Branching. Subject to certain limitations, HOLA and the OTS regulations permit federally
chartered savings banks to establish branches in any state or territory of the United States.
23
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
Community Reinvestment. Under the Community Reinvestment Act, or CRA, a savings institution
has a continuing and affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate income neighborhoods.
The CRA requires the OTS to assess the institutions record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain applications by the
institution. This assessment focuses on three tests:
| a lending test, to evaluate the institutions record of making loans in its designated assessment areas; | ||
| an investment test, to evaluate the institutions record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and | ||
| a service test, to evaluate the institutions delivery of banking services throughout its designated assessment area. |
The OTS assigns institutions a rating of outstanding, satisfactory, needs to improve, or
substantial non-compliance. The CRA requires all institutions to disclose their CRA ratings to
the public. BankAtlantic received a satisfactory rating in its most recent CRA evaluation.
Regulations also require all institutions to disclose certain agreements that are in fulfillment of
the CRA. BankAtlantic has no such agreements in place at this time.
Transactions with Related Parties. BankAtlantics authority to engage in transactions with
its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act, or FRA, by
Regulation W of the Federal Reserve Board, or FRB, implementing Sections 23A and 23B of the FRA,
and by OTS regulations. The applicable OTS regulations for savings banks regarding transactions
with affiliates generally conform to the requirements of Regulation W, which is applicable to
national banks. In general, an affiliate of a savings bank is any company that controls, is
controlled by, or is under common control with, the savings bank, other than the savings banks
subsidiaries. For instance, we are deemed an affiliate of BankAtlantic under these regulations.
Generally, Section 23A limits the extent to which a savings bank may engage in covered
transactions with any one affiliate to an amount equal to 10% of the savings banks capital stock
and surplus, and contains an aggregate limit on all such transactions with all affiliates to an
amount equal to 20% of the savings banks capital stock and surplus. A covered transaction
generally includes:
| making or renewing a loan or other extension of credit to an affiliate; | ||
| purchasing, or investing in, a security issued by an affiliate; | ||
| purchasing an asset from an affiliate; | ||
| accepting a security issued by an affiliate as collateral for a loan or other extension of credit to any person or entity; and | ||
| issuing a guarantee, acceptance or letter of credit on behalf of an affiliate. |
Section 23A also establishes specific collateral requirements for loans or extensions of
credit to, or guarantees, or acceptances of letters of credit issued on behalf of, an affiliate.
Section 23B requires covered transactions and certain other transactions to be on terms and under
circumstances, including credit standards, that are substantially the same, or at least as
favorable to the savings bank, as those prevailing at the time for transactions with or involving
non-affiliates. Additionally, under the OTS regulations, a savings bank is prohibited from:
| making a loan or other extension of credit to an affiliate that is engaged in any non-bank holding company activity; and | ||
| purchasing, or investing in, securities issued by an affiliate that is not a subsidiary. |
Sections 22(g) and 22(h) of the FRA, Regulation O of the FRB, Section 402 of the
Sarbanes-Oxley Act of 2002, and OTS regulations impose limitations on loans and extensions of
credit from BankAtlantic and us to its and our executive officers, directors, controlling
shareholders and their related interests. The applicable OTS regulations for savings banks
regarding loans by a savings bank to its executive officers, directors and principal shareholders
generally conform to the requirements of Regulation O, which is applicable to national banks.
24
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
Enforcement. Under the FDIA, the OTS has primary enforcement responsibility over savings
banks and has the authority to bring enforcement action against all institution-affiliated
parties, including any controlling stockholder or any shareholder, attorney, appraiser and
accountant who knowingly or recklessly participates in any violation of applicable law or
regulation, breach of fiduciary duty, or certain other wrongful actions that have, or are likely to
have, a significant adverse effect on an insured savings bank or cause it more than minimal loss.
In addition, the FDIC has back-up authority to take enforcement action for unsafe and unsound
practices. Formal enforcement action can include the issuance of a capital directive, cease and
desist order, removal of officers and/or directors, institution of proceedings for receivership or
conservatorship and termination of deposit insurance.
Examination. A savings institution must demonstrate to the OTS its ability to manage its
compliance responsibilities by establishing an effective and comprehensive oversight and monitoring
program. The degree of compliance oversight and monitoring by the institutions management impacts
the scope and intensity of the OTS examinations of the institution. Institutions with significant
management oversight and monitoring of compliance will generally receive less extensive OTS
examinations than institutions with less oversight.
Standards for Safety and Soundness. Pursuant to the requirements of the FDIA, the OTS,
together with the other federal bank regulatory agencies, has adopted the Interagency Guidelines
Establishing Standards for Safety and Soundness, or the Guidelines. The Guidelines establish
general safety and soundness standards relating to internal controls, information and internal
audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset
quality, earnings and compensation, fees and benefits. In general, the Guidelines require, among
other things, appropriate systems and practices to identify and manage the risks and exposures
specified in the Guidelines. If the OTS determines that a savings bank fails to meet any standard
established by the Guidelines, then the OTS may require the savings bank to submit to the OTS an
acceptable plan to achieve compliance. If a savings bank fails to comply, the OTS may seek an
enforcement order in judicial proceedings and impose civil monetary penalties.
Shared National Credit Program. The Shared National Credit Program is an interagency program,
established in 1977, to provide a periodic credit risk assessment of the largest and most complex
syndicated loans held or agented by financial institutions subject to supervision by a federal bank
regulatory agency. The Shared National Credit Program is administered by the FRB, FDIC, OTS and
the Office of the Comptroller of the Currency. The Shared National Credit Program covers any loan
or loan commitment of at least $20 million (i) which is shared under a formal lending agreement by
three or more unaffiliated financial institutions or (ii) a portion of which is sold to two or more
unaffiliated financial institutions with the purchasing financial institutions assuming their pro
rata share of the credit risk. The Shared National Credit Program is designed to provide
uniformity and efficiency in the federal banking agencies analysis and rating of the largest and
most complex credit facilities in the country by avoiding duplicate credit reviews and ensuring
consistency in rating determinations. The federal banking agencies use a combination of
statistical and judgmental sampling techniques to select borrowers for review each year. The
selected borrowers are reviewed and the credit quality rating assigned by the applicable federal
banking agencys examination team will be reported to each financial institution that participates
in the loan as of the examination date. The assigned ratings are used during examinations of the
other financial institutions to avoid duplicate reviews and ensure consistent treatment of these
loans. BankAtlantic has entered into participations with respect to certain of its loans and has
acquired participations in the loans of other financial institutions which are subject to this
program and accordingly these loans may be subject to this additional review.
Real Estate Lending Standards. The OTS and the other federal banking agencies adopted
regulations to prescribe standards for extensions of credit that are secured by liens on or
interests in real estate or are made for the purpose of financing the construction of improvements
on real estate. The OTS regulations require each savings bank to establish and maintain written
internal real estate lending standards that are consistent with OTS guidelines and with safe and
sound banking practices and which are appropriate to the size of the savings bank and the nature
and scope of its real estate lending activities.
Prompt Corrective Regulatory Action. Under the OTS Prompt Corrective Action Regulations, the
OTS is required to take certain, and is authorized to take other, supervisory actions against
undercapitalized savings banks, such as requiring compliance with a capital restoration plan,
restricting asset growth, acquisitions, branching and new lines of business and, in extreme cases,
appointment of a receiver or conservator. The severity of the action required or authorized to be
taken increases as a savings banks capital deteriorates. Savings banks are classified
into five categories of capitalization as well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized.
Generally, a savings bank is categorized as well capitalized if:
25
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
| its total capital is at least 10% of its risk-weighted assets; | ||
| its core capital is at least 6% of its risk-weighted assets; | ||
| its core capital is at least 5% of its adjusted total assets; and | ||
| it is not subject to any written agreement, order, capital directive or prompt corrective action directive issued by the OTS, or certain regulations, to meet or maintain a specific capital level for any capital measure. |
The OTS categorized BankAtlantic as well capitalized following its last examination and
BankAtlantic remained categorized well capitalized as of December 31, 2009. However, there is no
assurance that it will continue to be deemed well capitalized even if current capital ratios are
maintained where asset quality continues to deteriorate.
Insurance of Deposit Accounts. Savings banks are subject to a risk-based assessment system
for determining the deposit insurance assessments to be paid by them.
Until December 31, 2006, the FDIC had assigned each savings institution to one of three
capital categories based on the savings institutions financial information as of its most recent
quarterly financial report filed with the applicable bank regulatory agency prior to the assessment
period. The FDIC had also assigned each savings institution to one of three supervisory
subcategories within each capital category based upon a supervisory evaluation provided to the FDIC
by the savings institutions primary federal regulator and information that the FDIC determined to
be relevant to the savings institutions financial condition and the risk posed to the previously
existing deposit insurance funds. A savings institutions deposit insurance assessment rate
depended on the capital category and supervisory subcategory to which it was assigned. Insurance
assessment rates ranged from 0.00% of deposits for a savings institution in the highest category
(i.e., well capitalized and financially sound, with no more than a few minor weaknesses) to 0.27%
of deposits for a savings institution in the lowest category (i.e., undercapitalized and
substantial supervisory concern).
On January 1, 2007, the Federal Deposit Insurance Reform Act of 2005, or the Reform Act,
became effective. The Reform Act, among other things, merged the Bank Insurance Fund and the
Savings Association Insurance Fund, both of which were administered by the FDIC, into a new fund
administered by the FDIC known as the Deposit Insurance Fund, or DIF, and increased the coverage
limit for certain retirement plan deposits to $250,000, but maintained the basic insurance coverage
limit of $100,000 for other depositors. On October 3, 2008, the Emergency Economic Stabilization
Act of 2008, or the Stabilization Act, temporarily raised the basic insurance coverage limit to
$250,000. This temporary increase in the basic insurance coverage limit will expire on December
31, 2013 and the basic insurance coverage limit will return to $100,000 on January 1, 2014.
As a result of the Reform Act, the FDIC now assigns each savings institution to one of four
risk categories based upon the savings institutions capital evaluation and supervisory evaluation.
The capital evaluation is based upon financial information as of the savings institutions most
recent quarterly financial report filed with the applicable bank regulatory agency at the end of
each quarterly assessment period. The supervisory evaluation is based upon the results of
examination findings by the savings institutions primary federal regulator and information that
the FDIC has determined to be relevant to the savings institutions financial condition and the
risk posed to the DIF. A savings institutions deposit insurance base assessment rate depends on
the risk category to which it is assigned. In April 2009, the FDIC implemented regulations to
improve the way its insurance base assessment rates differentiate risk among insured institutions
and make the risk-based system fairer by limiting the subsidization of riskier institutions by
safer institutions. For the quarter which began January 1, 2010, insurance base assessment rates
range from 12 cents per $100 (but could be as low as 7 cents per $100, after computing applicable
adjustments) in assessable deposits for a savings institution in the least risk category (i.e.,
well capitalized and financially sound with only a few minor weaknesses) to 45 cents per $100 (but
could be as high as 77.5 cents per $100, after computing applicable adjustments) in assessable
deposits for a savings institution in the most risk category (i.e., undercapitalized and poses a
substantial probability of loss to the DIF unless effective corrective action is taken)
BankAtlantics FICE deposit insurance premium increased from $2.8 million for the year ended
December 31, 2008 to $8.6 million for the same 2009 period.
26
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
The FDIC is authorized to raise the assessment rates in certain circumstances, which would
affect savings institutions in all risk categories. The FDIC is also authorized to impose special
assessments. The FDIC has exercised its authority to raise assessment rates and impose special
assessments several times in the past, including during 2009, and could raise rates and impose
special assessments in the future. Increases in deposit insurance premiums and the imposition of
special assessments would have an adverse effect on our earnings. BankAtlantic paid a $2.4 million
FDIC special assessment for the year ended December 31, 2009.
Privacy and Security Protection. BankAtlantic is subject to the OTS regulations implementing
the privacy and security protection provisions of the Gramm-Leach-Bliley Act, or GLBA. These
regulations require a savings bank to disclose to its customers and consumers its policy and
practices with respect to the privacy, and sharing with nonaffiliated third parties, of its
customers and consumers nonpublic personal information. Additionally, in certain instances,
BankAtlantic is required to provide its customers and consumers with the ability to opt-out of
having BankAtlantic share their nonpublic personal information with nonaffiliated third parties.
These regulations also require savings banks to maintain policies and procedures to safeguard their
customers and consumers nonpublic personal information. BankAtlantic has policies and procedures
designed to comply with GLBA and applicable privacy and security regulations.
Insurance Activities. BankAtlantic is generally permitted to engage in certain insurance
activities through its subsidiaries. The OTS regulations implemented pursuant to GLBA prohibit,
among other things, depository institutions from conditioning the extension of credit to
individuals upon either the purchase of an insurance product or annuity or an agreement by the
consumer not to purchase an insurance product or annuity from an entity that is not affiliated with
the depository institution. The regulations also require prior disclosure of this prohibition to
potential insurance product or annuity customers.
Federal Home Loan Bank System. BankAtlantic is a member of the Federal Home Loan Bank, or
FHLB, of Atlanta, which is one of the twelve regional FHLBs composing the FHLB system. Each FHLB
provides a central credit facility primarily for its member institutions as well as other entities
involved in home mortgage lending. Any advances from a FHLB must be secured by specified types of
collateral, and all long-term advances may be obtained only for the purpose of providing funds for
residential housing finance. As a member of the FHLB of Atlanta, BankAtlantic is required to
acquire and hold shares of capital stock in the FHLB of Atlanta. BankAtlantic was in compliance
with this requirement with an investment in FHLB of Atlanta stock at December 31, 2009 of
approximately $48.8 million. During the year ended December 31, 2009, the FHLB of Atlanta paid
dividends of approximately $0.2 million on the capital stock held by BankAtlantic. The FHLB did
not pay a dividend during the first six months of 2009 and in February 2009 suspended excess stock
redemptions.
Federal Reserve System. BankAtlantic is subject to provisions of the FRA and the FRBs
regulations, pursuant to which depository institutions may be required to maintain
non-interest-earning reserves against their deposit accounts and certain other liabilities.
Currently, federal savings banks must maintain reserves against transaction accounts (primarily NOW
and regular interest and non-interest bearing checking accounts). The FRB regulations establish
the specific rates of reserves that must be maintained, which are subject to adjustment by the FRB.
BankAtlantic is currently in compliance with those reserve requirements. The required reserves
must be maintained in the form of vault cash, a non-interest-bearing account at a Federal Reserve
Bank, or a pass-through account as defined by the FRB. The FRB pays targeted federal funds rates
on the required reserves which are lower than the yield on our traditional investments.
Anti-Terrorism and Anti-Money Laundering Regulations. The Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA
PATRIOT Act, provides the federal government with additional powers to address terrorist threats
through enhanced domestic security measures, expanded surveillance powers, increased information
sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy
Act, or BSA, the USA PATRIOT Act puts in place measures intended to encourage information sharing
among bank regulatory and law enforcement agencies. In addition, certain provisions of the USA
PATRIOT Act impose affirmative obligations on a broad range of financial institutions, including
savings banks.
27
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
Among other requirements, the USA PATRIOT Act and the related OTS regulations require savings
banks to establish anti-money laundering programs that include, at a minimum:
| internal policies, procedures and controls designed to implement and maintain the savings banks compliance with all of the requirements of the USA PATRIOT Act, the BSA and related laws and regulations; | ||
| systems and procedures for monitoring and reporting of suspicious transactions and activities; | ||
| a designated compliance officer; | ||
| employee training; | ||
| an independent audit function to test the anti-money laundering program; | ||
| procedures to verify the identity of each customer upon the opening of accounts; and | ||
| heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships. |
Additionally, the USA PATRIOT Act requires each financial institution to develop a customer
identification program, or CIP, as part of its anti-money laundering program. The key components
of the CIP are identification, verification, government list comparison, notice and record
retention. The purpose of the CIP is to enable the financial institution to determine the true
identity and anticipated account activity of each customer. To make this determination, among
other things, the financial institution must collect certain information from customers at the
time they enter into the customer relationship with the financial institution. This information
must be verified within a reasonable time through documentary and non-documentary methods.
Furthermore, all customers must be screened against any CIP-related government lists of known or
suspected terrorists.
The USA Patriot Act established the Office of Foreign Assets Control (OFAC), which is a
division of the Treasury Department, and is responsible for helping to ensure that United States
entities do not engage in transactions with enemies of the United States, as defined by various
Executive Orders and Acts of Congress. OFAC has sent banking regulatory agencies lists of names of
persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If
BankAtlantic identifies a name on any transaction, account or wire transfer that is on an OFAC
list, it must freeze or reject such account or transaction, evaluate the need to file a suspicious
activity report and notify the Financial Crimes Enforcement Network (FinCEN).
Consumer Protection. BankAtlantic is subject to federal and state consumer protection
statutes and regulations, including the Fair Credit Reporting Act, the Fair and Accurate Credit
Transactions Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Truth in Lending Act,
the Truth in Savings Act, the Real Estate Settlement Procedures Act and the Home Mortgage
Disclosure Act. Among other things, these acts:
| require lenders to disclose credit terms in meaningful and consistent ways; | ||
| require financial institutions to establish policies and procedures regarding identity theft and notify customers of certain information concerning their credit reporting; | ||
| prohibit discrimination against an applicant in any consumer or business credit transaction; | ||
| prohibit discrimination in housing-related lending activities; | ||
| require certain lender banks to collect and report applicant and borrower data regarding loans for home purchase or improvement projects; | ||
| require lenders to provide borrowers with information regarding the nature and cost of real estate settlements; | ||
| prohibit certain lending practices and limit escrow account amounts with respect to real estate transactions; and | ||
| prescribe penalties for violations of the requirements of consumer protection statutes and regulations. |
28
Employees
Management believes that its relations with its employees are satisfactory. The Company
currently maintains employee benefit programs that are considered by management to be generally
competitive with programs provided by other major employers in its markets.
As of December 31, 2009, the Company and its subsidiaries had approximately 5,368 employees,
including 37 employees at BFC Parent and BFC Shared Service operations, 36 employees supporting
Woodbridge, 6 employees supporting BankAtlantic Bancorp Parent Company, 1,638 employees supporting
BankAtlantic (including 212 part time employees) and 3,651 employees supporting Bluegreen, of which
386 were located in Bluegreens headquarters in Boca Raton, Florida and 3,265 were located in
regional field offices throughout the United States and Aruba. The field personnel at Bluegreen
include 85 field employees supporting Bluegreen Communities and 3,180 field employees supporting
Bluegreen Resorts. Several Bluegreen employees in New Jersey are represented by a collective
bargaining unit.
Regulatory Matters Real Estate
The vacation ownership and real estate industries are subject to extensive and complex
federal, state, and local governmental regulation. Federal, state, local and foreign environmental,
zoning, consumer protection and other statutes regulate the acquisition, subdivision, marketing and
sale of real estate and VOIs. On a federal level, the Federal Trade Commission has taken an active
regulatory role through the Federal Trade Commission Act, prohibiting unfair or deceptive acts and
unfair competition in interstate commerce. Vacation ownership interests are subject to various
regulatory requirements including state and local approvals. The laws of most states require the
filing of a detailed offering statement which provides disclosure of all material aspects of the
project and sale of VOIs. Laws in each state where VOIs are sold generally grant the purchaser of
a VOI the right to cancel a purchase contract at any time within a specified rescission period.
There is also no assurance that in the future, VOIs will not be deemed to be securities subject to
securities regulation. Most states also have other laws that regulate: real estate licensure;
sellers of travel licensure; anti-fraud laws; telemarketing laws; prize, gift and sweepstakes laws;
and, labor laws. In addition, we may be subject to the Fair Housing Act and various other federal
statutes and regulations. The sales and marketing of homesites are subject to various consumer
protection laws and to the Federal Interstate Land Sales Full Disclosure Act, which establishes strict guidelines with respect to
the marketing and sale of land in interstate commerce.
There is no assurance that the cost of complying with applicable laws and regulations will not
be significant. Any failure to comply with current or future laws or regulations applicable to the
sale of VOIs or real estate could have a material adverse effect on us.
Competition
Real Estate
There has been significant dislocation in the real estate markets. Land values have
deteriorated significantly, and lenders who have foreclosed on properties throughout the United
States and particularly in those areas where the Company and its subsidiaries operate are selling
properties at significant discounts. The purchasers of such properties may have a significantly
lower basis than we have and accordingly such purchasers have a competitive advantage with respect
to the development or resale of those properties.
Bluegreen Resorts competes with various high profile and well-established operators, many of
which have greater liquidity and financial resources than Bluegreen. Many of the worlds most
recognized lodging, hospitality and entertainment companies develop and sell VOIs in resort
properties. Major companies that now operate or are developing or planning to develop vacation
ownership resorts directly or through subsidiaries include Marriott International, Inc., the Walt
Disney Company, Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts,
Starwood Hotels and Resorts Worldwide, Inc. and Wyndham Worldwide Corporation. Bluegreen Resorts
also competes with numerous other smaller owners and operators of vacation ownership resorts. In
addition to competing for sales leads, prospects and service contracts, Bluegreen Resorts competes
with other VOI developers for marketing, sales, and resort management personnel.
Financial Services
The banking and financial services industry is very competitive and is in transition. The
financial services industry is experiencing a severe downturn and there is increased competition in
the marketplace. We expect continued consolidation in the financial service industry creating
larger financial institutions. BankAtlantics primary method of competition is emphasis on
relationship banking, customer service and convenience, including its Floridas Most Convenient
Bank initiative.
BankAtlantic faces substantial competition for both loans and deposits. Competition for loans
comes principally from other banks, savings institutions and other lenders. This competition could
decrease the number and size of loans that BankAtlantic makes and the interest rates and fees that
BankAtlantic receives on these loans. .BankAtlantic competes for deposits with banks, savings
institutions and credit unions, as well as institutions offering uninsured investment alternatives,
including money market funds and mutual funds, many of which are uninsured. These competitors may
offer higher interest rates than BankAtlantic, which could decrease the deposits that Bank Atlantic
attracts or require BankAtlantic to increase its rates to attract new deposits. Increased
competition for deposits could increase BankAtlantics cost of funds, reduce its net interest
margin and adversely affect its results of operations.
29
ITEM 1A. RISK FACTORS
RISKS RELATED TO BFC, GENERALLY
We have in the past incurred cash flow deficits at the BFC parent company level which we expect
will continue in the future.
BFC is engaged in making investments in operating businesses and, in the past, BFC Parent has
not had revenue generating operating activities. We have in the past incurred cash flow deficits
at BFC Parent and expect to continue to incur cash flow deficits in the foreseeable future. We
have financed these operating cash flow deficits with available working capital, issuances of
equity or debt securities, and with dividends from our subsidiaries. BFC Parent is dependent upon
dividends from its subsidiaries to fund its operations. Currently, BankAtlantic Bancorp is
restricted from paying dividends and these restrictions may continue in the future. In addition,
Bluegreen has historically not paid dividends on its common stock. As a result, if cash flow is
not sufficient to fund our operating expenses in the future, we may be forced to reduce operating
expenses, to liquidate some of our investments or to seek to fund our operations from the proceeds
of additional equity or debt financing. There is no assurance that any such financing would be
available on commercially reasonable terms, if at all, or that we would not be forced to liquidate
our investments at depressed prices.
Adverse conditions and events where our investments are currently concentrated or in the industries
in which our subsidiaries operate could continue to adversely impact our results and future growth.
BankAtlantic Bancorps business, the location of BankAtlantics branches and the real estate
collateralizing its commercial real estate loans and home equity loans are concentrated in Florida.
Further, our operations are concentrated in Florida and South Carolina. Economic conditions
generally, and the economies of both Florida and South Carolina in particular have adversely
impacted our results and operations. Further, each of these states is subject to the risks of
natural disasters, such as tropical storms and hurricanes. The continued impact of the economic
downturn, natural disasters or adverse changes in laws or regulations applicable to the companies
could impact the credit quality of BankAtlantics assets, the desirability of our properties, the
financial condition and performance of our customers and our overall success. In addition,
Bluegreens operations, which are primarily conducted within the vacation ownership and real estate
industry, have also been adversely impacted by the current economic downturn. The persistence or
further deterioration of the current adverse economic conditions could have a material adverse
effect on our business and results of operations.
We are subject to the risks faced by the companies in which we currently hold investments.
Our primary holdings consist of our direct and indirect investments in BankAtlantic Bancorp,
Bluegreen, Core, Pizza Fusion and Benihana. As a result, we are subject to the risks faced by these
companies in their respective industries. Each has been adversely affected by a downturn in the
economy, loss of consumer confidence and disruptions in the credit markets. Our current business
plan includes a focus on providing strategic support to the companies within our consolidated
group, and in which we hold investments. Such support may include further investments in those
companies. Any such additional investments will further expose us to the risks faced by those
companies.
We will be required to make a cash payment to shareholders of Woodbridge who exercised appraisal
rights in connection with the Merger.
Under Florida law, holders of Woodbridges Class A Common Stock who did not vote to approve
the Woodbridge Merger and who properly asserted and exercised their appraisal rights with respect
to their shares (Dissenting Holders) are entitled to receive a cash payment in an amount equal to
the fair value of their shares (as determined in accordance with the provisions of Florida law) in
lieu of the shares of BFCs Class A Common Stock which they would otherwise have been entitled to
receive. Dissenting Holders, who owned in the aggregate approximately 4.6 million shares of
Woodbridges Class A Common Stock, provided written notice to Woodbridge regarding their intent to
exercise their appraisal rights. In accordance with Florida law, Woodbridge provided written
notices and required forms to the Dissenting Holders setting forth, among other things, its
determination that the fair value of Woodbridges Class A Common Stock immediately prior to the
effectiveness of the Merger was $1.10 per share. Dissenting Holders were required to return their
appraisal forms by November 10, 2009 and indicate on their appraisal forms whether the Dissenting
Holder chose to (i) accept Woodbridges offer of $1.10 per share in cash, or (ii) demand payment of
the fair value estimate determined by the Dissenting Holder plus interest. As of the date of this
filing, one Dissenting Holder which held approximately 400,000 shares of Woodbridges Class A
Common Stock had withdrawn its shares from the appraisal rights process, while the remaining
Dissenting Holders, who collectively held approximately 4.2 million shares of Woodbridges Class A
Common Stock, have rejected Woodbridges offer of $1.10 per share and requested payment for their
shares based on their respective views of the fair value of Woodbridges Class A Common Stock prior
to the merger. In December 2009, the Company recorded a $4.6 million liability with a corresponding
reduction to additional paid-in capital representing, in the aggregate, Woodbridges offer to the
Dissenting Holders. However, the appraisal rights litigation is currently ongoing and its outcome
is uncertain. As a result, there is no assurance as to the amount of cash that Woodbridge will be
required to pay to the Dissenting Holders and such amount may be greater than the $4.6 million that
we have accrued. Any significant increase in Woodbridges obligation to Dissenting Holders who
exercise their appraisal rights could have a material adverse effect on BFCs and Woodbridges
businesses.
30
Regulatory restrictions, BankAtlantic performance and the terms of indebtedness limit or restrict
BankAtlantic Bancorps ability to pay dividends which may impact our cash flow.
At December 31, 2009, we held approximately 37% of the outstanding common stock of
BankAtlantic Bancorp. Dividends by BankAtlantic Bancorp are subject to a number of conditions,
including the cash flow and profitability of BankAtlantic Bancorp, declaration of dividends by
BankAtlantic Bancorps Board of Directors, compliance with the terms of outstanding indebtedness,
and regulatory restrictions applicable to BankAtlantic.
BankAtlantic Bancorp is a separate publicly traded company whose Board of Directors includes a
majority of independent directors as required by the listing standards of the New York Stock
Exchange. Decisions made by BankAtlantic Bancorps Board are not within our control and may not be
made in our best interests.
The declaration and payment of dividends and the ability of BankAtlantic Bancorp to meet its
debt service obligations will depend upon adequate cash holdings, which are driven by the results
of operations, financial condition and cash requirements of BankAtlantic Bancorp, and the ability
of BankAtlantic to pay dividends to BankAtlantic Bancorp. The ability of BankAtlantic to pay
dividends or make other distributions to BankAtlantic Bancorp is subject to regulations and prior
approval of the Office of Thrift Supervision (OTS). The OTS would not approve any distribution
that would cause BankAtlantic to fail to meet its capital requirements or if the OTS believes that
a capital distribution by BankAtlantic would constitute an unsafe or unsound action or practice,
and there is no assurance that the OTS would approve future applications for capital distributions
from BankAtlantic. During the first quarter of 2009, BankAtlantic suspended the payment of
dividends to BankAtlantic Bancorp and BankAtlantic has indicated that it does not intend to seek to
make any capital distributions for the foreseeable future. In February 2009, BankAtlantic Bancorp
elected to exercise its right to defer payments of interest on its trust preferred junior
subordinated debt. BankAtlantic Bancorp is permitted to defer quarterly interest payments for up to
20 consecutive quarters. During the deferral period, BankAtlantic Bancorp is prohibited from
paying dividends to its shareholders, including BFC. While BankAtlantic Bancorp can end the
deferral period at any time, BankAtlantic Bancorp has indicated that it anticipates that is may
continue to defer such interest payments for the foreseeable future. Accordingly, BFC does not
expect to receive dividends from BankAtlantic Bancorp for the foreseeable future.
The payment of dividends by Bluegreen is not within our control.
Bluegreen is a separate publicly traded company whose Board of Directors includes a majority
of independent directors as required by the listing standards of the New York Stock Exchange.
Decisions made by Bluegreens Board are not within our control and may not be made in our best
interests.
Bluegreen has not paid cash dividends during the three years ending December 31, 2009. Future
dividends from Bluegreen are subject to approval by Bluegreens Board of Directors (a majority of
whom are independent directors) and will depend upon, among other factors, Bluegreens results of
operations, financial condition and operating and capital needs. Bluegreen may also be limited
contractually from paying dividends by the terms of its credit facilities. Accordingly, there is no
assurance that Bluegreen will pay dividends for the foreseeable future.
Dividends and distributions from our subsidiaries to their respective parent companies may be
subject to claims in the future from creditors of the subsidiary.
Subsidiaries have in the past and may in the future make dividends or distributions to their parent companies. Dividend payments and other distributions by a subsidiary to its parent
company, including payments or distributions from Core to Woodbridge, from BankAtlantic to
BankAtlantic Bancorp, or from
Woodbridge or BankAtlantic Bancorp to BFC may, in certain
circumstances, be subject to claims made by creditors of the subsidiary which made
the payment or distribution. Any such claim, if successful, may have a material and adverse impact
on the financial condition of the parent company against which the claim was brought.
31
There are inherent uncertainties involved in estimates, judgments and assumptions used in the
preparation of financial statements in accordance with GAAP. Any changes in estimates, judgments
and assumptions used could have a material adverse effect on our financial position and operating
results.
The consolidated financial statements included in the periodic reports we file with the SEC,
including those included as part of this Annual Report on Form 10-K, are prepared in accordance
with GAAP. The preparation of financial statements in accordance with GAAP involves making
estimates, judgments and assumptions that affect reported amounts of assets (including purchase
accounting fair value measurements, goodwill and other intangible assets), liabilities and related
reserves, revenues, expenses and income. This includes estimates, judgments and assumptions for
assessing the amortization /accretion of purchase accounting fair value differences and the future
value of goodwill and other intangible assets pursuant to applicable accounting guidance. We base
our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
However, estimates, judgments and assumptions are inherently subject to change in the future. As a
result, our estimates, judgments and assumptions may prove to be incorrect and our actual results
may differ from these estimates under different assumptions or conditions. If any estimates,
judgments or assumptions change in the future, or our actual results differ from our estimates or
assumptions, we may be required to record additional expenses or impairment charges, which would be
recorded as a charge against our earnings and could have a material adverse impact on our financial
condition and operating results.
Our activities and our subsidiaries activities are subject to a wide range of regulatory
requirements applicable to financial institutions and holding companies, and noncompliance with
such regulations could have a material adverse effect on our business.
The Company and BankAtlantic Bancorp are each grandfathered unitary savings and loan holding
companies and have broad authority to engage in various types of business activities. However, the
OTS can stop either of us from engaging in activities or limit those activities if it determines
that there is reasonable cause to believe that the continuation of any particular activity
constitutes a serious risk to the financial safety, soundness or stability of BankAtlantic. The
OTS may also:
| limit the payment of dividends by BankAtlantic to BankAtlantic Bancorp; | ||
| limit transactions between us, BankAtlantic, BankAtlantic Bancorp and the subsidiaries or affiliates of either; | ||
| limit the activities of BankAtlantic, BankAtlantic Bancorp or us; or | ||
| impose capital requirements on us or BankAtlantic Bancorp. |
In addition, unlike bank holding companies, as unitary savings and loan holding companies, BFC
and BankAtlantic Bancorp are not currently subject to capital requirements. However, the OTS has
indicated that it may, in the future, impose capital requirements on savings and loan holding
companies. In addition, the current administration has proposed legislation which would, among
other things, eliminate the status of savings and loan holding company and require us and
BankAtlantic Bancorp to register as a bank holding company, which would subject us and BankAtlantic
Bancorp to regulatory capital requirements. Further, the OTS or other regulatory bodies having
authority over the Company in the future may adopt regulations in the future that would affect the
Companys operations, including BankAtlantic Bancorps ability to pay dividends or to engage in
certain transactions or activities. See Financial Services Regulation and Supervision Holding
Company.
32
Certain members of our Board of Directors and certain of our executive officers are also directors
and executive officers of our affiliates.
Alan B. Levan, our Chairman and Chief Executive Officer, and John E. Abdo, our Vice Chairman,
are also members of the Boards of Directors and/or executive officers of BankAtlantic Bancorp,
BankAtlantic, Woodbridge, Bluegreen and Benihana. Neither Mr. Levan nor Mr. Abdo is obligated to
allocate a specific amount of time to the management of the Company, and they may devote more time
and attention to the operations of our affiliates than they devote directly to our operations.
Jarett S. Levan, a member of our Board of Directors, is the President of BankAtlantic Bancorp and
the Chief Executive Officer of BankAtlantic and a member of the Board of each of them, and D. Keith
Cobb, a member of our Board of Directors, is a member of the Boards of Directors of BankAtlantic
Bancorp and BankAtlantic.
Risks Associated with Our Investments in the Restaurant Industry
We have an investment in preferred shares of Benihana which are convertible to shares of
Benihanas Common Stock. Benihana operates 98 restaurants in the United States, including 64
Benihana teppanyaki restaurants, nine Haru sushi restaurants and 25 RA Sushi Bar restaurants. In
addition, 23 franchised Benihana teppanyaki restaurants operate in the United States, Latin America
and the Caribbean. We have an investment in Pizza Fusion which has 18 restaurants, including 2
Company owned restaurants and 16 franchised restaurants, operating in 9 states and had entered into
franchise agreements for an additional 12 stores by September 2010. As such, we are subject to the
risks faced by these companies and the value of our investment will be influenced by the market
performance and financial performance of these companies. Some of the risk factors common to the
restaurant industry which might affect the performance of these companies include:
| the current economic downturn has adversely impacted consumer spending patterns and has had negative effects on consumer discretionary spending; | ||
| the limited availability and high cost of credit may continue or deteriorate further; | ||
| higher than normal food costs may adversely impact our results of operations; | ||
| the failure of existing or new restaurants to perform as expected; | ||
| the inability to construct new restaurants and remodel existing restaurants within projected budgets and time periods; | ||
| increases in the minimum wage; | ||
| increases in unemployment; | ||
| intense competition in the restaurant industry; | ||
| the food service industry is affected by litigation and publicity concerning food quality, health and other issues, which could cause customers to avoid a particular restaurant, result in significant liabilities or litigation costs or damage reputation or brand recognition; and | ||
| implementing growth and renovation strategies may strain available resources. |
Our portfolio of equity securities and our investments in BankAtlantic Bancorp, Benihana and
Bluegreen subjects us to equity pricing risks.
Because BankAtlantic Bancorp and Bluegreen are consolidated in the Companys financial
statements, the decline in the market price of their stock would not impact the Companys
consolidated financial statements. However, a decline in the market price of the securities of
either of these companies would likely have an adverse effect on the market price of our common
stock. The market price of our common stock and our equity securities are important to our
valuation and ability to obtain equity or debt financing.
We also have an investment in Benihana Series B Convertible Preferred Stock (Benihana
Preferred Stock) for which no current market exists (unless converted into common stock). The
800,000 shares of Benihana Preferred Stock owned by the Company are convertible into 1,578,943
shares of Benihana Common Stock. At December 31, 2009, if converted, the aggregate market value of
such shares would have been $6.6 million. The ability to realize or liquidate this investment will
depend on future market and economic conditions and the ability to register our sale of shares of
Benihanas common stock in the event of the conversion of our shares of Benihana Convertible
Preferred stock, all of which are subject to significant risk.
33
Our net operating loss carryforwards will be substantially limited as a result of the Merger with
Woodbridge because the Merger resulted in an ownership change as defined in the Internal Revenue
Code.
We have experienced and continue to experience net operating losses. Under the Internal
Revenue Code, we may utilize our net operating loss carryforwards in certain circumstances to
offset future taxable income and to reduce federal income tax liability, subject to certain
requirements and restrictions. The Woodbridge merger, which was consummated on September 21, 2009,
resulted in an ownership change, as defined in Section 382 of the Internal Revenue Code. As a
result, our ability in the future to use our historic net operating loss carryforwards will be
substantially limited, which could have a negative impact on our financial position and results of
operations. However, we believe that BFC may utilize Woodbridges net operating loss
carryforwards. Accordingly, in September 2009, our Board of Directors adopted a shareholder rights
plan designed to preserve shareholder value and protect our ability to use Woodbridges net
operating loss carryforwards by providing a deterrent to holders of less than 5% of our common
stock from acquiring a 5% or greater ownership interest in our common stock. However, there is no
assurance that the shareholder rights plan will successfully prevent against an ownership change
or otherwise preserve our ability to utilize our net operating loss carryforwards to offset any
future taxable income, nor is there any assurance that we will be in a position to utilize our net
operating loss carryforwards in the future even if we do not experience an ownership change.
Issuance of Additional Securities In The Future.
There is generally no restriction on our ability to issue debt or equity securities which are
pari passu or have a preference over our common stock. Authorized but unissued shares of our
capital stock are available for issuance from time to time at the discretion of our Board of
Directors, including issuances in connection with acquisitions, and any such issuance may be
dilutive to our shareholders. There is also no restriction on the ability of BankAtlantic Bancorp
or Bluegreen to issue additional capital stock or incur additional indebtedness. Any future
securities issuances by BankAtlantic Bancorp or Bluegreen may dilute our economic investment or
voting interest in those companies.
Our control position may adversely affect the market price of BankAtlantic Bancorps Class A Common
Stock and Bluegreens common stock.
As of December 31, 2009, we owned all of BankAtlantic Bancorps issued and outstanding Class B
Common Stock and approximately 17.3 million shares, or approximately 36%, of BankAtlantic Bancorps
issued and outstanding Class A Common Stock, representing approximately 66% of BankAtlantic
Bancorps total voting power. Additionally, we own approximately 16.9 million shares, or
approximately 52%, of Bluegreens issued and outstanding common stock. Accordingly, we hold a
controlling position with respect to BankAtlantic Bancorp and Bluegreen and have the voting power
to significantly influence the outcome of any shareholder vote of the companies, except with
respect to BankAtlantic Bancorp in those limited circumstances where Florida law mandates separate
class votes. Our control position may have an adverse effect on the market prices of BankAtlantic
Bancorps Class A Common Stock and Bluegreens common stock.
Alan B. Levan And John E. Abdos Control Position May Adversely Affect The Market Price Of Our
Common Stock.
Alan B. Levan, our Chairman of the Board of Directors and Chief Executive Officer, and John E.
Abdo, our Vice Chairman of the Board of Directors, may be deemed to beneficially own shares of our
common stock representing approximately 72% of our total voting power. These shares consist of
10,694,685 shares or 15.6% of our Class A Common Stock and 6,521,228 shares, or 87.4%, of our Class
B Common Stock. Additionally, Alan B. Levan and John E. Abdo have agreed to vote their shares of
our Class B common stock in favor of the election of the other to our Board of Directors for so
long as they are willing and able to serve as directors of the Company. Further, John E. Abdo has
agreed, subject to certain exceptions, not to transfer certain of his shares of our Class B common
stock and to obtain the consent of Alan B. Levan prior to the conversion of certain of his shares
of our Class B common stock into shares of our Class A common stock. Since our Class A common
stock and Class B common stock vote as a single class on most matters, Alan B. Levan and John E.
Abdo effectively have the voting power to control the outcome of any shareholder vote (except in
those limited circumstances where Florida law mandates that the holders of our Class A common stock
vote as a separate class) and to elect the members of our Board of Directors. Alan B. Levan and
John E. Abdos control position may have an adverse effect on the market price of our common stock.
Alan B. Levans and John E. Abdos interests may conflict with the interests of our other
shareholders.
34
The terms of our articles of incorporation, which establish fixed relative voting percentages
between our Class A Common Stock and Class B Common Stock, may not be well accepted by the market.
Our Class A Common Stock and Class B Common Stock generally vote together as a single class.
The Class A Common Stock possesses in the aggregate 22% of the total voting power of all our common
stock and the Class B Common Stock possesses in the aggregate the remaining 78% of the total voting
power. These relative voting percentages will remain fixed unless the number of shares of Class B
Common Stock outstanding decreases to 1,800,000 shares, at which time the Class A Common Stocks
aggregate voting power will increase to 40% and the Class B Common Stock will have the remaining
60%. If the number of shares of Class B Common Stock outstanding decreases to 1,400,000 shares, the
Class A Common Stocks aggregate voting power will increase to 53% and the Class B Common Stock
will have the remaining 47%. These relative voting percentages will remain fixed unless the number
of shares of Class B Common Stock outstanding decreases to 500,000 shares, at which time the fixed
voting percentages will be eliminated. These changes in the relative voting power represented by
each class of our common stock are based only on the number of shares of Class B Common Stock
outstanding. Thus issuances of Class A Common Stock will have no effect on these provisions. If
additional shares of Class A Common Stock are issued, it is likely that the disparity between the
equity interest represented by the Class B Common Stock and its voting power will widen. While the
amendment creating this capital structure was approved by our shareholders, the fixed voting
percentage provisions are somewhat unique. If the market does not view this structure favorably,
the trading price and market for our Class A Common Stock would be adversely affected.
The loss of the services of our key management and personnel could adversely affect our business.
Our ability to successfully implement our business strategy will depend on our ability to
attract and retain experienced and knowledgeable management and other professional staff. There is
no assurance that we will be successful in attracting and retaining key management personnel.
35
RISKS RELATED TO WOODBRIDGE
The defaults by Woodbridge and its subsidiaries under the terms of their outstanding indebtedness
have resulted in acceleration of the debt and may result in judgments against the obligors.
Lenders with respect to approximately $37.2 million of debt owed by Woodbridge and all of the
approximately $209.9 million of debt owed by Core have declared the debt to be in default. While
Woodbridge is disputing the fact that an event of default occurred under the terms of its
indebtedness and is currently in negotiations with respect to the purported default with the FDIC
(which holds the debt as a result of the failure of the lender), Core is currently pursuing all
options with its lenders, including offering deeds in lieu of foreclosure with respect to the
property collateralizing its loans. If these negotiations and efforts are not successful, the
lenders may exercise remedies available to them as a result of the defaults, which may result in
judgments against the obligors, the loss of the collateral and related losses beyond those
previously incurred. This would be expected to materially and adversely impact our financial
condition and operating results.
Core has ceased substantially all development operations and may not be successful in achieving an
orderly liquidation of its assets.
As discussed throughout this report, Core is experiencing cash flow deficits. The significant
decrease in land sales in 2009 and continued cash flow deficits contributed to, among other things,
the deterioration of Cores liquidity. As a result, Core has severely limited its development
expenditures in Tradition, Florida and has completely discontinued development activity in
Tradition Hilton Head. The value of Cores assets has decreased, resulting in $78.0 million of
impairment charges, including $13.6 million of impairment charges related to assets held for sale during 2009. Further, as described above, Core is currently in default under
the terms of all of its loans. Core has commenced negotiations with its lenders in an effort to
achieve an orderly liquidation of its operations without a bankruptcy filing, but there is no
assurance that Core will be successful in its negotiations. If Core is not successful in its
efforts to liquidate its assets or otherwise renegotiate its debt with its lenders, Core may need
to pursue a bankruptcy filing and may be required to record additional impairment charges and
losses beyond those previously incurred, which would likely have a material and adverse impact on
our financial condition and operating results.
Core utilized community development district and special assessment district bonds to fund
development costs, and Core will be responsible for assessments until the underlying property is
sold or otherwise transferred.
Core established community development district and special assessment district bonds to
access tax-exempt bond financing to fund infrastructure development at Cores master-planned
communities. Core is responsible for any assessed amounts until the underlying property is sold.
Accordingly, if Core continues to hold certain of its properties longer than originally projected
(as a result of a continued downturn in the real estate markets or otherwise), Core may be required
to pay a higher portion of annual assessments on such properties. In addition, Core could be
required to pay down a portion of the bonds in the event its entitlements were to decrease as to
the number of residential units and/or commercial space that can be built on the properties
encumbered by the bonds. Moreover, Core has guaranteed payments for assessments under the district
bonds in Tradition, Florida which would require funding if future assessments to be allocated to
property owners are insufficient to repay the bonds.
It may be difficult and costly to rent vacant space and space which may become vacant in future
periods.
We may not be able to maintain our overall occupancy levels in the commercial property we own.
Our ability to continue to lease or re-lease vacant space in our commercial properties will be
affected by many factors, including our properties locations, current market conditions and the
provisions of the leases we enter into with the tenants at our properties. In fact, many of the
factors which could cause our current tenants to vacate their space could also make it more
difficult for us to re-lease that space. If we are able to re-lease vacated space, there is no
assurance that rental rates will be equal to or in excess of current rental rates. In addition, we
may incur substantial costs in obtaining new tenants, including brokerage commission fees paid by
us in connection with new leases or
lease renewals, and the cost of leasehold improvements. The failure to lease or to re-lease
vacant space on satisfactory terms will have an adverse effect on our operating results.
36
If prospective purchasers of assets and tenants are not able to obtain suitable financing, our
results of operations may further decline.
Our results of operations are dependent in part on the ability of prospective purchasers of
our real estate inventory and prospective commercial tenants to secure financing. The
deterioration of the credit markets and the related tightening of credit standards may impact the
ability of prospective purchasers and tenants to secure financing on acceptable terms, if at all.
This may, in turn, negatively impact long-term rental and occupancy rates as well as the value of
our commercial properties.
Product liability litigation and claims that arise in the ordinary course of business may be
costly.
Our real estate operations are subject to construction defect and product liability claims
arising in the ordinary course of business. These claims are particularly common in the commercial
real estate industry and can be costly. We have, and many of our subcontractors have, general
liability, property, errors and omissions, workers compensation and other business insurance.
However, these insurance policies only protect us against a portion of our risk of loss from
claims. In addition, because of the uncertainties inherent in these matters, we cannot provide
reasonable assurance that our insurance coverage or our subcontractor arrangements will be adequate
to address all warranty, construction defect and liability claims in the future. In addition, the
costs of insuring against construction defect and product liability claims, if applicable, are
substantial and the amount of coverage offered by insurance companies is also currently limited.
There can be no assurance that this coverage will not be further restricted and become more costly.
If we are not able to obtain adequate insurance against these claims, we may experience losses
that could negatively impact our operating results.
We are subject to governmental regulations that may limit our operations, increase our expenses or
subject us to liability.
We are subject to laws, ordinances and regulations of various federal, state and local
governmental entities and agencies concerning, among other things:
| environmental matters, including the presence of hazardous or toxic substances; | ||
| wetland preservation; | ||
| health and safety; | ||
| zoning, land use and other entitlements; | ||
| building design; and | ||
| density levels. |
We may also at times not be in compliance with all regulatory requirements. If we are not in
compliance with regulatory requirements, we may be subject to penalties, lose our entitlement or be
forced to incur significant expenses to cure any noncompliance.
We are subject to environmental laws and the cost of compliance could adversely affect our
business.
As a current or previous owner or operator of real property, we may be liable under federal,
state, and local environmental laws, ordinances and regulations for the costs of removal or
remediation of hazardous or toxic substances on, under or in the property. These laws often impose
liability whether or not we knew of, or were responsible for, the presence of such hazardous or
toxic substances. The cost of investigating, remediation or removing such hazardous or toxic
substances may be substantial. The presence of any such substance, or the failure to promptly
remediate any such substance, may adversely affect our ability to sell or lease the property or to
use the property for its intended purpose.
37
Levitt and Sons had surety bonds on most of their projects, some of which were subject to indemnity
by Woodbridge.
Levitt and Sons had $33.3 million in surety bonds relating to its ongoing projects at the time
of the filing of the Chapter 11 Cases. In the event that these obligations are drawn and paid by
the surety, Woodbridge could be responsible for up to $8.0 million plus costs and expenses in
accordance with the surety indemnity agreements it executed. At December 31, 2009, we had a $0.5
million in surety bonds accrual related to certain Levitt and Sons bonds where management believes
it to be probable that Woodbridge will be required to reimburse the surety under applicable
indemnity agreements. It is unclear whether and to what extent the remaining outstanding surety
bonds of Levitt and Sons will be drawn and the extent to which Woodbridge may be responsible for
additional amounts beyond this accrual. Woodbridge will not receive any repayment, assets or other
consideration as recovery of any amount it may be required to pay. If losses on additional surety
bonds are identified, we will need to take additional charges associated with our exposure under
our indemnities, and this may have a material adverse effect on our results of operations and
financial condition.
38
RISKS RELATED TO BLUEGREEN
Bluegreen presents its results in two reportable segments. Bluegreens results of operations
for the Bluegreen Interim Period are consolidated in BFC Financial Corporations financial
statements. Bluegreen is a separate public company and its management prepared the following
discussion regarding Bluegreen which was included in Bluegreens Annual Report on Form 10-K for
the year ended December 31, 2009 which was filed with the Securities and Exchange Commission on
March 31, 2010. Accordingly, references to we, us or our in this section are references to
Bluegreen and its subsidiaries, and are not references to BFC, Woodbridge, or BankAtlantic Bancorp.
We are subject to various risks and uncertainties relating to or arising out of the nature of
our business and general business, economic, financing, legal and other factors or conditions that
may affect us. Moreover, we operate in a very competitive, highly regulated and rapidly changing
environment. New risk factors emerge from time to time and it is not possible for management to
either predict all risk factors, or assess the impact of all risk factors on our business or the
extent to which any factor, or combination of factors, may affect our business. These risks and
uncertainties include, but are not limited, to the risk factors set forth below and those
identified elsewhere in this Annual Report on Form 10-K, including in the section entitled
Managements Discussion and Analysis of Financial Condition and Results of Operations. Investors
should also refer to our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (available
on our website and the SECs website) in future periods for information relating to risks and
uncertainties with respect to us and our business.
The state of the economy, generally, interest rates and the availability of financing affect our
ability to market VOIs and residential homesites.
Our business has been adversely affected by unfavorable general economic and industry conditions,
including effects of weak domestic and world economies, rising unemployment and job insecurity, a
decrease in discretionary spending, a decline in housing values, limited availability of
financing, and geopolitical conflicts. If such conditions continue, or deteriorate further, our
business and results may continue to be adversely impacted, particularly if the availability of
financing for us or for our customers continues to be limited or if changes in general economic
conditions adversely affect our customers ability to pay amounts owed under our notes receivable.
Further, because our operations are conducted mainly within the vacation ownership industry, any
adverse changes affecting the industry, such as an oversupply of vacation ownership units, a
reduction in demand for such units, changes in travel and vacation patterns, changes in
governmental regulation of the industry, continued disruptions in the credit markets and
unavailability of financing, imposition of increased taxes by governmental authorities, the
declaration of bankruptcy and/or credit defaults by other vacation ownership companies and
negative publicity for the industry, could also have a material adverse effect on our business.
We would incur substantial losses if the customers we finance default on their obligations, and
new credit underwriting standards may not have the anticipated favorable impact on performance.
Historically, we did not perform credit checks of the purchasers of our VOIs at the time of sale
in connection with our financing of their purchases. From time to time, however, we obtained
FICO® scores on the overall VOI portfolio originated by us. Based on a review conducted in
October 2008, approximately 30.4% of VOI borrowers in our serviced loan portfolio had a FICO®
score below 620. Effective December 15, 2008, we implemented a formal FICO® score based credit
underwriting program. However, there is no assurance that any of these FICO® score-based underwriting standards will result in decreased default rates or otherwise improve the
performance of our receivables. Conditions in the mortgage industry, including both credit
sources as well as borrowers financial profiles, have deteriorated in recent years. As of
December 31, 2009, approximately 5.4% of our vacation ownership receivables and approximately
22.5% of residential land receivables which we held or which third parties held under sales
transactions were more than 30 days past due. Although in many cases we may have recourse
against a buyer for the unpaid purchase price, certain states have laws that limit our ability to
recover personal judgments against customers who have defaulted on their loans or the cost of
doing so may not be justified. Historically, we have generally not pursued such recourse against
our customers. In the case of our VOI receivables, if we are unable to collect the defaulted
amount due, we traditionally have terminated the customers interest in the Bluegreen Vacation
Club and then remarketed the recovered VOI. Irrespective of our remedy in the event of a
default, we cannot recover the marketing, selling and administrative costs associated with the
original sale, and we would have to incur such costs again to resell the VOI or home site. If
default rates for our borrowers increase further, it may require an increase in the provision for
loan losses and an impairment of the value of our retained interests in notes receivable sold.
In addition, it may cause buyers of, or lenders whose loans are secured by, our VOI notes
receivable to reduce the amount of availability under receivables purchase and credit facilities,
or to increase the interest costs associated with such facilities. In such an event, the cost of
financing may increase and we may not be able to secure financing on terms acceptable to us, if
at all, which would adversely affect our earnings, financial position and liquidity.
Under the terms of our pledged and receivable sale facilities, we may be required, under certain
circumstances, to replace receivables or to pay down the loan to within permitted loan-to-value
ratios. Additionally, the terms of our securitization-type transactions i.) require us to
repurchase or replace loans if we breach any of the representations and warranties we made at the
time we sold the receivables and ii.) include provisions that in the event of defaults by
customers in excess of stated thresholds would require substantially all of our cash flow from
our retained interest in the receivable portfolios sold to be paid to the parties who purchased
the receivables from us.
39
Further, if defaults and other performance criteria adversely differ from estimates used to value
our retained interests in notes receivable sold in the securitization transactions, we may be
required to write down these assets, which could have a material adverse effect on our results of
operations. Accordingly, we bear some risks of delinquencies and defaults by buyers who finance
the purchase of their VOIs or residential land through us, regardless of whether or not we sell
or pledge the buyers loan to a third party.
Our business plan historically has depended on our ability to sell or borrow against our notes
receivable to support our liquidity and profitability.
We offer financing of up to 90% of the purchase price to purchasers of our VOIs and homesites.
Approximately 68% of our VOI customers and approximately 6% of our home site customers utilized
our in-house financing during the year ended December 31, 2009. However, we incur selling,
marketing and administrative cash expenditures prior to and concurrent with the sale. These costs
generally exceed the down payment we receive at the time of the sale. Accordingly, our ability to
borrow against or sell the notes receivable we receive from our customers has been a critical
factor in our continued liquidity.
We have also been a party to a number of customary securitization-type transactions under which we
sell receivables to a wholly-owned special purpose entity which, in turn, sells the receivables to
a trust established for the transaction. We typically recognized gains on the sale of receivables
and such gains have historically comprised a significant portion of our income. In recent years,
the markets for notes receivable facilities and receivable securitization transactions were
negatively impacted by problems in the residential mortgage markets and credit markets in general
and an associated reduction in liquidity which resulted in reduced availability of financing and
less favorable pricing. If our pledged receivables facilities terminate or expire and we are
unable to replace them with comparable facilities, or if we are unable to continue to participate
in securitization-type transactions on acceptable terms, our liquidity, cash flow, and
profitability would be materially and adversely affected. If any of our current facilities
terminate or expire, there is no assurance that we will be able to negotiate the pledge or sale of
our notes receivable at favorable rates, or at all.
While we have attempted to restructure our business to reduce our need for and reliance on
financing for liquidity in the short term, there is no assurance that such restructuring will be
successful or that our business and profitability will not otherwise continue to depend on our
ability to obtain financing, which may not be available on favorable terms, or at all.
We have historically depended on funds from our credit facilities and securitization transactions
to finance our operations. In recent years, there have been unprecedented disruptions in the credit
markets, which has made obtaining additional and replacement external sources of liquidity more
difficult and more costly. The term securitization market has experienced significantly reduced
volumes in recent years and, as a result, financial institutions are reluctant to enter into new
credit facilities for the purpose of providing financing on consumer receivables. Several lenders
to the timeshare industry, including certain of our lenders, have announced that they will be
either be exiting the finance business or will not be entering into new financing commitments for
the foreseeable future, although such lenders continue to honor existing commitments. In addition,
financing for real estate acquisition and development and the capital markets for corporate debt
have been generally unavailable. In response to these conditions, we adopted strategic initiatives
in an attempt to conserve cash. Further, because we had debt facilities maturing or
requiring partial repayment in 2009 and 2010, as well as facilities for which the advance period
has or will expire, the implementation of our strategic initiatives was needed to address these
matters with our lenders. However, there is no assurance that our implementation of these
strategic initiatives will enhance our financial position or otherwise be successful. If these
initiatives do not have their intended results, our financial condition may be materially and
adversely impacted.
In addition, notwithstanding our implementation of the strategic initiatives described above, we
anticipate that we will continue to finance our future business activities, in part, with funds
that we obtain pursuant to additional borrowings under our existing credit facilities, under
credit facilities that we may obtain in the future, under securitizations in which we may
participate in the future or pursuant to other borrowing arrangements. Moreover, we are, and will
be, required to seek continued external sources of liquidity to:
| support our operations; | ||
| finance the acquisition and development of VOI inventory and residential land; | ||
| finance a substantial percentage of our sales; and | ||
| satisfy our debt and other obligations. |
40
Our ability to service or to refinance our indebtedness or to obtain additional financing
(including our ability to consummate future notes receivable securitizations) depends on the
credit markets and on our future performance, which is subject to a number of factors, including
the success of our business, results of operations, leverage, financial condition and business
prospects, prevailing interest rates, general economic conditions and perceptions about the
residential land and vacation ownership industries. We have approximately $87.5 million of
indebtedness which becomes due during 2010. While we have received a non-binding term sheet to
refinance $40.2 million of this amount which would reduce our contractual obligations less than one year by $26.6 million, there
can be no assurances that this transaction will close on favorable terms, if at all. Historically,
much of Bluegreens debt has been renewed or refinanced in the ordinary course of business. But
there is no assurance that we will be able to obtain sufficient external sources of liquidity on
attractive terms, or at all, or otherwise renew, extend or refinance a significant portion of our
outstanding debt. Any of these occurrences may have a material and adverse impact on our
liquidity and financial condition.
Our results of operations and financial condition could be adversely impacted if our estimates
concerning our notes receivable are incorrect.
A portion of our revenue historically has been comprised of gains on sales of notes receivable in
off-balance sheet arrangements. The amount of any gains recognized and the fair value of the
retained interests recorded were based in part on managements best estimates of future
prepayment, default and loss severity rates, discount rates and other considerations in light of
then-current conditions. Our results of operations and financial condition could be adversely
affected if, among other things:
| actual prepayments with respect to loans sold occur more quickly than was projected; | ||
| actual defaults and/or loss severity rates with respect to loans sold are greater than estimated; | ||
| the portfolio of receivables sold fails to satisfy specified performance criteria; or | ||
| conditions in the securitization market continue to result in a widening of interest spreads, causing the discount rates used to value our retained interest in notes receivable sold to increase. |
If any of these situations were to occur, it could cause a decline in the fair value of the
retained interests and a charge to earnings currently. Further, in certain events the cash flow
on the retained interests in notes receivable sold could be reduced, in some cases, until the
outside investors are paid or the regular payment formula was resumed.
Our future success depends on our ability to market our products successfully and efficiently.
We compete for customers with other hotel and resort properties and vacation ownership resorts.
While in the short term we have made a decision to limit sales and reduce cash requirements, in
the long run, the identification of sales prospects and leads, and the marketing of our products
to them are essential to our success. We have incurred and will continue to incur the expenses
associated with marketing programs in advance of closing sales to the leads that we identify. If
our lead identification and marketing efforts do not yield enough leads or we are unable to
successfully convert sales leads to a sufficient number of sales, we may be unable to recover the
expense of our marketing programs and systems and our business would be adversely affected.
We are subject to the risks of the real estate market and the risks associated with real estate
development, including the declines in real estate values and the deterioration of real estate
sales.
Real estate markets are cyclical in nature and highly sensitive to changes in national and
regional economic conditions, including:
| levels of unemployment; | ||
| levels of discretionary disposable income; | ||
| levels of consumer confidence; | ||
| the availability of financing; | ||
| overbuilding or decreases in demand; | ||
| interest rates; and, | ||
| federal, state and local taxation methods. |
41
The real estate market is currently experiencing a significant correction, the depth and duration
of which are as yet unknown and many economists and financial analysts, as well as the media in
general, believe that we are in the midst of a general economic recession. These circumstances
have exerted pressure upon our Bluegreen Communities and Bluegreen Resorts divisions. Further, a
continued deterioration of the economy in general or the market for residential land or VOIs
would have a material adverse effect on our business.
The availability of land at favorable prices for the development of our Bluegreen Resorts and
Bluegreen Communities real estate projects by the time we will need more real estate inventory to
sell is critical to our profitability and the ability to cover our significant selling, general
and administrative expenses, cost of capital and other expenses. While we believe that the
property we have purchased at our adjusted carrying amounts will generate appropriate margins,
land prices have fallen significantly and the projects we bought in the last several years may
have been bought at higher price levels than available in the current market. If we are unable
to acquire such land or, in the case of Bluegreen Resorts, resort properties, at a favorable
cost, it could have an adverse impact on our results of operations.
The profitability of our real estate development activities is also impacted by the cost of
construction materials and services. Should the cost of construction materials and services
rise, the ultimate cost of our Bluegreen Resorts and Bluegreen Communities inventories when
developed could increase and have a material, adverse impact on our results of operations.
Our adoption on January 1, 2010, of recently issued accounting guidance will have a material
adverse impact on our net worth, leverage, and book value per share.
The initial adoption of FASB ASC 860-10 and FASB ASC 810-10 in our 2010 first quarter will require
us to consolidate our existing qualifying special purpose entities associated with past
securitization transactions. As such, we will record a one-time non-cash after-tax charge
directly to shareholders equity of approximately $35.0 million to $55.0 million, representing the
cumulative effect of a change in accounting principle, in the first quarter of 2010. The cumulative
effect will consist primarily of the reestablishment of notes receivable (net of reserves)
associated with those securitization transactions, the elimination of residual interests that we
initially recorded in connection with those transactions, the impact of recording debt obligations
associated with third party interests held in the special purpose entities and related adjustments
to deferred financing costs and inventory balances. We anticipate that our adoption of these
standards will have the following impacts on our balance sheet: (1) assets will increase by
approximately $335.0 million to $345.0 million primarily related to the consolidation of notes
receivable; (2) liabilities will increase by approximately $380.0 million to $390.0 million,
primarily representing the consolidation of debt obligations associated with third party interests;
and (3) shareholders equity will decrease by approximately $35.0 million to $55.0 million. There
can be no assurances that this change in accounting principle will not adversely affect the market
value of our common stock or the assessment of our financial position by investors and lenders.
Claims for development-related defects could adversely affect our financial condition and
operating results.
We engage third-party contractors to construct our resorts and to develop our communities.
However, our customers may assert claims against us for construction defects or other perceived
development defects, including, without limitation, structural integrity, the presence of mold as
a result of leaks or other defects, water intrusion, asbestos, electrical issues, plumbing
issues, road construction, water and sewer defects and defects in the engineering of amenities.
In addition, certain state and local laws may impose liability on property developers with
respect to development defects discovered in the future. We could have to accrue a significant
portion of the cost to repair such defects in the quarter when such defects arise or when the
repair costs are reasonably estimable. A significant number of claims for development-related
defects could adversely affect our liquidity, financial condition and operating results.
The resale market for VOIs could adversely affect our business.
Based on our experience at our resorts and at destination resorts owned by third parties, we
believe that resales of VOIs generally are made at net sales prices below their original customer
purchase prices. The relatively lower sales prices are partly attributable to the high marketing
and sales costs associated with the initial sales of such VOIs. Accordingly, the initial
purchase of a VOI may be less attractive to prospective buyers. Also, buyers who seek to resell
their VOIs compete with our efforts to sell our VOIs. While VOI resale clearing houses or
brokers currently do not have a material impact on our business, if a secondary market for VOIs
were to become more organized and
liquid, the resulting availability of resale VOIs at lower prices could adversely affect our
sales prices and the number of sales we can close, which in turn would adversely affect our
business and results of operations.
42
We may be adversely affected by extensive federal, state and local laws and regulations and
changes in applicable laws and regulations, including with respect to the imposition of
additional taxes on operations.
The federal government and the states and local jurisdictions in which we conduct business have
enacted extensive regulations that affect the manner in which we market and sell VOIs and
homesites and conduct our other business operations. In addition, many states have adopted
specific laws and regulations regarding the sale of VOIs and homesites. Many states, including
Florida and South Carolina, where some of our resorts are located, extensively regulate the
creation and management of timeshare resorts, the marketing and sale of timeshare properties, the
escrow of purchaser funds prior to the completion of construction and closing, the content and
use of advertising materials and promotional offers, the delivery of an offering memorandum and
the creation and operation of exchange programs and multi-site timeshare plan reservation
systems. Moreover, with regard to sales conducted in South Carolina, the closing of real estate
and mortgage loan transactions must be conducted under the supervision of an attorney licensed in
South Carolina. In June 2006, South Carolina enacted the Time Sharing Transaction Procedures
Act which, among other things, further clarified the process that must be followed in the sale
and purchase of timeshare interests. Most states also have other laws that regulate our
activities, such as:
| timeshare project registration laws; | ||
| real estate licensure laws; | ||
| mortgage licensure laws; | ||
| sellers of travel licensure laws; | ||
| anti-fraud laws; | ||
| consumer protection laws; | ||
| telemarketing laws; | ||
| prize, gift and sweepstakes laws; and | ||
| consumer credit laws. |
We currently are authorized to market and sell VOIs and homesites in all states in which our
operations are currently conducted. If our agents or employees violate applicable regulations or
licensing requirements, their acts or omissions could cause the states where the violations
occurred to revoke or refuse to renew our licenses, render our sales contracts void or voidable,
or impose fines on us based on past activities. See Item 3 Legal Proceedings.
In addition, the federal government and the states and local jurisdictions in which we conduct
business have enacted extensive regulations relating to direct marketing and telemarketing
generally, including the federal governments national Do Not Call list. The regulations have
impacted our marketing of VOIs, and we have taken steps in an attempt to decrease our dependence
on restricted calls. However, these steps have increased and are expected to continue to
increase our marketing costs. We cannot predict the impact that these legislative initiatives or
any other legislative measures that may be proposed or enacted now or in the future may have on
our marketing strategies and results. Further, from time to time, complaints are filed against
the Company by individuals claiming that they received calls in violation of the regulation.
Currently, most states have taxed VOIs as real estate, imposing property taxes that are billed to
the respective property owners associations that maintain the related resorts and have not
sought to impose sales tax upon the sale of the VOI or accommodations tax upon the use of the
VOI. From time to time, however, various states have attempted to promulgate new laws or apply
existing laws impacting the taxation of vacation ownership interests to require that sales or
accommodations taxes be collected. Should new state or local laws be implemented or interpreted
to impose sales or accommodations taxes on VOIs, our resorts business could be materially
adversely affected.
We believe we are in material compliance with applicable federal, state, and local laws and
regulations relating to the sale and marketing of VOIs and homesites. From time to time,
however, consumers file complaints against us in the ordinary course of our business. We could
be required to incur significant costs to resolve these complaints. There is no assurance that
we will remain in material compliance with all applicable federal, state and local laws and
regulations, or that violations of applicable laws will not have adverse implications for us,
including negative public relations, potential litigation and regulatory sanctions. The expense,
negative publicity and potential sanctions associated with any failure to comply with applicable
laws or regulations could have a material adverse effect on our results of operations, liquidity
or financial position.
43
Environmental liabilities, including claims with respect to mold or hazardous or toxic
substances, could have a material adverse impact on our business.
Under various federal, state and local laws, ordinances and regulations, as well as common law,
we may be liable for the costs of removal or remediation of certain hazardous or toxic
substances, including mold, located on, in or emanating from property that we own, lease or
operate, as well as related costs of investigation and property damage at such property. These
laws often impose liability without regard to whether we knew of, or were responsible for, the
presence of the hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect our ability to sell or lease our
property or to borrow money using such real property or receivables generated from the sale of
such real property as collateral. Noncompliance with environmental, health or safety
requirements may require us to cease or alter operations at one or more of our properties.
Further, we may be subject to common law claims by third parties based on damages and costs
resulting from violations of environmental regulations or from contamination associated with one
or more of our properties.
The ratings of third-party rating agencies could adversely impact our ability to obtain, renew,
or extend credit facilities, debt, or otherwise raise capital.
Rating agencies from time to time review prior corporate and specific transaction ratings in light
of tightened ratings criteria. During the third quarter of 2009, we were informed that one of the
rating agencies downgraded its original ratings on certain bond classes in our prior
securitizations. As a result of this or any future downgrades, holders of such bonds may be
required to sell bonds in the market place and such sales could occur at a discount, which could
impact the perceived value of such bonds and our ability to sell future securitization bonds at
favorable terms, if at all.
In addition, if rating agencies were to downgrade our corporate credit ratings, our ability to
raise capital and/or issue debt at favorable terms or at all could be adversely impacted. Such a
downgrade could materially adversely affect our liquidity, financial condition and results of
operations.
The loss of the services of our key management and personnel could adversely affect our business.
Our ability to successfully implement our business strategy will depend on our ability to attract
and retain experienced and knowledgeable management and other professional staff. There is no
assurance that we will be successful in attracting and retaining key management personnel.
44
Financial Services Risk Factors
Our Financial Services activities consist of BankAtlantic Bancorp (and its federal savings
bank subsidiary, BankAtlantic), whose results of operations are consolidated with BFC. The only
assets available to BFC from BankAtlantic Bancorp are dividends when and if declared and paid by
BankAtlantic Bancorp. BankAtlantic Bancorp is a separate public company and its management prepared
the following discussion which was included in BankAtlantic Bancorps Annual Report on Form 10-K
for the year ended December 31, 200,9 which was filed with the Securities and Exchange Commission
on March 19, 2010. Accordingly, references to we, us or our in this section under the caption
Financial Services are references to BankAtlantic Bancorp and its subsidiaries, and are not
references to BFC Financial Corporation, Bluegreen Corporation or Woodbridge.
BankAtlantic Bancorp has incurred significant losses during the last three years and if
BankAtlantic Bancorp continues to incur significant losses BankAtlantic Bancorp will need to raise
additional capital, which may not be available on attractive terms, if at all.
BankAtlantic Bancorp has incurred losses of $22.2 million, $202.6 million and $185.8 million
during the years ended December 31, 2007, December 31, 2008 and December 31, 2009, respectively. As
part of its efforts to maintain regulatory capital ratios, BankAtlantic has reduced its assets and
repaid borrowings. However, the reduction of earning asset balances has resulted in reduced income
while at the same time BankAtlantic has experienced significant credit losses.
BankAtlantic Bancorp contributed $65 million and $105 million to the capital of BankAtlantic
during the years ended December 31, 2008 and December 31, 2009, respectively. At December 31, 2009,
BankAtlantic Bancorp had $14 million of liquid assets. While a wholly-owned work-out subsidiary of
BankAtlantic Bancorp also holds a portfolio of approximately $31.3 million of nonperforming loans,
net of reserves, $3.1 million of performing loans and $10.5 million of real estate owned which it
could seek to liquidate, BankAtlantic Bancorps sources of funds to continue to support
BankAtlantic are limited.
If BankAtlantic Bancorp and BankAtlantic continue to experience losses and BankAtlantics
capital ratios decline, we may become subject to regulatory actions with respect to BankAtlantic,
including the requirement to raise capital, and there is no assurance that at that time
BankAtlantic Bancorp would have sufficient funds in order to provide BankAtlantic capital, or that
BankAtlantic Bancorp or BankAtlantic would have access to capital or that capital would be
available without significant cost or without resulting in significant dilution to BankAtlantic
Bancorps shareholders.
Continued capital and credit market volatility may adversely affect our ability to access capital
and may have a material adverse effect on our business, financial condition and results of
operations.
In light of the current challenging economic environment and the desire for BankAtlantic
Bancorp to be in a position to provide capital to BankAtlantic, BankAtlantic Bancorp has and will
continue to evaluate the advisability of raising additional funds through the issuance of
securities. Any such financing could be obtained through additional public offerings, private
offerings, in privately negotiated transactions or otherwise. We could also pursue these financings
at the BankAtlantic Bancorp level or directly at BankAtlantic or both. Issuances of equity directly
at BankAtlantic would dilute BankAtlantic Bancorps interest in BankAtlantic. During February
2010, we filed a shelf registration statement with the SEC pursuant to which we may issue up to $75
million of our Class A common stock and/or other securities in the future. Because our decision to
issue securities in any future offering will depend on market conditions and other factors beyond
our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As
a result, our shareholders bear the risk of future offerings at the BankAtlantic Bancorp level
reducing the price of our Class A common stock and future offerings directly at BankAtlantic
diluting BankAtlantic Bancorps interest in BankAtlantic.
45
BankAtlantics capital levels at December 31, 2009 exceeded well capitalized regulatory
capital levels. BankAtlantic Bancorp during the years ended December 31, 2009 and 2008 contributed
$105 million and $65 million, respectively, of capital to BankAtlantic and at December 31, 2009
BankAtlantic Bancorp had $14 million of liquid assets. BankAtlantic Bancorps ability to
contribute additional capital to BankAtlantic will depend on its
ability to raise capital in the secondary markets and on its ability to liquidate its
portfolio of non-performing loans. The OTS has the right to impose additional capital requirements
on banks at its discretion and could impose additional capital requirements on BankAtlantic. Our
ability to raise additional capital will depend on, among other things, conditions in the financial
markets at the time, which are outside of our control, and our financial condition, results of
operations and prospects. The ongoing liquidity crisis and the loss of confidence in financial
institutions may make it more difficult or more costly to obtain financing. There is no assurance
that such capital will be available to us on acceptable terms or at all. The terms and pricing of
any future transaction by BankAtlantic Bancorp or BankAtlantic could result in additional
substantial dilution to our existing shareholders and could adversely impact the price of our Class
A common stock. If BankAtlantic sustains additional operating losses or if the OTS imposes more
stringent capital requirements, there is no assurance that BankAtlantic Bancorp will be able to
provide additional capital, if needed, in order for BankAtlantic to meet its capital requirements
in future periods.
BankAtlantic Bancorp has deferred interest on its outstanding junior subordinated debentures and
anticipates that it will continue to defer this interest for the foreseeable future which could
adversely affect its financial condition and liquidity.
BankAtlantic Bancorp began deferring interest on all of its $294 million of junior
subordinated debentures as of March 2009 which resulted in the deferral and accrual of $14.1
million of regularly scheduled quarterly interest payments that would otherwise have been paid
during the year ended December 31, 2009. The terms of the junior subordinated debentures allow
BankAtlantic Bancorp to defer interest payments for up to 20 consecutive quarterly periods, and
BankAtlantic Bancorp anticipates that it will continue to defer such interest for the foreseeable
future. During the deferral period, interest continues to accrue on the junior subordinated
debentures, as well as on the deferred interest, at the relevant stated coupon rate, and at the end
of the deferral period BankAtlantic Bancorp will be required to pay all interest accrued during the
deferral period. In the event that BankAtlantic Bancorp elects to defer interest on its junior
subordinated debentures for the full 20 consecutive quarterly periods permitted under the terms of
the junior subordinated debentures, BankAtlantic Bancorp would owe approximately $72 million of
accrued interest as of December 31, 2013 (based on average interest rates applicable at December
31, 2009, which were at historically low interest rate levels). As most of the outstanding junior
subordinated debentures bear interest at rates that are indexed to LIBOR, if LIBOR rates increase
the interest that would accrue during the deferral period would be significantly higher and
likewise increase the amount BankAtlantic Bancorp would owe at the conclusion of the deferral
period.
BankAtlantic Bancorps cash offers to purchase $230 million of trust preferred securities issued by
statutory business trusts formed by BankAtlantic Bancorp may not be consummated.
During January 2010, BankAtlantic Bancorp commenced cash offers to purchase all outstanding
trust preferred securities having an aggregate principal amount of approximately $285 million at a
purchase price of $200 per $1,000 liquidation amount, or an aggregate of $57 million. During
February 2010, the cash offer with respect to the approximate $55 million of publicly traded trust
preferred securities expired without any such trust preferred securities being repurchased, while
the expiration date for the offers relating to the remaining $230 million of trust preferred
securities was extended until March 22, 2010. BankAtlantic Bancorps ability to complete the offers
to purchase $230 million of BankAtlantic Bancorps trust preferred securities is contingent upon
the completion of a financing transaction sufficient to pay the purchase price, and the receipt of
tenders and consents from Holders of the requisite amount of the relevant series of trusts
preferred securities. The structure of the ownership of the trust preferred securities (the
majority of which are held in pools with the securities of other issuers as collateral for
collateralized debt obligations) has made it very difficult to communicate with the beneficial
owners or negotiate the repurchase or modification of the terms of the outstanding securities.
Accordingly, there is no assurance that BankAtlantic Bancorp will be able to repurchase or redeem
any or a significant portion of the trust preferred securities. Further, as noted above,
BankAtlantic Bancorp has deferred making interest payments on the trust preferred securities and
BankAtlantic Bancorp financial condition would be adversely affected if interest payments on the
trust preferred securities were deferred for a prolonged period of time. While BankAtlantic
Bancorp anticipates that it will continue to defer interest payments for the foreseeable future, in
the event that BankAtlantic Bancorp completes offers to purchase for less than all of its series of
trust preferred securities, BankAtlantic Bancorp expects that it may cease the deferral of interest
on the series of trust preferred securities which will not be repurchased prior to completing the
repurchase of the other series and immediately thereafter once again commence the deferral of
interest with respect to all remaining series of trust preferred securities not repurchased. Any
issuance of our Class A common stock to raise funds to finance the purchase of any or all of
the trust preferred securities subject to these offers could be extremely dilutive to existing
shareholders.
46
Historically BankAtlantic Bancorp has relied on dividends from BankAtlantic to service its debt and
pay dividends, but no dividends from BankAtlantic are anticipated or contemplated for the
foreseeable future.
Generally, a financial institution is permitted to make capital distributions without prior
OTS approval in an amount equal to its net income for the current calendar year to date, plus
retained net income for the previous two years, provided that the financial institution would not
become under-capitalized as a result of the distribution. At December 31, 2009, BankAtlantic had a
retained net deficit and therefore is required to obtain approval from the OTS in order to make
capital distributions to BankAtlantic Bancorp. BankAtlantic does not intend to seek to make any
capital distribution for the foreseeable future.
For a further discussion refer to Managements Discussion and Analysis of Results of
Operations and Financial Condition Liquidity and Capital Resources.
The decline in the Florida real estate market has adversely affected, and may continue to adversely
affect, our earnings and financial condition.
The continued deterioration of economic conditions in the Florida residential real estate
market, including the continued decline in median home prices year-over-year in all major
metropolitan areas in Florida, and the downturn in the Florida commercial real estate market,
resulted in a substantial increase in BankAtlantics non-performing assets and provision for loan
losses over the past three years. The housing industry is in the midst of a substantial and
prolonged downturn reflecting, in part, decreased availability of mortgage financing for
residential home buyers, reduced demand for new construction resulting in a significant over-supply
of housing inventory and increased foreclosure rates. Additionally, the deteriorating condition of
the Florida economy and these adverse market conditions have negatively impacted the commercial
non-residential real estate market. BankAtlantics earnings and financial condition were adversely
impacted over the past three years as the majority of its loans are secured by real estate in
Florida. We expect that our earnings and financial condition will continue to be unfavorably
impacted if market conditions do not improve or deteriorate further in Florida. At December 31,
2009, BankAtlantics loan portfolio included $263 million of non-accrual loans concentrated in
Florida.
BankAtlantics loan portfolio is concentrated in loans secured by real estate, a majority of which
are located in Florida, which makes us very susceptible to credit losses given the current
depressed real estate market.
Conditions in the United States real estate market have deteriorated significantly beginning
in 2007, particularly in Florida, BankAtlantics primary lending area. BankAtlantics loan
portfolio is concentrated in commercial real estate loans (most of which are located in Florida and
many of which involve residential land development), residential mortgages (nationwide), and
consumer home-equity loans (throughout BankAtlantics markets in Florida). BankAtlantic has a
heightened exposure to credit losses that may arise from this concentration as a result of the
significant downturn in the Florida real estate markets. At December 31, 2009, BankAtlantics loan
portfolio included $2.5 billion of loans concentrated in Florida, which represented approximately
62% of its loan portfolio.
We believe that BankAtlantics commercial residential loan portfolio has significant exposure
to further declines in the Florida residential real estate market. The Builder land bank loan
category held by BankAtlantic consists of 7 loans and aggregates $43.7 million of which six loans
totaling $42.6 million were on non-accrual as of December 31, 2009. The Land acquisition and
development loan category held by BankAtlantic consists of 27 loans and aggregates $171.9 million
of which ten loans totaling $60.2 million were on non-accrual as of December 31, 2009. The Land
acquisition, development and construction loan category held by BankAtlantic consists of 6 loans
and aggregates $11.3 million of which one loan totaling $3.8 million was on non-accrual as of
December 31, 2009.
In addition to the loans described above, during 2008, the Company formed an asset workout
subsidiary which acquired non-performing commercial residential real estate loans from
BankAtlantic. The balance of these non-performing loans as of December 31, 2009 was $39.4 million
with $14.1 million, $10.4 million and $14.9
million of builder land bank loans, land acquisition and development loans, and land
acquisition, development and construction loans, respectively.
47
Market conditions have and may in the future result in our commercial real estate borrowers
having difficulty selling lots or homes in their developments for an extended period, which in turn
could result in an increase in residential construction loan delinquencies and non-accrual
balances. Additionally, if the current depressed economic environment continues or deteriorates
further, collateral values may decline further which likely would result in increased credit losses
in these loans.
Included in the commercial and construction and development real estate loans are
approximately $638.4 million of commercial non-residential and commercial land loans. A borrowers
ability to repay these loans is dependent upon additional leasing through the life of the loan or
the borrowers successful operation of a business. Weak economic conditions may impair a borrowers
business operations and typically slow the execution of new leases. Such economic conditions may
also lead to existing lease turnover. As a result of these factors, vacancy rates for retail,
office and industrial space are expected to continue to rise in 2010. Increased vacancies could
result in rents falling further over the next several quarters. The combination of these factors
could result in further deterioration in real estate market conditions and BankAtlantic may
recognize higher credit losses on these loans, which would adversely affect our results of
operations and financial condition.
BankAtlantics commercial real estate loan portfolio includes 16 large lending relationships
totaling $429.0 million, including relationships with unaffiliated borrowers involving lending
commitments in each case in excess of $20 million. Defaults by any of these borrowers could have a
material adverse effect on BankAtlantics results.
BankAtlantics consumer loan portfolio is concentrated in home equity loans collateralized by
Florida properties primarily located in the markets where BankAtlantic operates its store network.
The decline in residential real estate prices and higher unemployment throughout Florida has
resulted in an increase in mortgage delinquencies and higher foreclosure rates. Additionally, in
response to the turmoil in the credit markets, financial institutions have tightened underwriting
standards which has limited borrowers ability to refinance. These conditions have adversely
impacted delinquencies and credit loss trends in BankAtlantics home equity loan portfolio and it
does not currently appear that these conditions will improve in the near term. Approximately 76%
of the loans in BankAtlantics home equity portfolio are residential second mortgages and
BankAtlantic experienced higher delinquencies and credit losses in this portfolio during 2009. If
current economic conditions do not improve and home prices continue to fall, BankAtlantic may
continue to experience higher credit losses from this loan portfolio. Since the collateral for
this portfolio consists primarily of second mortgages, it is unlikely that BankAtlantic will be
successful in recovering all or any portion of its loan proceeds in the event of a default unless
BankAtlantic is prepared to repay the first mortgage and such repayment and the costs associated
with a foreclosure are justified by the value of the property.
An increase in BankAtlantics allowance for loan losses will result in reduced earnings.
As a lender, BankAtlantic is exposed to the risk that its customers will be unable to repay
their loans according to their terms and that any collateral securing the payment of their loans
will not be sufficient to assure full repayment. BankAtlantics management evaluates the
collectability of BankAtlantics loan portfolio and provides an allowance for loan losses that it
believes is adequate based upon such factors as:
| the risk characteristics of various classifications of loans; | ||
| previous loan loss experience; | ||
| specific loans that have probable loss potential; | ||
| delinquency trends; | ||
| estimated fair value of the collateral; | ||
| current economic conditions; | ||
| the views of its regulators; and | ||
| geographic and industry loan concentrations. |
48
Many of these factors are difficult to predict or estimate accurately, particularly in a
changing economic environment. The process of determining the estimated losses inherent in
BankAtlantics loan portfolio requires subjective and complex judgments and the level of
uncertainty concerning economic conditions may adversely affect BankAtlantics ability to estimate
the losses which may be incurred in its loan portfolio. If BankAtlantics evaluation is incorrect
and borrower defaults cause losses exceeding the portion of the allowance for loan losses allocated
to those loans or if BankAtlantic perceives adverse trends that require it to significantly
increase its allowance for loan losses in the future, our earnings could be significantly and
adversely affected.
Increases in the allowance for loan losses with respect to the loans held by our asset workout
subsidiary, or losses in that portfolio which exceed the current allowance assigned to that
portfolio, would similarly adversely affect us.
Adverse events in Florida, where BankAtlantic Bancorp business is currently concentrated, could
adversely impact our results and future growth.
BankAtlantics business, the location of its stores, the primary source of repayment for its
small business loans and the real estate collateralizing its commercial real estate loans (and the
loans held by BankAtlantic Bancorp asset workout subsidiary) and its home equity loans are
primarily concentrated in Florida. As a result, BankAtlantic Bancorp is exposed to geographic
risks as increasing unemployment, declines in the housing industry and declines in the real estate
market are more severe in Florida than in the rest of the country. Adverse changes in laws and
regulations in Florida would have a greater negative impact on our revenues, financial condition
and business than on similar institutions in markets outside of Florida. Further, the State of
Florida is subject to the risks of natural disasters such as tropical storms and hurricanes, which
may disrupt our operations, adversely impact the ability of our borrowers to timely repay their
loans and the value of any collateral held by us or otherwise have an adverse effect on our results
of operations. The severity and impact of tropical storms, hurricanes and other weather related
events are difficult to predict and may be exacerbated by global climate change.
BankAtlantics interest-only residential loans expose it to greater credit risks.
Approximately $776 million of BankAtlantics purchased residential loan portfolio consists of
interest-only loans which represent approximately 50% of the total purchased residential loan
portfolio. While these loans are not considered sub-prime or negative amortizing loans, they are
loans with reduced initial loan payments with the potential for significant increases in monthly
loan payments in subsequent periods, even if interest rates do not rise, as required amortization
of the principal commences. Monthly loan payments will also increase as interest rates increase.
This presents a potential repayment risk if the borrower is unable to meet the higher debt service
obligations or refinance the loan. As previously noted, current economic conditions in the
residential real estate markets and the mortgage finance markets have made it more difficult for
borrowers to refinance their mortgages which also increase our exposure to loss.
Nonperforming assets take significant time to resolve and adversely affect our results of
operations and financial condition, and could result in further losses in the future.
At December 31, 2009 and 2008, BankAtlantic Bancorps consolidated nonperforming loans totaled
$331 million and $287.4 million, or 8.96% and 6.65% of its loan portfolio, respectively. At
December 31, 2009 and 2008, BankAtlantic Bancorps consolidated nonperforming assets (which include
nonperforming loans and foreclosed real estate) were $379.7 million and $307.9 million, or 7.88%
and 5.30% of our total assets, respectively. In addition, the Company had, on a consolidated basis,
approximately $72.9 million and $95.3 million in accruing loans that were 30-89 days delinquent at
December 31, 2009 and 2008, respectively. BankAtlantic Bancorps consolidated nonperforming assets
adversely affect our net income in various ways. Until economic and real estate market conditions
improve, particularly in Florida but also nationally, we expect to continue to incur additional
losses relating to an increase in nonperforming loans and nonperforming assets. BankAtlantic
Bancorp does not record interest income on nonperforming loans or real estate owned. When
BankAtlantic Bancorp receives the collateral in
foreclosures or similar proceedings, BankAtlantic Bancorp is required to mark the related
collateral to the then fair market value, generally based on appraisals of the property obtained by
us which often results in an additional loss. These loans and real estate owned also increase our
risk profile, and increases in the level of nonperforming loans and nonperforming assets could
impact our regulators view of appropriate capital levels in light of such risks. While
BankAtlantic Bancorp seeks to manage its problem assets through loan sales, workouts,
restructurings and other alternatives, decreases in the value of these assets, or the underlying
collateral, or in these borrowers performance or financial conditions, which is often impacted by
economic and market conditions beyond our control, could adversely affect our business, results of
operations and financial condition. In addition, the resolution of nonperforming assets requires
significant commitments of time from management, which can be detrimental to the performance of
their other responsibilities.
49
Changes in interest rates could adversely affect our net interest income and profitability.
The majority of BankAtlantics assets and liabilities are monetary in nature. As a result, the
earnings and growth of BankAtlantic are significantly affected by interest rates, which are subject
to the influence of economic conditions generally, both domestic and foreign, events in the capital
markets and also to the monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve Board. The nature and timing of any changes in such policies or
general economic conditions and their effect on BankAtlantic cannot be controlled and are extremely
difficult to predict. Changes in interest rates can impact BankAtlantics net interest income as
well as the valuation of its assets and liabilities.
Banking is an industry that depends to a large extent on its net interest income. Net interest
income is the difference between:
| interest income on interest-earning assets, such as loans; and | ||
| interest expense on interest-bearing liabilities, such as deposits. |
Changes in interest rates can have differing effects on BankAtlantics net interest income. In
particular, changes in market interest rates, changes in the relationships between short-term and
long-term market interest rates, or the yield curve, or changes in the relationships between
different interest rate indices can affect the interest rates charged on interest-earning assets
differently than the interest rates paid on interest-bearing liabilities. This difference could
result in an increase in interest expense relative to interest income and therefore reduce
BankAtlantics net interest income. While BankAtlantic has attempted to structure its asset and
liability management strategies to mitigate the impact on net interest income of changes in market
interest rates, there is no assurance that BankAtlantic will be successful in doing so.
Loan and mortgage-backed securities prepayment decisions are also affected by interest rates.
Loan and securities prepayments generally accelerate as interest rates fall. Prepayments in a
declining interest rate environment reduce BankAtlantics net interest income and adversely affect
its earnings because:
| it amortizes premiums on acquired loans and securities, and if loans or securities are prepaid, the unamortized premium will be charged off; and | ||
| the yields it earns on the investment of funds that it receives from prepaid loans and securities are generally less than the yields that it earned on the prepaid loans. |
Significant loan prepayments in BankAtlantics mortgage and investment portfolios in the
future could have an adverse effect on BankAtlantics earnings as proceeds from the repayment of
loans may be reinvested in loans with lower interest rates. Additionally, increased prepayments
associated with purchased residential loans may result in increased amortization of premiums on
acquired loans, which would reduce BankAtlantics interest income.
In a rising interest rate environment, loan and securities prepayments generally decline,
resulting in yields that are less than the current market yields. In addition, the credit risks of
loans with adjustable rate mortgages may worsen as interest rates rise and debt service obligations
increase.
50
BankAtlantic uses a computer model using standard industry software to assist it in its
efforts to quantify BankAtlantics interest rate risk. The model measures the potential impact of
gradual and abrupt changes in interest rates on BankAtlantics net interest income. While
management would attempt to respond to the projected impact on net interest income, there is no
assurance that managements efforts will be successful.
BankAtlantic obtains a significant portion of its non-interest income through service charges on
core deposit accounts, and recent legislation designed to limit service charges could reduce our
fee income.
BankAtlantics deposit account growth has generated a substantial amount of service charge
income. The largest component of this service charge income is overdraft fees. Changes in banking
regulations, in particular the Federal Reserves new rules prohibiting banks from automatically
enrolling customers in overdraft protection programs which will become effective July 1, 2010, may
have a significant adverse impact on BankAtlantics service charge income and overall results.
Additionally, changes in customer behavior as well as increased competition from other financial
institutions could result in declines in deposit accounts or in overdraft frequency resulting in a
decline in service charge income. Further, the downturn in the Florida economy could result in
the inability to collect overdraft fees. A reduction in deposit account fee income could have an
adverse impact on our earnings.
The cost and outcome of pending legal proceedings may impact our results of operations.
BankAtlantic Bancorp, BankAtlantic and their subsidiaries are currently parties in ongoing
litigation and legal proceedings which have resulted in a significant increase in non-interest
expense relating to legal and other professional fees. Pending proceedings include class action
securities litigation and an SEC investigation as well as litigation arising out of our banking
operations, including workouts and foreclosures, potential class actions by customers relating to
their accounts and service and overdraft fees and legal proceedings associated with our tax
certificate business and relationships with third party tax certificate ventures. While we believe
that we have meritorious defenses in these proceedings and that the outcomes should not materially
impact us, we anticipate continued elevated legal and related costs as parties to the actions and
the ultimate outcomes of the matters are uncertain.
BankAtlantic has significantly reduced operating expenses over the past three years and
BankAtlantic may not be able to continue to reduce expenses without adversely impacting its
operations.
BankAtlantics operating expenses have declined from $313.9 million for the year ended
December 31, 2007 to $258.8 million for the year ended December 31, 2009. BankAtlantic reorganized
its operations during this period and significantly reduced operating expenses while focusing on
its core businesses and seeking to maintain quality customer service. While management is focused
on reducing overall expenses, there is no assurance that BankAtlantic will be successful in efforts
to further reduce expenses or that the current expense reductions can be maintained in the current
environment. BankAtlantics inability to reduce or maintain its current expense structure may have
an adverse impact on our results.
Deposit insurance premium assessments may increase substantially, which would adversely affect
expenses.
BankAtlantics FDIC deposit insurance expense for the year ended December 31, 2009 was $11.0
million, including a $2.4 million special assessment. In September 2009, the FDIC issued a rule
requiring institutions to prepay their insurance premiums for all of 2010, 2011 and 2012, and
increased annual insurance rates uniformly by three basis points in 2011. BankAtlantics prepaid
insurance assessment was $31.3 million at December 31, 2009. If the economy worsens and the number
of bank failures significantly increase or if the FDIC otherwise determines that action is
necessary, BankAtlantic may be required to pay additional FDIC specific assessments or incur
increased annual insurance rates which would increase our expenses and adversely impact our
results.
Further reductions in BankAtlantics assets may adversely affect our earnings and/or operations.
BankAtlantic has reduced its assets and repaid borrowings in order to improve its liquidity
and regulatory capital ratios. The reduction of earning asset balances has reduced our net
interest income. BankAtlantic Bancorp consolidated net interest income was $193.6 million for the
year ended December 31, 2008 and $163.3 million for the year ended December 31, 2009. The
reduction in net interest income from earning asset reductions has previously been offset by lower
operating expenses in prior periods. BankAtlantic Bancorp abilities to further
reduce expenses without adversely affecting our operations may be limited and as a result further
reductions in BankAtlantic Bancorp consolidated earning asset balances in future periods, may
adversely affect earnings and/or operations.
51
Adverse market conditions have affected and may continue to affect the financial services industry
as well as our business and results of operations.
Our financial condition and results of operations have been, and may continue to be, adversely
impacted as a result of the downturn in the U.S. housing market and general economic conditions.
Dramatic declines in the national and, in particular, Florida housing markets over the past three
years, with falling home prices and increasing foreclosures and unemployment, have negatively
impacted the credit performance of our loans and resulted in significant asset impairments at all
financial institutions, including government-sponsored entities, major commercial and investment
banks, and regional and community financial institutions including BankAtlantic. Reflecting concern
about the stability of the financial markets generally and the strength of counterparties, many
lenders and institutional investors have reduced or ceased providing funding to borrowers,
including to other financial institutions. This market turmoil and tightening of credit have led to
an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased
market volatility and widespread reduction of business activity generally. The continuing economic
pressure on consumers and lack of confidence in the financial markets has adversely affected and
may continue to adversely affect our business, financial condition and results of operations.
Further negative market and economic developments may cause adverse changes in payment patterns,
causing increases in delinquencies and default rates, which may impact our charge-offs and
provisions for loan losses. Continuing economic deterioration that affects household and/or
corporate incomes could also result in reduced demand for credit or fee-based products and
services. A worsening of these conditions would likely exacerbate the adverse effects of these
difficult market conditions on BankAtlantic and others in the financial services industry. In
particular, we may face the following risks in connection with these events:
| BankAtlantics borrowers may be unable to make timely repayments of their loans, or the value of real estate collateral securing the payment of such loans may continue to decrease which could result in increased delinquencies, foreclosures and customer bankruptcies, any of which would increase levels of non-performing loans resulting in significant credit losses, and increased expenses and could have a material adverse effect on our operating results. | ||
| Further disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations, may result in an inability to borrow on favorable terms or at all from other financial institutions or government entities. | ||
| Increased regulation of the industry may increase costs, decrease fee income and limit BankAtlantics activities and operations. | ||
| Increased competition among financial services companies based on the recent consolidation of competing financial institutions and the conversion of investment banks into bank holding companies, may adversely affect BankAtlantics ability to competitively market its products and services. | ||
| BankAtlantic may be required to pay significantly higher FDIC deposit premiums and assessments. | ||
| Continued asset valuation declines could adversely impact our credit losses and result in additional impairments of goodwill and other assets. |
Legislative and regulatory actions taken now or in the future may have a significant adverse effect
on our financial statements.
During 2009, the U.S. Treasury implemented various initiatives in response to the financial
crises affecting the banking system and financial markets. These initiatives include the U.S.
Treasurys Capital Purchase Program (the CPP), the guarantee of certain financial institution
indebtedness, purchasing certain legacy loans and assets from financial institutions, the purchase
of mortgage securitizations, homeowner relief that encourages loan restructuring and modification,
the establishment of significant liquidity and credit facilities for financial institutions and
investment banks, the lowering of the federal funds rate, emergency action against short selling
practices, a temporary guaranty program for money market funds, the establishment of a commercial
paper funding facility to provide back-stop liquidity to commercial paper issuers, coordinated
international efforts to address illiquidity and other weaknesses in the banking sector and other
programs being developed. There can be no assurance as to the actual impact that the initiatives
that have been adopted or may be adopted in the future will have on the financial
markets. The initiatives could have a material and adverse affect on BankAtlantics business,
financial condition, results of operations and access to credit.
52
Further, recent events in the financial services industry and, more generally, in the
financial markets and the economy, have led to various proposals for changes in the regulation of
the financial services industry. Earlier in 2009, legislation proposing significant structural
reforms to the financial services industry was introduced in the U.S. Congress. Among other things,
the legislation proposes the establishment of a Consumer Financial Protection Agency, which would
have broad authority to regulate providers of credit, savings, payment and other consumer financial
products and services. Additional legislative proposals call for heightened scrutiny and regulation
of any financial firm whose combination of size, leverage, and interconnectedness could, if it
failed, pose a threat to the countrys financial stability, including the power to restrict the
activities of such firms and even require the break-up of such firms at the behest of the relevant
regulator. New rules have also been proposed for the securitization market, including requiring
sponsors of securitizations to retain a material economic interest in the credit risk associated
with the underlying securitization.
Other recent initiatives also include:
| The Federal Reserves proposed guidance on incentive compensation policies at banking organizations and the FDICs proposed rules tying employee compensation to assessments for deposit insurance; | ||
| Proposals to limit a lenders ability to foreclose on mortgages or make such foreclosures less economically viable, including by allowing Chapter 13 bankruptcy plans to cram down the value of certain mortgages on a consumers principal residence to its market value and/or reset interest rates and monthly payments to permit defaulting debtors to remain in their home; | ||
| Proposed legislation concerning the comprehensive regulation of the over-the-counter derivatives market, including robust and comprehensive prudential supervision (including strict capital and margin requirements) for all over-the-counter derivative dealers and major market participants and central clearing of standardized over-the-counter derivatives; and | ||
| Proposal which would prohibit banks and bank holding companies from engaging in proprietary trading or owning, investing or sponsoring a hedge fund or private equity fund. |
The proposed legislation contains several provisions that would have a direct impact on us.
Under the proposed legislation, the federal savings association charter would be eliminated and the
Office of Thrift Supervision would be consolidated with the Comptroller of the Currency into a new
regulator, the National Bank Supervisor. The proposed legislation would also require BankAtlantic
to convert to a national bank.
While there can be no assurance that any or all of the proposed regulatory or legislative
changes will ultimately be adopted, these changes or any future changes, if enacted or adopted, may
impact our business activities, require us to change certain of our business practices, materially
affect our business model or affect retention of key personnel, and could expose us to additional
costs (including increased compliance costs). These changes may also require us to invest
significant management attention and resources to make any necessary changes, and could therefore
also adversely affect our business and operations.
There can be no assurance as to the actual impact that the initiatives that have been adopted
or may be adopted in the future will have on banks or the financial markets. These government
initiatives could potentially have a material and adverse affect on BankAtlantics business,
financial condition, results of operations and access to credit.
BankAtlantic Bancorp and BankAtlantic are each subject to significant regulation and BankAtlantic
Bancorps activities and the activities of BankAtlantic Bancorps subsidiaries, including
BankAtlantic, are subject to regulatory requirements that could have a material adverse effect on
BankAtlantic Bancorps business.
The banking industry is an industry subject to multiple layers of regulation. Failure to
comply with any of these regulations can result in substantial penalties, significant restrictions
on business activities and growth plans and/or limitations on dividend payments. As a holding
company, BankAtlantic Bancorp is also subject to significant regulation. For a description of the
primary regulations applicable to BankAtlantic and BankAtlantic Bancorp, see Regulations and
Supervision. Changes in the regulation or capital requirements associated with holding companies
generally or BankAtlantic Bancorp in particular could also have an adverse impact on our business
and operating results.
53
BankAtlantic Bancorp is a grandfathered unitary savings and loan holding company and has
broad authority to engage in various types of business activities. The OTS can prevent BankAtlantic
Bancorp from engaging in activities or limit those activities if it determines that there is
reasonable cause to believe that the continuation of any particular activity constitutes a serious
risk to the financial safety, soundness, or stability of BankAtlantic. The OTS can also:
| prohibit the payment of dividends by BankAtlantic to BankAtlantic Bancorp; | ||
| limit transactions between BankAtlantic Bancorp, BankAtlantic and the subsidiaries or affiliates of either; | ||
| limit BankAtlantic Bancorps activities and the activities of BankAtlantic; or | ||
| Impose capital requirements on BankAtlantic Bancorp or additional capital requirements on BankAtlantic. |
Unlike bank holding companies, as a unitary savings and loan holding company BankAtlantic
Bancorp has not historically been subject to capital requirements. However, the OTS has indicated
that it may, in the future, impose capital requirements on savings and loan holding companies. In
addition, as noted above, the current administration has proposed legislation which would, among
other things, eliminate the status of savings and loan holding company and require BankAtlantic
Bancorp to register as a bank holding company, which would subject BankAtlantic Bancorp to
regulatory capital requirements. Further, the OTS or other regulatory bodies having authority over
BankAtlantic Bancorp in the future may adopt regulations in the future that would affect the
Companys operations, including BankAtlantic Bancorps ability to pay dividends or to engage in
certain transactions or activities. See Regulation and Supervision Holding Company.
BankAtlantic is subject to liquidity risk as its loans are funded by its deposits.
Like all financial institutions, BankAtlantics assets are primarily funded through its
customer deposits and changes in interest rates, availability of alternative investment
opportunities, a loss of confidence in financial institutions in general or BankAtlantic in
particular, and other factors may make deposit gathering more difficult. If BankAtlantic
experiences decreases in deposit levels, it may need to increase its borrowings or liquidate a
portion of its assets which may not be readily saleable. Additionally, interest rate changes or
further disruptions in the capital markets may make the terms of borrowings and deposits less
favorable. For a further discussion on liquidity, refer to Managements Discussion and Analysis
of Results of Operations and Financial Condition Liquidity and Capital Resources.
Our loan portfolio subjects BankAtlantic Bancorp to high levels of credit and counterparty risk.
BankAtlantic is exposed to the risk that its borrowers or counter-parties may default on their
obligations. Credit risk arises through the extension of loans, certain securities, letters of
credit, and financial guarantees and through counter-party exposure on trading and wholesale loan
transactions. In an attempt to manage this risk, we seek to establish policies and procedures to
manage both on and off-balance sheet (primarily loan commitments) credit risk.
BankAtlantic reviews the creditworthiness of individual borrowers or counter-parties, and
limits are established for the total credit exposure to any one borrower or counter-party, however,
such limits may not have the effect of adequately limiting credit exposure. In addition, when
deciding whether to extend credit or enter into other transactions with customers and
counterparties, we often rely on information furnished to us by such customers and counterparties,
including financial statements and other financial information, and representations of the
customers and counterparties that relates to the accuracy and completeness of the information.
While we take all actions we deem necessary to ensure the accuracy of the information provided to
us, there is no assurance that all information provided to us will be accurate or that we will
successfully identify all information needed to fully assess the risk which may expose us to
increased credit risk and counterparty risk.
BankAtlantic also enters into participation agreements with or acquires participation
interests from other lenders to limit its credit risk, but will continue to be subject to risks
with respect to its interest in the loan, as well as not being in a position to make independent
determinations with respect to its interest. Further, the majority of BankAtlantics residential
loans are serviced by others. The servicing agreements may restrict BankAtlantics ability to
initiate work-out and modification arrangements with borrowers which could adversely impact
BankAtlantics ability to minimize losses on non-performing loans.
54
BankAtlantic Bancorp is also exposed to credit and counterparty risks with respect to loans
held in its asset workout subsidiary.
BankAtlantic Bancorp is controlled by BFC Financial Corporation and its controlling shareholders
and this control position may adversely affect the market price of BankAtlantic Bancorps Class A
common stock.
As of December 31, 2009, BFC owned all of BankAtlantic Bancorps issued and outstanding Class
B common stock and 17,333,428 shares, or approximately 35.9%, of BankAtlantic Bancorps issued and
outstanding Class A common stock. BFCs holdings represent approximately 66% of BankAtlantic
Bancorps total voting power. Additionally, Alan B. Levan, our Chairman and Chief Executive
Officer, and John E. Abdo, our Vice Chairman, beneficially own shares of BFCs Class A and Class B
common stock representing approximately 71.6% of BFCs total voting power. BankAtlantic Bancorps
Class A common stock and Class B common stock vote as a single group on most matters. Accordingly,
BFC, directly, and Messrs. Levan and Abdo, indirectly through BFC, are in a position to control
BankAtlantic Bancorp, elect BankAtlantic Bancorps Board of Directors and significantly influence
the outcome of any shareholder vote, except in those limited circumstances where Florida law
mandates that the holders of BankAtlantic Bancorps Class A common stock vote as a separate class.
This control position may have an adverse effect on the market price of BankAtlantic Bancorps
Class A common stock.
BFC can reduce its economic interest in us and still maintain voting control.
BankAtlantic Bancorps Class A common stock and Class B common stock generally vote together
as a single class, with BankAtlantic Bancorp Class A common stock possessing a fixed 53% of the
aggregate voting power of all of BankAtlantic Bancorp common stock and BankAtlantic Bancorp Class B
common stock possessing a fixed 47% of such aggregate voting power. BankAtlantic Bancorp Class B
common stock currently represents approximately 2% of our common equity and 47% of the total voting
power. As a result, the voting power of BankAtlantic Bancorp Class B common stock does not bear a
direct relationship to the economic interest represented by the shares. Any issuance of shares of
BankAtlantic Bancorp Class A common stock will further dilute the relative economic interest of
BankAtlantic Bancorp Class B common stock, but will not decrease the voting power represented by
its Class B common stock. Further, BankAtlantic Bancorps Restated Articles of Incorporation
provide that these relative voting percentages will remain fixed until such time as BFC and its
affiliates own less than 487,613 shares of BankAtlantic Bancorp Class B common stock, which is
approximately 50% of the number of shares of BankAtlantic Bancorp Class B common stock that BFC now
owns, even if additional shares of BankAtlantic Bancorp Class A common stock are issued. Therefore,
BFC may sell up to approximately 50% of its shares of BankAtlantic Bancorp Class B common stock
(after converting those shares to Class A common stock), and significantly reduce its economic
interest in BankAtlantic Bancorp, while still maintaining its voting power. If BFC were to take
this action, it would widen the disparity between the equity interest represented by BankAtlantic
Bancorp Class B common stock and its voting power. Any conversion of shares of BankAtlantic Bancorp
Class B common stock into shares of BankAtlantic Bancorp Class A common stock would further dilute
the voting interests of the holders of BankAtlantic Bancorp Class A common stock.
Provisions in BankAtlantic Bancorp charter documents may make it difficult for a third party to
acquire BankAtlantic Bancorp and could depress the price of its Class A Common Stock.
BankAtlantic Bancorp Restated Articles of Incorporation and Amended and Restated Bylaws
contain provisions that could delay, defer or prevent a change of control of the Company or our
management. These provisions could make it more difficult for shareholders to elect directors and
take other corporate actions. As a result, these provisions could limit the price that investors
are willing to pay in the future for shares of BankAtlantic Bancorp Class A common stock. These
provisions include:
| the provisions in BankAtlantic Bancorp Restated Articles of Incorporation regarding the voting rights of BankAtlantic Bancorp Class B common stock; | ||
| the authority of BankAtlantic Bancorp board of directors to issue additional shares of common or preferred stock and to fix the relative rights and preferences of the preferred stock without additional shareholder approval; | ||
| the division of BankAtlantic Bancorp board of directors into three classes of directors with three-year staggered terms; and | ||
| advance notice procedures to be complied with by shareholders in order to make shareholder proposals or nominate directors. |
55
A sustained decline in BankAtlantic Bancorps Class A common stock price may result in the
delisting of its Class A common stock from the New York Stock Exchange.
BankAtlantic Bancorps Class A common stock currently trades on the New York Stock Exchange.
Like many other companies involved in the financial services industry, the trading price of
BankAtlantic Bancorps Class A common stock has experienced a substantial decline. A listed
company would be deemed to be below compliance with the continued listing standards of the New York
Stock Exchange if, among other things, the listed companys average closing price was less than
$1.00 over a consecutive 30 trading day period or the listed companys average market
capitalization was less than $15 million over a consecutive 30 trading day period. As of February
25, 2010, the average market price of BankAtlantic Bancorps Class A common stock over the prior 30
trading day period was $1.41, and BankAtlantic Bancorps average market capitalization over that
period was $69.3 million. However, the market price of BankAtlantic Bancorps Class A common stock
is subject to significant volatility and there is no assurance that it will not decrease in the
future so as to cause BankAtlantic Bancorp not to comply with the New York Stock Exchanges
requirement for continued listing.
If BankAtlantic Bancorp does not meet the requirements for continued listing, then
BankAtlantic Bancorps Class A common stock will be delisted from the New York Stock Exchange. In
such case, BankAtlantic Bancorp would attempt to cause its Class A common stock to be eligible for
quotation on the OTC Bulletin Board. However, in such event, the trading price of BankAtlantic
Bancorps Class A common stock would likely be adversely impacted, it may become more difficult for
the holders of BankAtlantic Bancorps Class A common stock to sell or purchase shares of
BankAtlantic Bancorps Class A common stock, and it may become more difficult for BankAtlantic
Bancorp to raise capital, which could materially and adversely impact our business, prospects,
financial condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
56
ITEM 2. PROPERTIES
The principal and executive offices of BFC, Woodbridge and BankAtlantic are located
at 2100 West Cypress Creek Road, Fort Lauderdale, Florida, 33309. In May 2008, BFC and BFC Shared
Service Corporation (BFC Shared Service), a wholly-owned subsidiary of BFC, entered into office
lease agreements with BankAtlantic for office space in BankAtlantics corporate headquarters which
is owned by BankAtlantic. Also, in May 2008, BFC entered into an office sub-lease agreement with
Woodbridge pursuant to which Woodbridge leases from BFC office space in BankAtlantics corporate
headquarters.
We own an office building located at 2200 West Cypress Creek Road, Fort Lauderdale, Florida
33309. Two floors of this office building were previously leased to a third party pursuant to a
lease which expired in March 2010. The tenant has opted not to renew the lease and has vacated the
space. We will continue to seek to sell the building or lease the vacant space available at this
office building to third parties, including to affiliates. In addition to
Woodbridges properties used for offices, we additionally own commercial space in Florida that is
leased to third parties. Because of the nature of Woodbridges real estate operations, significant
amounts of property are held as inventory and property and equipment in the ordinary course of
business.
Bluegreens principal executive office is located in Boca Raton, Florida in approximately
158,838 square feet of leased space. At December 31, 2009, Bluegreen also maintained sales offices
at 21 of its resorts. In addition, Bluegreen maintains four regional sales/administrative
offices for its Communities division.
The following table sets forth BankAtlantic owned and leased stores by region at December 31,
2009:
Miami - | Palm | Tampa | ||||||||||||||
Dade | Broward | Beach | Bay | |||||||||||||
Owned full-service stores |
9 | 13 | 25 | 7 | ||||||||||||
Leased full-service stores |
11 | 11 | 5 | 5 | ||||||||||||
Ground leased full-service stores (1) |
3 | 3 | 1 | 7 | ||||||||||||
Total full-service stores |
23 | 27 | 31 | 19 | ||||||||||||
Lease expiration dates |
2010-2018 | 2010-2015 | 2011-2014 | 2010-2023 | ||||||||||||
Ground lease expiration dates |
2026-2027 | 2017-2072 | 2026 | 2026-2032 | ||||||||||||
(1) | Stores in which BankAtlantic owns the building and leases the land. |
The following table sets forth BankAtlantic leased drive-through facilities and leased
back-office facilities by region at December 31, 2009:
Miami - | Palm | Tampa | Orlando / | |||||||||||||||||
Dade | Broward | Beach | Bay | Jacksonville | ||||||||||||||||
Leased drive-through facilities |
1 | 2 | | | | |||||||||||||||
Leased drive through expiration
dates |
2010 | 2011-2014 | | | | |||||||||||||||
Leased back-office facilities |
| | | 2 | 1 | |||||||||||||||
Leased back-office expiration dates |
| | | 2014 | 2013 | |||||||||||||||
As of December 31, 2009, BankAtlantic was seeking to sublease or terminate eight operating
leases and was a party under two ground leases for the construction of new stores. BankAtlantic
also has six parcels of land held for sale with an estimated market value of $6.0 million.
Miami - | Palm | Tampa | Orlando / | |||||||||||||||||
Dade | Broward | Beach | Bay | Jacksonville | ||||||||||||||||
Executed leases for new stores |
| 1 | 1 | | | |||||||||||||||
Executed lease expiration dates |
| 2030 | 2028 | | | |||||||||||||||
Executed leases held for sublease |
| 1 | | 5 | 2 | |||||||||||||||
Executed lease expiration dates |
| 2013 | | 2010-2048 | 2028-2029 | |||||||||||||||
Land held for sale |
| | 1 | 1 | 4 | |||||||||||||||
57
ITEM 3. LEGAL PROCEEDINGS
BFC and its Wholly Owned Subsidiaries
Under Florida law, holders of Woodbridges Class A Common Stock who did not vote to approve
the merger and properly asserted and exercised their appraisal rights with respect to their shares
(Dissenting Holders) are entitled to receive a cash payment in an amount equal to the fair value
of their shares (as determined in accordance with the provisions of Florida law) in lieu of the
shares of BFCs Class A Common Stock which they would otherwise have been entitled to receive.
Dissenting Holders, who owned in the aggregate approximately 4.6 million shares of Woodbridges
Class A Common Stock, provided written notice to Woodbridge regarding their intent to exercise
their appraisal rights. In accordance with Florida law, Woodbridge provided written notices to the
Dissenting Holders setting forth, among other things, its determination that the fair value of
Woodbridges Class A Common Stock immediately prior to the effectiveness of the merger was $1.10
per share. As of the date of this filing, one Dissenting Holder which held approximately 400,000
shares of Woodbridges Class A Common Stock had withdrawn its shares from the appraisal rights
process, while the remaining Dissenting Holders, who collectively held approximately 4.2 million
shares of Woodbridges Class A Common Stock, have rejected Woodbridges offer of $1.10 per share
and requested payment for their shares based on their respective fair value estimates of
Woodbridges Class A Common Stock. Woodbridge is currently in litigation in connection with the
Dissenting Holders appraisal process. In December 2009, a $4.6 million liability was recorded with
a corresponding reduction to additional paid-in capital which is reflected in our consolidated
financial statements representing in the aggregate Woodbridges offer to the Dissenting Holders.
There is no assurance as to the amount of the cash payment that will be required to be made to the
Dissenting Holders, which amount may exceed the $4.6 million that we have accrued related to this
matter.
National Bank of South Carolina v. Core Communities of South Carolina, LLC, et al., South Carolina
Court of Common Pleas, Fourteenth Judicial Circuit
On January 13, 2010, National Bank of South Carolina filed a complaint with the South Carolina
Court of Common Pleas, Fourteenth Judicial Circuit, to commence foreclosure proceedings related to
property at Tradition Hilton Head which served as collateral under a note and mortgage executed and
delivered by Core Communities of South Carolina in favor of the lender. With Cores concurrence,
the property was subsequently placed under the control of a receiver appointed by the court. Core
is secondarily liable to the lender as a guarantor but is not currently a party to the action.
In re: Levitt and Sons, LLC, et al., No. 07-19845-BKC-RBR, U.S. Bankruptcy Court Southern District
of Florida
On November 9, 2007, Levitt and Sons and the Debtors (the Debtors) filed voluntary petitions
for relief under the Chapter 11 Cases in the Bankruptcy Court. The Debtors commenced the Chapter
11 Cases in order to preserve the value of their assets and to facilitate an orderly wind-down of
their businesses and disposition of their assets in a manner intended to maximize the recoveries of
all constituents. On November 27, 2007, the Office of the United States Trustee (the U.S.
Trustee), appointed an official committee of unsecured creditors in the Chapter 11 Cases (the
Creditors Committee). On January 22, 2008, the U.S. Trustee appointed a Joint Home Purchase
Deposit Creditors Committee of Creditors Holding Unsecured Claims (the Deposit Holders Committee,
and together with the Creditors Committee, the Committees) The Committees have a right to
appear and be heard in the Chapter 11 Cases.
In 2008, the Debtors asserted certain claims against Woodbridge, including an entitlement to a
portion of the $29.7 million federal tax refund which Woodbridge received as a consequence of
losses incurred at Levitt and Sons in prior periods. However, on June 27, 2008, Woodbridge entered
into a settlement agreement (the Settlement Agreement) with the Debtors and the Joint Committee
of Unsecured Creditors (the Joint Committee) appointed in the Chapter 11 Cases. Pursuant to the
Settlement Agreement, among other things, (i) Woodbridge agreed to pay to the Debtors bankruptcy
estates the sum of $12.5 million plus accrued interest from May 22, 2008 through the date of
payment, (ii) Woodbridge agreed to waive and release substantially all of the claims it had against
the Debtors, including its administrative expense claims through July 2008, and (iii) the Debtors
(joined by the Joint Committee) agreed to waive and release any claims they had against Woodbridge
and its affiliates. After certain of Levitt and Sons creditors indicated that they objected to the
terms of the Settlement Agreement and stated a desire to pursue claims against Woodbridge,
Woodbridge, the Debtors and the Joint Committee entered into an
amendment to the Settlement Agreement, pursuant to which Woodbridge would, in lieu of the
$12.5 million payment previously agreed to, pay $8 million to the Debtors bankruptcy estates and
place $4.5 million in a release fund to be disbursed to third party creditors in exchange for a
third party release and injunction. The amendment also provided for an additional $300,000 payment
by Woodbridge to a deposit holders fund. The Settlement Agreement, as amended, was subject to a
number of conditions, including the approval of the Bankruptcy Court.
58
As previously reported, on February 20, 2009, the Bankruptcy Court presiding over Levitt and
Sons Chapter 11 bankruptcy case entered an order confirming a plan of liquidation jointly proposed
by Levitt and Sons and the Official Committee of Unsecured Creditors. That order also approved the
settlement pursuant to the Settlement Agreement, as amended. No appeal or rehearing of the courts
order was filed by any party, and the settlement was consummated on March 3, 2009, at which time,
payment was made in accordance with the terms and conditions of the Settlement Agreement.
Robert D. Dance, individually and on behalf of all others similarly situated v. Woodbridge Holdings
Corp. (formerly known as Levitt Corp.), Alan B. Levan, and George P. Scanlon, Case No.
08-60111-Civ-Graham/OSullivan, Southern District of Florida
On January 25, 2008, plaintiff Robert D. Dance filed a purported class action complaint as a
putative purchaser of our securities against us and certain of our officers and directors,
asserting claims under the federal securities law and seeking damages. This action was filed in
the United States District Court for the Southern District of Florida and is captioned Dance v.
Levitt Corp. et al., No. 08-CV-60111-DLG. The securities litigation purports to be brought on
behalf of all purchasers of our securities beginning on January 31, 2007 and ending on August 14,
2007. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange
Act, and Rule 10b-5 promulgated thereunder by issuing a series of false and/or misleading
statements concerning our financial results, prospects and condition.
Westchester Fire Insurance Company vs. City of Brooksville, United States District Court, Middle
District of Florida, Tampa Division, Case No. 8:09 CV 00062-T23 TBM
This litigation arises from a dispute regarding liability under two performance bonds issued
in connection with a plat issued by the City of Brooksville for a single family housing project
that was not commenced and was abandoned prior to the bankruptcy of Levitt and Sons. Although the
property was deeded over to the lender as part of the bankruptcy, Levitts parent company was a
guarantor on the bonds. The City of Brooksville contends that, notwithstanding that the single
family project was never commenced for which utilities were to be provided, it has a right to
collect the cash sum of the bonds in the amount of approximately $5.4 million. Following Levitt and
Sons failure, Key Bank acquired the property and conveyed it to a buyer who negotiated a new
agreement eliminating any requirement for completing the planned utilities. Nonetheless, the City
continued to assert rights against the bonds. Woodbridge has fully secured the obligations of the
surety under the bonds and will be liable if the Citys position is found to be correct.
Bluegreen Corporation
Kelly Fair Labor Standards Act Lawsuit
In Cause No. 08-cv-401-bbc, styled Steven Craig Kelly and Jack Clark, individually and on
behalf of others similarly situated v. Bluegreen Corporation, in the United States District
Court for the Western District of Wisconsin, two former sales representatives brought a lawsuit on
July 28, 2008 in the Western District of Wisconsin on behalf of themselves and putative class
members who are or were employed by Bluegreen as sales associates and compensated on a
commission-only basis. Plaintiffs alleged that Bluegreen violated the Fair Labor Standards Act
(FLSA) and that they and the collective class are or were covered, non-exempt employees under
federal wage and hour laws, and were entitled to minimum wage and overtime pay consistent with the
FLSA. On July 10, 2009, the parties settled the case and Bluegreen agreed to pay approximately
$1.5 million (including attorneys fees and costs) without admitting any wrongdoing. As of
December 31, 2009, the settlement was paid and the case dismissed.
59
Pennsylvania Attorney General Lawsuit
On October 28, 2008, in Cause No. 479 M.D. 2008, styled Commonwealth of Pennsylvania
Acting by Attorney General Thomas W. Corbett, Jr. v. Bluegreen Corporation, Bluegreen Resorts,
Bluegreen Vacations Unlimited, Inc. and Great Vacation Destinations, Inc., in the Commonwealth
Court of Pennsylvania, the Commonwealth of Pennsylvania acting through its Attorney General filed a
lawsuit against Bluegreen Corporation, Bluegreen Resorts, Bluegreen Vacations Unlimited, Inc. and
Great Vacation Destinations, Inc. (a wholly owned subsidiary of Bluegreen Corporation) alleging
violations of Pennsylvanias Unfair Trade Practices and Consumer Protection Laws. The lawsuit
seeks civil penalties against Bluegreen and restitution on behalf of Pennsylvania consumers who may
have suffered losses as a result of the alleged unlawful sales and marketing methods and practices.
The lawsuit does not seek to permanently restrain Bluegreen or any of its affiliates from doing
business in the Commonwealth of Pennsylvania. The parties have reached settlement on this matter
and on March 15, 2010 Bluegreen signed a consent petition and forwarded it to the Attorney
Generals office for counter-signature and filing with the appropriate court offices. As of
December 31, 2009, Bluegreen had accrued $225,000 in connection with anticipated payments to
resolve this matter.
Destin, Florida Deposit Dispute Lawsuit
In Cause No. 2006-Ca-3374, styled Joseph M. Scheyd, Jr., P.A. vs. Bluegreen Vacations
Unlimited, Inc.,; Hubert A. Laird; and MSB of Destin, Inc., in the Circuit Court of the First
Judicial Circuit in and for Okaloosa County, Florida, the Plaintiff as escrow agent brought an
interpleader action seeking a determination as to whether Bluegreen, as purchaser, or Hubert A.
Laird and MSB of Destin, Inc. as seller, were entitled to the $1.4 million escrow deposit being
maintained with the escrow agent pursuant to a purchase and sale contract for real property located
in Destin, Florida. Both Bluegreen and the seller have brought cross-claims for breach of the
underlying purchase and sale contract. The seller alleges Bluegreen failed to perform under the
terms of the purchase and sale contract and alleges fraud. Bluegreen maintains that its decision
not to close on the purchase of the subject real property was in accordance with the terms of the
purchase and sale contract and therefore Bluegreen is entitled to a return of the full escrow
deposit.
Mountain Lakes Mineral Rights
Bluegreen Southwest One, L.P., (Southwest), a subsidiary of Bluegreen Corporation, is the
developer of the Mountain Lakes subdivision in Texas. In Cause No. 28006, styled Betty Yvon
Lesley et a1 v. Bluff Dale Development Corporation, Bluegreen Southwest One. L.P. et al., in
the 266th Judicial District Court, Erath County, Texas, the plaintiffs filed a declaratory judgment
action against Southwest seeking to develop their reserved mineral interests in, on and under the
Mountain Lakes subdivision. The plaintiffs claims are based on property law, oil and gas law,
contract and tort theories. The property owners association and some of the individual landowners
have filed cross actions against Bluegreen, Southwest and individual directors of the property
owners association related to the mineral rights and certain amenities in the subdivision as
described below. On January 17, 2007, the court ruled that the restrictions placed on the
development that prohibited oil and gas production and development were invalid and not enforceable
as a matter of law, that such restrictions did not prohibit the development of the plaintiffs
prior reserved mineral interests and that Southwest breached its duty to lease the minerals to
third parties for development. The court further ruled that Southwest was the sole holder of the
right to lease the minerals to third parties. The order granting the plaintiffs motion was
severed into a new cause styled Cause No. 28769 Betty Yvon Lesley et a1 v. Bluff Dale
Development Corporation, Bluegreen Southwest One. L.P. et al. in the 266th Judicial District
Court, Erath County, Texas. Southwest appealed the trial courts ruling. On January 22, 2009, in
Bluegreen Southwest One, L.P. et al. v. Betty Yvon Lesley et al., in the 11th Court of
Appeals, Eastland, Texas, the Appellate Court reversed the trial courts decision and ruled in
Southwests favor and determined that all executive rights were owned by Southwest and then
transferred to the individual property owners in connection with the sales of land. All property
owner claims were decided in favor of Southwest. It was also decided that Southwest did not breach
a fiduciary duty to the plaintiffs as an executive rights holder. As a result of this decision, no
damages or attorneys fees are owed to the plaintiffs. On May 14, 2009, the plaintiffs filed an
appeal with the Texas Supreme Court asking the Court to reverse the Appellate Courts decision in
favor of Bluegreen. No information is available as to when the Texas Supreme Court will render a
decision as to whether or not it will take the appeal.
60
Separately, one of the amenity lakes in the Mountain Lakes development did not reach the
expected water level after construction was completed. Owners of home sites within the Mountain
Lakes subdivision and the
property owners Association of Mountain Lakes have asserted cross claims against Southwest and
Bluegreen regarding such failure as part of the Lesley litigation described above as well as in
Cause No. 067-223662-07, Property Owners Association of Mountain Lakes Ranch, Inc. v. Bluegreen
Southwest One, L.P. et al., in the 67th Judicial District Court of Tarrant County,
Texas. This case has been settled and the $3.4 million that was accrued related to this matter as
of December 31, 2009 was paid in March of 2010. Additional claims may be pursued in the future in
connection with these matters, but it is not possible at this time to estimate the likelihood of
loss.
Marshall, et al. Lawsuit regarding Community Amenities
On September 14, 2009, in Cause No. 09-09-08763-CV, styled William Marshall and Patricia
Marshall, et al. v. Bluegreen Southwest One, L.P., Bluegreen Southwest Land, Inc., Bluegreen
Corporation, Stephen Davis, and Bluegreen Communities of Texas, L.P., Plaintiffs brought suit
against Bluegreen alleging fraud, negligent misrepresentation, breach of contract, and negligence
with regards to the Ridgelake Shores subdivision Bluegreen developed in Montgomery County, Texas.
More specifically, the Plaintiffs allege misrepresentation concerning the usability of the lakes
within the community for fishing and sporting and the general level of quality at which the
community would be developed and thereafter maintained. The lawsuit seeks material damages and the estimated cost to remediate the lake is $500,000.
Bluegreen intends to vigorously defend the lawsuit.
Schwarz, et al. Lawsuit regarding Community Amenities
On September 18, 2008, in Cause No. 2008-5U-CV-1358-WI, styled Paul A. Schwarz and Barbara
S. Schwarz v. Bluegreen Communities of Georgia, LLC and Bluegreen Corporation, Plaintiffs
brought suit against Bluegreen alleging fraud and misrepresentation with regards to the
construction of a marina at the Sanctuary Cove subdivision located in Camden County, Georgia.
Plaintiff subsequently withdrew the fraud and misrepresentation counts and replaced them with a
count alleging violation of racketeering laws, including mail fraud and wire fraud. On January 25,
2010, Plaintiffs filed a second complaint seeking approval to proceed with the lawsuit as a class
action representing more than 100 persons who were harmed by the alleged racketeering activities in
a similar manner as Plaintiffs. No decision has yet been made by the Court as to whether a class
will be certified. Bluegreen denies the allegations and intends to vigorously defend the lawsuit.
In the ordinary course of Bluegreens business, Bluegreen becomes subject to claims or
proceedings from time to time relating to the purchase, sale or financing of VOIs and real estate.
Additionally, from time to time, Bluegreen becomes involved in disputes with existing and former
employees, vendors, taxing jurisdictions and various other parties.
BankAtlantic Bancorp
In re BankAtlantic Bancorp, Inc. Securities Litigation, No. 0:07-cv-61542-UU, United States
District Court, Southern District of Florida
On October 29, 2007, Joseph C. Hubbard filed a purported class action in the United States
District Court for the Southern District of Florida against BankAtlantic Bancorp and four of its
current or former officers. The Defendants in this action are BankAtlantic Bancorp, Inc., James A.
White, Valerie C. Toalson, Jarett S. Levan, and Alan B. Levan. The Complaint, which was later
amended, alleges that during the purported class period of November 9, 2005 through October 25,
2007, BankAtlantic Bancorp and the named officers knowingly and/or recklessly made
misrepresentations of material fact regarding BankAtlantic and specifically BankAtlantics loan
portfolio and allowance for loan losses. The Complaint seeks to assert claims for violations of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks unspecified
damages. On December 12, 2007, the Court consolidated into Hubbard a separately filed action
captioned Alarm Specialties, Inc. v. BankAtlantic Bancorp, Inc., No. 0:07cv-61623-WPD. On
February 5, 2008, the Court appointed State-Boston Retirement System lead plaintiff and Lubaton
Sucharow LLP to serve as lead counsel pursuant to the provisions of the Private Securities
Litigation Reform Act. BankAtlantic Bancorp believes the claims to be without merit and intends to
vigorously defend the actions.
61
D.W. Hugo, individually and on behalf of Nominal Defendant BankAtlantic Bancorp, Inc. vs.
BankAtlantic Bancorp, Inc., Alan B. Levan, Jarett S. Levan, Jay C. McClung, Marcia K. Snyder,
Valerie Toalson, James A. White, John E. Abdo, D. Keith Cobb, Steven M. Coldren, and David A.
Lieberman, Case No. 0:08-cv-61018-UU, United States District Court, Southern District of Florida
On July 2, 2008, D.W. Hugo filed a purported class action which was brought as a derivative
action on behalf of BankAtlantic Bancorp pursuant to Florida laws in the United States District
Court, Southern District of Florida against BankAtlantic Bancorp and the above listed officers and
directors. The Complaint alleges that the individual defendants breached their fiduciary duties by
engaging in certain lending practices with respect to BankAtlantic Bancorps Commercial Real Estate
Loan Portfolio. The Complaint further alleges that BankAtlantic Bancorps public filings and
statements did not fully disclose the risks associated with the Commercial Real Estate Loan
Portfolio and seeks damages on behalf of BankAtlantic Bancorp.
On December 2, 2008, the Circuit Court for Broward County stayed a separately filed action
captioned Albert R. Feldman, Derivatively on behalf of Nominal Defendant BankAtlantic Bancorp, Inc.
vs. Alan B. Levan, et al., Case No. 0846795 07. The court granted the motion to stay the action
pending further order of the court and allowing any party to move for relief from the stay,
provided the moving party gives at least thirty days written notice to all of the non-moving
parties. BankAtlantic Bancorp believes the claims to be without merit and intends to vigorously
defend the actions.
Wilmine Almonor, individually and on behalf of all others similarly situated, vs. BankAtlantic
Bancorp, Inc., Steven M. Coldren, Mary E. Ginestra, Willis N. Holcombe, Jarett S. Levan, John E.
Abdo, David A. Lieberman, Charlie C. Winningham II, D. Keith Cobb, Bruno L. DiGiulian, Alan B.
Levan, James A. White, the Security Plus Plan Committee, and Unknown Fiduciary Defendants 1-50, No.
0:07-cv-61862- DMM, United States District Court, Southern District of Florida.
On December 20, 2007, Wilmine Almonor filed a purported class action in the United States
District Court for the Southern District of Florida against BankAtlantic Bancorp and the
above-listed officers, directors, employees, and organizations. The Complaint alleges that during
the purported class period of November 9, 2005 to present, BankAtlantic Bancorp and the individual
defendants violated the Employment Retirement Income Security Act (ERISA) by permitting company
employees to choose to invest in BankAtlantic Bancorps Class A common stock in light of the facts
alleged in the Hubbard securities lawsuit. The Complaint seeks to assert claims for breach of
fiduciary duties, the duty to provide accurate information, the duty to avoid conflicts of interest
under ERISA and seeks unspecified damages. On February 18, 2009, the Plaintiff filed a Second
Amended Complaint, which, for the first time, identified by name the following additional
Defendants that Plaintiff had previously attempted to identify by position: Anne B. Chervony,
Lewis F. Sarrica, Susan D. McGregor, Jeff Callan, Patricia Lefebvre, Jeffrey Mindling, Tim Watson,
Gino Martone, Jose Valle, Juan Carlos Ortigosa, Gerry Lachnicht, Victoria Bloomenfeld, Rita
McManus, and Kathleen Youlden.
On July 14, 2009, the Court granted in part Defendants motion to dismiss the Second Amended
Complaint, dismissing the following individual Defendants from Count II: Lewis Sarrica, Susan
McGregor, Patricia Lefebvre, Jeffrey Mindling and Gerry Lachnicht. On July 28, 2009, the Court
denied Plaintiffs motion for class certification. On January 13, 2010, the Court ruled that the
Plaintiffs status as a Plan representative threatens the interests of the Plan, and in turn other
Plan participants, and threatens the integrity of the judicial process. The court denied the
Plaintiffs request to proceed as a Plan representative and accordingly, the case is currently
proceeding solely on the basis of the Plaintiffs individual claim. BankAtlantic Bancorp believes
the claim to be without merit and intends to vigorously defend the action.
SEC Investigation
BankAtlantic Bancorp has received a notice of investigation from the Securities and Exchange
Commission, Miami Regional Office and subpoenas for information. The subpoenas request a broad
range of documents relating to, among other matters, recent and pending litigation to which
BankAtlantic Bancorp is or was a party, certain of BankAtlantics non-performing, non-accrual and
charged-off loans, BankAtlantic Bancorps cost saving measures, BankAtlantic Bancorps recently
formed asset workout subsidiary and any purchases or sales of BankAtlantic Bancorps common stock
by officers or directors of BankAtlantic Bancorp. Various current and
former employees have also received subpoenas for documents and testimony. BankAtlantic
Bancorp is fully cooperating with the SEC.
62
Lashelle Farrington, individually and on behalf of all others similarly situated, v. BankAtlantic,
a Federal Savings Bank, Case No. 09-006210 (11), in the Circuit Court of the Seventeenth Judicial
Circuit in and for Broward County, Florida.
The original Farrington complaint was filed on February 2, 2009 against BankAtlantic and
several of BankAtlantics affiliates (namely, BA Financial Services, LLC, BankAtlantic Bancorp,
Inc., BFC Financial Corporation, and Joe Does 1-10), and the Plaintiff subsequently amended the
complaint to drop the non-BankAtlantic defendants. The Amended Complaint alleges that BankAtlantic
breached its Personal Account Depositors Agreement by charging overdraft fees for certain debit
card purchases when the customer allegedly had sufficient funds in her account at the time that the
items were paid even though the account was overdrawn at the close of business. The Plaintiff
seeks to establish a class comprised of all persons or entities with accounts that incurred these
allegedly improper overdraft fees on debit card transactions in the previous 5 years. The
Plaintiff has not yet moved to certify a class. BankAtlantic Bancorp believes the claims to be
without merit and intends to vigorously defend the action
Joel and Elizabeth Rothman, on behalf of themselves and all persons similarly situated vs.
BankAtlantic, Case No. 09-059341 (07), Circuit Court of the 17th Judicial Circuit for Broward
County, Florida.
On November 2, 2009, Joel and Elizabeth Rothman filed a purported class action against
BankAtlantic in Florida state court. The Complaint asserts claims for breach of contract, breach of
duty of good faith and fair dealing, unjust enrichment, conversion, and usury. Each of these counts
is related to BankAtlantics collection of overdraft fees. The Complaint alleges that BankAtlantic
failed to adequately warn its customers about overdrafts, failed to give its customers the ability
to opt out of an automatic overdraft protection program and improperly manipulated debit card
transactions. The Plaintiffs seek to represent three classes of BankAtlantic customers in the State
of Florida who were assessed overdraft fees. BankAtlantic Bancorp believes the claims to be without
merit and intends to vigorously defend the action.
In the ordinary course of business, the Company and its subsidiaries are also parties to
lawsuits as plaintiff or defendant involving its bank operations, lending, tax certificates
activities and real estate activities. Additionally, from time to time, Bluegreen becomes involved
in disputes with existing and former employees, vendors, taxing jurisdictions and various other
parties. Although the Company believes it has meritorious defenses in the pending legal actions and
that the outcomes of these pending legal matters should not materially impact us, the ultimate
outcomes of these matters are uncertain.
ITEM 4. REMOVED AND RESERVED
63
PART II
ITEM
5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A Common Stock and Class B Common Stock have substantially identical terms, except
as follows:
| Each share of Class A Common Stock is entitled to one vote for each share held, with all holders of Class A Common Stock possessing in the aggregate 22% of the total voting power. Holders of Class B Common Stock have the remaining 78% of the total voting power. If the number of shares of Class B Common Stock outstanding decreases to 1,800,000 shares, the Class A Common Stocks aggregate voting power will increase to 40% and the Class B Common Stock will have the remaining 60%. If the number of shares of Class B Common Stock outstanding decreases to 1,400,000 shares, the Class A Common Stocks aggregate voting power will increase to 53% and the Class B Common Stock will have the remaining 47%. If the number of shares of Class B Common Stock outstanding decreases to 500,000, the fixed voting percentages will be eliminated. | ||
| Each share of Class B Common Stock is convertible at the option of the holder thereof into one share of Class A Common Stock. |
In addition to any other approval required by Florida law, the foregoing voting structure may
not be amended without the approval of holders of a majority of the outstanding shares of the
Companys Class B Common Stock, voting as a separate class.
Market Information
Since, December 9, 2008, our Class A Common Stock has been quoted on the Pink Sheets
Electronic Quotation Service (Pink Sheets) under the ticker symbol BFCF.PK. Prior to that time,
our Class A Common Stock traded on NYSE Arca (after the previously trading on the NASDAQ National
Market). Our Class B Common Stock is quoted on the OTC Bulletin Board under the symbol BFCFB.OB.
The following table sets forth, for the indicated periods, (i) the high and low trading prices
for our Class A Common Stock as reported by NYSE Arca from January 1, 2008 through December 8, 2008
and as quoted on the Pink Sheets from December 9, 2008 through December 31, 2009 and (ii) the high
and low trading prices for our Class B Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System. The over-the-counter stock prices do not include
retail mark-ups, mark-downs or commissions.
Class A Common Stock: | High | Low | ||||||
2008 |
||||||||
First Quarter |
$ | 1.56 | $ | 0.50 | ||||
Second Quarter |
1.26 | 0.57 | ||||||
Third Quarter |
1.04 | 0.45 | ||||||
Fourth Quarter |
0.68 | 0.12 | ||||||
2009 |
||||||||
First Quarter |
$ | 0.32 | $ | 0.06 | ||||
Second Quarter |
0.51 | 0.16 | ||||||
Third Quarter |
0.70 | 0.26 | ||||||
Fourth Quarter |
0.74 | 0.31 |
64
Class B Common Stock: | High | Low | ||||||
2008 |
||||||||
First Quarter |
$ | 1.50 | $ | 1.08 | ||||
Second Quarter |
1.20 | 0.65 | ||||||
Third Quarter |
0.75 | 0.52 | ||||||
Fourth Quarter |
0.55 | 0.25 | ||||||
2009 |
||||||||
First Quarter |
$ | 0.25 | $ | 0.25 | ||||
Second Quarter |
0.51 | 0.25 | ||||||
Third Quarter |
0.40 | 0.30 | ||||||
Fourth Quarter |
1.24 | 0.31 |
Holders
On March 26, 2010, there were approximately 684 record holders of our Class A Common Stock and
approximately 452 record holders of our Class B Common Stock.
Dividends
While there are no restrictions on our payment of cash dividends we have never paid cash
dividends on our common stock.
There are restrictions on the payment of dividends by BankAtlantic to BankAtlantic Bancorp and
in certain circumstances on the payment of dividends by BankAtlantic Bancorp to holders of its
common stock, including BFC. BankAtlantic Bancorp does not expect to receive dividend payments from
BankAtlantic, and BankAtlantic Bancorp is currently prohibited from paying dividends on its common
stock due to its decision to defer interest payments on its junior subordinated debentures. See
Financial Services Risk Factors and Financial Services Regulation and Supervision Limitation
on Capital Distributions and Note 23 of the Notes to Consolidated Financial Statements for
additional information.
Issuer Purchases of Equity Securities
On September 21, 2009, our Board of Directors approved a share repurchase program which
authorizes the repurchase of up to 20,000,000 shares of Class A and Class B Common Stock at an
aggregate cost of no more than $10 million. The share repurchase program replaced our $10 million
repurchase program that our Board of Directors approved in October 2006 which placed a limitation
on the number of shares which could be repurchased under the program at 1,750,000 shares of Class A
Common Stock. In 2008, we repurchased 100,000 shares of Class A Common Stock at an aggregate cost
of $54,000 under the prior program. The current program, like the prior program, authorizes
management, at its discretion, to repurchase shares from time to time subject to market conditions
and other factors. No shares were repurchased during the year ended December 31, 2009.
65
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of and for the
years ended December 31, 2005 through 2009. Certain selected financial data presented below
is derived from our consolidated financial statements. This table is a summary and should be
read in conjunction with the consolidated financial statements and related notes thereto
which are included elsewhere in this report.
(Dollars in thousands, except for per share data)
For the Years Ended December 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Statement of Operations Data (e): |
||||||||||||||||||||
Revenues |
||||||||||||||||||||
Real Estate and Other |
$ | 39,726 | 16,870 | 415,881 | 573,574 | 564,697 | ||||||||||||||
Financial Services |
354,087 | 449,571 | 520,793 | 507,746 | 445,537 | |||||||||||||||
393,813 | 466,441 | 936,674 | 1,081,320 | 1,010,234 | ||||||||||||||||
Costs and Expenses |
||||||||||||||||||||
Real Estate and Other |
206,892 | 76,470 | 711,073 | 617,211 | 507,948 | |||||||||||||||
Financial Services |
573,467 | 634,970 | 579,458 | 474,311 | 381,916 | |||||||||||||||
780,359 | 711,440 | 1,290,531 | 1,091,522 | 889,864 | ||||||||||||||||
Gain on bargain purchase of Bluegreen |
183,138 | | | | | |||||||||||||||
Gain on settlement of investment in Woodbridges subsidiary |
29,679 | | | | | |||||||||||||||
Equity in earnings from unconsolidated affiliates |
33,381 | 15,064 | 12,724 | 10,935 | 13,404 | |||||||||||||||
Impairment of unconsolidated affiliates |
(31,181 | ) | (96,579 | ) | | | | |||||||||||||
Investments gains (losses), interest and other income |
19,549 | (5,722 | ) | 17,183 | 11,479 | 13,033 | ||||||||||||||
(Loss) income from continuing operations
before income taxes |
(151,980 | ) | (332,236 | ) | (323,950 | ) | 12,212 | 146,807 | ||||||||||||
(Benefit) provision for income taxes |
(67,218 | ) | 15,763 | (70,246 | ) | (516 | ) | 59,672 | ||||||||||||
(Loss) income from continuing operations |
(84,762 | ) | (347,999 | ) | (253,704 | ) | 12,728 | 87,135 | ||||||||||||
Discontinued operations, net of income tax |
(11,931 | ) | 19,388 | 8,799 | (10,554 | ) | 17,926 | |||||||||||||
Extraordinary gain, net of income tax |
| 9,145 | 2,403 | | | |||||||||||||||
Net (loss) income |
(96,693 | ) | (319,466 | ) | (242,502 | ) | 2,174 | 105,061 | ||||||||||||
Less: Net (loss) income attributable to noncontrolling interests |
(122,414 | ) | (260,567 | ) | (212,043 | ) | 4,395 | 92,287 | ||||||||||||
Net income (loss) attributable to BFC |
25,721 | (58,899 | ) | (30,459 | ) | (2,221 | ) | 12,774 | ||||||||||||
Preferred Stock dividends |
(750 | ) | (750 | ) | (750 | ) | (750 | ) | (750 | ) | ||||||||||
Net income (loss) allocable to common stock |
$ | 24,971 | (59,649 | ) | (31,209 | ) | (2,971 | ) | 12,024 | |||||||||||
Common Share Data (a), (b), (c) |
||||||||||||||||||||
Basic earnings (loss) per share of common stock from: |
||||||||||||||||||||
continuing operations |
$ | 0.68 | (1.63 | ) | (0.90 | ) | (0.04 | ) | 0.24 | |||||||||||
discontinued operations |
(0.24 | ) | 0.11 | 0.03 | (0.05 | ) | 0.18 | |||||||||||||
extraordinary items |
| 0.20 | 0.06 | | | |||||||||||||||
Basic earnings (loss) per share of common stock |
$ | 0.44 | (1.32 | ) | (0.81 | ) | (0.09 | ) | 0.42 | |||||||||||
Diluted earnings (loss) per share of common stock from: |
||||||||||||||||||||
continuing operations |
$ | 0.68 | (1.63 | ) | (0.90 | ) | (0.05 | ) | 0.22 | |||||||||||
discontinued operations |
(0.24 | ) | 0.11 | 0.03 | (0.05 | ) | 0.15 | |||||||||||||
extraordinary items |
| 0.20 | 0.06 | | | |||||||||||||||
Diluted earnings (loss) per share of common stock |
$ | 0.44 | (1.32 | ) | (0.81 | ) | (0.10 | ) | 0.37 | |||||||||||
Basic weighted average number of
common shares outstanding |
57,235 | 45,097 | 38,778 | 33,249 | 28,952 | |||||||||||||||
Diluted weighted average number of
common shares outstanding |
57,235 | 45,097 | 38,778 | 33,249 | 31,219 |
66
Item 6. Selected Financial Data continued
(Dollars in thousands)
(Dollars in thousands)
December 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Balance Sheet (at period end) |
||||||||||||||||||||
Loans, loans held for sale and notes
receivable, net |
$ | 3,960,715 | 4,317,645 | 4,528,538 | 4,603,505 | 4,628,744 | ||||||||||||||
Real estate inventory |
$ | 494,291 | 268,763 | 270,229 | 847,492 | 632,597 | ||||||||||||||
Securities |
$ | 467,520 | 979,417 | 1,191,173 | 1,081,980 | 1,064,857 | ||||||||||||||
Total assets |
$ | 6,047,037 | 6,395,582 | 7,114,433 | 7,605,766 | 7,395,755 | ||||||||||||||
Deposits |
$ | 3,948,818 | 3,919,796 | 3,953,405 | 3,867,036 | 3,752,676 | ||||||||||||||
Securities sold under agreements to
repurchase and federal funds purchased |
$ | 27,271 | 279,726 | 159,905 | 128,411 | 249,263 | ||||||||||||||
Other borrowings (d) |
$ | 1,362,000 | 1,556,362 | 1,992,718 | 2,398,662 | 2,121,315 | ||||||||||||||
BFC shareholders equity |
$ | 245,059 | 112,867 | 184,037 | 177,585 | 183,080 | ||||||||||||||
Noncontrolling interests |
$ | 158,852 | 262,554 | 558,950 | 698,323 | 696,522 | ||||||||||||||
Total equity |
$ | 403,911 | 375,421 | 742,987 | 875,908 | 879,602 |
(a) | Since its inception, BFC has not paid any cash dividends on its common stock. | |
(b) | While the Company has two classes of common stock outstanding, the two-class method is not presented because the companys capital structure does not provide for different dividend rates or other preferences, other than voting rights, between the two classes. | |
(c) | Prior to the merger of I.R.E. Realty Advisory Group, Inc. (I.R.E. RAG) in November 2007, the 4,764,285 shares of the Companys Class A Common Stock and 500,000 shares of the Companys Class B Common Stock that were owned by I.R.E. RAG were considered outstanding,. However, because the Company owned 45.5% of the outstanding common stock of I.R.E. RAG, 2,165,367 shares of Class A Common Stock and 227,250 shares of Class B Common Stock were eliminated from the number of shares outstanding for purposes of computing earnings per share. | |
(d) | Other borrowings include advances from FHLB, notes and mortgage notes payable, receivable-backed notes payable and junior subordinated debentures. | |
(e) | Reclassified to reflect the reporting of discontinued operations, and to conform to the 2009 presentation. |
67
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AND RESULTS OF OPERATIONS
Overview
BFC Financial Corporation (BFC or, unless otherwise indicated or the context otherwise
requires, we us our or the Company) is a diversified holding company whose principal
holdings include a controlling interest in BankAtlantic Bancorp, Inc. and its subsidiaries
(BankAtlantic Bancorp), a controlling interest in Bluegreen Corporation and its subsidiaries
(Bluegreen), a non-controlling interest in Benihana, Inc. (Benihana) and a controlling interest
in Core Communities, LLC (Core or Core Communities). As a result of our position as the
controlling shareholder of BankAtlantic Bancorp, we are a unitary savings bank holding company
regulated by the Office of Thrift Supervision (OTS). As of December 31, 2009, BFC and its
subsidiaries had total consolidated assets and liabilities of approximately $6.0 billion and $5.6
billion, respectively (including the assets and liabilities of its consolidated subsidiaries,
noncontrolling interests of $158.9 million) and BFCs shareholders equity of approximately $245.1
million.
Historically, BFCs business strategy has been to invest in and acquire businesses in diverse
industries either directly or through controlled subsidiaries. BFC believes that in the short term
that the Companys and shareholders interests are best served by providing strategic support for
its existing investments. In furtherance of this strategy, the Company took several steps in 2009
which it believes will enhance the Companys prospects. Key actions taken in 2009 included the
merger of BFC with Woodbridge Holdings; the purchase of an additional 7% interest in BankAtlantic
Bancorp, increasing our economic interest in BankAtlantic Bancorp to 37% and increasing our voting
interest in BankAtlantic Bancorp to 66%; and the purchase of an additional 23% interest in
Bluegreen increasing our ownership in Bluegreen to 52%. The acquisition of this control position in
Bluegreen resulted in a bargain purchase gain of approximately $183.1 million in the fourth quarter
and net income attributable to BFC of $25.7 million for the year. In addition, we took actions to
restructure Core in recognition of the continued depressed real estate market and its inability to
meet its obligations to its lenders. Over the longer term and as the economy improves, we may look
to increase our ownership in our affiliates or seek to make other opportunistic investments, with
no pre-determined parameters as to the industry or structure of the investment.
As a holding company with controlling positions in BankAtlantic Bancorp and Bluegreen,
generally accepted accounting principles (GAAP) requires the consolidation of the financial
results of both entities. As a consequence, the assets and liabilities of both entities are
presented on a consolidated basis in BFCs financial statements. However, except as otherwise
noted, the debts and obligations of the consolidated entities, including Woodbridge, are not direct
obligations of BFC and are non-recourse to BFC. Similarly, the assets of those entities are not
available to BFC absent a dividend or distribution. The recognition by BFC of income from controlled entities is determined
based on the total percent of economic ownership in those entities. At December 31, 2009, BFC owned
approximately 37% of BankAtlantic Bancorps Class A and Class B common stock representing
approximately 66% of BankAtlantic Bancorp total voting power. At December 31, 2009, we owned
approximately 52% of Bluegreens common stock.
The following had significant financial impact on us during 2009:
BFC and Woodbridge Merger - On September 21, 2009, we consummated our merger with Woodbridge
Holdings Corporation pursuant to which Woodbridge Holdings Corporation merged with and into
Woodbridge Holdings, LLC, our wholly-owned subsidiary which continued as the surviving company of
the merger and the successor entity to Woodbridge Holdings Corporation. Pursuant to the terms of
the merger, which was approved by each companys shareholders at their respective meetings held on
September 21, 2009, each outstanding share of Woodbridges Class A Common Stock (other than
Dissenting Holders, as defined below) automatically converted into the right to receive 3.47 shares
of our Class A Common Stock. Shares otherwise issuable to us attributable to the shares of
Woodbridges Class A Common Stock and Class B Common Stock owned by us were canceled in connection
with the merger. As a result of the merger, Woodbridge Holdings Corporations separate corporate
existence ceased and its Class A Common Stock is no longer publicly traded. The merger resulted in
a net increase in BFCs shareholders equity of approximately $95.0 million, an increase in common
stock and additional paid-in capital of approximately $303,000 and $94.7 million, respectively, and
a corresponding decrease to noncontrolling interest of approximately $99.6 million.
68
Under Florida law, holders of Woodbridges Class A Common Stock who did not vote to approve
the merger and properly asserted and exercised their appraisal rights with respect to their shares
(Dissenting Holders) are entitled to receive a cash payment in an amount equal to the fair value
of their shares (as determined in accordance with the provisions of Florida law) in lieu of the
shares of BFCs Class A Common Stock which they would otherwise have been entitled to receive.
Dissenting Holders, who collectively held approximately 4.2 million shares of Woodbridges Class A
Common Stock, have rejected Woodbridges offer of $1.10 per share and requested payment for their
shares based on their respective fair value estimates of Woodbridges Class A Common Stock. In
connection with Woodbridges offer to the Dissenting Holders, the Company accrued a $4.6 million
liability with a corresponding decrease to additional paid-in capital, representing in the
aggregate Woodbridges offer to the Dissenting Holders. Woodbridge is currently in litigation with
the Dissenting Holders, and the outcome of such litigation is uncertain. There is no assurance that
the actual payment required to be made to the Dissenting Holders will not exceed the amount
accrued. See Note 3 of the Notes to Consolidated Financial Statements for additional information
about the merger.
Acquisition
of Bluegreen shares - On November 16, 2009, we purchased approximately 7.4 million
additional shares of the common stock of Bluegreen for an aggregate purchase price of approximately
$23 million. As a result of such share purchase, we increased our ownership interest in Bluegreen
from 29% of Bluegreens outstanding common stock to approximately 52%. Accordingly, we now have a
controlling interest in Bluegreen and, under GAAP, Bluegreens results are consolidated in our
financial statements since November 16, 2009. Prior to
November 16, 2009, the approximate 29% equity investment in Bluegreen was accounted under the
equity method. See Note 4 of the Notes to Consolidated Financial Statements of this report for
additional information about the Bluegreen share acquisition on November 16, 2009.
Acquisition
of BankAtlantic Bancorp shares - During the third quarter of 2009, BankAtlantic
Bancorp distributed to its shareholders 4.441 subscription rights for each share of its Class A
Common Stock and Class B Common Stock held on August 24, 2009. Each whole subscription right
entitled the holder to purchase one share of BankAtlantic Bancorps Class A Common Stock at a
purchase price of $2.00 per share. BFC exercised its subscription rights in the rights offering to
purchase an aggregate of 14.9 million shares of BankAtlantic Bancorps Class A Common Stock for an
aggregate purchase price of $29.9 million. This purchase increased BFCs ownership interest in
BankAtlantic Bancorp by approximately 7.3% to approximately 37.2% and increased BFCs voting
interest by approximately 6.7% to 66.0%. BFCs purchase of the 14.9 million shares of BankAtlantic
Bancorps Class A Common Stock was accounted for as an equity transaction in accordance with
recently adopted FASB authoritative guidance effective on January 1, 2009, which provides that
changes in a parents ownership interest which do not result in the parent losing its controlling
financial interest in its subsidiary are reported as equity transactions. Accordingly, BFCs
increase in BankAtlantic Bancorps ownership interest resulted in an increase to additional paid-in
capital of approximately $7.0 million, which represents the excess carrying value of the
noncontrolling interest acquired over the consideration paid.
Levitt and Sons Bankruptcy Settlement - On February 20, 2009, the Bankruptcy Court entered an
order confirming a plan of liquidation jointly proposed by Levitt and Sons and the Official
Committee of Unsecured Creditors. That order also approved the settlement pursuant to the
settlement agreement that was entered into with the Joint Committee of Unsecured Creditors. No
appeal or rehearing of the Bankruptcy Courts order was filed by any party, and the settlement was
consummated on March 3, 2009, at which time payment was made in accordance with the terms and
conditions of the settlement agreement. Under cost method accounting, the cost of settlement and
the related $52.9 million liability (less $500,000 which was determined as the settlement holdback
and remained as an accrual pursuant to the settlement agreement) was recognized into income in the
first quarter of 2009, resulting in a $40.4 million gain on settlement of investment in subsidiary.
Pursuant to the settlement agreement, we agreed to share a percentage of any tax refund
attributable to periods prior to the bankruptcy with the Debtors Estate. In the fourth quarter of
2009, we accrued approximately $10.7 million in connection with the portion of the tax refund that
we will be required to pay to the Debtors Estate pursuant to the settlement agreement. As a result,
the gain on settlement of investment in subsidiary for the year ended December 31, 2009 was $29.7
million. See Note 25 of the Notes to Consolidated Financial Statements for more information
regarding the tax refund.
69
Reclassification
of Discontinued Operations - In December 2009, Core Communities reinitiated
efforts to sell two of its commercial leasing projects (the Projects) and began soliciting bids
from several potential buyers to purchase assets associated with the Projects. The assets are
available for immediate sale in their present condition and Core determined that it is probable
that it will sell the Projects in 2010. Due to this decision, the assets associated with the
Projects that are for sale have been classified as discontinued operations for all periods
presented in accordance with the accounting guidance for the disposal of long-lived assets.
The assets were reclassified as assets held for sale and the liabilities related to these
assets were reclassified as liabilities related to assets held for sale in the audited consolidated
statements of financial condition. Additionally, the results of operations for the projects were
reclassified to income from discontinued operations. Depreciation related to these assets held for
sale ceased in December 2009. The Company has elected not to separate these assets in the audited
consolidated statements of cash flows for the periods presented. Management has reviewed the net
asset value and estimated the fair market value of the assets based on the bids received related to
these assets and determined that an impairment charge was necessary to write down the carrying
value of the Projects to their fair value less the costs to sell and, accordingly, recorded an
impairment charge of approximately $13.6 million for the year ended December 31, 2009. For a
discussion of negotiations with respect to the Projects, see Cores Liquidity and Capital
Resources.
Additional recent developments and related financial matters are discussed below.
BFC Financial Corporation Summary of Consolidated Results of Operations
The table below sets forth the Companys summarized results of operations (in thousands):
For the Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Real Estate and Other |
$ | 104,758 | (128,755 | ) | (223,692 | ) | ||||||
Financial Services |
(189,520 | ) | (219,244 | ) | (30,012 | ) | ||||||
Loss from continuing operations |
(84,762 | ) | (347,999 | ) | (253,704 | ) | ||||||
Discontinued operations, net of income tax |
(11,931 | ) | 19,388 | 8,799 | ||||||||
Extraordinary gain, net of income tax |
| 9,145 | 2,403 | |||||||||
Net loss |
(96,693 | ) | (319,466 | ) | (242,502 | ) | ||||||
Less: Net loss attributable to noncontrolling interests |
(122,414 | ) | (260,567 | ) | (212,043 | ) | ||||||
Net income (loss) attributable to BFC |
25,721 | (58,899 | ) | (30,459 | ) | |||||||
5% Preferred stock dividends |
(750 | ) | (750 | ) | (750 | ) | ||||||
Net income (loss) allocable to common stock |
$ | 24,971 | (59,649 | ) | (31,209 | ) | ||||||
The Company reported net income attributable to BFC of $25.7 million in 2009 as compared to a
net loss attributable to BFC of $58.9 million in 2008 and a net loss of $30.5 million in 2007.
Results for the years ended December 31, 2009, 2008 and 2007 included an $11.9 million loss, $19.4
million of income and $8.8 million of income from discontinued operations, net of income tax,
respectively. The results from discontinued operations related to financial results associated
with Ryan Beck and Core Communities commercial leasing projects, as discussed further in Note 5 of
the Notes to Consolidated Financial Statements. Real Estate and Other includes an approximately
$183.1 million bargain purchase gain associated with Bluegreens share acquisition on November 16,
2009. See Note 4 of the Notes to Consolidated Financial Statements.
In 2009, the Company acquired additional shares of BankAtlantic Bancorp Class A Common Stock.
Effective on January 1, 2009, the FASB adopted authoritative guidance which provides that changes
in a parents ownership interest which do not result in the parent losing its controlling financial
interest in its subsidiary are reported as equity transactions. Accordingly, BFCs increase in its
ownership interest in BankAtlantic Bancorp resulted in an increase to additional paid-in capital of
approximately $7.0 million, which represents the excess carrying value of the noncontrolling
interest acquired over the consideration paid.
70
In 2008, the Company acquired additional shares of BankAtlantic Bancorps Class A Common Stock
in the open market, and in 2007 the Company acquired shares of Woodbridges Class A Common Stock in
Woodbridges
rights offerings to its shareholders, including the Company. The acquisition of these shares
resulted in negative goodwill (based on the excess of fair value of acquired net assets over the
purchase price of the shares) of approximately $19.6 million in connection with the 2008
acquisition of shares of BankAtlantic Bancorp and $11 million in connection with the 2007
acquisition of shares of Woodbridge. After ratably allocating this negative goodwill to
non-current and non-financial assets, the Company recognized in 2008 and 2007 an extraordinary
gain, net of tax, of $9.1 million and $2.4 million, respectively.
As a result of the Woodbridge merger on September 21, 2009 and the Bluegreen share acquisition
on November 16, 2009, in each case as described above, the Company reorganized its reportable
segments to better align its segment reporting with the current operations of its businesses. The
Companys business activities currently consist of (i) Real Estate and Other activities and (ii)
Financial Services activities, which are reported through six segments: BFC Activities, Real Estate
Operations, Bluegreen Resorts, Bluegreen Communities, BankAtlantic and BankAtlantic Bancorp Parent
Company. As a result of this reorganization, our BFC Activities segment now includes, in addition
to other activities historically included in the segment, Woodbridge Other Operations (which was
previously a segment). Our Real Estate Operations segment is now comprised of what was previously
identified as our Land Division, including the real estate business activities of Woodbridge and
its subsidiaries, Core Communities and Carolina Oak Homes, LLC (Carolina Oak). In 2007, the Real
Estate Operations segment also included the operations of Levitt and Sons, which was deconsolidated
as of November 9, 2007 in connection with the filing of its Chapter 11 Cases, and Levitt
Commercial.
The Companys Real Estate and Other business activities are reported in four segments which
are i) BFC Activities ii) Real Estate Operations, iii) Bluegreen Communities and iv) Bluegreen
Resorts. BFCs consolidated financial statements include the results of operations of Bluegreen
from November 16, 2009 (when we acquired a controlling interest in Bluegreen) through December 31,
2009. Accordingly, Bluegreens results of operations since November 16, 2009 are reported through
the Bluegreen Resorts and Bluegreen Communities segments. Prior to November 16, 2009, when we owned
approximately 9.5 million shares of Bluegreen common stock representing approximately 29% of such
stock, the investment in Bluegreen was accounted for under the equity method of accounting. In
prior years, the investment in Bluegreen was included in Woodbridge other operations, and our
interest in Bluegreens earnings and losses prior to November 16, 2009 are included in our BFC
Activities segment. The Companys Financial Services business activities include BankAtlantic
Bancorps results of operations and are reported in two segments: BankAtlantic and BankAtlantic
Bancorp Parent Company.
The presentation and allocation of the assets, liabilities and results of operations of each
segment may not reflect the actual economic costs of the segment as a stand-alone business. If a
different basis of allocation were utilized, the relative contributions of the segments might
differ but, in managements view, the relative trends in segments would not likely be impacted.
The results of our business segments and other information on each segment are discussed below
in BFC Activities, Real Estate Operations, Bluegreen Resorts, Bluegreen Communities, BankAtlantic
and BankAtlantic Bancorp Parent Company. See also Note 34 of the Notes to Consolidated Financial
Statements contained in Item 8 of this report.
71
Consolidated Financial Condition
Consolidated Assets and Liabilities
Total assets at December 31, 2009 and December 31, 2008 were $6.0 billion and $6.4 billion,
respectively. The changes in components of total assets between December 31, 2008 and December 31,
2009 are summarized below. The acquisition of a controlling interest in Bluegreen in November 2009
resulted in increases in cash and cash equivalents, notes receivable, inventory of real estate,
retained interest in notes receivable sold and intangible assets of $70.5 million, $277.3 million,
$322.9 million $26.3 million and $63.0 million respectively. Other than such increases, the change
in total assets primarily resulted from:
| an increase in cash and cash equivalents primarily reflecting BankAtlantic Bancorp $116.7 million of higher cash balances at the Federal Reserve Bank associated with daily cash management activities. This contributed to the net increase in cash and cash equivalents of approximately $37.1 million and cash provided by operations of approximately $6.0 million. Cash provided by investing activities was approximately $919.4 million and cash used in financing activities was $888.3 million; | ||
| a decrease in securities available for sale reflecting BankAtlantics sale of $284.0 million of residential mortgage-backed securities as well as prepayments by borrowers associated with residential mortgage refinancing of $59 million in response to low historical residential mortgage interest rates during 2009; | ||
| an increase in current income tax receivable reflecting BankAtlantic Bancorps and Woodbridges receivable of approximately $31.8 million and $34.6 million, respectively, from the Department of the Treasury associated with a change in the income tax net operating loss carry-back laws; | ||
| a decrease in BankAtlantics tax certificate balances primarily due to redemptions and decreased tax certificate acquisitions during 2009; | ||
| a decrease in BankAtlantics loan receivable balances associated with $185.9 million of loan charge-offs, $50.0 million increase in the allowance for loan losses, as well as refinancing of residential loans in the normal course of business combined with a significant decline in loan purchases and originations; | ||
| an increase in real estate inventory mainly due to the consolidation of Bluegreen and partially offset by an impairment charge of approximately $101.9 million recorded in connection with Core Communities and Carolina Oaks inventory of real estate, including purchase accounting adjustment of $8.9 million; | ||
| an increase in real estate owned associated with BankAtlantics commercial real estate and residential loan foreclosures; | ||
| a decrease in BankAtlantics goodwill associated with an $8.5 million impairment charge to goodwill, net of purchase accounting adjustment in the amount of $0.8 million, and a $2.0 million impairment charge related to goodwill associated with Woodbridges investment in Pizza Fusion; | ||
| a decrease in assets held for sale resulting from the decrease in value of Core Communities assets from discontinued operations; and | ||
| an increase in other assets due in part to $31.3 million prepaid FDIC insurance assessments for the three years ended December 31, 2012. |
The Companys total liabilities at December 31, 2009 were $5.6 billion compared to $6.0
billion at December 31, 2008. The changes in components of total liabilities from December 31,
2008 to December 31, 2009 are summarized below. The acquisition of a controlling interest in
Bluegreen in November 2009 resulted in increases in long term
debt and deferred income taxes of $479.6 million and $30.3 million, respectively.
Other than such increases, the change in total liabilities primarily resulted from:
| a decrease in BankAtlantics interest bearing deposit account balances of $36 million associated with $445.2 million of lower time deposits and insured money market savings accounts partially offset by $416.4 million of higher interest bearing checking account balances reflecting higher NOW account balances combined with intercompany eliminations of $8.7 million; | ||
| a $85.9 million increase in non-interest-bearing deposit balances at BankAtlantic primarily due to increased customer balances combined with intercompany eliminations of $12.2 million; | ||
| lower FHLB advances and short term borrowings at BankAtlantic due to repayments using proceeds from the sales of securities, loan repayments and increases in deposit account balances; | ||
| an increase in BankAtlantic Bancorps junior subordinated debentures liability due to interest deferrals; |
72
| the reversal of the loss in excess of investment in Levitt and Sons as a result of the Bankruptcy Courts approval of the Levitt and Sons bankruptcy plan; and | ||
| a decrease in other liabilities primarily reflecting a significant decline in accrued interest payable due to lower FHLB advance and short term borrowing balances as well as a substantial decline in the cost of funds for 2009 compared to 2008. The decrease in other liabilities was partially offset with an accrual recorded in the fourth quarter of 2009 of approximately $10.7 million in connection with a portion of the tax refund, that will be payable to the Levitt and Sons estate upon receipt. |
Redeemable 5% Cumulative Preferred Stock
On June 7, 2004, the Board of Directors of the Company designated 15,000 shares of the
Companys preferred stock as 5% Cumulative Convertible Preferred Stock (5% Preferred Stock). On
June 21, 2004, the Company sold all 15,000 shares of the Preferred Stock to an investor group in a
private offering.
The 5% Preferred Stock has a stated value of $1,000 per share. The shares of 5% Preferred
Stock may be redeemed at the option of the Company, from time to time, at redemption prices (the
Redemption Price) ranging from $1,025 per share for the year 2010 to $1,000 per share for the
year 2015 and thereafter. The 5% Preferred Stock liquidation preference is equal to its stated
value of $1,000 per share plus any accumulated and unpaid dividends or an amount equal to the
Redemption Price in a voluntary liquidation or winding up of the Company. Holders of the 5%
Preferred Stock are entitled to receive, when and as declared by the Companys Board of Directors,
cumulative quarterly cash dividends on each such share at a rate per annum of 5% of the stated
value from the date of issuance, payable quarterly. Since June 2004, the Company has paid quarterly
dividends on the 5% Preferred Stock of $187,500. The 5% Preferred Stock has no voting rights except
as required by Florida law.
On December 17, 2008, the Company amended its Articles of Incorporation (the Amendment) to
change certain of the previously designated relative rights, preferences and limitations of the
Companys 5% Preferred Stock. The Amendment eliminated the right of the holders of the 5% Preferred
Stock to convert their shares of 5% Preferred Stock into shares of the Companys Class A Common
Stock. The Amendment also requires the Company to redeem shares of the 5% Preferred Stock with the
net proceeds it receives in the event (i) the Company sells any of its shares of Benihana Series B
Convertible Preferred Stock (the Convertible Preferred Stock), (ii) the Company sells any shares
of Benihanas common stock received upon conversion of Benihanas Convertible Preferred Stock or
(iii) Benihana redeems any shares of Benihanas Convertible Preferred Stock owned by the Company.
Additionally, in the event the Company defaults on its obligation to make dividend payments on the
5% Preferred Stock, the Amendment entitles the holders of BFCs 5% Preferred Stock, to receive
directly from Benihana certain payments on the shares of Benihanas Convertible Preferred Stock
owned by the Company or on the shares of Benihanas common stock received by the Company upon
conversion of Benihanas Convertible Preferred Stock.
In December 2008, based on an analysis of the 5% Preferred Stock after giving effect to the
Amendment, the Company determined that the 5% Preferred Stock met the requirements to be
re-classified outside of permanent equity at its fair value at the Amendment date of approximately
$11.0 million into the mezzanine category as Redeemable 5% Cumulative Preferred Stock. The
remaining amount of approximately $4.0 million continues to be classified in Additional Paid in
Capital in the Companys Consolidated Statements of Financial Condition. The fair value of the 5%
Preferred Stock was calculated by using an income approach by discounting estimated cash flows at a
market discount rate.
Noncontrolling Interest
The following table summarizes the noncontrolling interests held by others in our subsidiaries
(in thousands):
December 31, | ||||||||
2009 | 2008 | |||||||
BankAtlantic Bancorp |
$ | 88,910 | 170,888 | |||||
Woodbridge |
| 91,389 | ||||||
Bluegreen |
41,905 | | ||||||
Joint ventures |
28,037 | 277 | ||||||
$ | 158,852 | 262,554 | ||||||
73
Critical Accounting Policies
Management views critical accounting policies as accounting policies that are important to the
understanding of our financial statements and also involve estimates and judgments about inherently
uncertain matters. 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 consolidated statements of financial
condition and assumptions that affect the recognition of income and expenses on the consolidated
statement of operations for the periods presented. Actual results could differ significantly from
those estimates. Material estimates that are particularly susceptible to significant change in
subsequent periods relate to the determination of the allowance for loan losses, evaluation of
goodwill and other intangible assets for impairment, the valuation of real estate acquired in
connection with foreclosure or in satisfaction of loans, the valuation of real estate held for
development and sale and its impairment reserves, revenue and cost recognition on percent complete
projects, estimated costs to complete construction, the valuation of investments in unconsolidated
subsidiaries, the valuation of the fair value of assets and liabilities in the application of the
acquisition method of accounting, accounting for deferred tax asset valuation allowance, accounting
for uncertain tax positions, accounting for contingencies, and assumptions used in the valuation of
stock based compensation. The accounting policies that we have identified as critical accounting
policies are: (i) allowance for loan losses and notes receivables; (ii) the valuation of retained
interests in notes receivable sold; (iii) impairment of goodwill and long-lived assets; (iv)
valuation of securities as well as the determination of other-than-temporary declines in value; (v)
accounting for business combinations; (vi) the valuation of real estate; (vii) revenue and cost
recognition on percent complete projects; (viii) estimated cost to complete construction; (ix) the
valuation of equity method investments; (x) accounting for deferred tax asset valuation allowance;
and (xi) accounting for contingencies. See also Note 1, Summary of Significant Accounting Policies,
of the Notes to Consolidated Financial Statements included in Item 8 of this report for a
detailed discussion of our significant accounting policies.
Business Combinations
The Company accounts for its acquisitions in accordance with the accounting guidance for
business combinations. If the Company makes a bargain purchase, the Company recognizes a gain in
the income statement on the acquisition date. A bargain purchase is a business combination in which
the acquisition date amounts of the identifiable net assets acquired and the liabilities assumed,
as measured in accordance with the accounting guidance for business combinations exceeds the
aggregate of (i) the consideration transferred, as measured in accordance with the accounting
guidance, which generally require acquisition date fair value; (ii) the fair value of any
non-controlling interest in the acquiree, and (iii) in a business combination achieved in stages,
the acquisition date fair value of the Companys previously held equity interest in the acquiree.
This allocation process requires extensive use of estimates and assumptions, including estimates of
future cash flows to be generated by the acquired assets. The Company may utilize independent third
parties to assist the Company in assessing market conditions. The Company is also required to
periodically review these judgments and estimates and adjust them accordingly. If conditions change
from those expected, it is possible that the results could change in future periods. Certain
identifiable intangible assets, such as management contracts, are not amortized, but instead are
reviewed for impairment on at least an annual basis, or if events or changes in circumstances
indicate that the related carrying amounts may not be recoverable. Accordingly, the acquisition
cost allocation of Bluegreen has had, and will continue to have, a significant impact on the
Companys operating results.
Fair Value Measurements
We are required to disclose the fair value of our investments under accounting guidance for
fair value measurements. Based on this accounting guidance, fair value is the price that would be
received upon the sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (an exit price). As such, fair value is a
market-based measurement that should be determined based on assumptions that market participants
would use in pricing an asset or liability. As a basis for considering such assumptions, this
accounting guidance establishes a three-tier fair value hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. The three-tier fair value
hierarchy prioritizes the inputs used in measuring fair value as follows:
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| Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities; | ||
| Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and | ||
| Level 3. Unobservable inputs, when there is little or no market data, which require the reporting entity to develop its own assumptions. |
In determining fair value, we are sometimes required to use various valuation techniques. When
valuation techniques other than those described as Level 1 are utilized, management must make
estimates and judgments in determining the fair value for its investments. The degree to which
managements estimates and judgments is required is generally dependent upon the market pricing
available for the investments, the availability of observable inputs, the frequency of trading in
the investments and the investments complexity. If we make different judgments regarding
unobservable inputs, we could potentially reach different conclusions regarding the fair value of
our investments.
Intangible Assets
We evaluate our intangible assets when events and circumstances indicate that assets may be
impaired and when the undiscounted cash flows estimated to be generated by those assets are less
than their carrying amounts. The carrying value of these assets is dependent upon estimates of
future earnings that they are expected to generate. If cash flows decrease significantly,
intangible assets may be impaired and would be written down to their fair value. The estimates of
useful lives and expected cash flows require us to make significant judgments regarding future
periods that are subject to outside factors.
Intangible assets which consisted of management contracts in the amount of $63 million
originated from the November 16, 2009 acquisition of a controlling interest in Bluegreen. Such
management contracts, are not amortized, but instead are reviewed for impairment on at least an
annual basis, or if events or changes in circumstances indicate that the related carrying amounts
may not be recoverable.
At December 31, 2009 and 2008, we also held intangible assets of approximately $18.7 million
and $24.2 million, respectively, which are being amortized over the average life of the respective
assets, ranging from 7 years to 10 years.
Revenue Recognition and Inventory Cost Allocation
Revenue and all related costs and expenses from house and land sales are recognized at the
time that closing has occurred, when title and possession of the property and the risks and rewards
of ownership transfer to the buyer, and when we do not have a substantial continuing involvement in
accordance with accounting guidance for sales of real estate. In order to properly match revenues
with expenses, we estimate construction and land development costs incurred and to be incurred, but
not paid at the time of closing. Estimated costs to complete are determined for each closed home
and land sale based upon historical data with respect to similar product types and geographical
areas and allocated to closings along with actual costs incurred based on a relative sales value
approach. To the extent the estimated costs to complete have significantly changed, we will adjust
cost of sales in the current period for the impact on cost of sales of previously sold homes and
land to ensure a consistent margin of sales is maintained.
Revenue is recognized for certain land sales on the percentage-of-completion method when the
land sale takes place prior to all contracted work being completed. Pursuant to the requirements
of accounting guidance for sales of real estate, if the seller has a continuing involvement with
the property and does not transfer substantially all of the risks and rewards of ownership, profit
is recognized based on the nature and extent of the sellers continuing involvement. In the case
of our land sales, this involvement typically consists of final development activities. We
recognize revenue and related costs as work progresses using the percentage-of-completion method,
which relies on estimates of total expected costs to complete required work. Revenue is recognized
in proportion to the percentage of total costs incurred in relation to estimated total costs at the
time of sale. Actual revenues and costs to complete construction in the future could differ from
our current estimates. If our estimates of development costs remaining to be completed are
significantly different from actual amounts, then our revenues, related cumulative profits and
costs of sales may be revised in the period that estimates change.
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In accordance with the requirements of the accounting guidance for real estate time-sharing
activities regarding vacation ownership interests (VOI) sales, Bluegreen recognizes revenue on
VOI and homesite sales when a minimum of 10% of the sales price has been received in cash (buyers
commitment), the legal rescission period has expired, collectibility of the receivable representing
the remainder of the sales price is reasonably assured and Bluegreen has completed substantially
all of its obligations with respect to any development related to the real estate sold. Bluegreen
believes that it uses a reasonably reliable methodology to estimate the collectibility of the
receivables representing the remainder of the sales price of real estate sold. See the further
discussion of policies regarding the estimation of credit losses on Bluegreens notes receivable
below. Should Bluegreen become unable to reasonably estimate the collectibility of its receivables,
the recognition of sales may have to be deferred and our results of operations could be negatively
impacted. Under timeshare accounting rules, the buyers minimum cash down payment towards the
purchase of Bluegreen VOIs is met only if the cash down payment received, reduced by the value of
certain incentives provided to the buyer at the time of sale, is at least 10% of the sales price.
If, after consideration of the value of the incentive, the total down payment received from the
buyer is less than 10% of the sales price, the VOI sale, and the related cost of sales and direct
selling expenses, are deferred until such time that sufficient cash is received from the customer,
generally through receipt of mortgage payments. Changes to the quantity, type, or value of sales
incentives that Bluegreen provides to buyers of its VOIs may result in additional VOI sales being
deferred, which could materially adversely impact our results of operations.
In cases where all development has not been completed, Bluegreen recognizes revenue in
accordance with the percentage-of-completion method of accounting. Should Bluegreens estimates of
the total anticipated cost of completing Bluegreen Resorts or Bluegreen Communities projects
increase, Bluegreen may be required to defer a greater amount of revenue or may be required to
defer revenue for a longer period of time, which could materially adversely impact our results of
operations.
The timeshare accounting rules define a specific method of the relative sales value method for
relieving VOI inventory and recording cost of sales. Under the relative sales value method, cost
of sales is calculated as a percentage of net sales using a cost-of-sales percentagethe ratio of
total estimated development cost to total estimated VOI revenue, including the estimated
incremental revenue from the resale of repossessed VOI inventory, generally as a result of the
default of the related receivable. For Communities real estate projects, costs are allocated to
individual homesites in the Communities projects based on the relative estimated sales value of
each homesite without regards to defaults or repossessed inventory. Under this method, the
allocated cost of a homesite is relieved from inventory and recognized as cost of sales upon
recognition of the related sale. Should Bluegreens estimates of the sales values of its VOI and
homesite inventories differ materially from their ultimate selling prices, our gross profit could
be adversely impacted. Bluegreens completed timeshare and homesite inventory is carried at the
lower of cost or market.
Allowance for Loan Losses on VOI Notes Receivables
Bluegreen estimates uncollectible VOI notes receivable based on historical uncollectibles for
similar VOI notes receivable over the applicable historical period. Bluegreen uses a static pool
analysis, which tracks uncollectibles for each years sales over the entire life of those notes.
Bluegreen also considers whether the historical economic conditions are comparable to current
economic conditions. Additionally, under timeshare accounting requirements, no consideration is
given for future recoveries of defaulted inventory in the estimate of uncollectible VOI notes
receivable. If defaults increase, our results of operations could be materially adversely impacted.
Transfers of Financial Assets and Valuation of Retained Interests
When Bluegreen transfers financial assets to third parties, such as when it sells VOI notes
receivable pursuant to its vacation ownership receivables purchase facilities, Bluegreen evaluates
whether or not such transfer should be accounted for as a sale pursuant to accounting rules in
place at the time of the transaction. The evaluation of sale treatment involves legal assessments
of the transactions, which includes determining whether the transferred assets have been isolated
from Bluegreen (i.e., put presumptively beyond Bluegreens reach or the reach of Bluegreens
creditors, even in bankruptcy or other receivership), determining whether each transferee has the
right to pledge or exchange the assets it received, and ensuring that Bluegreen does not maintain
effective control over the transferred assets through either (1) an agreement that both entitles
and obligates Bluegreen to repurchase or redeem them before their maturity or (2) the ability to
unilaterally cause the holder to return specific assets (other than
through a cleanup call). Bluegreen believes that it has obtained appropriate legal opinions
and other guidance deemed necessary to properly account for its transfers of financial assets as
sales. As indicated below in Recent Accounting Pronouncements Not Yet Adopted, should Bluegreen
be successful in selling additional notes receivable in the future, such transactions will be
evaluated under new rules which become effective on January 1, 2010. Accordingly, Bluegreen does
not expect to recognize any future gains on the sale of notes receivable.
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In connection with the sales of notes receivable referred to above, Bluegreen retains
subordinated tranches and rights to excess interest spread, which are retained interests in the
notes receivable sold. Gain or loss on the sale of the notes receivable has depended in part on the
allocation of the previous carrying amount of the financial assets involved in the transfer between
the assets sold and the retained interests based on their relative fair value at the date of
transfer. Bluegreen initially and periodically estimates the fair value of its retained interest in
notes receivable sold based on the present value of future expected cash flows using managements
best estimates of the key assumptions prepayment rates, loss severity rates, default rates and
discount rates commensurate with the risks involved. Should Bluegreens estimates of these key
assumptions change or should the portfolios sold fail to satisfy specified performance criteria and
therefore trigger provisions whereby outside investors in the portfolios are paid on an accelerated
basis, there could be a reduction in the fair value of the retained interests and Bluegreen results
of operations and financial condition could be materially and adversely impacted.
Allowance for loan losses
The allowance for loan losses is maintained at an amount that BankAtlantic Bancorp believes
to be a reasonable estimate of probable losses inherent in its loan portfolio. BankAtlantic
Bancorp has developed policies and procedures for evaluating its allowance for loan losses which
considers all information available to BankAtlantic Bancorp. However, BankAtlantic Bancorp relies
on estimates and judgments regarding issues where the outcome is unknown. As a consequence, if
circumstances differ from its estimates and judgments, the allowance for loan losses may decrease
or increase significantly.
The calculation of BankAtlantic Bancorps allowance for loan losses consists of two
components. The first component requires identifying impaired loans based on BankAtlantic
Bancorps management classification and, if necessary, assigning a valuation allowance to the
impaired loans. Valuation allowances are established using BankAtlantic Bancorps management
estimates of the fair value of collateral or based on valuation models that present value
estimated expected future cash flows discounted at the loans effective interest rate. These
valuations are based on available information and require estimates and subjective judgments about
fair values of the collateral or expected future cash flows. Most of BankAtlantic Bancorps loans
do not have an observable market price, and an estimate of the collection of contractual cash
flows is based on the judgment of management. It is likely that materially different results would
be obtained if different assumptions or conditions were to prevail. As a consequence of the
estimates and assumptions required to calculate the first component of the allowance for loan
losses, a change in these highly uncertain estimates could have a materially favorable or
unfavorable impact on our financial condition and results of operations.
The second component of the allowance for loan losses requires BankAtlantic Bancorp to group
loans that have similar credit risk characteristics so as to form a basis for estimating probable
losses inherent in the group of loans based on historical loss percentages and delinquency trends
as it relates to the group. BankAtlantic Bancorps management assigns a quantitative allowance to
these groups of loans by utilizing historical loss experiences. BankAtlantic Bancorps management
uses its judgment to determine the length of the time used in the historical loss experience.
During each of the years in the two year period ended December 31, 2008, management used a 2 year
loss experience to calculate the loss experience. However, due to the rapid decline in economic
conditions and real estate values, during 2009, management shortened its historical loss
experience by portfolio to between six months and one year, in order to reflect the current
heighted loss experience in the quantitative allowance. The historical loss period is selected
based on managements judgment and a change in this loss period may result in material changes to
the quantitative loss allowance. BankAtlantic Bancorps management also assigns a qualitative
allowance to these groups of loans in order to adjust the historical data, if necessary, for
qualitative factors that exist currently that were not present in the historical data. These
qualitative factors include delinquency trends, actual loan classification migration trends,
economic and business conditions, concentration of credit risk, loan-to-value ratios, problem loan
trends and external factors. In deriving the qualitative allowance BankAtlantic Bancorps
management uses significant judgment to qualitatively adjust the historical loss experiences for
current trends that existed at period end that were not reflected in the calculated historical
loss ratios and to adjust the allowance for the
changes in the current economic climate compared to the economic environment that existed
historically. A subsequent change in data trends or the external environment may result in
material changes in this component of the allowance from period to period.
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Management believes that the allowance for loan losses reflects a reasonable estimate of
incurred credit losses as of the statement of financial condition date. As of December 31, 2009,
BankAtlantic Bancorps allowance for loan losses was $187.2 million. See Provision for Loan
Losses for a discussion of the amounts of BankAtlantic Bancorps allowance assigned to each loan
product. The estimated allowance, which was derived from the above methodology, may be
significantly different from actual realized losses. Actual losses incurred in the future are
highly dependent upon future events, including the economies of geographic areas in which
BankAtlantic Bancorp holds loans, especially in Florida. These factors are beyond managements
control. Accordingly, there is no assurance that BankAtlantic Bancorp will not incur credit
losses in excess of the amounts estimated by its allowance for loan losses. In addition, various
regulatory agencies, as an integral part of their examination process, periodically review its
allowance for loan losses. Such agencies may require BankAtlantic Bancorp to recognize additions
to the allowance based on its judgments and information available to them at the time of their
examination and such judgments may differ from managements judgment.
BankAtlantic Bancorp analyzes its loan portfolio quarterly by monitoring the loan mix, credit
quality, loan-to-value ratios, concentration by geographical area, vintage, historical trends and
economic conditions. As a consequence, the allowance for loan losses estimates will change from
period to period. During the three year period ended December 31, 2006, real estate markets
experienced significant price increases accompanied by an abundance of available mortgage
financing. Additionally, based on historical loss experience during that time, BankAtlantic
Bancorps credit policies focused its loan production on collateral based loans and the
discontinuation of certain loan products. These factors, other internal metrics and external
market factors favorably impacted their provision for loan losses and allowance for loan losses
during the years ended December 31, 2006. Conversely, during the three years ended December 31,
2009, the residential real estate market and general economic conditions, both nationally and in
Florida, rapidly deteriorated with significant reductions in the sales prices and volume of
residential real estate sold, plummeting collateral values, dramatic increases in unemployment and
severe tightening of credit availability to borrowers. The impact of these rapidly deteriorating
real estate market conditions and adverse economic conditions on our loan portfolios resulted in a
significant increase in the ratio of allowance for loan losses to total loans from 0.94% at
December 31, 2006 to 4.83% at December 31, 2009. We believe that our earnings in subsequent
periods will be highly sensitive to changes in the Florida real estate market as well as the
length of the current downturn in real estate valuation, availability of mortgage financing and
the severity of unemployment in Florida and nationally. If the current negative real estate and
economic conditions continue or deteriorate further BankAtlantic Bancorp is likely to experience
significantly increased credit losses.
Valuation of investment securities
We record our securities available for sale and derivative instruments in our statement of
financial condition at fair value. We also disclose fair value estimates in our statement of
financial condition for investment securities at cost. We generally use market and income
approach valuation techniques and a fair value hierarchy to prioritize the inputs used in
valuation techniques. Our policy is to use quoted market prices (Level 1 inputs) when available.
However quoted market prices are not available for BankAtlantic Bancorps mortgage-backed
securities, REMICs, other securities and certain equity securities requiring BankAtlantic Bancorp
to use Level 2 and Level 3 inputs. The classification of assumptions as Level 2 or Level 3 inputs
is based on judgment and the classification of the inputs could change based on the availability
of observable market data.
BankAtlantic Bancorp subscribes to a third-party service to assist it in determining the fair
value of their mortgage-backed securities and real estate mortgage conduits. The estimated fair
value of these securities at December 31, 2009 was $319.3 million. Matrix pricing are used to
value these securities as identical securities that they own are not traded on active markets.
Matrix pricing computes the fair value of mortgage-backed securities and real estate mortgage
conduits based on the coupon rate, maturity date and estimates of future prepayment rates obtained
from trades of securities with similar characteristic and from market data obtained from brokers.
BankAtlantic Bancorp considers the above inputs Level 2. Upon the sale of securities, BankAtlantic
Bancorp back-tests the values obtained from matrix pricing for reasonableness. The valuations
obtained from matrix pricing are not actual transactions and may not reflect the actual amount
that would be realized upon sale. While the interest
rate and prepayment assumptions used in matrix pricing are representative of assumptions that
BankAtlantic Bancorp believes market participants would use in valuing these securities, different
assumptions may result in significantly different results. Additionally, current observable data
may not be available in subsequent periods which would cause BankAtlantic Bancorp to utilize Level
3 inputs to value these securities. The mortgage-backed and REMIC securities that BankAtlantic
owns are government agency guaranteed with minimal credit risk. These securities are of high
credit quality and BankAtlantic believes could be liquidated in the near future; however, the
price obtained upon sale could be higher or lower than the fair value obtained through matrix
pricing. In light of the current volatility and uncertainty in credit markets, it is difficult to
estimate with accuracy the price that could be obtained for these securities and the time that it
could take to sell them in an orderly transaction.
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Other-than-Temporary Impairment of Securities
We perform an evaluation on a quarterly basis to determine if any of our equity investments
and debt securities are other-than-temporarily impaired. In making this determination, we consider
the extent and duration of the impairment, the nature and financial condition of the issuer and our
ability and intent to hold securities for a period sufficient to allow for any anticipated recovery
in market value. If an equity security is determined to be other-than-temporarily impaired, we
record an impairment loss as a charge to income for the period in which the impairment loss is
determined to exist, resulting in a reduction to our earnings for that period. If a debt security
is determined to be other-than-temporarily impaired, we record an impairment loss as a charge to
income if we intend to sell the securities before they recover or if we do not expect to recover
the securities historical cost due to credit loss. Management exercises significant judgment in
determining the amount of credit loss in an impairment which is generally based on the present
value of expected cash flows. As of December 31, 2009, BankAtlantic Bancorp had $22.1 million of
impaired securities with an unrealized loss of $26,000 and $298.2 million of securities that were
determined not to be impaired. However, in light of the current market uncertainties, and the
challenging economic and credit market conditions, there is no assurance that future events will
not cause us to have additional impaired securities in the foreseeable future.
Impairment of Goodwill and Long Lived Assets
Goodwill Impairment
We test goodwill for impairment annually or when events or circumstances occur that may result
in goodwill impairment during interim periods. On the BankAtlantic Bancorp level, the test requires
BankAtlantic Bancorp to determine the fair value of its reporting units and compare the reporting
units fair value to its carrying value. BankAtlantic Bancorps reporting units are comprised of
Community Banking, Commercial Lending, Tax Certificate Operations, Capital Services and Investment
Operations. The fair values of the reporting units are estimated using discounted cash flow
present value valuation models and market multiple techniques.
While management of BankAtlantic Bancorp believes the sources utilized to arrive at the fair
value estimates are reliable, different sources or methods could have yielded different fair value
estimates. These fair value estimates require a significant amount of judgment. If the fair value
of a reporting unit is below the carrying amount, a second step of the goodwill impairment test is
performed. This second step requires BankAtlantic Bancorp to determine the fair value of all
assets (recognized and unrecognized) and liabilities in a manner similar to a business combination
purchase price allocation. Since there is no active market for many of BankAtlantic Bancorps
assets, management derives the fair value of the majority of these assets using net present value
models. As a consequence, BankAtlantic Bancorps management estimates rely on assumptions and
judgments regarding issues where the outcome is unknown and, as a result, actual results or values
may differ significantly from these estimates. Additionally, declines in the market capitalization
of BankAtlantic Bancorps common stock affect the aggregate fair value of the reporting units.
Changes in managements valuation of BankAtlantic Bancorp reporting units and the underlying assets
as well as declines in BankAtlantic Bancorps market capitalization may affect future earnings
through the recognition of additional goodwill impairment charges.
During the year ended December 31, 2009, BankAtlantic Bancorp recognized goodwill impairment
charges of $10.5 million. As of December 31, 2009 our remaining goodwill was $12.2 million.
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In determining the fair value of the reporting units, BankAtlantic Bancorp used a combination
of discounted cash flow techniques and market multiple methodologies. These methods utilize
assumptions for
expected cash flows, discount rates, and comparable financial institutions to determine market
multiples. The aggregate fair value of all reporting units derived from the above valuation
techniques was compared to BankAtlantic Bancorps market capitalization adjusted for a control
premium in order to determine the reasonableness of the financial model output. A control premium
represents the value an investor would pay above minority interest transaction prices in order to
obtain a controlling interest in the subject company. The values separately derived from each
valuation technique (i.e., discounted cash flow and market multiples) were used to develop an
overall estimate of a reporting units fair value. Different weighting of the various fair value
techniques could result in a higher or lower fair value. Judgment is applied in determining the
weightings that are most representative of fair value. BankAtlantic Bancorp used financial
projections over a period of time, considered necessary to achieve a steady state of cash flows for
each reporting unit. The primary assumptions in the projections were anticipated loan and deposit
growth, interest rates and revenue growth. The discount rates were estimated based on the Capital
Asset Pricing Model, which considers the risk-free interest rate, market risk premium, beta, and
unsystematic risk and size premium adjustments specific to a particular reporting unit. The
estimated fair value of a reporting unit is highly sensitive to changes in the discount rate and
terminal value assumptions. Minor changes in these assumptions could impact significantly the fair
value assigned to a reporting unit. Future potential changes in these assumptions may impact the
estimated fair value of a reporting unit and cause the fair value of the reporting unit to be below
its carrying value.
When the estimated fair value of a reporting unit is below the carrying value, goodwill may be
impaired, and the second step of the goodwill impairment evaluation is performed. The second step
involves calculating the implied fair value of the reporting units goodwill. The implied fair
value of goodwill is determined in the same manner as it is determined in a business combination.
The fair value of the reporting units assets and liabilities, including previously unrecognized
intangible assets, is individually determined. The excess fair value of the reporting unit over the
fair value of the reporting units net assets is the implied goodwill. Significant judgment and
estimates are involved in estimating the fair value of the assets and liabilities of the reporting
unit.
The value of the implied goodwill is highly sensitive to the estimated fair value of the
reporting units net assets. The fair value of the reporting units net assets is estimated using a
variety of valuation techniques including the following:
| recent data observed in the market, including for similar assets, | ||
| cash flow modeling based on projected cash flows and market discount rates, and | ||
| estimated fair value of the underlying loan collateral. |
The estimated fair values reflect assumptions regarding how a market participant would value
the net assets and includes appropriate credit, liquidity, and market risk premiums that are
indicative of the current environment. If the implied fair value of the goodwill for the reporting
unit exceeds the carrying value of the goodwill for the respective reporting unit, no goodwill
impairment is recorded. Changes in the estimated fair value of the individual assets and
liabilities may result in a different amount of implied goodwill, and the amount of goodwill
impairment, if any. Future changes in the fair value of the reporting units net assets may result
in future goodwill impairment.
Impairment of Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. When testing a long-lived
asset for recoverability, it may be necessary to review estimated lives and adjust the depreciation
period. Changes in circumstances and the estimates of future cash flows, as well as evaluating
estimated lives of long-lived assets, are subjective and involve a significant amount of judgment.
A change in the estimated life of a long-lived asset may substantially change depreciation and
amortization expense in subsequent periods. For purposes of recognition and measurement of an
impairment loss, BankAtlantic Bancorp is required to group long-lived assets at the lowest level
for which identifiable cash flows are independent of other assets. These cash flows are based on
projections from management reports which are based on subjective interdepartmental allocations.
Real estate inventory and other long-lived real estate assets are evaluated for impairment on a
project-by-project basis. Fair values are not available for many of our long-lived assets, and
estimates must be based on available information, including prices of similar assets and
present value valuation techniques using Level 3 unobservable inputs. Long-lived assets subject to
the above impairment analysis included property and equipment, internal-use software, real estate
inventory and real estate owned.
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We generally utilize broker price opinions, third party offers to purchase, discounted cash
flows or third party appraisals to assist us in determining the fair value of real estate
inventory, operating lease contracts and real estate owned. The appraiser or brokers use
professional judgment in determining the fair value of the properties and we may also adjust these
values for changes in market conditions subsequent to the valuation date when current appraisals
are not available. The assumptions used to calculate the fair values are generally Level 3 inputs
and are highly subjective and extremely sensitive to changes in market conditions. The amount
ultimately realized upon the sale of these properties or the termination of operating leases may be
significantly different than the recorded amounts. The assumptions used are representative of
assumptions that we believe market participants would use in fair valuing these assets or lease
contracts, but different assumptions may result in significantly different results. BankAtlantic
Bancorp also validates its assumptions by comparing completed transactions with its prior period
fair value estimates and may check its assumptions against multiple valuation sources. The
outstanding balance of real estate owned and real estate inventory was $46.5 million and $494.6
million, respectively, as of December 31, 2009. The minimum lease payments of operating lease
contracts executed for BankAtlantics branch expansion were $23.4 million at December 31, 2009.
There is no assurance that future events including declines in real estate values will not cause us
to have additional impairments of long-lived assets or operating leases in the foreseeable future.
Accounting for Deferred Tax Asset Valuation Allowance
The Company reviews the carrying amount of its deferred tax assets quarterly to determine if
the establishment of a valuation allowance is necessary. If, based on the available evidence, it
is more-likely-than-not that all or a portion of the Companys deferred tax assets will not be
realized, a deferred tax valuation allowance would be established. Consideration is given to all
positive and negative evidence related to the realization of the deferred tax assets.
In evaluating the available evidence, management considers historical financial performance,
expectation of future earnings, length of statutory carry forward periods, experience with
operating loss and tax credit carry forwards not expiring unused, tax planning strategies and
timing of reversals of temporary differences. Significant judgment is required in assessing future
earnings trends and the timing of reversals of temporary differences. The Companys evaluation is
based on current tax laws as well as managements expectations of future performance based on its
strategic initiatives. Changes in existing tax laws and future results differing from expectations
may result in significant changes in the deferred tax assets valuation allowance.
Based on our evaluation as of December 31, 2009 and 2008, a net deferred tax asset valuation
allowance was established for the entire amount of the Companys net deferred tax assets as the
realization of these assets did not meet the more-likely-than-not criteria of the Accounting
Standards Codification (ASC). During the fourth quarter of 2008, market conditions in the
financial services industry significantly deteriorated with the bankruptcies and government
bail-outs of large financial services entities. This market turmoil led to a tightening of credit,
lack of consumer confidence, increased market volatility and widespread reduction in business
activity. These economic conditions as well as the continued deterioration in local real estate
markets adversely effected BankAtlantics profitable lines of business. As a consequence of the
worsening economic conditions during the fourth quarter of 2008, it appeared more-likely-than-not
that the Company would not realize its deferred tax assets resulting in a deferred tax asset
valuation allowance for the entire amount of the Companys net deferred tax assets. During the
year ended December 31, 2009, the Company recognized significant losses and the economic conditions
did not improve, resulting in the Company maintaining its deferred tax valuation allowance for the
entire amount of its deferred tax asset. However, significant judgment is required in evaluating
the positive and negative evidence for the establishment of the deferred tax asset valuation
allowance, and if future events differ from expectations or if there are changes in the tax laws, a
substantial portion or the entire deferred tax asset benefit may be realized in the future. The
Companys net deferred tax assets can be carried forward for 20 years and applied to offset future
taxable income. In November 2009, net operating loss tax laws changed enabling the Companys
subsidiaries to recognize a benefit in the aggregate of approximately $66.3 million associated with
the Companys 2009 taxable loss.
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Recent Accounting Pronouncements Not Yet Adopted
In June 2009, the FASB issued an amendment to the accounting guidance for transfers of
financial assets, which became effective for us on January 1, 2010. This amendment eliminates the
concept of a qualifying special-purpose entity (QSPE) and changes the requirements for
derecognizing financial assets. It also requires the disclosure of more information about transfers
of financial assets, including securitization transactions and transactions where companies have
continuing exposure to the risks related to the transferred financial assets. See discussion of the
amended guidance related to variable interest entities (VIEs) below, for the anticipated impact
of the adoption of this accounting guidance for transfers of financial assets.
In June 2009, the FASB issued an amendment to the accounting guidance for consolidation of
VIEs, which became effective for Bluegreen on January 1, 2010. The initial adoption of this
amendment in the first quarter of 2010 will require Bluegreen to consolidate its existing
qualifying special purpose entities associated with past securitization transactions. As such, it
is expected that Bluegreen will record a one-time non-cash after-tax adjustment to shareholders
equity of approximately $35.0 million to $55.0 million, representing the cumulative effect of a change
in accounting principle, in the first quarter of 2010. The cumulative effect will consist primarily
of the reestablishment of notes receivable (net of reserves) associated with those securitization
transactions, the elimination of residual interests that were initially recorded in connection with
those transactions, the impact of recording debt obligations associated with third party interests
held in the special purpose entities and related adjustments to deferred financing costs and
inventory balances. The Company anticipates that its adoption of these standards will have the
following impacts on its balance sheet: (1) assets will increase by approximately $380 million to
$400 million primarily related to the consolidation of notes receivable; (2) liabilities will
increase by approximately $390 million to $410 million, primarily representing the consolidation of
debt obligations associated with third party interests; (3) equity will decrease by
approximately $5 million to $12 million.
Impact of Inflation
The financial statements and related financial data and notes presented herein have been
prepared in accordance with generally accepted accounting principles, 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.
Unlike most industrial companies, virtually all of the Companys and its subsidiaries assets
and liabilities are monetary in nature. As a result, interest rates have a more significant impact
on our 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. Inflation could
also have a long-term impact on us because any increase in the cost of land, materials and labor
would result in a need to increase the sales prices of land which may not be possible.
Furthermore, as it relates to Bluegreen, increases in Bluegreens construction and development
costs would result in increases in the sales price of its VOIs. There is no assurance that
Bluegreen will be able to increase or maintain the current level of its sales prices or that
increased construction costs will not have a material adverse impact on Bluegreens gross margin.
In addition, inflation is often accompanied by higher interest rates which could have a negative
impact on consumer demand and the costs of financing activities. Rising interest rates as well as
increased materials and labor costs may reduce margins.
82
BFC Activities
BFC Activities
BFC Activities consists primarily of (i) BFC operations, (ii) our investment in Benihana and
(iii) Woodbridge other operations.
BFC operations primarily consists of our and Woodbridges corporate overhead and general and
administrative expenses, the financial results of a venture partnership that BFC controls and other
equity investments, as well as income and expenses associated with shared service operations in the
areas of human resources, risk management, investor relations, executive office administration and
other services that BFC provides to BankAtlantic Bancorp, Woodbridge and Bluegreen. BFC operations
also includes investments made by BFC/CCC, Inc. Woodbridge other operations consist of the
operations of Pizza Fusion Holdings, LLC (Pizza Fusion) (which is a restaurant franchisor
operating within the quick service and organic food industries), and the activities of Cypress
Creek Capital Holdings, LLC (Cypress Creek Capital) and Snapper Creek Equity Management, LLC
(Snapper Creek). Prior to November 16, 2009, when we acquired additional shares of Bluegreens
common stock giving us a controlling interest in Bluegreen, Woodbridge other operations included an
equity investment in Bluegreen. Woodbridge other operations also includes investments in other
securities.
The discussion that follows reflects the operations and related matters of BFC Activities (in
thousands).
Change | Change | |||||||||||||||||||
For the Years Ended December 31, | 2009 vs. | 2008 vs. | ||||||||||||||||||
2009 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Revenues |
||||||||||||||||||||
Sale of real estate |
$ | | | | | | ||||||||||||||
Other revenues |
1,296 | | | 1,296 | | |||||||||||||||
1,296 | | | 1,296 | | ||||||||||||||||
Cost and Expenses |
||||||||||||||||||||
Cost of sales of real estate |
7,749 | 59 | 11,047 | 7,690 | (10,988 | ) | ||||||||||||||
Interest expense, net |
6,511 | 7,641 | 903 | (1,130 | ) | 6,738 | ||||||||||||||
Selling, general and administrative
expenses |
30,388 | 36,886 | 45,840 | (6,498 | ) | (8,954 | ) | |||||||||||||
Impairment of goodwill |
2,001 | | | 2,001 | | |||||||||||||||
Other expenses |
| | 2,363 | | (2,363 | ) | ||||||||||||||
46,649 | 44,586 | 60,153 | 2,063 | (15,567 | ) | |||||||||||||||
Gain on bargain purchase of Bluegreen |
183,138 | | | 183,138 | | |||||||||||||||
Gain on settlement of investment in
Woodbridges subsidiary |
16,296 | | | 16,296 | | |||||||||||||||
Equity in earnings from unconsolidated
affiliates |
32,276 | 8,844 | 10,224 | 23,432 | (1,380 | ) | ||||||||||||||
Impairment of unconsolidated affiliates |
(31,181 | ) | (94,426 | ) | | 63,245 | (94,426 | ) | ||||||||||||
Impairment of investments |
(2,396 | ) | (17,694 | ) | | 15,298 | (17,694 | ) | ||||||||||||
Investment gains |
6,654 | 2,076 | 1,295 | 4,578 | 781 | |||||||||||||||
Interest, dividend and other income |
5,775 | 8,963 | 14,688 | (3,188 | ) | (5,725 | ) | |||||||||||||
Income (loss) from continuing operations
before income taxes |
165,209 | (136,823 | ) | (33,946 | ) | 302,032 | (102,877 | ) | ||||||||||||
Less: Benefit for income taxes |
(34,986 | ) | (14,887 | ) | (53,965 | ) | (20,099 | ) | 39,078 | |||||||||||
Income (loss) from continuing operations |
200,195 | (121,936 | ) | 20,019 | 322,131 | (141,955 | ) | |||||||||||||
Extraordinary gain, net of income tax of $0
in 2008 and $1,509 in 2007 |
| 9,145 | 2,403 | (9,145 | ) | 6,742 | ||||||||||||||
Net income (loss) |
$ | 200,195 | (112,791 | ) | 22,422 | 312,986 | (135,213 | ) | ||||||||||||
Other revenues for the year ended December 31, 2009 related to franchise revenues generated by
Pizza Fusion totaling $1.3 million.
Cost of sales of real estate for the year ended December 31, 2009 increased to $7.7 million as
a result of a capitalized interest write-off in the amount of $7.7 million recorded in connection
with the impairment charges of inventory of real estate recorded in Core and Carolina Oak. Cost of
sales of real estate for the year ended December
31, 2008 was $59,000 and related to the expensing of interest previously capitalized as a result of
sales at Core and Carolina Oak.
83
BFC Activities
General and administrative expenses decreased $6.5 million to $30.4 million for the year ended
December 31, 2009 compared to $36.9 million for 2008. The decrease was attributable to lower
professional services as we incurred costs associated with certain of our securities investments in
the year ended December 31, 2008 while these costs were not incurred in the year ended December 31,
2009, and lower severance charges related to the reductions in workforce associated with the
bankruptcy filing of Levitt and Sons. In addition, we also had lower insurance costs, as Levitt
and Sons related insurance costs were not incurred after June 30, 2008, and lower incentive
expenses. These decreases were offset in part by incurred franchise expenses related to Pizza
Fusion in the year ended December 31, 2009, compared to no franchise expenses in 2008 period as we
acquired Pizza Fusion in September 2008.
Interest expense consists of interest incurred less interest capitalized. Interest incurred
totaled $7.4 million and $8.6 million for the years ended December 31, 2009 and 2008, respectively,
while interest capitalized totaled $931,000 for the year ended December 31, 2009 and $927,000 for
2008. This resulted in interest expense of $6.5 million in the year ended December 31, 2009,
compared to $7.6 million in 2008. The decrease in interest expense was mainly due to the repayment
of an intersegment loan in June 2008, which resulted in lower interest expense in 2009, and lower
interest rates in 2009 compared to 2008.
During the year ended December 31, 2009, we experienced a write-off in goodwill related to our
investment in Pizza Fusion in the amount of $2.0 million.
Prior to the consolidation of Bluegreen into our consolidated financial statements on November
16, 2009, we accounted for our investment in Bluegreen under the equity method of accounting. Our
interest in Bluegreens earnings during the period from January 1 through November 16, 2009 was
$32.7 million (after the amortization of approximately $28.4 million related to the change in the
basis as a result of the impairment charges on this investment during the quarters ended September
30, 2008, December 31, 2008 and March 31, 2009. For the year ended December 31, 2008, our interest
in Bluegreens earnings was $9.0 million (after the amortization of approximately $9.2 million
related to the change in the basis as a result of the impairment charge on this investment at
September 30, 2008). We reviewed our investment in Bluegreen for impairment on a quarterly basis or
as events or circumstances warranted for other-than-temporary declines in value. Based on the
results of the evaluations of the investment in Bluegreen, other-than-temporary impairment charges
of approximately $31.2 million and $94.4 million were recorded during the years ended December 31,
2009 and 2008, respectively. In the year ended December 31, 2007, no other-than-temporary charges
related to the investment in Bluegreen were recorded.
Investment gains were approximately $6.7 million for the year ended December 31, 2009 compared
to $2.1 million in 2008. This increase was primarily due to a gain related to the sale of our
shares in Office Depot during 2009. This was offset by a realized gain on the sale of publicly
traded equity securities in 2008 of approximately $796,000 by venture partnership that BFC
controls.
Interest income was approximately $1.6 million for the year ended December 31, 2009 compared
to $3.8 million in 2008. This decrease was primarily due to lower cash balances and lower
interest rates in 2009 compared to 2008.
Income tax benefit includes the amount of the expected refund from the Department of the
Treasury of approximately $34.6 million. In November 2009, the Workers, Homeownership, and Business
Assistance Act of 2009 (the Act) was enacted. The Act includes a provision that allows most
businesses to elect to increase the net operating loss (NOLs) carryback period from two years
under current law to as much as five years for NOLs generated in either 2008 or 2009 (but not
both). BFC anticipates that this election will benefit the Company by allowing it to carryback
Woodbridges NOLs that were generated in 2008 and obtain refunds of taxes paid in the carryback
years.
84
BFC Activities
For the Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
Cost of sales of real estate decreased to $59,000 for the year ended December 31, 2008 from
$11.0 million in the same 2007 period. Cost of sales of real estate was comprised of the expensing
of interest previously capitalized in 2008 and 2007 and also included in 2007 capitalized interest
impairment charges related to the cessation of development on certain Levitt and Sons projects in
the third quarter of 2007.
General and administrative expenses decreased $8.9 million to $36.9 million for the year ended
December 31, 2008 compared to $45.8 million for the same 2007 period. The decrease was attributable
to decreased compensation and benefits expenses, decreased office related expenses and decreased
severance charges related to the reductions in workforce associated with the bankruptcy filing of
Levitt and Sons in 2007. The decrease in compensation, benefits and office related expenses was
attributable to lower headcount. These decreases were offset in part by increases in professional
fees associated with our securities investments and the bankruptcy filing of Levitt and Sons, and
increased insurance costs due to the absorption of certain of Levitt and Sons insurance costs.
Interest incurred totaled $8.6 million and $10.2 million for the years ended December 31, 2008
and 2007, respectively, while interest capitalized totaled $927,000 for the year ended December 31,
2008 and $9.3 million for the same 2007 period. This resulted in interest expense of $7.6 million
in the year ended December 31, 2008, compared to $903,000 in the same 2007 period. The increase in
interest expense was due to the completion of certain phases of development associated with our
real estate inventory late in 2007, which resulted in a decreased amount of assets which qualified
for interest capitalization and, therefore, the expensing of the related interest was only recorded
in the fourth quarter of 2007 compared to the full year of 2008. The increase in interest incurred
was attributable to higher average debt balances for the year ended December 31, 2008 compared to
2007, offset in part by lower average interest rates.
We did not incur other expenses in the year ended December 31, 2008. Other expenses for the
year ended December 31, 2007 were $2.4 million and consisted of a surety bonds accrual and a
write-off of leasehold improvements. In 2007, we recorded $1.8 million in surety bonds accrual
related to certain bonds where management considered it probable that reimbursement of the surety
under the applicable indemnity agreement would be required. In addition to the surety bond accrual,
we also recorded a write-off of leasehold improvements as we vacated certain leased space as part
of our workforce reductions and the Levitt and Sons bankruptcy. Leasehold improvements in the
amount of $564,000 related to this vacated space will not be recovered and were written off in the
year ended December 31, 2007.
Bluegreen reported a net loss for the year ended December 31, 2008 of $516,000, compared to
net income of $31.9 million in 2007. For the year ended December 31, 2008, our interest in
Bluegreens earnings was $9.0 million (after the amortization of approximately $9.2 million related
to the change in the basis as a result of the impairment charge on this investment at September 30,
2008), compared to $10.3 million in 2007. We reviewed our investment in Bluegreen for impairment on
a quarterly basis or as events or circumstances warranted for other-than-temporary declines in
value. Based on the evaluations performed, we recorded an other-than-temporary impairment charge
of $53.6 million at September 30, 2008 and an additional other-than-temporary impairment charge of
$40.8 million at December 31, 2008. See Note 14 of the Notes to Consolidated Financial Statements
included in Item 8 for further details of the impairment analysis of our investment in Bluegreen.
85
BFC Activities
2008 and 2007 Step acquisitions Purchase Accounting
The acquisitions in 2008 and 2007 of additional shares of BankAtlantic Bancorps and
Woodbridges Class A Common Stock, respectively, were accounted for as step acquisitions under the
purchase method of accounting. Accordingly, the assets and liabilities acquired have been revalued
to reflect market values at the respective dates of acquisition. For further information see Note 4
of the Notes to Consolidated Financial Statements. The discounts and premiums arising as a result
of such revaluations are generally being accreted or amortized, net of tax, over the remaining life
of the assets and liabilities. The net impact of such accretion, amortization and other effects of
purchase accounting increased our consolidated net loss during 2009 by approximately $5.9 million,
comprised primarily of an approximately $8.9 million purchase accounting associated with Cores
real estate impairment, partially offset by the effect of purchase accounting associated with
property and equipment of approximately $1.2 million, loans receivable of approximately $2.2
million and goodwill of approximately $583,000. In 2008, the net impact of purchase accounting
decreased our consolidated net loss by approximately $8.4 million, of which approximately $4.7
million and $1.7 million was due to effects of purchase accounting associated with the investment
in Bluegreen and goodwill, respectively. There were no purchase accounting adjustments in 2007.
BFC Activities- Liquidity and Capital Resources
As of December 31, 2009 and 2008, we had cash, cash equivalents and a short term investment in
certificates of deposit totaling approximately $45.1 million and $117.2 million, respectively.
During the third quarter of 2009, funds were used to purchase 14.9 million shares of BankAtlantic
Bancorps Class A Common Stock through participation in BankAtlantic Bancorps rights offering for
an aggregate purchase price of $29.9 million. The remaining decrease in cash and equivalents during
the year ended December 31, 2009 primarily related to the purchase of 7.4 million shares of the
common stock of Bluegreen for an aggregate purchase price of approximately $23 million on November
16, 2009 and general and administrative expenses.
BFCs acquisition of 14.9 million additional shares of BankAtlantic Bancorps Class A Common
Stock increased BFCs ownership interest in BankAtlantic Bancorp by approximately 7% to 37% and
increased BFCs voting interest in BankAtlantic Bancorp by approximately 7% to 66%. BankAtlantic
Bancorp is currently prohibited from paying dividends on its common stock, and BFC does not expect
to receive cash dividends from BankAtlantic Bancorp for the foreseeable future.
On November 16, 2009, we purchased approximately 7.4 million additional shares of Bluegreens
common stock, which increased our ownership in Bluegreens common stock from 9.5 million shares, or
29% of Bluegreen outstanding common stock, to 16.9 million shares, or 52%. As a result of the
purchase, we have a controlling interest in Bluegreen and, accordingly, since November 16, 2009
have consolidated Bluegreens results into our financial statements.
BFCs principal source of liquidity is our available cash, short-term investments, dividends
or distributions from Woodbridge, dividends from Benihana and other investments, as well as amounts
paid by affiliates relating to our shared service operations from our affiliated companies. We may
use these funds to make additional investments in the companies within our consolidated group,
invest in equity securities and other investments or to otherwise fund operations.
We believe that our current financial condition and credit relationships, together with
anticipated cash flows from operations and other sources of funds, which may include proceeds from
the disposition of certain properties or investments, will provide for anticipated near-term
liquidity needs. We expect to meet our long-term liquidity requirements through the foregoing, as
well as, if necessary, long-term secured and unsecured indebtedness, future issuances of equity
and/or debt securities or the sale of assets, as determined to be appropriate by the Companys
board of directors and management.
86
BFC Activities
Woodbridge has been declared in default of its loan in the amount of $37.2 million that is
collateralized by the Carolina Oak property. Subsequently, the lender was taken over by the FDIC
and accordingly, the FDIC now holds the loan. While there may have been an issue with respect to
compliance with certain covenants in the loan agreements, we do not believe that an event of
default had occurred as was alleged. Woodbridge is negotiating with
representatives of the FDIC in an effort to bring about a satisfactory conclusion with regard
to that debt. However, the outcome of the negotiation is uncertain.
During 2008, Woodbridge entered into a settlement agreement, as amended (the Settlement
Agreement), with the Debtors and the Joint Committee of Unsecured Creditors (the Joint
Committee) appointed in the Chapter 11 Cases. Pursuant to the Settlement Agreement, among other
things, (i) Woodbridge agreed to pay $8 million to the Debtors bankruptcy estates, establish a
$4.5 million release fund to be disbursed to third party creditors in exchange for a third party
release and injunction, pay an additional $300,000 to a deposit holders fund and waive and release
substantially all of the claims it had against the Debtors, including its administrative expense
claims through July 2008, and (ii) the Debtors (joined by the Joint Committee) agreed to waive and
release any claims they had against Woodbridge and its affiliates. The Settlement Agreement also
provided that if, within one year after the Bankruptcy Courts confirmation of the Settlement
Agreement, Section 172 of the Internal Revenue Code was amended to permit a carry back of tax
losses from calendar years 2007 or 2008 to one or more years preceding calendar year 2005, then
Woodbridge would share a portion of any resulting tax refund with the Debtors and the Joint
Committee based on an agreed upon formula. The Settlement Agreement was subject to a number of
conditions, including the approval of the Bankruptcy Court. On February 20, 2009, the Bankruptcy
Court entered an order confirming a plan of liquidation jointly proposed by Levitt and Sons and the
Joint Committee. That order also approved the settlement pursuant to the Settlement Agreement. No
appeal or rehearing of the Bankruptcy Courts order was timely filed by any party, and the
settlement was consummated on March 3, 2009, at which time payment was made in accordance with the
terms and conditions of the Settlement Agreement. Under cost method accounting, the cost of
settlement and the related $52.9 million liability (less $500,000 which was determined as the
settlement holdback and remained as an accrual pursuant to the Settlement Agreement) was recognized
into income in year ended December 31, 2009, resulting in a $40.4 million gain on settlement of
investment in subsidiary. As discussed above we will be allowed to increase our NOL carryback
period to as much as five years for NOLs generated in 2008 or 2009 and obtain refunds of taxes paid
in the newly included carryback years of approximately $34.6 million. As described above, under the
terms of the Settlement Agreement, a portion of the refund, upon receipt, will be payable to the
Levitt and Sons estate. Accordingly, in the fourth quarter of 2009, we accrued approximately $10.7
million in connection with the portion of the tax refund pursuant to the Settlement Agreement. As a
result, the gain on settlement of investment in subsidiary for the year ended December 31, 2009 was
$29.7 million.
On September 21, 2009, our Board of Directors approved a share repurchase program which
authorizes the repurchase of up to 20,000,000 shares of Class A and Class B Common Stock at an
aggregate cost of no more than $10 million. The share repurchase program replaced our $10 million
repurchase program that our Board of Directors approved in October 2006 which placed a limitation
on the number of shares which could be repurchased under the program at 1,750,000 shares of Class A
Common Stock. In 2008, we repurchased 100,000 shares of Class A Common Stock at an aggregate cost
of $54,000 under the prior program. The current program, like the prior program, authorizes
management, at its discretion, to repurchase shares from time to time subject to market conditions
and other factors. No shares were repurchased during the year ended December 31, 2009.
As discussed above, on September 21, 2009, BFC and Woodbridge consummated their previously
announced merger pursuant to which Woodbridge merged with and into a wholly-owned subsidiary of
BFC. In connection with the merger, Dissenting Holders who collectively held approximately 4.2
million shares of Woodbridges Class A Common Stock exercised their appraisal rights and are
entitled to receive an amount equal to the fair value of their shares calculated in accordance with
Florida law. Since these Dissenting Holders have not withdrawn their demands, the Company canceled
and retired the 14,524,557 shares of the Companys Class A Common which the Dissenting Holders
would have been entitled to receive in exchange for their shares of Woodbridges Class A Common
Stock. During the fourth quarter of 2009, the Company recorded a liability of approximately $4.6
million, which represented, in the aggregate, Woodbridges offer of $1.10 per share to the
Dissenting Holders with a corresponding reduction to the Companys additional paid-in capital. Each
Dissenting Holder rejected Woodbridges offer of $1.10 per share. The appraisal rights litigation
is ongoing and the results are uncertain, and there is no assurance that the actual payment that we
may be required to make will not exceed the amount accrued.
87
BFC Activities
On June 21, 2004, the Company sold 15,000 of its 5% Preferred Stock to an investor group in a
private offering. The Companys 5% Preferred Stock has a stated value of $1,000 per share. The
shares of 5% Preferred Stock may be redeemed at the option of the Company, from time to time, at
redemption prices ranging from $1,025 per share for the year 2010 to $1,000 per share for the year
2015 and thereafter. The 5% Preferred Stock liquidation preference is equal to its stated value of
$1,000 per share plus any accumulated and unpaid dividends or an amount
equal to the applicable redemption price in a voluntary liquidation or winding up of the
Company. Holders of the 5% Preferred Stock have no voting rights, except as provided by Florida
law, and are entitled to receive, when and as declared by the Companys Board of Directors,
cumulative quarterly cash dividends on each such share at a rate per annum of 5% of the stated
value from the date of issuance. Since June 2004, the Company has paid quarterly dividends on the
5% Preferred Stock of $187,500. On December 17, 2008, the Company amended (the Amendment) certain
of the previously designated relative rights, preferences and limitations of the Companys 5%
Preferred Stock. The Amendment eliminated the right of the holders of the 5% Preferred Stock to
convert their shares of Preferred Stock into shares of the Companys Class A Common Stock. The
Amendment also requires the Company to redeem shares of the 5% Preferred Stock with the net
proceeds it receives in the event (i) the Company sells any of its shares of Benihanas Convertible
Preferred Stock, (ii) the Company sells any shares of Benihanas Common Stock received upon
conversion of Benihanas Convertible Preferred Stock or (iii) Benihana redeems any shares of its
Convertible Preferred Stock owned by the Company. Additionally, in the event the Company defaults
on its obligation to make dividend payments on its 5% Preferred Stock, the Amendment entitles the
holders of the 5% Preferred Stock, in place of the Company, to receive directly from Benihana
certain payments on the shares of Benihanas Convertible Preferred Stock owned by the Company or on
the shares of Benihanas Common Stock received by the Company upon conversion of Benihanas
Convertible Preferred Stock.
The Company owns 800,000 shares of Benihanas Convertible Preferred Stock, which it purchased
for $25.00 per share. The Convertible Preferred Stock is convertible into Benihanas common stock.
Based on the number of currently outstanding shares of Benihanas capital stock, the Convertible
Preferred Stock, if converted, would represent an approximate 19% voting interest and an
approximate 9% economic interest in Benihanas capital stock. The Company has the right to receive
cumulative quarterly dividends at an annual rate equal to 5% or $1.25 per share, payable on the
last day of each calendar quarter. It is anticipated that the Company will continue to receive
approximately $250,000 per quarter in dividends on Benihanas Convertible Preferred Stock. The
Convertible Preferred Stock is subject to mandatory redemption of $20 million plus accumulated
dividends on July 2, 2014 unless we elect to extend the mandatory redemption date to a date no
later than July 2, 2024.
On March 31, 2008, the membership interests of two of the Companys indirect subsidiaries
which owned two South Florida shopping centers were sold to an unaffiliated third party. The
Company received proceeds of approximately $1.3 million in connection with the sale and BFC was
relieved of its guarantee related to the loans collateralized by the shopping centers. BFC believes
that any possible remaining obligations are both remote and immaterial.
At June 30, 2009, a wholly-owned subsidiary of BFC/CCC, Inc. (BFC/CCC) had a 10% interest in
a limited partnership as a non-managing general partner. The partnership owns an office building
located in Boca Raton, Florida. In connection with the purchase of the office building in March
2006, BFC/CCC guaranteed repayment of a portion of the non-recourse loan on the property on a joint
and several basis with the managing general partner. BFC/CCCs maximum exposure under this
guarantee agreement is $2.0 million (which is shared on a joint and several basis with the managing
general partner), representing approximately 8.5% of the current indebtedness of the property. In
July 2009, BFC/CCCs wholly-owned subsidiary withdrew as partner of the limited partnership and
transferred its 10% interest to another unaffiliated partner. In return, the partner to whom this
interest was assigned agreed to use its reasonable best efforts to obtain the release of BFC/CCC
from the guarantee. If the partner is unable to secure such a release, that partner has agreed to
indemnify BFC/CCCs wholly-owned subsidiary for any losses that may arise under the guarantee after
the date of the assignment. There are no carrying amounts on our financial statements at December
31, 2009 for this joint venture.
A wholly-owned subsidiary of BFC/CCC has a 10% interest in a limited liability company that
owns two commercial properties in Hillsborough County, Florida. At December 31, 2009 and 2008, the
carrying amount of this investment was approximately $690,000 and $743,000, respectively, which is
included in investments in unconsolidated affiliates in the Companys consolidated statements of
financial condition. In connection with the purchase of the commercial properties in November
2006, BFC and the unaffiliated member each guaranteed the payment of up to a maximum of $5.0
million for certain environmental indemnities and specific obligations that are not related to the
financial performance of the assets. BFC and the unaffiliated member also entered into a cross
indemnification agreement which limits BFCs obligations under the guarantee to acts of BFC and its
affiliates.
88
BFC Activities
A wholly-owned subsidiary of BFC/CCC has a 50% limited partner interest in a limited
partnership that has a 10% interest in a limited liability company that owns an office building in
Tampa, Florida. At December 31,
2009 and 2008, the carrying amount of this investment was approximately $319,000 and $485,000,
respectively, which is included in investments in unconsolidated affiliates in the Companys
consolidated statements of financial condition. In connection with the purchase of the office
building by the limited liability company in June 2007, BFC guaranteed the payment of certain
environmental indemnities and specific obligations that are not related to the financial
performance of the asset up to a maximum of $15.0 million, or $25.0 million in the event of any
petition or involuntary proceedings under the U.S. Bankruptcy Code or similar state insolvency laws
or in the event of any transfers of interests not in accordance with the loan documents. BFC and
the unaffiliated members also entered into a cross indemnification agreement which limits BFCs
obligations under the guarantee to acts of BFC and its affiliates.
No amounts are recorded in the Companys financial statements for the obligations associated
with the above guarantees (including the transaction associated with the transfer of BFC/CCCs
wholly-owned subsidiarys 10% ownership interest) based on the potential indemnification by
unaffiliated members and the limit of the specific obligations to non-financial matters.
89
Real Estate
Real Estate Operations Segment
The Real Estate Operations segment includes the subsidiaries through which Woodbridge
historically conducted its real estate business activities. These activities are concentrated in
Florida and South Carolina and have included the development and sale of land, the construction and
sale of single family homes and townhomes and the leasing of commercial properties and office
space, and include the operations of Core, the operations of Carolina Oak, which engaged in
homebuilding activities in South Carolina prior to the suspension of those activities in the fourth
quarter of 2008, and Cypress Creek Holdings, which engages in leasing activities.
Levitt and Sons was also included in the Real Estate Operations segment prior to November 9,
2007 at which time it filed a voluntary bankruptcy petition and was deconsolidated from our audited
consolidated financial statements. Levitt Commercial was also included in this segment until it
ceased development activities after it sold all of its remaining units in 2007.
Executive Overview
Woodbridges operations historically were concentrated in the real estate industry which is
cyclical in nature. In 2009, the real estate markets continued to experience a significant
downturn. Demand for residential and commercial inventory in Florida and South Carolina remained
weak and land sales continued to decline. Sales of real estate at Core for the years ended December
31, 2009, 2008 and 2007were $6.3 million, $11.3 million and $16.6 million, respectively. The
decrease in land sales in 2009 and continued cash flow deficits contributed to, among other things,
the deterioration of Cores liquidity. As a result, Core severely limited its development
expenditures in Tradition, Florida and completely discontinued development activity in Tradition
Hilton Head. The value of Cores assets were significantly impaired, resulting in impairment
charges relating to those assets of $78.0 million, which includes $13.6 million of impairment charges related to assets held for sale during 2009. Core is currently in default under
the terms of all of its loans which have an aggregate outstanding principal amount of $209.9
million, including $71.6 million of loans attributable to assets held for sale. Core continues to
pursue all options with its lenders, including offering deeds in lieu and other similar
transactions wherein Core would relinquish title to substantially all of its assets in return for a
release. As of February 5, 2010, a significant portion of the land in Tradition Hilton Head had
been placed under the control of a court appointed receiver. Further, Core has accepted an offer to
sell its commercial leasing projects, which has been approved by the lender with substantially all
of the proceeds going to satisfy its obligations to the lender. Negotiations continue on all of
Cores obligations, however, there is no assurance that Core will be successful in restructuring
any or all of its outstanding debt.
The development activities at Carolina Oak, which is within Tradition Hilton Head, were
suspended in the fourth quarter of 2008 as a result of, among other things, a further deterioration
in consumer confidence, an overall softening of demand for new homes, a decline in the overall
economy, increasing unemployment, a deterioration in the credit markets, and the direct and
indirect impact of the turmoil in the mortgage loan market. In 2009, the housing industry continued
to face significant challenges and Woodbridge made the decision to cease all activities at Carolina
Oak. As previously described in this document, the $37.2 million loan that is collateralized by the
Carolina Oak property was declared to be in default by the lender. Subsequently, the lender was
taken over by the FDIC and accordingly, the FDIC now holds the loan.. Woodbridge is negotiating
with representatives of the FDIC in an effort to bring about a satisfactory resolution with regard
to that debt; however, the outcome of the negotiation is uncertain.
See Note 22 of the Notes to Consolidated Financial Statements included in Item 8 of this
report for a detailed description of Cores and Woodbridges indebtedness.
In conjunction with the reduced activity at Core and in light of current market conditions,
management made the decision to further reduce Cores headcount by 41 employees in 2009 and
recorded severance charges of approximately $1.3 million in the fourth quarter of 2009.
On November 16, 2009, we purchased approximately 7.4 million additional shares of Bluegreens
common stock for an aggregate purchase price of approximately $23 million, which increased our
ownership in Bluegreen from 9.5 million shares, or 29%, to 16.9 million shares or 52%. As a result
of the purchase, we have a controlling
interest in Bluegreen and, accordingly, have consolidated Bluegreens results since November
16, 2009 into our financial statements.
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Real Estate
Financial and Non-Financial Metrics
Performance and prospects are evaluated using a variety of financial and non-financial
metrics. The key financial metrics utilized to evaluate historical operating performance include
revenues from sales of real estate, margin (which we measure as revenues from sales of real estate
minus cost of sales of real estate), margin percentage (which we measure as margin divided by
revenues from sales of real estate), net (loss) income and return on equity. We also continue to
evaluate and monitor selling, general and administrative expenses as a percentage of revenue, our
ratios of debt to total capitalization and our cash requirements. Non-financial metrics used to
evaluate historical performance include saleable acres in Core and the number of acres in our
backlog. In evaluating future prospects, management considers financial results as well as
non-financial information such as acres in backlog (measured as land subject to an executed sales
contract). Cash requirements are also considered when evaluating future prospects, as are general
economic factors and interest rate trends. These metrics are not an exhaustive list, and
management may from time to time utilize different financial and non-financial information or may
not use all of the metrics mentioned above.
Real Estate Operations
Year Ended December 31, | 2009 | 2008 | ||||||||||||||||||
vs. 2008 | vs. 2007 | |||||||||||||||||||
2009 | 2008 | 2007 | Change | Change | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Revenues |
||||||||||||||||||||
Sales of real estate |
$ | 6,605 | 13,752 | 410,849 | (7,147 | ) | (397,097 | ) | ||||||||||||
Other revenues |
2,312 | 3,033 | 6,088 | (721 | ) | (3,055 | ) | |||||||||||||
Total revenues |
8,917 | 16,785 | 416,937 | (7,868 | ) | (400,152 | ) | |||||||||||||
Costs and expenses |
||||||||||||||||||||
Cost of sales of real estate |
82,105 | 22,724 | 565,759 | 59,381 | (543,035 | ) | ||||||||||||||
Selling, general and administrative expenses |
16,343 | 20,648 | 85,758 | (4,305 | ) | (65,110 | ) | |||||||||||||
Interest expense |
5,822 | 2,075 | 10,208 | 3,747 | (8,133 | ) | ||||||||||||||
Other expenses |
5,433 | | 1,566 | 5,433 | (1,566 | ) | ||||||||||||||
Total costs and expenses |
109,703 | 45,447 | 663,291 | 64,256 | (617,844 | ) | ||||||||||||||
Interest income |
141 | 1,938 | 4,520 | (1,797 | ) | (2,582 | ) | |||||||||||||
Other income |
385 | 1,403 | 6,971 | (1,018 | ) | (5,568 | ) | |||||||||||||
Loss from continuing operations before
income taxes |
(100,260 | ) | (25,321 | ) | (234,863 | ) | (74,939 | ) | 209,542 | |||||||||||
Provision for income taxes |
| | (5,377 | ) | | 5,377 | ||||||||||||||
Loss income from continuing operations |
(100,260 | ) | (25,321 | ) | (240,240 | ) | (74,939 | ) | 214,919 | |||||||||||
Discontinued operations: |
||||||||||||||||||||
(Loss) income from discontinued operations,
net of tax |
(15,632 | ) | 2,783 | 1,765 | (18,415 | ) | 1,018 | |||||||||||||
Net loss |
$ | (115,892 | ) | (22,538 | ) | (238,475 | ) | (93,354 | ) | 215,937 | ||||||||||
As of November 9, 2007, the accounts of Levitt and Sons were deconsolidated from our
consolidated statements of financial condition and statements of operations. Therefore, the
financial data in the preceding table related to Levitt and Sons reflected operations through
November 9, 2007, and no results of operations or financial metrics related to Levitt and Sons were
included for the years ended December 31, 2009 or 2008.
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Real Estate
For the Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
Revenues from sales of real estate decreased to $6.6 million for the year ended December 31,
2009 from $13.8 million for 2008. Revenues from sales of real estate for the years ended December
31, 2009 and 2008 were comprised of land and home sales, recognition of deferred revenue and look
back revenue. During the year ended December 31, 2009, Core sold approximately 13 acres, generating
revenues of approximately $1.1 million, compared to the sale of approximately 35 acres, which
generated revenues of approximately $9.1 million, net of deferred revenue, in 2008. Core recognized
deferred revenue on previously sold land of approximately $5.3 million for the year ended December
31, 2009, compared to approximately $1.9 million in 2008. Look back revenues for the years ended
December 31, 2009 and 2008 were approximately $32,000 and $145,000, respectively. We also earned
$320,000 in revenues in 2009 from sales of real estate as a result of 1 unit sold in Carolina Oak,
compared to revenues from sales of real estate of $2.5 million in 2008 as a result of 8 units sold
in Carolina Oak.
Other revenues decreased to $2.3 million for the year ended December 31, 2009 compared to $3.0
million for 2008. The decrease in other revenues was primarily due to a decrease in marketing fees
collected at Core Communities and fewer impact fees earned in 2009 compared to 2008.
Cost of sales of real estate increased to $82.1 million for the year ended December 31, 2009
from $22.7 million for 2008 due to impairment charges of $80.3 million associated with inventory of
real estate recorded in 2009 compared to $13.7 million in impairment charges of inventory of real
estate in 2008. Costs of sales of real estate before impairment charges for the years ended
December 31, 2009 and 2008 were $1.8 million and $9.0 million, respectively. The decrease in cost
of sales of real estate excluding impairment charges was due to a decrease in sales of real estate
at Core and Carolina Oak in 2009 compared to 2008.
Selling, general and administrative expenses decreased to $16.3 million for the year ended
December 31, 2009 from $20.6 million for 2008. The decrease was a result of, among other things,
lower sales and marketing expenses as a result of a reduced marketing budget, lower developer
expenses related to property owner associations in Tradition, Florida, lower compensation and
benefits expense, and lower office related expenses. These decreases were partially offset by an
increase in severance charges as a result of reductions in force at Core in 2009 and an increase in
property tax expense.
Interest incurred totaled $7.8 million for the year ended December 31, 2009 and $11.0 million
for 2008. Interest capitalized totaled $2.0 million for the year ended December 31, 2009 and $8.9
million for 2008. Net interest expense increased in the year ended December 31, 2009 compared to
the year ended December 31, 2008 primarily as a result of the Companys decision to stop the
capitalization of interest in light of the significantly reduced development activities in Florida
and the ceasing of development activities in South Carolina. The increase was partially offset by
lower interest rates during the year ended December 31, 2009 compared to 2008. Historically, the
capitalized interest allocated to inventory is charged to cost of sales. Cost of sales of real
estate for the years ended December 31, 2009 and 2008 included previously capitalized interest of
approximately $64,000 and $268,000, respectively.
Other expense for the year ended December 31, 2009 related to $5.4 million of impairment
charges recorded to reduce the carrying value of Core and Carolina Oaks property and equipment to
their respective fair value.
Interest income decreased to $141,000 during year ended December 31, 2009 from $1.9 million
during 2008. This decrease was mainly due to the repayment of an intersegment loan in June 2008,
of which the related interest was eliminated in consolidation, lower interest rates as well as a
decrease in cash balances for the year ended December 31, 2009 compared to 2008.
Other income decreased to $385,000 during the year ended December 31, 2009 from $1.4 million
during 2008. This decrease was mainly due to less forfeited deposits in 2009 compared to 2008.
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Real Estate
Income from discontinued operations, which relates to the income generated by Cores Projects,
decreased to a loss of $15.6 million in the year ended December 31, 2009 from income of $2.8
million in 2008. The decrease
was mainly due to impairment charges in the amount of $13.6 million recorded in the year ended
December 31, 2009 compared to no impairment charges recorded in 2008. In addition, three ground
lease parcels comprised of approximately 5 acres were sold in 2008 and were accounted for as
discontinued operations and resulted in a $2.5 million gain on sale of real estate assets for the
year ended December 31, 2008, compared to no comparable sales in discontinued operations in 2009.
For the Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
Revenues from sales of real estate decreased to $13.8 million for the year ended December 31,
2008 from $410.8 million for the year ended December 31, 2007. This decrease was primarily
attributable to the deconsolidation of Levitt and Sons at November 9, 2007 as well as a decrease in
sales of real estate at Core and Levitt Commercial. Levitt and Sons revenues from sales of real
estate amounted to $387.7 million in 2007. Revenues from sales of real estate for the year ended
December 31, 2008 at Core decreased to $11.3 million, from $16.6 million in 2007 reflecting the
sale of approximately 35 acres in 2008 compared to 40 acres in 2007. For the year ended December
31, 2008, we earned revenues from sales of real estate at Carolina Oak of $2.5 million reflecting
the delivery of 8 units, while revenues from sales of real estate at Levitt Commercial for the year
ended December 31, 2007 were $6.6 million reflecting the delivery of 17 units in 2007. Levitt
Commercial completed the sale of all remaining flex warehouse units in inventory in 2007 and ceased
development activities thereafter.
Other revenues decreased $3.1 million to $3.0 million for the year ended December 31, 2008,
compared to $6.1 million during the year ended December 31, 2007. The decrease was primarily due to
decreased title and mortgage operations revenues associated with Levitt and Sons as it was not
included in the consolidated results of operations for the year ended December 31, 2008. In
addition, there was decreased marketing income associated with Tradition, Florida.
Cost of sales of real estate increased to $22.7 million during the year ended December 31,
2008, as compared to $13.2 million (excluding cost of sales, which included impairment provisions,
associated with Levitt and Sons) for the year ended December 31, 2007 primarily as a result of
impairment charges related to Carolina Oaks inventory of real estate recorded in 2008 compared to
no impairment charges recorded at Carolina Oak in 2007. The increase was offset in part by a
decrease in sales of real estate at Core and Levitt Commercial. Cost of sales of real estate at
Core decreased as we sold approximately 35 acres in the year ended December 31, 2008, compared to
approximately 40 acres in 2007. We delivered 8 units at Carolina Oak in the year ended December 31,
2008, compared to the delivery of 17 units at Levitt Commercial in 2007.
Selling, general and administrative expenses decreased $65.1 million to $20.6 million during
the year ended December 31, 2008 compared to $85.8 million during the year ended December 31, 2007.
This decrease was primarily related to the deconsolidation of Levitt and Sons at November 9, 2007.
Selling, general and administrative expenses attributable to Levitt and Sons in the year ended
December 31, 2007 were $66.6 million. Selling, general and administrative expenses, excluding those
attributable to Levitt and Sons, increased slightly in 2008 compared to 2007 totaling $20.6 million
in the year ended December 31, 2008, and $19.2 million in 2007. We incurred higher property tax
expense due to less acreage in active development and higher expenses related to the support of
community and commercial associations in our master-planned communities at Core as well as higher
other administrative expenses associated with marketing activities in South Carolina in 2008
compared to 2007. In addition, insurance costs were higher due to the absorption of certain of
Levitt and Sons insurance costs. The above increases were offset by lower office related expenses,
decreased severance charges and decreased employee compensation, benefits and incentives expense
reflecting a lower associate headcount in the year ended December 31, 2008 compared to 2007 as a
result of staff reductions.
Interest expense consists of interest incurred minus interest capitalized. Interest incurred
for the years ended December 31, 2008 and 2007 totaled $11.0 million and $44.1 million,
respectively, while interest capitalized totaled $8.9 million for the year ended December 31, 2008
compared to $33.9 million in 2007. Interest expense for the year ended December 31, 2008 was $2.1
million compared to $10.2 million in 2007. The decrease in interest expense was primarily the
result of interest expense related to intersegment loans recorded in the year ended December 31,
2007, which was eliminated in consolidation, whereas no comparable interest expense related to
intersegment loans existed in 2008. This decrease in interest expense was partly offset by the
completion of certain phases of development associated with our real estate inventory late in 2007,
which resulted in a decreased amount of assets
which qualified for interest capitalization and, therefore, the expensing of the related
interest was only recorded in the fourth quarter of 2007 compared to the full year of 2008.
Interest incurred was lower mainly due to decreases in the average interest rates on our debt and
lower outstanding balances of notes and mortgage notes payable primarily due to the deconsolidation
of Levitt and Sons at November 9, 2007. At the time of land or home sales, the capitalized
interest allocated to inventory is charged to cost of sales. Cost of sales of real estate for the
years ended December 31, 2008 and 2007 included previously capitalized interest of approximately
$268,000 and $16.1 million, respectively.
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Real Estate
We did not incur other expenses in the year ended December 31, 2008. Other expenses of $1.6
million for the year ended December 31, 2007 mostly related to title and mortgage expenses in
Levitt and Sons for closing costs and title insurance costs for closings processed internally.
Interest income decreased to $1.9 million in the year ended December 31, 2008, from $4.5
million in 2007. This decrease was mainly related to lower intersegment interest income, which was
eliminated in consolidation, related to an intersegment loan which was repaid in 2008 resulting in
less intersegment interest income recorded in 2008 compared to the full year of 2007.
Other income decreased to $1.4 million in the year ended December 31, 2008, from $7.0 million
in 2007. This decrease was mainly related to a $5.8 million decrease in forfeited deposits in 2008
due to the deconsolidation of Levitt and Sons at November 9, 2007. This decrease was partly offset
by higher forfeited deposits at Core.
Income from discontinued operations, which relates to the income generated by Cores Projects,
increased to $2.8 million in the year ended December 31, 2008 from $1.8 million in the same 2007
period. The increase was mainly due to the sale of three ground lease parcels comprised of
approximately 5 acres which resulted in a $2.5 million gain on sale of real estate assets accounted
for as discontinued operations and increased commercial lease activity as a result of the opening
of the Landing at Tradition retail power center in late 2007. These increases were partly offset by
an increase in selling, general and administrative expenses in 2008 compared to 2007 mainly as a
result of a depreciation recapture recorded in the fourth quarter of 2008.
The following table shows Cores operational data for the years ended December 31, 2009, 2008
and 2007:
Twelve Months | ||||||||||||||||||||
Ended December 31, | 2009 vs. | 2008 vs. | ||||||||||||||||||
2009 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Acres sold (a) |
28 | 40 | 40 | 12 | | |||||||||||||||
Margin percentage (b) (c) |
N/A | 41.1 | % | 55.0 | % | N/A | (13.9 | )% | ||||||||||||
Unsold saleable acres |
6,611 | 6,639 | 6,679 | (28 | ) | (40 | ) | |||||||||||||
Acres subject to sales
contracts third
parties (d) |
8 | 10 | 259 | (2 | ) | (249 | ) | |||||||||||||
Aggregate sales price of
acres subject to sales
contracts to third
parties (in thousands)
(d) |
$ | | 1,050 | 77,888 | (1,050 | ) | (76,838 | ) |
(a) | Includes 15 acres donated to the City of Port St. Lucie in the fourth quarter of 2009. | |
(b) | Includes revenues from lot sales, look back provisions and recognition of deferred revenue associated with sales in prior periods. | |
(c) | Margin percentage for the year ended December 31, 2009 was not a meaningful measure since $63.3 million of impairment charges were recorded in Cores cost of sales of real estate. | |
(d) | As of December 31, 2009, approximately 8 acres were subject to a sales contract with a sales price of approximately $2.5 million at a cost of approximately $2.2 million. The sale is contingent upon the purchaser obtaining financing and, if consummated on the contemplated terms, would not result in a loss. |
The value of acres subject to third party sales contracts was approximately $2.5 million at
December 31, 2009 compared to $1.1 million at December 31, 2008. While backlog is not an exclusive
indicator of future sales activity, it provides an indication of potential future sales activity.
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Real Estate
Cores Liquidity and Capital Resources
At December 31, 2009 and December 31, 2008, Core had cash and cash equivalents of $2.9 million
and $16.9 million, respectively. Cash decreased $14.0 million during the year ended December 31,
2009 primarily as a result of cash used to fund the development of Cores projects and payments of
interest on its outstanding debt as well as selling, general and administrative expenses. Cores
cash balance at December 31, 2008 reflected Cores receipt of a repayment from Woodbridge of a $40
million intercompany loan during the second quarter of 2008, partially offset by a $30 million
dividend payment from Core to Woodbridge during the fourth quarter of 2008. At December 31, 2009,
Core had no immediate availability under its various lines of credit.
During 2009, the recession continued and the demand for residential and commercial inventory
showed no signs of recovery, particularly in the geographic regions where Cores properties are
located. The decrease in land sales in 2009 and continued cash flow deficits contributed to,
among other things, the deterioration of Cores liquidity. As a result, Core has severely limited
its development expenditures in Tradition, Florida and has completely discontinued development
activity in Tradition Hilton Head. Its assets have been impaired significantly and in an effort to
bring about an orderly liquidation without a bankruptcy filing, Core commenced negotiations with
all of its lenders to restructure its outstanding debt in light of its cash position and to
liquidate its assets in an orderly way. Core is currently in default under the terms of all of its
outstanding debt totaling approximately $209.9 million (including loans associated with assets held
for sale). Core continues to pursue all options with its lenders, including offering deeds in lieu
and other similar transactions wherein Core would relinquish title to substantially all of its
assets. As of February 5, 2010, with Cores concurrence, a significant portion of the land in
Tradition Hilton Head had been placed under the control of a court appointed receiver. While
negotiations with the lender continue, there is no assurance that Core will be successful in
restructuring any or all of its outstanding debt. In consideration of the foregoing, we evaluated
Cores real estate inventory for impairment on a project-by-project basis. As a result of the
impairment analyses performed, we recorded impairment charges of $63.3 million to reduce the
carrying amount of Cores inventory to its fair value at December 31, 2009.
Core is also a party to a certain Development Agreement with the city of Hardeeville, SC,
under which Core is obligated to fund $1 million towards the building of a fire station. Funding
is scheduled in three installments: the first installment of $100,000 was due October 21, 2009; the
second installment of $450,000 was due on January 1, 2010; and the final installment was due on
April 1, 2010. Additionally, Core is obligated to fund certain staffing costing $200,000 under the
terms of this agreement. Core did not pay any of the required installments and has not funded the
$200,000 payment for staffing. On November 5, 2009, Core received a notice of default from the city
for non payment. Core is in discussions with one of its lenders to fund the required payments out
of an interest reserve account established under its loan agreement with the lender while it seeks
to resolve this issue. However, in the event that Core is unable to obtain additional funds to make
these payments, it may be unable to cure the default on its obligation to the city which could
result in a loss of entitlements associated with the development project.
In December 2009, Core reinitiated efforts to sell two of its commercial leasing projects (the
Projects) and began soliciting bids from several potential buyers to purchase assets associated
with the Projects. The assets are available for immediate sale in their present condition and Core
determined that it is probable that it will sell the Projects in 2010. Due to this decision, the
assets associated with the Projects that are for sale have been classified as discontinued
operations for all periods presented in accordance with the accounting guidance for the disposal of
long-lived assets Core has accepted an offer to sell the Projects, which has been approved by the
lender with substantially all of the proceeds going to satisfy its obligations to the lender.
However, there can be no assurance that the transaction will close or that the lender will release
Core from its obligations. See Note 12 of the Notes to Consolidated Financial Statements for
further information.
Based on an ongoing evaluation of its cost structure and in light of current market
conditions, Core reduced its head count by 41 employees during 2009, resulting in approximately
$1.3 million in severance charges which were recorded during the fourth quarter of 2009.
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Real Estate
The negative impact of the adverse real estate market conditions on Core, together with Cores
limited liquidity, have caused substantial doubt regarding Cores ability to continue as a going
concern if Woodbridge chooses not to provide Core with the cash needed to meet its obligations when
and as they arise. Woodbridge has
not committed to fund any of Cores obligations or cash requirements, and there is no
assurance that Woodbridge will provide any funds to Core. Cores results are reported in the Real
Estate Operations segment in Note 34 of the Notes to Consolidated Financial Statements included
in Item 8 of this report. Cores financial information included in the consolidated financial
statements has been prepared assuming that Core will meet its obligations and continue as a going
concern. As a result, the consolidated financial statements and the financial information provided
for Core do not include any adjustments that might result from the outcome of this uncertainty.
Off Balance Sheet Arrangements and Contractual Obligations
In connection with the development of certain of Cores projects, community development,
special assessment or improvement districts have been established and may utilize tax-exempt bond
financing to fund construction or acquisition of certain on-site and off-site infrastructure
improvements near or at these communities. If these improvement districts were not established,
Core would need to fund community infrastructure development out of operating cash flow or through
sources of financing or capital, or be forced to delay its development activity. The obligation to
pay principal and interest on the bonds issued by the districts is assigned to each parcel within
the district, and a priority assessment lien may be placed on benefited parcels to provide security
for the debt service. The bonds, including interest and redemption premiums, if any, and the
associated priority lien on the property are typically payable, secured and satisfied by revenues,
fees, or assessments levied on the property benefited. Core pays a portion of the revenues, fees,
and assessments levied by the districts on the properties it still owns that are benefited by the
improvements. Core may also be required to pay down a specified portion of the bonds at the time
each unit or parcel is sold. The costs of these obligations are capitalized to inventory during the
development period and recognized as cost of sales when the properties are sold.
Cores bond financing at December 31, 2009 and December 31, 2008 consisted of district bonds
totaling $218.7 million at each of these dates with outstanding amounts of approximately $170.8
million and $130.5 million, respectively. Bond obligations
at December 31, 2009 mature in 2035 and 2040. As of December 31, 2009, Core owned approximately
16% of the property subject to assessments within the community development district and
approximately 91% of the property subject to assessments within the special assessment district.
During the years ended December 31, 2009, 2008 and 2007, Core recorded a liability of approximately
$693,000, $584,000 and $1.3 million, respectively, in assessments on property owned by it in the
districts. Core is responsible for any assessed amounts until the underlying property is sold and
will continue to be responsible for the annual assessments through the maturity dates of the
respective bonds issued if the property is never sold. Based on Cores approximate 91% ownership of
property within the special assessment district as of December 31, 2009, it will be responsible for
the payment of approximately $10 million in assessments by March 2011. If Core sells land within
the special assessment district and reduces its ownership percentage, the potential payment of
approximately $10 million would decrease in relation to the decrease in the ownership percentage.
In addition, Core has guaranteed payments for assessments under the district bonds in Tradition,
Florida which would require funding if future assessments to be allocated to property owners are
insufficient to repay the bonds. Management has evaluated this exposure based upon the criteria
in accounting guidance for contingencies, and has determined that there have been no substantive
changes to the projected density or land use in the development subject to the bond which would
make it probable that Core would have to fund future shortfalls in assessments.
In accordance with accounting guidance for real estate, the Company records a liability for
the estimated developer obligations that are fixed and determinable and user fees that are required
to be paid or transferred at the time the parcel or unit is sold to an end user. At each of
December 31, 2009 and December 31, 2008, the liability related to developer obligations associated
with Cores ownership of the property was $3.3 million, of which $3.1 million is included in the
liabilities related to assets held for sale in the accompanying consolidated statements of
financial condition as of December 31, 2009 and December 31, 2008.
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Real Estate
The following table summarizes our Real Estate and Other contractual obligations (excluding
Bluegreen) as of December 31, 2009 (in thousands):
Payments due by period | ||||||||||||||||||||
Less than | 13 - 36 | 37 - 60 | More than | |||||||||||||||||
Category (1) | Total | 12 Months | Months | Months | 60 Months | |||||||||||||||
Long-term debt obligations (2) |
$ | 272,400 | 175,757 | 501 | 546 | 95,596 | ||||||||||||||
Interest payable on long-term debt (3) |
191,294 | 7,883 | 15,755 | 15,699 | 151,957 | |||||||||||||||
Operating lease obligations |
1,131 | 865 | 207 | 59 | | |||||||||||||||
Long-term debt obligations associated
with assets held for sale |
74,748 | 71,698 | 110 | 124 | 2,816 | |||||||||||||||
Severance related termination
obligations |
1,114 | 1,114 | | | | |||||||||||||||
Total obligations |
$ | 540,687 | 257,317 | 16,573 | 16,428 | 250,369 | ||||||||||||||
(1) | Long-term debt obligations consist of notes, mortgage notes and bonds payable and junior subordinated debentures. Interest payable on these long-term debt obligations is the interest that will be incurred related to the outstanding debt. Operating lease obligations consist of lease commitments. The timing of contractual payments for debt obligations assumes the exercise of all extensions available at our sole discretion. Long-term debt obligations and long-term debt obligations associated with assets held for sale include defaulted loans totaling approximately $247.0 million as of December 31, 2009 of which repayment of the outstanding debt was accelerated by the lender and is currently being shown as immediately due and payable in less than 12 months. See Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of this report for more information regarding the defaulted loans. | |
(2) | These amounts represent scheduled principal payments. | |
(3) | Excludes interest payable associated with defaulted loans as of December 31, 2009 mentioned above. |
In addition to the above contractual obligations, we have $2.4 million in unrecognized tax
benefits in accordance with accounting guidance for uncertainty in income taxes, which provides
guidance for how a company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that a company has taken or expects to take on a tax return.
Tradition Development Company, LLC, a wholly-owned subsidiary of Core Communities (TDC), had
advertising agreements pursuant to which, among other advertising rights, TDC obtained a
royalty-free license to use, among others, the trademark Tradition Field at the sports complex
located in Port St. Lucie and the naming rights to that complex. The advertising agreement was
terminated during the first quarter of 2010 based on TDCs default for non-payment. TDC is
contractually obligated to pay all amounts due under the agreement at the time of termination which
is estimated to be approximately $250,000.
We have future obligations relating to the termination of facilities associated with property
and equipment leases that we had entered into that are no longer providing a benefit to us, as well
as termination fees related to contractual obligations we cancelled. As of December 31, 2009, these
obligations amounted to $240,000 and are included under Operating lease obligations in the table
above.
At December 31, 2009 and 2008, Woodbridge had outstanding surety bonds of approximately
$860,000 and $8.2 million, respectively, which were related primarily to its obligations to various
governmental entities to construct improvements in its various communities. It is estimated that
approximately $495,000 of work remains to complete these improvements and it is not currently
anticipated that any outstanding surety bonds will likely be drawn upon.
In the ordinary course of business, Core sells land to third parties where obligations exist
to complete site development and infrastructure improvements subsequent to the sale date. Future
development and construction obligations amounted to $2.1 million at December 31, 2009. The timing
of future development will depend on factors such as the timing of future sales, demographic growth
rates in the areas in which these obligations occur and the impact of any future deterioration or
improvement in the local real estate market.
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Real Estate
Levitt and Sons had approximately $33.3 million of surety bonds related to its ongoing
projects at the time of the filing of the Chapter 11 Cases. In the event that these obligations
are drawn and paid by the surety, Woodbridge could be responsible for up to $8.0 million plus costs
and expenses in accordance with the surety
indemnity agreements executed by Woodbridge. As of December 31, 2009 and 2008, Woodbridge had
$527,000 and $1.1 million, respectively, in surety bond accruals at Woodbridge related to certain
bonds where management believes it to be probable that Woodbridge will be required to reimburse the
surety under applicable indemnity agreements. Woodbridge reimbursed the surety approximately
$348,000 and $532,000 during the years ended December 31, 2009 and 2008, respectively, in
accordance with the indemnity agreement for bond claims paid during the period, while no
reimbursements were made in 2007. It is unclear whether and to what extent the remaining
outstanding surety bonds of Levitt and Sons will be drawn and the extent to which Woodbridge may be
responsible for additional amounts beyond this accrual. There is no assurance that Woodbridge will
not be responsible for amounts in excess of the $527,000 accrual. Woodbridge will not receive any
repayment, assets or other consideration as recovery of any amounts it may be required to pay. In
September 2008, a surety filed a lawsuit to require Woodbridge to post collateral against a portion
of the surety bonds exposure in connection with demands made by a municipality. Woodbridge believes
that the municipality does not have the right to demand payment under the bonds and Woodbridge
initiated a lawsuit against the municipality. Woodbridge does not believe a loss is probable and
accordingly have not accrued any amount related to this claim. However, based on claims made on the
bonds, the surety requested that Woodbridge post a $4.0 million escrow deposit as security while
the matter is litigated with the municipality, and Woodbridge has complied with that request.
On November 9, 2007, Woodbridge put in place an employee fund and offered up to $5 million of
severance benefits to terminated Levitt and Sons employees to supplement the limited termination
benefits paid by Levitt and Sons to those employees. Levitt and Sons was restricted in the payment
of termination benefits to its former employees by virtue of the Chapter 11 Cases. In 2009, Core
reduced its workforce by approximately 41 employees mainly as a result of the challenging
conditions in the real estate market and the negative impact it has had on Cores liquidity.
Woodbridge incurred severance and benefits related restructuring charges in the year ended December
31, 2009 of approximately $1.4 million, while Woodbridge incurred charges of approximately $2.2
million during the year ended December 31, 2008. For the year ended December 31, 2009, Woodbridge
paid approximately $415,000 in severance and termination charges related to the above described
employee fund or for employees other than Levitt and Sons employees while it paid approximately
$4.1 million in severance and termination charges in the same 2008 period. Employees entitled to
participate in the fund either received a payment stream, which in certain cases extends over two
years, or a lump sum payment, dependent on a variety of factors.
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Real Estate
Bluegreen
The Companys consolidated financial statements for the year ended December 31, 2009 include the
results of operations of Bluegreen from November 16, 2009, the date on which the Company acquired
additional shares of Bluegreens common stock resulting in the Company having a controlling
interest in Bluegreen, through December 31, 2009. Bluegreens results of operations for the
Bluegreen Interim Period are reported through two reportable segments which are Bluegreen Resorts
and Bluegreen Communities. In prior periods, our earnings attributable to Bluegreen were reported
as part of Woodbridge other operations, which is currently included in the BFC Activities segment.
In response to conditions in the economy and real estate and credit markets, Bluegreens focus
has been on efforts to improve its cash flows from operations by deliberately reducing the number
of VOI sales transactions for which it provides financing and to increase its selling and marketing
efficiencies in the Bluegreen Resorts segment. Bluegreen also made a decision to pursue
opportunities to grow its cash fee-based service businesses. While Bluegreen cash flows from
operations and the Bluegreen Resorts segment operating margin reflects the success of these
efforts, the Bluegreen Communities segment continued to struggle given the low consumer demand for
homesites.
The following table details the contribution to consolidated sales of real estate by the
reportable segments for the Bluegreen Interim Period (in thousands, except percentage amounts):
Bluegreen Interim Period | ||||||||
Sales of real estate | % of total sales | |||||||
Bluegreen Resorts |
$ | 15,251 | 83 | % | ||||
Bluegreen Communities |
3,139 | 17 | % | |||||
Total |
$ | 18,390 | 100 | % | ||||
As discussed further under Liquidity and Capital Resources, Bluegreen Resorts sales
operations are materially dependent on the availability of liquidity in the credit markets.
Historically, Bluegreen has provided financing to a significant portion of its Bluegreen Resorts
customers. Such financing typically involves the consumer making a minimum 10% cash down payment,
with the balance being financed over a ten-year period. As Bluegreen Resorts selling, general and
administrative expenses typically exceed the cash down payment, Bluegreen has historically
maintained credit facilities pursuant to which Bluegreen pledged or sold its consumer note
receivables. Furthermore, Bluegreen also engaged in private placement term securitization
transactions to periodically pay down all or a portion of its note receivable credit facilities.
There has been and continues to be an unprecedented disruption in the credit markets that has
made obtaining additional and replacement external sources of liquidity more difficult and, if
available, more expensive. For most of 2009, the term securitization market was severely limited
and, as a result, financial institutions have been and continue to be reluctant to enter into new
credit facilities for the purpose of providing financing on consumer receivables. Several lenders
to the timeshare industry, including certain of Bluegreens lenders, have announced that they will
either be exiting the finance business or will not be entering into new financing commitments for
the foreseeable future. In addition, financing for real estate acquisition and development and the
capital markets for corporate debt have generally been unavailable to Bluegreen.
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Real Estate
While Bluegreen believes that the market for its Resorts product remains relatively strong,
Bluegreen is continuing to deemphasize sales to conserve cash because of the uncertainties in the
credit markets. In an effort to conserve cash and availability under Bluegreen receivables credit
facilities, Bluegreen implemented strategic initiatives which have included closing certain sales
offices; eliminating what they identified as lower-efficiency marketing programs; emphasizing cash
sales and higher cash down payments as well as pursuing other cash-based
services; reducing overhead, including eliminating a significant number of staff positions
across a variety of areas at various locations; limiting sales to borrowers who meet newly applied
underwriting standards; and increasing interest rates on new sales transactions for which Bluegreen
provides financing. Bluegreens goal is to reduce the number of sales while increasing the
ultimate profitability of the sales it makes. Additional information on Bluegreens strategic
initiatives is provided in Liquidity and Capital Resources below. Bluegreen believes that it has
adequate timeshare inventory to satisfy its projected sales for 2010 and based on anticipated sales
levels, for a number of years thereafter.
Bluegreen continues to actively pursue additional credit facility capacity, capital markets
transactions, and alternative financing solutions, and hopes that the steps being taken will
position Bluegreen to maintain its existing credit relationships as well as attract new sources of
capital. Regardless of the state of the credit markets, Bluegreen believes that its resorts
management and finance operations will continue to represent recurring cash-generating sources of
income which do not require material liquidity support from the credit markets.
While the vacation ownership business has historically been capital intensive, Bluegreens
goal is to leverage its sales and marketing, mortgage servicing, resort management, title and
construction expertise to generate fee-based-service relationships with third parties that produce
strong cash flows and require less capital investment. During 2009, Bluegreen began providing
resort management services to four resorts under these agreements. In addition, for the Bluegreen
Interim Period, Bluegreen sold $8.9 million of outside developer inventory and earned sales and
marketing commissions of approximately $5.4 million, as well as title fees on such transactions.
Bluegreen has also begun providing resort design and development services and mortgage services
under certain of these arrangements. Bluegreen intends to pursue additional fee-based services
relationships and believes that these activities will become an increasing portion of its business
over time.
Bluegreen has historically experienced and expects to continue to experience seasonal
fluctuations in its gross revenues and results of operations. This seasonality may result in
fluctuations in its quarterly operating results. Although Bluegreen expects to see more potential
customers at its sales offices during the quarters ending in June and September, ultimate
recognition of the resulting sales during these periods may be delayed due to complex down payment
requirements for recognition of real estate sales under GAAP or due to the timing of development
and the requirement that Bluegreen uses the percentage-of-completion method of accounting.
To the extent that inflation in general or increased prices for Bluegreens VOIs and homesites
adversely impacts consumer demand, Bluegreens results of operations could be adversely impacted.
Also, to the extent inflationary trends, tightened credit markets or other factors affect interest
rates, Bluegreens debt service costs may increase. There is no assurance that Bluegreen will be
able to increase or maintain the current level of its sales prices or that increased construction
costs will not have a material adverse impact on its gross margin.
Bluegreen Communities business is being adversely impacted by the deterioration in the real
estate markets. Demand for its homesites has decreased as well as sales volume and such reductions
have adversely impacted the carrying costs of Bluegreen Communities inventories. There can be no
assurances that future changes in Bluegreens intentions or pricing will not result in future
material inventory valuation adjustments.
Bluegreen has historically financed a majority of Bluegreen Resorts sales of VOIs, and
accordingly, are subject to the risk of defaults by customers. GAAP requires that Bluegreen
reduces sales of VOIs by its estimate of future uncollectible note balances on originated VOI
receivables, excluding any benefit for the value of future recoveries. The allowance for loan
losses for the Bluegreen Interim Period was approximately $4.0 million and was mainly associated
with Bluegreen Resorts. The allowance for loan losses attributable to Bluegreen Communities was not
significant.
Bluegreen believes that rising unemployment in the United States and adverse economic
conditions in general have adversely impacted the performance of Bluegreens notes receivable
portfolio. However, Bluegreen anticipates that credit underwriting standards on new loan
originations and increasing customer equity in the existing loan portfolio will have a favorable
impact on the performance of the portfolio over time.
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Real Estate
Substantially all defaulted vacation ownership notes receivable result in the holder of the
note receivable recovering the related VOI that secured the note receivable, typically soon after
default and at little or no cost. In
cases where Bluegreen has retained ownership of the vacation ownership note receivable, the
VOI is recovered and resold in the normal course of business. In most cases the resales of the
VOIs partially mitigate the loss from the default, as these recoveries generally range from
approximately 40% to 100% of the defaulted principal balance depending on the age of the defaulted
receivable. Bluegreen may also remarket VOIs relating to defaulted receivables on behalf of note
holders in exchange for a remarketing fee designed to approximate its sales and marketing costs.
From time to time, Bluegreen will reacquire a defaulted note receivable from one of its off-balance
sheet term securitization or purchase facility transactions by substituting the defaulted
receivable for a performing receivable. The related VOI that secured the defaulted note receivable
is reacquired at a price equal to the defaulted principal amount, which typically is in excess of
Bluegreens historical cost of product. The reacquisition of inventory in this manner has resulted
in an increase in Bluegreen Resorts cost of sales.
Recent economic events have resulted in further constrictions in the financial markets to
unprecedented low levels. There can be no assurance that Bluegreen will be able to secure
financing for its VOI notes receivable on acceptable terms, if at all.
Bluegreen is in the process of negotiating a significant debt extension on one of its credit
facilities (See the Liquidity and Capital Resources section for further information). In
connection with debt renewals and extensions, Bluegreen may, in certain cases, agree to pay higher
interest rates and fees. In addition, conditions in the commercial credit markets are expected to
increase interest rates on new debt Bluegreen may obtain from time to time in the future. Any such
increased interest rates would increase Bluegreens expenses and adversely impact its results of
operations.
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Real Estate
Bluegreen Segments Financial Results
The following tables include Bluegreens financial results for the Bluegreen Interim Period.
No comparative analysis was performed as Bluegreens results prior to November 16, 2009 are not
included in the financial results below, but rather our earnings attributable to Bluegreen were
reported in our BFC Activities segment.
Bluegreen Resorts | Bluegreen Communities | Total | ||||||||||||||||||||||||
Percentage | Percentage | Percentage | ||||||||||||||||||||||||
Amount | of Sales | Amount | of Sales | Amount | of Sales | |||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||
Bluegreen Interim
Period: |
||||||||||||||||||||||||||
System-wide sales
(2) |
$ | 27,167 | $ | 3,139 | $ | 30,306 | ||||||||||||||||||||
Estimated
uncollectible VOI
notes receivable |
(3,041 | ) | | (3,041 | ) | |||||||||||||||||||||
System-wide sales,
net |
24,126 | 100 | % | 3,139 | 100 | % | 27,265 | 100 | % | |||||||||||||||||
Sales of
third-party VOIs |
(8,875 | ) | (37 | ) | | | (8,875 | ) | (33 | ) | ||||||||||||||||
Sales of real estate |
15,251 | 63 | 3,139 | 100 | % | 18,390 | 67 | |||||||||||||||||||
Cost of real estate
sales |
(3,294 | ) | (22) | * | (1,788 | ) | (57 | ) | (5,082 | ) | (28) | * | ||||||||||||||
Gross profit |
11,957 | 78 | * | 1,351 | 43 | 13,308 | 72 | * | ||||||||||||||||||
Fee-based sales
commission revenue |
5,354 | 22 | | | 5,354 | 20 | ||||||||||||||||||||
Other resort and
communities
operations revenues |
5,239 | 22 | 593 | 19 | 5,832 | 21 | ||||||||||||||||||||
Cost of other
resort and communities
operations |
(3,538 | ) | (15 | ) | (1,480 | ) | (47 | ) | (5,018 | ) | (18 | ) | ||||||||||||||
Segment selling,
general and
administrative
expenses (1) |
(15,775 | ) | (65 | ) | (3,738 | ) | (119 | ) | (19,513 | ) | (72 | ) | ||||||||||||||
Segment operating
profit (loss) |
$ | 3,237 | 13 | % | ($3,274 | ) | (104 | )% | ($37 | ) | (0.14 | )% | ||||||||||||||
* | Bluegreen Resorts cost of sales and Gross profit are calculated as a percentage of sales of real estate | |
(1) | General and administrative expenses attributable to corporate overhead have been excluded from the tables. Corporate general and administrative expenses (excluding mortgage operations) totaled $4.0 million for the Bluegreen Interim Period. (See Corporate General and Administrative Expenses below for further discussion). | |
(2) | Includes sales of VOIs made on behalf of third parties, which are effected through the same process as the sale of Bluegreens vacation ownership inventory, and involve similar selling and marketing costs. |
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Real Estate
Bluegreen Resorts
Bluegreen Resorts Resort Sales and Marketing
The following table sets forth certain information for sales of both Bluegreen VOIs and VOI
sales made on behalf of outside developers for a fee for the periods indicated. The information is
provided before giving effect to the percentage-of-completion method of accounting and the deferral
of sales in accordance with timeshare accounting rules:
Bluegreen Interim Period | ||||
Number of Bluegreen VOI sales transactions |
1,625 | |||
Number of sales made on behalf of outside developers for a fee |
694 | |||
Total VOI sales transactions |
2,319 | |||
Average sales price per transaction |
$ | 11,703 | ||
Number of total prospects tours |
16,140 | |||
Sale-to-tour conversion ratio total prospects |
14.4 | % | ||
Number of new prospects tours |
5,974 | |||
Sale-to-tour conversion ratio new prospects |
10.9 | % |
Resort Management and Other Services
The following table sets forth pre-tax profit generated by Bluegreens resort management and other
services (in thousands):
Bluegreen Interim Period | ||||
Resort Management Operations |
$ | 2,725 | ||
Title Operations |
442 | |||
Net Carrying Cost of Developer Inventory |
(392 | ) | ||
Other |
(313 | ) | ||
Total |
$ | 2,462 | ||
Bluegreen Communities
The table below sets forth the number of homesites sold by Bluegreen Communities and the
average sales price per homesite for the periods indicated, before giving effect to the
percentage-of-completion method of accounting, and excluding sales of bulk parcels:
Bluegreen Interim | ||||
Period | ||||
Number of homesites sold |
50 | |||
Average sales price per homesite |
$ | 66,004 |
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Real Estate
The tables below set forth information with respect to contracts to sell homesites at December
31, 2009 (in thousands):
Contracts to Sell Property at | ||||
Projects Not Substantially Sold | ||||
Out at December 31, 2009 | ||||
Project |
||||
Vintage Oaks at the Vineyard |
$ | 4,547 | ||
Havenwood at Hunters Crossing |
1,291 | |||
Lake Ridge at Joe Pool Lake |
1,696 | |||
King Oaks |
1,451 | |||
Chapel Ridge |
792 | |||
The Bridges at Preston Crossings |
394 | |||
Sugar Tree on the Brazos |
790 | |||
Total |
$ | 10,961 | ||
Contracts to Sell Property at Projects | ||||
Substantially Sold Out at | ||||
December 31, 2009 | ||||
Project |
||||
Mystic Shores |
$ | 1,519 | ||
Saddle Creek Forest |
1,890 | |||
Miscellaneous |
1,147 | |||
Total |
$ | 4,556 | ||
Total Contracts |
$ | 15,517 | ||
Finance Operations
Bluegreens finance operations include the ongoing excess interest spread earned on its
on-balance sheet notes receivable, as well as continued earnings on its off-balance sheet notes
receivable, realized through its retained interests in those notes. In addition, finance
operations include providing mortgage servicing for the off-balance sheet notes receivable and for
other third parties all on a cash fee-for-service basis.
Interest Income
The following table details the sources of Bluegreens interest income (in thousands):
Bluegreen Interim | ||||
Period | ||||
VOI notes receivable |
$ | 10,169 | ||
Retained interest in notes receivable sold |
2,027 | |||
Other |
(14 | ) | ||
Total |
$ | 12,182 | ||
Interest Expense
Interest expense was $5.3 million for the Bluegreen Interim Period.
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Real Estate
Bluegreen believes that the adoption of new accounting standards related to the consolidation
of variable interest entities in January 2010 (See Accounting Pronouncements Not-Yet Adopted) will
significantly increase both interest income and interest expense due to the recognition of
approximately $453.6 million of notes receivable and $411.4 million of non-recourse
receivable-backed debt, which are currently accounted for off-balance sheet, and which Bluegreen
expects will be consolidated and included on-balance sheet, on a prospective basis, beginning in
2010.
Total interest expense capitalized to construction in progress was approximately $110,000 for
the Bluegreen Interim Period.
Mortgage Servicing Operations
Bluegreens mortgage servicing operations include recording and processing payments, and
performing collections of its owned notes receivable, as well as collect payments on notes
receivable sold to or owned by third parties. In addition, Bluegreens mortgage servicing
operations facilitate the monetization of its VOI notes receivable through its various credit
facilities, as well as perform monthly reporting activities for its lenders and receivable
investors. Bluegreen earns a fee for servicing loans that have been sold to off-balance sheet
qualified special purpose entities and for providing loan services to other third-party portfolio
owners, on a cash-fee basis. The following is a summary of the results of its mortgage servicing
operations (in thousands):
Bluegreen Interim | ||||
Period | ||||
Servicing fee income |
$ | 867 | ||
Cost of mortgage servicing operations |
104 | |||
Gross profit from mortgage servicing operations |
$ | 971 | ||
Effective January 2010, the adoption of new accounting standards requires consolidation of
Bluegreens qualified special purpose entities and as a result, the servicing fees earned on
servicing the off-balance sheet notes receivable will no longer be separately recognized as such
but will instead be accounted for as a component of interest income (See Accounting Pronouncements
Not-Yet Adopted).
Corporate General and Administrative Expenses
Bluegreens corporate general and administrative expenses consist primarily of expenses
associated with administering the various support functions at its corporate headquarters,
including accounting, human resources, information technology, treasury, and legal. Corporate
general and administrative expenses, excluding mortgage servicing operations, were $4.0 million for
the Bluegreen Interim Period.
Non-controlling Interests in Income of Consolidated Subsidiary
We include the results of operations and financial position of Bluegreen/Big Cedar Vacations,
LLC (the Subsidiary), Bluegreens 51%-owned subsidiary, in our consolidated financial statements
(See Note 1 of the Notes to Consolidated Financial Statements for further information).
Non-controlling interests in income of consolidated subsidiary was approximately $1.0 million for
the Bluegreen Interim Period.
Bluegreens Liquidity and Capital Resources
Bluegreens primary source of funds from internal operations are: (i) cash sales, (ii) down
payments on homesite and VOI sales which are financed, (iii) proceeds from the sale of, or
borrowings collateralized by, notes receivable, including cash received from its retained interests
in notes receivable sold, (iv) cash from its finance operations, including principal and interest
payments received on the purchase money mortgage loans arising from sales of VOIs and homesites and
mortgage servicing fees, and (v) net cash generated from its sales and marketing fee-based services
and other resort services, including its resorts management operations, and other communities
operations.
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Real Estate
Historically Bluegreens business model has depended on the availability of credit in the
commercial markets. Resorts sales are generally dependent upon Bluegreen providing financing to
its buyers. Bluegreens ability to sell and/or borrow against its notes receivable from VOI buyers
is a critical factor in its continued liquidity. When Bluegreen sells VOIs, a financed buyer is
only required to pay a minimum of 10% to 20% of the purchase price in cash at the time of sale;
however, selling, marketing, and administrative expenses attributable to the sale are primarily
cash expenses and exceed the buyers minimum required down-payment. Accordingly, having financing
facilities available for the hypothecation, sale, or transfer of these vacation ownership
receivables is a critical factor in Bluegreens ability to meet its short and long-term cash needs.
Historically, Bluegreen has relied on its ability to sell receivables in the term securitization
market in order to generate liquidity and create capacity in its receivable facilities. In
addition, maintaining adequate VOI inventory to sell and pursue growth into new markets has
historically required in the incurrence of debt for the acquisition, construction and development
of new resorts. Bluegreen Communities has also historically incurred debt for the acquisition and
development of its residential land communities.
Since 2008, there have been unprecedented disruptions in the credit markets, which have made
obtaining additional and replacement external sources of liquidity more difficult and more costly
in the term securitization market. There is significantly reduced activity and transactions that
have been consummated have been on dramatically more adverse terms. As a result, financial
institutions are reluctant to enter into new credit facilities for the purpose of providing
financing on consumer receivables. Several lenders to the timeshare industry, including certain of
Bluegreens lenders, have announced that they either have or will be exiting the resort finance
business or will not be entering into new financing commitments for the foreseeable future. In
addition, financing for real estate acquisition and development and the capital markets for
corporate debt have generally been unavailable on reasonable terms, if at all.
Bluegreen has certain strategic initiatives in place with a view to better position its
operations in light of the downturn in the commercial credit markets. Bluegreen intends to continue
to monitor its results as well as the external environment in order to attempt to adjust its
business to existing conditions. The ongoing goals of its strategic initiatives are designed to
conserve cash and enhance its financial position, to the extent possible by:
| Significantly reducing its Resorts sales operations in an effort to match its sales pace to its liquidity and known receivable capacity; | ||
| Emphasizing cash-based business in its sales, resort management and finance operations, with particular focus on growing its fee-based service business; | ||
| Minimizing the cash requirements of Bluegreen Communities; | ||
| Reducing overhead and increasing efficiency; | ||
| Minimizing capital spending; | ||
| Working with its lenders to renew, extend, or refinance its credit facilities; | ||
| Maintaining compliance under its outstanding indebtedness; and | ||
| Continuing to provide what Bluegreen believes to be a high level of quality vacation experiences and customer service to its VOI owners. |
While Bluegreen believes that it has realized initial success with its strategic initiatives,
there is no assurance that Bluegreen will be successful in achieving its goals.
While the vacation ownership business has historically been capital intensive, one of
Bluegreens principal goals is to leverage its sales and marketing, mortgage servicing, resort
management, title and construction expertise to pursue low-capital requirement, fee-based-service
business relationships that produce strong cash flows for its business.
Bluegreen has a material amount of debt maturing or requiring partial repayment in 2010, as
well as facilities for which the advance period has or will expire. Bluegreen intends to seek to
renew, extend or refinance certain of its debt issuances and credit facilities and Bluegreen
believes that the implementation of its strategic initiatives has positioned them to address these
matters with its existing and future lenders. However, there is no assurance that Bluegreen will
be successful in its efforts to renew, extend or refinance its debt, and if Bluegreen is not
successful, its liquidity would be significantly adversely impacted. Further, while Bluegreen may
seek to raise
additional debt or equity financing in the future to fund operations or repay outstanding debt,
there is no assurance that such financing will be available to them on favorable terms or at all.
In light of the current trading price of Bluegreens common stock, financing involving the issuance
of its common stock or securities convertible into its common stock would be highly dilutive to its
existing shareholders.
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Real Estate
Bluegreens levels of debt and debt service requirements have several important effects on its
operations, including the following: (i) its significant cash requirements to service debt reduces
the funds available for operations and future business opportunities and increase its vulnerability
to adverse economic and industry conditions, as well as conditions in the credit markets,
generally; (ii) its leverage position increases its vulnerability to economic and competitive
pressures; (iii) the financial covenants and other restrictions contained in indentures, credit
agreements and other agreements relating to its indebtedness requires Bluegreen to meet certain
financial tests and restricts its ability to, among other things, borrow additional funds, dispose
of assets, make investments or pay cash dividends on or repurchase common stock (although Bluegreen
does not currently believe that any such transactions are likely to be structured so as to
materially limit its ability to pay cash dividends on its common stock, if its board were to choose
to do so, or its ability to repurchase shares in the near term; although there is no assurance that
this will remain true in the future); and (iv) its leverage position may limit funds available for
working capital, capital expenditures, acquisitions and general corporate purposes. Certain of
Bluegreens competitors operate on a less leveraged basis and have greater operating and financial
flexibility than they do.
Credit Facilities
The following is a discussion of Bluegreens material purchase and credit facilities,
including those that were important sources of its liquidity as of December 31, 2009. These
facilities do not constitute all of its outstanding indebtedness as of December 31, 2009.
Bluegreens other indebtedness includes outstanding junior subordinated debentures, borrowings
collateralized by real estate inventories that were not incurred pursuant to a significant credit
facility, and capital leases.
Credit Facilities for Bluegreen Receivables with Future Availability
Bluegreen maintains various credit facilities with financial institutions that provide receivable
financing for its operations. Bluegreen had the following credit facilities with future
availability as of December 31, 2009 (in thousands):
Advance | ||||||||||||||||
Outstanding | Availability | Period | Borrowing | |||||||||||||
Revolving | Balance as | as of | Expiration; | Rate; Rate as | ||||||||||||
Borrowing | of December | December | Borrowing | of December | ||||||||||||
Limit | 31, 2009 | 31, 2009 | Maturity | 31, 2009 | ||||||||||||
BB&T Purchase
Facility(1) |
$ | 150,000 | $ | 131,302 | $ | 18,698 | June 29, 2010; June 5, 2022 |
Prime + 2.50%; 5.75% |
||||||||
Liberty Bank
Facility(1) |
75,000 | 59,055 | 15,945 | Aug. 27, 2010; Aug. 27, 2014 |
30 day LIBOR+2.50%; 5.75% (2) |
|||||||||||
Total |
$ | 225,000 | $ | 190,357 | $ | 34,643 | ||||||||||
(1) | Facility is revolving during the advance period, providing additional availability as the facility is paid down, subject to eligible collateral and applicable terms and conditions. | |
(2) | Interest charged on this facility is variable, subject to a floor of 5.75%. |
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Real Estate
BB&T Purchase Facility
The amended and restated timeshare notes receivable purchase facility with Branch Banking and
Trust Company (BB&T) (the BB&T Purchase Facility) provides for the sale of Bluegreens
timeshare receivables at an advance rate of 67.5% of the principal balance up to a cumulative
purchase price of $150.0 million on a revolving basis, subject to the terms of the facility,
eligible collateral and customary terms and conditions. The BB&T Purchase Facility revolving
advance period under the facility will end on June 29, 2010. Should a takeout financing (as
defined in the applicable facility agreements) occur prior to June 29, 2010, the facility limit
will either remain at the current facility limit of $150.0 million or decrease to $100.0 million,
under certain circumstances. While ownership of the receivables is transferred for legal purposes,
the transfers of receivables under the facility are accounted for as a financing transaction for
financial accounting purposes. Accordingly, the receivables will continue to be reflected as
assets and the associated obligations will be reflected as liabilities on our balance sheet. The
BB&T Purchase Facility is nonrecourse and was not guaranteed by Bluegreen.
As of December 31, 2009, the outstanding balance of the BB&T Purchase Facility reflected an
advance of 80.7% on the receivables transferred to BB&T under the facility; however, Bluegreen will
equally share with BB&T in the excess cash flows generated by the receivables sold (excess meaning
after customary payments of fees, interest and principal under the facility) until the advance rate
on the existing receivables decreases to 67.5% as the outstanding balance amortizes. The interest
rate on the BB&T Purchase Facility is the prime rate plus 2.5%.
For the Bluegreen Interim Period, Bluegreen pledged $9.5 million of VOI notes receivable to
this facility and received cash proceeds of $2.0 million. Bluegreen also made repayments of $4.9
million on the facility during the same period.
Liberty Bank Facility
Bluegreen has a $75.0 million revolving timeshare receivables hypothecation facility with a
syndicate of lenders led by Liberty Bank and assembled by Wellington Financial (the Liberty Bank
Facility). The facility provides for a 90% advance on eligible receivables pledged under the
facility during a two-year period ending on August 27, 2010, subject to customary terms and
conditions. Amounts borrowed under the facility and interest incurred will be repaid as cash is
collected on the pledged receivables, with the remaining balance, if any, due on August 27, 2014.
The facility bears interest at a rate equal to the one-month LIBOR plus 2.5%, subject to a floor of
5.75%. As the Liberty Bank facility is revolving, availability under the facility increases up to
the $75.0 million facility limit as cash is received on the VOI notes receivable collateralized
under the facility and Liberty Bank is repaid through the expiration of the advance period,
pursuant to the terms of the facility.
For the Bluegreen Interim Period, Bluegreen pledged $7.6 million of VOI notes receivable to
this facility and received cash proceeds of $729,000. Bluegreen also made repayments of $2.8
million under the facility during the same period.
Other Effective Receivable Capacity
Pursuant to the terms of certain of Bluegreens prior term securitizations and similar type
transactions, Bluegreen has the ability to substitute new eligible VOI notes receivable into such
facilities in the event receivables that were previously sold in such transactions are defaulted or
are the subject of an owner upgrade transaction, subject to certain limitations. These
substitutions result in Bluegreen receiving additional cash through its monthly distribution on its
retained interest in notes receivable sold. Bluegreen intends to continue to use this other
effective receivable capacity, subject to the terms and conditions of the applicable facilities.
As of December 31, 2009, the aggregate remaining substitution capacity under all of such existing
facilities would allow Bluegreen to substitute approximately $120.5 million of eligible VOI notes
receivable in the future, subject to the terms and conditions of the applicable facilities.
108
Real Estate
Credit Facilities for Bluegreen Receivables without Future Availability
Bluegreen has outstanding obligations under various receivable-backed credit facilities that
have no remaining future availability as the advance periods have expired. Bluegreen had the
following outstanding balances under such credit facilities as of December 31, 2009 (in thousands):
Balance as | Borrowing Rate; | |||||||
of December | Borrowing | Rate as of December | ||||||
31, 2009 | Maturity | 31, 2009 | ||||||
The GE Bluegreen/Big Cedar Facility |
$ | 32,834 | April 16, 2016 | 30 day LIBOR+1.75%; 1.98% |
||||
Foothill Facility |
14,409 | Dec. 31, 2010 | Prime + 0.25-0.50%; 4.00% (1)] |
|||||
The GMAC Receivables Facility |
5,228 | Feb. 15, 2015 | 30 day LIBOR+4.00%; 4.23% |
|||||
Total |
$ | 52,471 | ||||||
(1) | Interest charged on this facility is variable and may be subject to a 4.00% floor under certain circumstances. |
The GE Bluegreen/Big Cedar Facility
The Bluegreen/Big Cedar Joint Venture has a $45.0 million revolving VOI receivables credit
facility with GE (the GE Bluegreen/Big Cedar Receivables Facility). Bluegreen Corporation has
guaranteed the full payment and performance of the Bluegreen/Big Cedar Joint Venture in connection
with the GE Bluegreen/Big Cedar Receivables Facility. The advance period under this facility has
expired and all outstanding borrowings mature no later than April 16, 2016. The facility has
detailed requirements with respect to the eligibility of receivables for inclusion and other
conditions to funding. The facility includes affirmative, negative and financial covenants and
events of default. All principal and interest payments received on pledged receivables are applied
to principal and interest due under the facility. Indebtedness under the facility bears interest
adjusted monthly at a rate equal to the 30 day LIBOR rate plus 1.75%.
For the Bluegreen Interim Period, Bluegreen repaid $1.7 million under this facility.
The Wells Fargo Facility
Bluegreen has a credit facility with Wells Fargo Foothill, LLC (Wells Fargo). Historically,
Bluegreen has primarily used this facility for borrowings collateralized by the pledge of certain
VOI receivables which typically have been Bluegreens one-year term receivables. The borrowing
period for advances on eligible receivables expired on December 31, 2009, and the maturity date of
all borrowings is December 31, 2010. The advance rate ranges from 85% to 90% of certain VOI
receivables. Borrowings under this facility are subject to eligible collateral and customary terms
and conditions. The interest rate charged on outstanding receivable borrowings under the facility,
as amended, is the prime lending rate plus 0.25% when the average monthly outstanding loan balance
under certain sub-lines is greater than or equal to $15.0 million. If the average monthly
outstanding loan balance under certain sub-lines is less than $15.0 million, the interest rate is
the greater of 4.00% or the prime lending rate plus 0.50%. All principal and interest payments
received on pledged receivables are applied to principal and interest due under the facility.
For the Bluegreen Interim Period, Bluegreen pledged $7.0 million of notes receivable to this
facility and received cash proceeds of $6.2 million. Bluegreen also made repayments of $4.2
million during the same period.
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Real Estate
Credit Facilities for Bluegreen Inventories without Existing Future Availability
Bluegreen has outstanding obligations under various credit facilities and other notes payable
collateralized by its resorts or communities inventories. As of December 31, 2009 these included
the following significant items (in thousands):
Balance as of | ||||||||
December 31, | Borrowing | Borrowing Rate; Rate as of | ||||||
2009 | Maturity (1) | December 31, 2009 | ||||||
The GMAC AD&C Facility |
$ | 87,415 | June 30, 2012 | 30 day LIBOR+4.50%; 4.73% |
||||
The GMAC Communities Facility |
38,479 | December 31, 2012 | Prime + 2.00%; 10.00% |
|||||
Wachovia Notes Payable |
24,497 | Varies by loan (2) | 30 day LIBOR + 2.00%-2.35%; 2.23% - 2.58% |
|||||
The Textron Facility |
12,757 | Varies by loan (3) | Prime + 1.25% - 1.50%; 4.50% - 4.75% |
|||||
Total |
$ | 163,148 | ||||||
(1) | Repayment of the outstanding amount is effected through release payments as the related collateral is sold, subject to periodic minimum required amortization between December 31, 2009 and maturity. | |
(2) | The maturity dates vary by loan. The maturity date associated with Bluegreens Williamsburg Patrick Henry loan, which had an outstanding balance of $10.5 million as of December 31, 2009, is April 30, 2010. The maturity date associated with Bluegreens Williamsburg Liberty Inn loan, which had an outstanding balance of $6.5 million as of December 31, 2009, is July 31, 2010. The maturity date associated with Bluegreens Club La Pension loan, which had an outstanding balance of $3.7 million as of December 31, 2009, is June 10, 2012. The maturity date associated with Bluegreens Rocky River Preview Center loan, which had an outstanding balance of $3.8 million as of December 31, 2009, is May 1, 2026. See discussion of a term sheet Bluegreen received to extend the maturities on the Wachovia Notes Payable, below. | |
(3) | The maturity date for this facility varies by loan. The maturity date associated with Bluegreens Odyssey Dells Resort loan, which had an outstanding balance of $7.0 million as of December 31, 2009, is December 31, 2011. The maturity date associated with Bluegreens Atlantic Palace Resort, which had an outstanding balance of $5.8 million as of December 31, 2009, is April 2013. |
The GMAC AD&C Facility
This facility was used to finance the acquisition and development of certain of Bluegreen
resorts and currently has three outstanding project loans. The maturity date for the project loan
collateralized by Bluegreens Club 36TM resort in Las Vegas, Nevada (the Club 36
Loan), is June 30, 2012. Approximately $70.1 million was outstanding on this loan as of December
31, 2009. Maturity dates for two project loans related to Bluegreens Fountains resort in Orlando,
Florida (the Fountains Loans) are September 2010 and March 2011, with $10.6 million and $6.7
million, respectively, outstanding as of December 31, 2009. Principal payments are effected
through agreed-upon release prices as timeshare interests in the resorts collateralizing the GMAC
AD&C Facility are sold, subject to periodic minimum required amortization on the Club 36 Loan and
the Fountains Loans. The facility bears interest at a rate equal to the 30-day LIBOR plus 4.50%.
For the Bluegreen Interim Period, Bluegreen repaid $5.5 million of the outstanding balance under
this facility. As of December 31, 2009, Bluegreen had no availability under this facility.
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Real Estate
The GMAC Communities Facility
Bluegreen has an outstanding balance under a credit facility (the GMAC Communities Facility)
historically used to finance its Bluegreen Communities real estate acquisitions and development
activities. The GMAC Communities Facility is secured by the real property homesites (and personal
property related thereto) at the following Bluegreen Communities projects (the Secured Projects):
Havenwood at Hunters Crossing (New Braunfels, Texas); The Bridges at Preston Crossings (Grayson
County, Texas); King Oaks (College Station, Texas); Vintage Oaks at the Vineyard (New Braunfels,
Texas); and Sanctuary Cove at St. Andrews Sound (Waverly, Georgia). In addition, the GMAC
Communities Facility is secured by certain of Bluegreens golf courses: The Bridges at Preston
Crossings (Grayson County, Texas) and Sanctuary Cove (Waverly, Georgia). The period during which
Bluegreen can add additional projects to the GMAC Communities Facility has expired.
Bluegreen will start making minimum quarterly cumulative payments commencing in January 2010
with the final maturity of December 31, 2012, according to the agreement. Principal payments are
effected through agreed-upon release prices as real estate collateralizing the GMAC Communities
Facility is sold, subject to the minimum required amortization discussed above. The interest rate
on the GMAC Communities Facility is the prime rate plus 2%, subject to the following floors: (1)
10% until the balance of the loan has been reduced by a total of $25 million from the closing date balance, (2) 8% until the
balance of the loan is less than or equal to $20 million, and (3) 6% thereafter.
In connection with the previously discussed sale of Bluegreens golf courses at Carolina
National (Southport, North Carolina), the Preserve at Jordan Lake (Chapel Hill, North Carolina),
Brickshire (New Kent, Virginia), and Chapel Ridge (Pittsboro, NC) during December 2009, Bluegreen
repaid $7.1 million under this facility as a release payment for the sold courses which had been
part of the collateral for the GMAC Communities Facility. For the Bluegreen Interim Period,
Bluegreen repaid a total of $7.8 million under this facility.
The Wachovia Notes Payable
As of December 31, 2009, Bluegreen had approximately $24.5 million of outstanding debt to
Wachovia Bank, N.A. (Wachovia) under various notes payable collateralized by certain of its
timeshare resorts or sales offices (the Wachovia Notes Payable). The maturity date of a $10.5
million note payable collateralized by Bluegreens Williamsburg resort will expire on April 30,
2010. Bluegreen has a non-binding term sheet with Wachovia to refinance the Wachovia Notes Payable,
extending the maturity to 24 months after the closing of the extension. The term sheet also
includes the Wachovia Line-of-credit (See section below Unsecured Credit Facility Wachovia
Line-of-Credit) which had a balance of $15.7 million as of December 31, 2009. The term sheet and
subsequent discussions required that Bluegreen makes release principal payments as the VOIs which
will collateralize the extended loan are sold, subject to a minimum monthly amortization. The
extended loan would consolidate the Wachovia Notes Payable and the Wachovia Line-of-Credit into one
term loan which bears interest at the 3-month LIBOR + 6.87%. The term sheet contemplates Bluegreen
providing additional collateral for this facility and amending covenants, other terms and
conditions. There is no assurance that the transactions contemplated by the term sheet will occur
on these terms, if at all.
Textron AD&C Facility
Bluegreen Vacations Unlimited, Inc. (BVU), Bluegreens wholly-owned subsidiary, has a $75.0
million, revolving master acquisition, development and construction facility loan agreement (the
Textron AD&C Facility) with Textron Financial Corporation (Textron). The Textron AD&C Facility
has historically been used to facilitate the borrowing of funds for resort acquisition and
development activities. Bluegreen has guaranteed all sub-loans under the master agreement.
Interest on the Textron AD&C Facility is equal to the prime rate plus 1.25% 1.50% and is due
monthly. The Textron AD&C Facility has no remaining availability for additional borrowings under
the facility.
111
Real Estate
Bluegreen has a sub-loan under the Textron AD&C Facility which was used to fund the
acquisition and development of its Odyssey Dells Resort (the Odyssey Sub-Loan). The outstanding
borrowings under the Odyssey Sub-Loan mature on December 31, 2011. The Sub-Loan requires a periodic
minimum required principal amortization. The first minimum required principal payment in March 2010
was approximately $0.4 million with
additional minimum required principal payments of $1.0 million per quarter thereafter through
maturity. Bluegreen will continue to pay Textron principal payments as Bluegreen sells timeshare
interests that collateralize the Odyssey Sub-Loan, and these payments will count towards the
minimum required principal payments. As of December 31, 2009, Bluegreens outstanding borrowings
under the Sub-Loan totaled approximately $7.0 million.
The maturity date of the other outstanding sub-loan under the Textron AD&C Facility, subject
to minimum required amortization during the periods prior to maturity, is April 2013. Bluegreens
outstanding balance on the sub-loan used to acquire its Atlantic Palace Resort in Atlantic City,
New Jersey was $5.8 million as of December 31, 2009.
Unsecured Credit Facility Wachovia Line-of-Credit
Bluegreen currently has an unsecured line-of-credit with Wachovia. Amounts borrowed under the
line bear interest at 30-day LIBOR plus 1.75% (1.98 % at December 31, 2009). Interest is due
monthly. The line-of-credit agreement contains certain covenants and conditions typical of
arrangements of this type.
The current maturity of this line-of-credit is April 30, 2010; however Bluegreen has received
a non-binding term sheet from Wachovia to extend the maturity for an additional 24 months from the
closing of the extension, subject to required monthly amortization. As contemplated in the term
sheet, the extended loan would consolidate the Wachovia Notes Payable and the Wachovia
Line-of-Credit into one term loan, which would bear interest at the 3-month LIBOR + 6.87%. The
term sheet contemplates Bluegreen providing additional collateral for this facility and amending
covenants, other terms and conditions. There can be no assurances that such refinancing will be
obtained on the terms contemplated in the term sheet, if at all.
There is no availability under the Wachovia Line-of-Credit.
Commitments
Bluegreens material commitments as of December 31, 2009 included the required payments due on
its receivable-backed debt, lines-of-credit and other notes payable, commitments to complete its
Bluegreen Resorts and Communities projects based on its sales contracts with customers and
commitments under noncancelable operating leases.
Bluegreen estimates that the cash required to complete Bluegreen resort buildings, resort
amenities and other common costs in projects in which sales have occurred was approximately $1.9
million as of December 31, 2009. Bluegreen estimates that the cash required to complete communities
in which sales have occurred was approximately $7.7 million. These amounts assume that Bluegreen
is not obligated to develop any building, project or amenity in which a commitment has not been
made in a sales contract with a customer; however, Bluegreen anticipates that it will incur such
obligations in the future. Bluegreen plans to fund these expenditures over the next three to ten
years, primarily with cash generated from operations. There is no assurance that Bluegreen will be
able to generate the cash from operations necessary to complete the foregoing commitments or that
actual costs will not exceed those estimated.
112
Real Estate
The following table summarizes the contractual minimum principal and interest payments,
respectively, required on all of Bluegreens outstanding debt (including its receivable-backed
debt, lines-of-credit and other notes and debentures payable) and its noncancelable operating
leases by period date, as of December 31, 2009, which excludes the extension contemplated by the
Wachovia loan term sheet previously discussed (in thousands):
Purchase | ||||||||||||||||||||||||
Accounting | Less than | 13 - 36 | 37 - 60 | More than | ||||||||||||||||||||
Category | Total | Adjustments | 12 Months | Months | Months | 60 Months | ||||||||||||||||||
Long-term debt obligations |
$ | 479,576 | (59,860 | ) | 87,480 | 102,679 | 63,890 | 285,387 | ||||||||||||||||
Interest payable on long-term
debt |
287,212 | | 30,162 | 45,364 | 34,319 | 177,367 | ||||||||||||||||||
Noncancelable operating leases |
70,135 | | 11,747 | 17,176 | 10,225 | 30,987 | ||||||||||||||||||
Total obligations |
$ | 836,923 | (59,860 | ) | 129,389 | 165,219 | 108,434 | 493,741 | ||||||||||||||||
Vacation Ownership Receivables Purchase Facilities Off-Balance Sheet Arrangements
Bluegreen historically chose to monetize its receivables through various facilities and
through periodic term securitization transactions, as these arrangements provided them with cash
inflows both currently and in the future at what they believe to be competitive rates without
adding leverage to its financial condition or retaining recourse for losses on the receivables
sold. In addition, these sale transactions have historically generated gains on its financial
results on a periodic basis, which would not be realized under a traditional financing arrangement.
Bluegreen made the decision to structure future sales of its notes receivable so that they are
accounted for as on-balance sheet borrowings. Recently, the term securitization market has had
minimal activity and there is no assurance that these types of transactions will be available in
the future at acceptable cost, if at all.
Historically, Bluegreen has been a party to a number of securitization-type transactions, all
of which in its opinion utilize customary structures and terms for transactions of this type. In
each securitization-type transaction, Bluegreen sold receivables to a wholly-owned special purpose
entity which, in turn, sold the receivables either directly to third parties or to a trust
established for the transaction. The receivables were sold on a non-recourse basis (except for
breaches of certain representations and warranties) and the special purpose entity retained
residual interest in the receivables sold. Bluegreen has acted as servicer of the receivables pools
in each transaction for a fee, with the servicing obligations specified under the applicable
transaction documents. Under the terms of the applicable transaction documents, the cash payments
received from obligors on the receivables sold are distributed to the investors (which, depending
on the transaction, may acquire the receivables directly or purchase an interest in, or make loans
secured by the receivables to, a trust that owns the receivables), parties providing services in
connection with the facility, and its special purpose subsidiary as the holder of the retained
interest in the receivables according to specified formulas. In general, available funds are
applied monthly to pay fees to service providers, make interest and principal payments to
investors, fund required reserves, if any, and pay distributions in respect of the retained
interests in the receivables, pursuant to the terms of the transaction documents. However, to the
extent the portfolio of receivables fails to satisfy specified performance criteria (as may occur
due to an increase in default rates or loan loss severity) or other trigger events, the funds
received from obligors are distributed on an accelerated basis to investors. In effect, during a
period in which the accelerated payment formula is applicable, funds are paid to outside investors
until they receive the full amount owed to them and only then are payments made to Bluegreens
subsidiary in its capacity as the holder of the retained interests. Depending on the circumstances
and the transaction, the application of the accelerated payment formula may be permanent or
temporary until the trigger event is cured. If the accelerated payment formula were to become
applicable, the cash flow on the retained interests in the receivables would be reduced until the
outside investors were paid or the regular payment formula was resumed. Such a reduction in cash
flow could cause a decline in the fair value of Bluegreens retained interests in the receivables
sold. Declines in fair value that are determined to be other than temporary are charged to
operations in the current period. In each facility, the failure of the pool of receivables to
comply with specified portfolio covenants can create a trigger event, which results in the
utilization of the accelerated payment formula (in certain circumstances until the trigger event is
cured and in other circumstances permanently) and, to the extent of any remaining commitment to
purchase receivables from Bluegreens special purpose subsidiary, the suspension or termination of
that commitment. In addition, in each securitization-type facility, certain breaches of Bluegreens
obligations as servicer or other events allow the indenture trustee to cause the servicing to be
transferred to a substitute third party servicer. In that case, Bluegreens obligation to service
the receivables would terminate and
they would cease to receive a servicing fee.
113
Real Estate
The following is a summary of significant financial information related to Bluegreens
off-balance sheet facilities and securitizations and the related on-balance sheet retained
interests during the periods presented below (in thousands):
As of | ||||
December 31, 2009 | ||||
On-Balance Sheet: |
||||
Retained interests in notes receivable sold |
$ | 26,340 | ||
Off-Balance Sheet: |
||||
Notes receivable sold without recourse |
453,591 | |||
Principal balance owed to note receivable purchasers |
411,369 |
Bluegreen Interim | ||||
Period | ||||
Income Statement: |
||||
Gain on sales of notes receivable |
$ | | ||
Interest accretion on retained interests in notes
receivable sold |
2,065 | |||
Servicing fee income |
867 |
See Note 11 in Item 8 of this Report for additional information relating to Bluegreens
off-balance sheet arrangements.
In June 2009, the FASB issued an amendment to the accounting guidance for transfers of
financial assets, which became effective for us on January 1, 2010. This amendment addresses the
effects of eliminating the QSPE concept and responds to concerns about the application of certain
key provisions of previous accounting rules, including concerns over the transparency of an
enterprises involvement with VIEs. As a result of the adoption of this amendment on January 1,
2010, Bluegreen expects that it will be required to consolidate its QSPEs described in Note 4 to
our consolidated financial statements. See Note 1 of the Notes to Consolidated Financial
Statements included in Item 8 of this report for additional information relating to the effects of
this accounting pronouncement.
114
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
Financial Services
Our Financial Services activities of BFC are comprised of the operations of BankAtlantic
Bancorp and its subsidiaries. BankAtlantic Bancorp in 2009 presents its results in two reportable
segments and its results of operations are consolidated in BFC Financial Corporation. The only
assets available to BFC Financial Corporation from BankAtlantic Bancorp are dividends when and if
paid by BankAtlantic Bancorp. BankAtlantic Bancorp is a separate public company and its management
prepared the following discussion regarding BankAtlantic Bancorp which was included in BankAtlantic
Bancorps Annual Report on Form 10-K for the year ended December 31, 2009 filed with the
Securities and Exchange Commission. Accordingly, references to we, us or our in the following
discussion under the caption Financial Services are references to BankAtlantic Bancorp and its
subsidiaries, and are not references to BFC Financial Corporation.
Introduction
BankAtlantic Bancorp, Inc. is a Florida-based financial services holding company offering a
full range of products and services through BankAtlantic, our wholly-owned banking subsidiary. As
of December 31, 2009, BankAtlantic Bancorp had total consolidated assets of approximately $4.8
billion, deposits of approximately $4.0 billion and shareholders equity of approximately $141.6
million. BankAtlantic Bancorp operates through two primary business segments: BankAtlantic and
BankAtlantic Bancorp Parent Company.
On February 28, 2007, BankAtlantic Bancorp completed the sale to Stifel Financial Corp.
(Stifel) of Ryan Beck Holdings, Inc. (Ryan Beck), a subsidiary engaged in retail and
institutional brokerage and investment banking. As a consequence of the sale of Ryan Beck to
Stifel, the results of operations of Ryan Beck are presented as Discontinued Operations in the
consolidated financial statements for the year ended December 31, 2007.
Consolidated Results of Operations
Loss from continuing operations from each of BankAtlantic Bancorps reportable business
segments follows (in thousands):
For the Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
BankAtlantic |
$ | (148,708 | ) | (166,144 | ) | (19,440 | ) | |||||
BankAtlantic Bancorp Parent Co. |
(40,812 | ) | (53,100 | ) | (10,572 | ) | ||||||
Net loss |
$ | (189,520 | ) | (219,244 | ) | (30,012 | ) | |||||
The lower loss from continuing operations at BankAtlantic during 2009 compared to the same
2008 period primarily resulted from BankAtlantic recognizing a $31.7 million income tax benefit
during 2009 in connection with a change in tax regulations which enabled BankAtlantic to utilize
additional net operating losses, while during 2008, BankAtlantic established a deferred tax
valuation allowance on its entire amount of net deferred tax assets resulting in a tax provision of
$31.1 million. BankAtlantics 2009 loss before income taxes increased by $45.4 million compared to
2008. The higher 2009 loss primarily resulted from a $78.9 million increase in the provision for
loan losses, a $30.3 million reduction in net interest income and $8.0 million of lower
non-interest income. The increase in BankAtlantics loss before income taxes was partially offset
by $71.8 million of lower non-interest expenses.
The substantial increase in the provision for loan losses resulted primarily from a
significant increase in charge-offs and loan loss reserves in our consumer, residential and
commercial real estate loan portfolios. These portfolios continued to be negatively affected by
the current adverse economic environment, especially declining collateral values and rising
unemployment. If economic and real estate market conditions do not improve, we believe that
additional provisions for loan losses may be required in future periods.
The reduction in BankAtlantics net interest income was primarily due to a decline in earning
assets. BankAtlantic reduced its assets in order to improve its liquidity and regulatory capital
ratios. BankAtlantics average earnings assets declined by $790.6 million during 2009 compared to
2008.
115
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
The reduction in non-interest income primarily relates to a decline in overdraft fees.
Overdraft fees represented approximately 54% of our non-interest income during 2009. This
overdraft fee income decline reflects, in part,
managements focus on targeting retail customers and businesses that maintain higher average
deposit balances which generally will result in fewer overdrafts per account. We believe that this
trend of declining overdraft fees will continue and could be accelerated by recent overdraft rules
adopted by the Federal Reserve effective July 1, 2010. Congress has also proposed additional
legislation to further limit the assessment of overdraft fees. These events could significantly
reduce our overdraft fee income in subsequent periods.
In response to adverse economic conditions, BankAtlantic during 2009 continued to reduce
expenses with a view towards increasing operating efficiencies. These operating expense
initiatives included workforce reductions, consolidation of certain back-office facilities,
renegotiation of vendor contracts, outsourcing of certain back-office functions, reduction in
marketing expenses and other targeted expense reductions. Also, restructuring charges and other
impairments declined by $33.0 million. These expense reductions were partially offset by $8.2
million of additional FDIC insurance premiums, including a $2.4 million FDIC special assessment in
June 2009.
The significant decline in BankAtlantics performance during the year ended December 31, 2008
compared to the same 2007 period primarily resulted from a $48.3 million goodwill impairment
charge, the establishment of a $66.9 million deferred tax valuation allowance, a $64.5 million
increase in the provision for loan losses and a decline in non-interest income. These items were
partially offset by lower non-interest expenses, excluding the goodwill impairment charge. The
substantial increase in BankAtlantics provision for loan losses for 2008 compared to 2007 reflects
net charge-offs for 2008 of $97.4 million compared to $20.4 million for 2007 and a $31.6 million
increase in the allowance for loan losses during 2008. The charge-offs and loan reserve increases
were primarily related to commercial real estate and consumer loans. The decline in BankAtlantics
non-interest income was primarily due to lower net assessments of overdraft fees. BankAtlantic
non-interest expenses, excluding the goodwill impairment charge, declined by $31.6 million
primarily due to managements expense reduction initiatives.
The decrease in BankAtlantic Bancorp Parent Company segment loss during 2009 compared to 2008
reflects a $6.0 million reduction in the provision for loan losses and $4.9 million of reduced net
interest expense. The provision for loan losses for both years was associated with
non-performing loans acquired from BankAtlantic in March 2008. The 2009 provision for loan losses
represents additional charge-offs and specific reserves associated with these loans due to
declining real estate collateral values. The improvement in net interest expense reflects
historically low LIBOR interest rates during 2009. The majority of BankAtlantic Bancorp Parent
Companys debt is indexed to the three-month LIBOR interest rate. The decline in interest rates
was partially offset by interest accrued on the junior subordinated debentures deferred interest.
BankAtlantic Bancorp Parent Company operating expenses were higher by $0.3 million during 2009
compared to 2008. Lower property management costs associated with non-performing loans during 2009
were offset by higher compensation expenses.
The increase in BankAtlantic Bancorp Parent Company segment loss during 2008 compared to 2007
reflects a provision for loan losses of $24.4 million as well as the establishment of a $20.9
million deferred tax valuation allowance. BankAtlantic Bancorp Parent Company had no provision for
loan losses during the comparable 2007 period as it held no loans during that period.
Additionally, gains from securities activities declined from $6.1 million during 2007 to a loss of
$0.4 million during 2008 as BankAtlantic Bancorp Parent Company liquidated its managed fund
investment portfolio and sold its entire investment in Stifel securities acquired by it in
connection with the 2007 sale of Ryan Beck. BankAtlantic Bancorp Parent Company operating expenses
were higher by $4.5 million during 2008 compared to 2007. The increase reflects property
management costs associated with non-performing loans and an increase in professional fees in 2008
compared to 2007.
During 2009 and 2008, BankAtlantic Bancorp Parent Company recognized in discontinued
operations $3.7 million and $16.6 million, respectively, of additional proceeds from the sale of
Ryan Beck in connection with contingent earn-out payments under the Ryan Beck merger agreement with
Stifel. Included in discontinued operations during 2007 relating to the Ryan Beck segment was
income of $7.8 million. Ryan Becks 2007 segment income reflects a $16.4 million gain from the
sale of Ryan Beck to Stifel partially offset by an $8.6 million loss from operations during the two
months ended February 28, 2007, the closing date of the sale to Stifel.
116
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
BankAtlantic Results of Operations
Summary
The following events over the past several years have had a significant impact on
BankAtlantics results of operations:
In April 2002, BankAtlantic launched its Floridas Most Convenient Bank initiative which
resulted in significant demand deposit, NOW checking and savings account growth (we refer to these
accounts as core deposit accounts). Since inception of this campaign, BankAtlantic has
increased core deposit balances from $600 million at December 31, 2001 to approximately $2.7
billion at December 31, 2009. These core deposits represented 67% of BankAtlantics total
deposits at December 31, 2009, compared to 26% of total deposits at December 31, 2001.
In 2004, BankAtlantic announced its de novo store expansion strategy and had opened 32 stores
as of December 31, 2009 in connection with this strategy. BankAtlantics non-interest expenses
substantially increased as a result of the hiring of additional personnel, increased marketing to
support new stores, increased leasing and operating costs for the new stores and expenditures for
back-office technologies to support a larger institution.
During the fourth quarter of 2005, the growth in core deposits slowed reflecting rising
short-term interest rates and increased competition among financial institutions. In response to
these market conditions, BankAtlantic significantly increased its marketing expenditures and
continued its new store expansion program in an effort to sustain core deposit growth. The number
of new core deposit accounts opened increased from 226,000 during 2005 to 270,000 during 2006,
while core deposit balances grew to $2.2 billion at December 31, 2006 from $2.1 billion at
December 31, 2005. In response to adverse economic conditions and the slowed deposit growth,
BankAtlantic significantly reduced its marketing expenditures beginning during the fourth quarter
of 2006 as part of an overall effort to reduce its non-interest expenses.
During the latter half of 2007, the real estate markets deteriorated rapidly throughout the
United States, and particularly in Florida where BankAtlantics commercial and consumer real
estate loans are concentrated. In response to these market conditions, BankAtlantic significantly
increased its allowance for loan losses for commercial loans collateralized by real estate
property and to a lesser extent home equity consumer loans.
During the fourth quarter of 2007, the decision was made to delay BankAtlantics retail
network expansion, consolidate certain back-office facilities and implement other initiatives to
reduce non-interest expenses.
As economic conditions deteriorated in late 2007 and 2008, real estate property values
continued to decline. The adverse economic and real estate market conditions severely impacted
the credit quality of BankAtlantics loan portfolio. In March 2008, BankAtlantic Bancorp Parent
Company purchased $101.5 million of non-performing loans from BankAtlantic and during the year
contributed $65 million of capital to BankAtlantic. During the fourth quarter of 2008, financial
and credit markets further experienced rapid deterioration, investor confidence in financial
institutions was significantly and adversely affected and the market capitalization of
BankAtlantic Bancorps Class A common stock declined materially. As BankAtlantics non-performing
loans increased, additional loan loss reserves were established, impairments of long-lived assets
were recognized and earnings were adversely affected. As a consequence of the substantial losses
during 2007 and 2008, the deterioration in the price of BankAtlantic Bancorps Class A common
stock and the unprecedented economic and market uncertainty, BankAtlantic recognized a $48.3
million non-cash goodwill impairment charge and established $66.9 million non-cash deferred tax
valuation allowance.
During 2009, in response to the continued deteriorating economic conditions including falling
real estate collateral values and rising unemployment, and the significant adverse impact on the
credit quality of our assets and our results of operations, BankAtlantic reduced its assets,
repaid its wholesale borrowings and increased core deposits with a view towards strengthening its
liquidity and regulatory capital ratios. However, the credit quality of its loans continued to
deteriorate in 2009, and BankAtlantics losses increased. As a result BankAtlantic Bancorp, Inc.
contributed an additional $105 million of capital to BankAtlantic. Additionally, as a consequence
of the adverse economic environment, an additional $22.5 million of restructuring charges and
asset impairments were recognized during 2009.
117
Financial Services
(BankAtlantic Bancorp)
(BankAtlantic Bancorp)
The following table is a condensed income statement summarizing BankAtlantics results of
operations (in thousands):
For the Years Ended | Change | Change | ||||||||||||||||||
Ended December 31, | 2009 vs | 2008 vs | ||||||||||||||||||
2009 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Net interest income |
$ | 163,324 | 193,648 | 199,510 | (30,324 | ) | (5,862 | ) | ||||||||||||
Provision for loan losses |
(214,244 | ) | (135,383 | ) | (70,842 | ) | (78,861 | ) | (64,541 | ) | ||||||||||
Net interest income (loss) after provision for loan losses |
(50,920 | ) | 58,265 | 128,668 | (109,185 | ) | (70,403 | ) | ||||||||||||
Non-interest income |
129,292 | 137,308 | 144,412 | (8,016 | ) | (7,104 | ) | |||||||||||||
Non-interest expense |
(258,799 | ) | (330,623 | ) | (313,898 | ) | 71,824 | (16,725 | ) | |||||||||||
BankAtlantic (loss) income before income taxes |
(180,427 | ) | (135,050 | ) | (40,818 | ) | (45,377 | ) | (94,232 | ) | ||||||||||
Benefit/(provision) for income taxes |
31,719 | (31,094 | ) | 21,378 | 62,813 | (52,472 | ) | |||||||||||||
BankAtlantic net loss |
$ | (148,708 | ) | (166,144 | ) | (19,440 | ) | 17,436 | (146,704 | ) | ||||||||||
BankAtlantics Net Interest Income
The following table summarizes net interest income:
For the Years Ended | ||||||||||||||||||||||||||||||||||||||||
December 31, 2009 | December 31, 2008 | December 31, 2007 | ||||||||||||||||||||||||||||||||||||||
(Dollars are in thousands) | Average | Revenue/ | Yield/ | Average | Revenue/ | Yield/ | Average | Revenue/ | Yield/ | |||||||||||||||||||||||||||||||
Interest earning assets | Balance | Expense | Rate | Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||||||||||||||||||||
Loans: (a) |
||||||||||||||||||||||||||||||||||||||||
Residential real estate |
$ | 1,758,188 | 89,836 | 5.11 | 2,053,645 | 111,691 | 5.44 | 2,209,832 | 120,768 | 5.47 | ||||||||||||||||||||||||||||||
Commercial real estate |
1,204,005 | 46,746 | 3.88 | 1,238,307 | 69,642 | 5.62 | 1,367,095 | 108,931 | 7.97 | |||||||||||||||||||||||||||||||
Consumer |
723,135 | 21,104 | 2.92 | 743,863 | 33,950 | 4.56 | 650,764 | 47,625 | 7.32 | |||||||||||||||||||||||||||||||
Commercial business |
143,224 | 7,461 | 5.21 | 132,565 | 9,516 | 7.18 | 142,455 | 12,720 | 8.93 | |||||||||||||||||||||||||||||||
Small business |
316,328 | 20,010 | 6.33 | 320,853 | 22,162 | 6.91 | 298,774 | 23,954 | 8.02 | |||||||||||||||||||||||||||||||
Total loans |
4,144,880 | 185,157 | 4.47 | 4,489,233 | 246,961 | 5.50 | 4,668,920 | 313,998 | 6.73 | |||||||||||||||||||||||||||||||
Tax exempt securities |
| | | | | | 328,583 | 19,272 | 5.87 | |||||||||||||||||||||||||||||||
Taxable investment securities (b) |
661,216 | 37,857 | 5.73 | 1,078,189 | 65,570 | 6.08 | 689,263 | 42,849 | 6.22 | |||||||||||||||||||||||||||||||
Federal funds sold |
14,760 | 33 | 0.22 | 44,031 | 754 | 1.71 | 3,638 | 195 | 5.36 | |||||||||||||||||||||||||||||||
Total investment securities |
675,976 | 37,890 | 5.61 | 1,122,220 | 66,324 | 5.91 | 1,021,484 | 62,316 | 6.10 | |||||||||||||||||||||||||||||||
Total interest earning assets |
4,820,856 | 223,047 | 4.63 | 5,611,453 | 313,285 | 5.58 | 5,690,404 | 376,314 | 6.61 | |||||||||||||||||||||||||||||||
Total non-interest earning assets |
365,257 | 503,028 | 510,173 | |||||||||||||||||||||||||||||||||||||
Total assets |
$ | 5,186,113 | 6,114,481 | 6,200,577 | ||||||||||||||||||||||||||||||||||||
Interest bearing liabilities |
||||||||||||||||||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||||||||||||||||||
Savings |
$ | 436,169 | 1,612 | 0.37 | 503,464 | 4,994 | 0.99 | 584,542 | 12,559 | 2.15 | ||||||||||||||||||||||||||||||
NOW, money funds and checking |
1,589,340 | 9,961 | 0.63 | 1,506,479 | 17,784 | 1.18 | 1,450,960 | 26,031 | 1.79 | |||||||||||||||||||||||||||||||
Certificate accounts |
1,192,012 | 30,311 | 2.54 | 1,088,170 | 41,485 | 3.81 | 992,043 | 45,886 | 4.63 | |||||||||||||||||||||||||||||||
Total interest bearing deposits |
3,217,521 | 41,884 | 1.30 | 3,098,113 | 64,263 | 2.07 | 3,027,545 | 84,476 | 2.79 | |||||||||||||||||||||||||||||||
Securities sold under agreements
to repurchase and federal funds
purchased |
& |