Attached files
file | filename |
---|---|
EX-32.2 - EX-32.2 - Bluegreen Vacations Holding Corp | g24378exv32w2.htm |
EX-31.2 - EX-31.2 - Bluegreen Vacations Holding Corp | g24378exv31w2.htm |
EX-32.3 - EX-32.3 - Bluegreen Vacations Holding Corp | g24378exv32w3.htm |
EX-32.1 - EX-32.1 - Bluegreen Vacations Holding Corp | g24378exv32w1.htm |
EX-31.1 - EX-31.1 - Bluegreen Vacations Holding Corp | g24378exv31w1.htm |
EX-31.3 - EX-31.3 - Bluegreen Vacations Holding Corp | g24378exv31w3.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 2010
OR
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) |
(IRS Employer Identification Number) |
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)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
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
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
Exchange Act).
YES o NO x
The number of shares outstanding of each of the registrants classes of common stock as of August
9, 2010 is as follows:
Class A Common Stock of $.01 par value, 68,521,497 shares outstanding.
Class B Common Stock of $.01 par value, 6,859,751 shares outstanding.
Class B Common Stock of $.01 par value, 6,859,751 shares outstanding.
BFC Financial Corporation
TABLE OF CONTENTS
PART I. | FINANCIAL INFORMATION | |||||||
Item 1. | ||||||||
3 | ||||||||
4 | ||||||||
6 | ||||||||
7 | ||||||||
8 | ||||||||
10 | ||||||||
Item 2. | 53 | |||||||
Item 4T. | 107 | |||||||
PART II. | OTHER INFORMATION | |||||||
Item 1. | 108 | |||||||
Item 1A. | 108 | |||||||
Item 6. | 108 | |||||||
SIGNATURES | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-31.3 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-32.3 |
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BFC Financial Corporation
Consolidated Statements of Financial Condition Unaudited
(In thousands, except share data)
Consolidated Statements of Financial Condition Unaudited
(In thousands, except share data)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 500,422 | 316,080 | |||||
Interest bearing deposits at other financial institutions |
33,863 | | ||||||
Restricted cash |
50,618 | 24,020 | ||||||
Securities available for sale, at fair value |
327,246 | 346,375 | ||||||
Derivatives, at fair value |
638 | | ||||||
Investment
securities at cost or amortized cost (fair value: $1,981 in 2010 and $9,654 in 2009) |
1,981 | 9,654 | ||||||
Current income tax receivable |
8,390 | 64,006 | ||||||
Tax certificates, net of allowance of $8,175 in 2010 and $6,781 in 2009 |
139,731 | 110,991 | ||||||
Federal Home Loan Bank (FHLB) stock, at cost which approximates fair
value |
48,751 | 48,751 | ||||||
Loans held for sale |
5,861 | 4,547 | ||||||
Loans receivable, net of allowance for loan losses of
$187,862 in 2010 and $187,218 in 2009 |
3,371,577 | 3,678,894 | ||||||
Notes receivable including gross securitized notes,
net of allowance of $67,051 in 2010 and $3,986 in 2009 |
620,498 | 277,274 | ||||||
Retained interest in notes receivable sold |
| 26,340 | ||||||
Accrued interest receivable |
23,837 | 32,279 | ||||||
Real estate inventory |
482,898 | 494,291 | ||||||
Real estate owned and other repossessed assets |
55,412 | 46,477 | ||||||
Investments in unconsolidated affiliates |
12,486 | 15,272 | ||||||
Properties and equipment, net |
278,433 | 289,209 | ||||||
Goodwill |
12,241 | 12,241 | ||||||
Intangible assets, net |
79,136 | 81,686 | ||||||
Assets held for sale |
| 71,900 | ||||||
Other assets |
96,246 | 96,750 | ||||||
Total assets |
$ | 6,150,265 | 6,047,037 | |||||
Assets of consolidated variable interest entities ( VIEs)
included in total assets above |
||||||||
Restricted cash |
$ | 33,011 | ||||||
Securitized notes receivable, gross |
567,818 | |||||||
Total assets of consolidated VIEs |
$ | 600,829 | ||||||
LIABILITIES AND EQUITY |
||||||||
Liabilities: |
||||||||
Interest bearing deposits |
$ | 3,085,772 | 3,133,360 | |||||
Non-interest bearing deposits |
898,708 | 815,458 | ||||||
Total deposits |
3,984,480 | 3,948,818 | ||||||
Advances from FHLB |
115,000 | 282,012 | ||||||
Securities sold under agreements to repurchase |
24,724 | 24,468 | ||||||
Short-term borrowings |
2,071 | 2,803 | ||||||
Receivable-backed notes payable |
592,533 | 237,416 | ||||||
Notes and mortgage notes payable and other borrowings |
369,510 | 395,361 | ||||||
Junior subordinated debentures |
453,829 | 447,211 | ||||||
Deferred income taxes |
33,548 | 31,204 | ||||||
Liabilities related to assets held for sale |
| 76,351 | ||||||
Other liabilities |
234,849 | 186,453 | ||||||
Total liabilities |
5,810,544 | 5,632,097 | ||||||
Commitments and contingencies |
||||||||
Preferred stock of $.01 par value; authorized - 10,000,000 shares: |
||||||||
Redeemable 5% Cumulative Preferred Stock $.01 par value;
authorized 15,000 shares; issued and outstanding 15,000 shares
with a redemption value of $1,000 per share |
11,029 | 11,029 | ||||||
Equity: |
||||||||
Class A common stock of $.01 par value, authorized 150,000,000 shares;
issued and outstanding 68,521,497 in 2010 and 2009 |
685 | 685 | ||||||
Class B common stock of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 6,859,251 in 2010 and 6,854,251 in 2009 |
69 | 69 | ||||||
Additional paid-in capital |
229,857 | 227,934 | ||||||
(Accumulated deficit) retained earnings |
(22,919 | ) | 16,608 | |||||
Accumulated other comprehensive income (loss) |
2,850 | (237 | ) | |||||
Total BFC Financial Corporation (BFC) shareholders equity |
210,542 | 245,059 | ||||||
Noncontrolling interests |
118,150 | 158,852 | ||||||
Total equity |
328,692 | 403,911 | ||||||
Total liabilities and equity |
$ | 6,150,265 | 6,047,037 | |||||
Liabilities of consolidated VIEs included in total liabilities
above |
||||||||
Receivable-backed notes payable |
$ | 485,946 | ||||||
Total liabilities of consolidated VIEs |
$ | 485,946 | ||||||
See Notes to Unaudited Consolidated Financial Statements.
3
Table of Contents
BFC Financial Corporation
Consolidated Statements of Operations Unaudited
(In thousands, except per share data)
Consolidated Statements of Operations Unaudited
(In thousands, except per share data)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
||||||||||||||||
Real Estate and Other: |
||||||||||||||||
Sales of real estate, net of estimated uncollectibles |
$ | 53,575 | 1,767 | 72,170 | 3,194 | |||||||||||
Other resorts and communities operations revenue |
16,922 | | 32,943 | | ||||||||||||
Other revenues |
12,892 | 869 | 24,079 | 1,761 | ||||||||||||
Interest income |
30,171 | | 60,182 | | ||||||||||||
113,560 | 2,636 | 189,374 | 4,955 | |||||||||||||
Financial Services: |
||||||||||||||||
Interest income |
43,648 | 57,479 | 91,735 | 120,387 | ||||||||||||
Service charges on deposits |
15,502 | 19,347 | 30,550 | 38,032 | ||||||||||||
Other service charges and fees |
7,739 | 8,059 | 15,117 | 15,084 | ||||||||||||
Securities activities, net |
312 | 692 | 3,450 | 5,132 | ||||||||||||
Other non-interest income |
2,491 | 3,279 | 5,017 | 5,929 | ||||||||||||
69,692 | 88,856 | 145,869 | 184,564 | |||||||||||||
Total revenues |
183,252 | 91,492 | 335,243 | 189,519 | ||||||||||||
Costs and Expenses |
||||||||||||||||
Real Estate and Other: |
||||||||||||||||
Cost of sales of real estate |
13,644 | 1,301 | 22,540 | 1,994 | ||||||||||||
Cost of sales of other resorts and communities
operations |
12,365 | | 25,055 | | ||||||||||||
Interest expense |
20,069 | 3,230 | 40,000 | 5,478 | ||||||||||||
Selling, general and administrative expenses |
62,266 | 11,274 | 116,604 | 22,229 | ||||||||||||
108,344 | 15,805 | 204,199 | 29,701 | |||||||||||||
Financial Services: |
||||||||||||||||
Interest expense |
9,951 | 20,814 | 21,795 | 45,573 | ||||||||||||
Provision for loan losses |
48,553 | 43,494 | 79,308 | 87,771 | ||||||||||||
Employee compensation and benefits |
25,155 | 25,935 | 50,533 | 54,741 | ||||||||||||
Occupancy and equipment |
13,745 | 14,842 | 27,327 | 29,753 | ||||||||||||
Advertising and promotion |
2,239 | 1,979 | 4,183 | 4,811 | ||||||||||||
Check losses |
521 | 991 | 953 | 1,835 | ||||||||||||
Professional fees |
4,824 | 2,695 | 7,711 | 6,021 | ||||||||||||
Supplies and postage |
921 | 999 | 1,919 | 2,003 | ||||||||||||
Telecommunication |
662 | 586 | 1,196 | 1,284 | ||||||||||||
Cost associated with debt redemption |
53 | 1,441 | 60 | 2,032 | ||||||||||||
Provision for tax certificates |
2,134 | 1,414 | 2,867 | 2,900 | ||||||||||||
Restructuring charges and exit activities |
1,726 | 1,406 | 1,726 | 3,281 | ||||||||||||
Impairment of goodwill |
| | | 8,541 | ||||||||||||
Impairment of real estate owned |
1,221 | 411 | 1,364 | 623 | ||||||||||||
FDIC special assessment |
| 2,428 | | 2,428 | ||||||||||||
Other expenses |
9,060 | 7,466 | 16,432 | 14,896 | ||||||||||||
120,765 | 126,901 | 217,374 | 268,493 | |||||||||||||
Total costs and expenses |
229,109 | 142,706 | 421,573 | 298,194 | ||||||||||||
(Loss) gain on settlement of investment in
Woodbridges subsidiary |
(1,135 | ) | | (1,135 | ) | 40,369 | ||||||||||
Gain on sale of asset |
275 | | 275 | | ||||||||||||
Equity in earnings from unconsolidated affiliates |
276 | 10,755 | 469 | 17,250 | ||||||||||||
Impairment of unconsolidated affiliates |
| | | (20,401 | ) | |||||||||||
Impairment of investments |
| | | (2,396 | ) | |||||||||||
Other income |
924 | 794 | 1,362 | 1,759 | ||||||||||||
Loss from continuing operations before income taxes |
(45,517 | ) | (39,665 | ) | (85,359 | ) | (72,094 | ) | ||||||||
Less: Provision (benefit) for income taxes |
392 | | (4,199 | ) | | |||||||||||
Loss from continuing operations |
(45,909 | ) | (39,665 | ) | (81,160 | ) | (72,094 | ) | ||||||||
Income from discontinued
operations |
2,714 | 139 | 2,465 | 3,536 | ||||||||||||
Net loss |
(43,195 | ) | (39,526 | ) | (78,695 | ) | (68,558 | ) | ||||||||
Less: Net loss attributable to noncontrolling interests |
(27,015 | ) | (26,617 | ) | (41,680 | ) | (45,246 | ) | ||||||||
Net loss attributable to BFC |
(16,180 | ) | (12,909 | ) | (37,015 | ) | (23,312 | ) | ||||||||
Preferred stock dividends |
(187 | ) | (187 | ) | (375 | ) | (375 | ) | ||||||||
Net loss allocable to common stock |
$ | (16,367 | ) | (13,096 | ) | (37,390 | ) | (23,687 | ) | |||||||
See Notes to Unaudited Consolidated Financial Statements.
4
Table of Contents
BFC Financial Corporation
Consolidated Statements of Operations Unaudited
(In thousands, except per share data)
Consolidated Statements of Operations Unaudited
(In thousands, except per share data)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic and Diluted (Loss) Earnings Per Common Share |
||||||||||||||||
Attributable to BFC (Note 22): |
||||||||||||||||
Basic (Loss) Earnings Per Common Share |
||||||||||||||||
Loss per share from continuing operations |
$ | (0.26 | ) | (0.29 | ) | (0.53 | ) | (0.55 | ) | |||||||
Earnings per share from discontinued operations |
0.04 | | 0.03 | 0.03 | ||||||||||||
Net loss per common share |
$ | (0.22 | ) | (0.29 | ) | (0.50 | ) | (0.52 | ) | |||||||
Diluted (Loss) Earnings Per Common Share |
||||||||||||||||
Loss per share from continuing operations |
$ | (0.26 | ) | (0.29 | ) | (0.53 | ) | (0.55 | ) | |||||||
Earnings per share from discontinued operations |
0.04 | | 0.03 | 0.03 | ||||||||||||
Net loss per common share |
$ | (0.22 | ) | (0.29 | ) | (0.50 | ) | (0.52 | ) | |||||||
Basic weighted average number of
common shares outstanding |
75,379 | 45,126 | 75,378 | 45,120 | ||||||||||||
Diluted weighted average number of common
and common equivalent shares outstanding |
75,379 | 45,126 | 75,378 | 45,120 | ||||||||||||
Amounts attributable to BFC common shareholders: |
||||||||||||||||
Loss from continuing operations |
$ | (19,081 | ) | (13,129 | ) | (39,855 | ) | (24,788 | ) | |||||||
Income from discontinued operations |
2,714 | 33 | 2,465 | 1,101 | ||||||||||||
Net loss attributable to BFC common shareholders |
$ | (16,367 | ) | (13,096 | ) | (37,390 | ) | (23,687 | ) | |||||||
See Notes to Unaudited Consolidated Financial Statements.
5
Table of Contents
BFC Financial Corporation
Consolidated Statements of Comprehensive Loss Unaudited
(In thousands)
Consolidated Statements of Comprehensive Loss Unaudited
(In thousands)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net loss |
$ | (43,195 | ) | (39,526 | ) | (78,695 | ) | (68,558 | ) | |||||||
Other comprehensive income, net of tax: |
||||||||||||||||
Unrealized gains on securities available for sale |
1,636 | 6,705 | 5,075 | 13,721 | ||||||||||||
Unrealized gains associated with investment
in unconsolidated affiliates |
| 132 | | 605 | ||||||||||||
Pro-Rata share of cumulative impact of accounting changes
recognized by Bluegreen Corporation on
retained interests in notes receivable sold |
| (1,251 | ) | | (1,251 | ) | ||||||||||
Realized gains reclassified into net loss |
| (693 | ) | (3,139 | ) | (2,737 | ) | |||||||||
Other comprehensive income |
1,636 | 4,893 | 1,936 | 10,338 | ||||||||||||
Comprehensive loss |
(41,559 | ) | (34,633 | ) | (76,759 | ) | (58,220 | ) | ||||||||
Less: Comprehensive loss attributable to noncontrolling
interests |
(25,849 | ) | (25,864 | ) | (41,906 | ) | (40,604 | ) | ||||||||
Total comprehensive loss attributable to BFC |
$ | (15,710 | ) | (8,769 | ) | (34,853 | ) | (17,616 | ) | |||||||
See Notes to Unaudited Consolidated Financial Statements.
6
Table of Contents
BFC Financial Corporation
Consolidated Statement of Changes in Equity Unaudited
For the Six Months Ended June 30, 2010
(In thousands)
Consolidated Statement of Changes in Equity Unaudited
For the Six Months Ended June 30, 2010
(In thousands)
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||||||
(Accumulated | Compre- | Total | Non- | |||||||||||||||||||||||||||||||||||||
Shares of Common | Class A | Class B | Additional | Deficit) | hensive | BFC | controlling | |||||||||||||||||||||||||||||||||
Stock Outstanding | Common | Common | Paid-in | Retained | Income | Shareholders | Interest in | Total | ||||||||||||||||||||||||||||||||
Class A | Class B | Stock | Stock | Capital | Earnings | (Loss) | Equity | Subsidiaries | Equity | |||||||||||||||||||||||||||||||
Balance, December 31, 2009 |
68,521 | 6,854 | $ | 685 | $ | 69 | $ | 227,934 | $ | 16,608 | $ | (237 | ) | $ | 245,059 | $ | 158,852 | $ | 403,911 | |||||||||||||||||||||
Cumulative effect of change
in accounting principle (Note 2) |
| | | | | (2,137 | ) | 925 | (1,212 | ) | (811 | ) | (2,023 | ) | ||||||||||||||||||||||||||
Balance beginning of year, as
adjusted |
$ | 685 | $ | 69 | $ | 227,934 | $ | 14,471 | $ | 688 | $ | 243,847 | $ | 158,041 | $ | 401,888 | ||||||||||||||||||||||||
Net loss |
| | | | | (37,015 | ) | (37,015 | ) | (41,680 | ) | (78,695 | ) | |||||||||||||||||||||||||||
Other comprehensive income (loss) |
| | | | | | 2,162 | 2,162 | (226 | ) | 1,936 | |||||||||||||||||||||||||||||
Issuance of Class B Common Stock
from exercise of options |
| 5 | | | 2 | | | 2 | | 2 | ||||||||||||||||||||||||||||||
Net effect of subsidiaries capital
transactions attributable to BFC |
| | | | 1,249 | | | 1,249 | | 1,249 | ||||||||||||||||||||||||||||||
Noncontrolling interest net effect of
subsidiaries capital transactions |
| | | | | | | | 2,015 | 2,015 | ||||||||||||||||||||||||||||||
Cash dividends on 5% Preferred Stock |
| | | | | (375 | ) | | (375 | ) | | (375 | ) | |||||||||||||||||||||||||||
Share-based compensation
related to stock options |
| | | | 672 | | | 672 | | 672 | ||||||||||||||||||||||||||||||
Balance, June 30, 2010 |
68,521 | 6,859 | $ | 685 | $ | 69 | $ | 229,857 | $ | (22,919 | ) | $ | 2,850 | $ | 210,542 | $ | 118,150 | $ | 328,692 | |||||||||||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
7
Table of Contents
BFC Financial Corporation
Consolidated Statements of Cash Flows Unaudited
(In thousands)
Consolidated Statements of Cash Flows Unaudited
(In thousands)
For the Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Net cash provided by operating activities |
$ | 176,257 | 11,017 | |||||
Investing activities: |
||||||||
Purchase of interest-bearing deposits in other financial
institutions |
(33,863 | ) | | |||||
Proceeds from redemption and maturity of investment securities
and tax certificates |
68,993 | 98,569 | ||||||
Purchase of investment securities and tax certificates |
(93,142 | ) | (107,816 | ) | ||||
Purchase of securities available for sale |
(84,762 | ) | | |||||
Proceeds from sales of securities available for sale |
73,540 | 205,679 | ||||||
Proceeds from maturities of securities available for sale |
64,943 | 80,047 | ||||||
Decrease in restricted cash |
9,160 | 13,443 | ||||||
Cash paid in settlement of Woodbridge subsidiarys bankruptcy |
| (12,430 | ) | |||||
Purchases of FHLB stock |
| (2,295 | ) | |||||
Redemption of FHLB stock |
| 8,151 | ||||||
Investments in unconsolidated affiliates |
| (630 | ) | |||||
Distributions from unconsolidated affiliates |
85 | 398 | ||||||
Net decrease in loans |
183,598 | 185,352 | ||||||
Proceeds from the sale of loans receivable |
26,871 | 5,427 | ||||||
Improvements to real estate owned |
(800 | ) | (577 | ) | ||||
Proceeds from sales of real estate owned |
12,362 | 1,372 | ||||||
Proceeds from the sale of assets |
75,305 | | ||||||
Disposals of office properties and equipment |
528 | 144 | ||||||
Purchases of office property and equipment |
(4,101 | ) | (2,072 | ) | ||||
Investment in of acquisition of Pizza Fusion |
| 3,000 | ||||||
Net cash provided by investing activities |
298,717 | 475,762 | ||||||
Financing activities: |
||||||||
Net increase in deposits |
35,662 | 135,251 | ||||||
Prepayment of FHLB advances |
(2,061 | ) | (526,032 | ) | ||||
Net (repayments) proceeds from FHLB advances |
(165,000 | ) | 154,000 | |||||
Decrease in short-term borrowings |
(476 | ) | (254,658 | ) | ||||
Prepayment of notes and bonds payable |
(661 | ) | | |||||
Repayment of notes, mortgage notes and bonds payable |
(178,600 | ) | (1,656 | ) | ||||
Proceeds from notes, mortgage notes and bonds payable |
21,508 | 132 | ||||||
Payments for debt issuance costs |
(958 | ) | (294 | ) | ||||
Preferred stock dividends paid |
(375 | ) | (375 | ) | ||||
Purchase and retirement of Woodbridge common stock |
| (13 | ) | |||||
Payments for
the issuance costs of BankAtlantic Bancorp Class A common stock |
(118 | ) | | |||||
BankAtlantic Bancorp common stock dividends paid to non-BFC
shareholders |
| (198 | ) | |||||
Proceeds from the exercise of BFC stock options |
2 | | ||||||
Proceeds from the issuance of common stock in Pizza Fusion |
783 | | ||||||
BankAtlantic Bancorp non-controlling interest distributions |
(338 | ) | | |||||
Net cash used in financing activities |
(290,632 | ) | (493,843 | ) | ||||
Increase (decrease) in cash and cash equivalents |
184,342 | (7,064 | ) | |||||
Cash and cash equivalents at beginning of period |
316,080 | 278,937 | ||||||
Cash and cash equivalents at end of period |
$ | 500,422 | 271,873 | |||||
See Notes to Unaudited Consolidated Financial Statements.
8
Table of Contents
BFC Financial Corporation
Consolidated Statements of Cash Flows Unaudited
(In thousands)
Consolidated Statements of Cash Flows Unaudited
(In thousands)
For the Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Supplemental cash flow information: |
||||||||
Interest paid on borrowings and deposits |
$ | 50,691 | 54,641 | |||||
Income taxes
refunded; net of payments |
60,222 | | ||||||
Supplementary disclosure of non-cash investing and financing activities: |
||||||||
Loans and tax certificates transferred to real estate owned |
22,115 | 16,403 | ||||||
Long-lived assets held-for-use transferred to assets held for sale |
1,919 | | ||||||
Long-lived assets held-for-sale transferred to assets held for use |
1,239 | | ||||||
Securities
purchased pending settlement |
30,002 | | ||||||
Net increase in BFC shareholders equity from
the effect of subsidiaries capital transactions, net of taxes |
1,249 | 732 | ||||||
Net decrease in equity resulting from cumulative effect of
change in accounting principle (See Note 2) |
(2,023 | ) | | |||||
Net increase in shareholders equity resulting from the cumulative impact of
accounting changes recognized by Bluegreen on retained interests in
notes receivable sold |
| 485 |
See Notes to Unaudited Consolidated Financial Statements.
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BFC Financial Corporation
Notes to Unaudited Consolidated Financial Statements
Notes to Unaudited Consolidated Financial Statements
1. Presentation of Interim Financial Statements
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,
including BankAtlantic (BankAtlantic Bancorp), a controlling interest in Bluegreen Corporation
and its subsidiaries (Bluegreen), a controlling interest in Core Communities, LLC (Core or
Core Communities) and a non-controlling interest in Benihana, Inc. (Benihana). As a result of
its position as the controlling shareholder of BankAtlantic Bancorp, BFC is a unitary savings bank
holding company regulated by the Office of Thrift Supervision (OTS).
As previously disclosed, on September 21, 2009, BFC consummated its merger with Woodbridge
Holdings Corporation pursuant to which Woodbridge Holdings Corporation merged with and into
Woodbridge Holdings, LLC (Woodbridge), BFCs wholly-owned subsidiary which continued as the
surviving company of the merger and the successor entity to Woodbridge Holdings Corporation. As a
result of the merger, Woodbridge Holdings Corporations separate corporate existence ceased and its
Class A Common Stock is no longer publicly traded.
On November 16, 2009, an additional 7.4 million shares of the common stock of Bluegreen was
purchased for an aggregate purchase price of approximately $23 million. As a result, our ownership
interest increased to approximately 16.9 million shares, or approximately 52%, of Bluegreens
outstanding common stock. Accordingly, we are now deemed to have a controlling interest in
Bluegreen and, under generally accepted accounting principles (GAAP), Bluegreens results since
November 16, 2009, the date of the share purchase, are consolidated in BFCs financial statements.
Prior to November 16, 2009, the approximate 29% equity investment in Bluegreen was accounted for
using the equity method. See Note 4 for additional information about the Bluegreen share
acquisition.
GAAP requires that BFC consolidate the financial results of the entities in which it has
controlling interest. As a consequence, the assets and liabilities of all such 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 BankAtlantic Bancorp,
Bluegreen, Woodbridge and Core 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
from those entities. The recognition by BFC of income from controlled entities is determined based
on the total percent of economic ownership in those entities. At June 30, 2010, we owned
approximately 43% of BankAtlantic Bancorps Class A and Class B common stock, representing in the
aggregate approximately 69% of BankAtlantic Bancorps total voting power, and approximately 52% of
Bluegreens common stock. See Note 4 for information regarding our participation in BankAtlantic
Bancorps recently completed rights offering to its shareholders.
The accompanying unaudited consolidated financial statements have been prepared in accordance
with GAAP for interim financial information. Accordingly, they do not include all of the
information and disclosures required by GAAP for complete financial statements. In managements
opinion, the accompanying unaudited consolidated financial statements contain all adjustments,
which include normal recurring adjustments, as are necessary for a fair statement of the Companys
consolidated financial condition at June 30, 2010, the consolidated results of operations,
comprehensive loss and cash flows for the three and six months ended June 30, 2010 and 2009, and
the changes in consolidated equity for the six months ended June 30, 2010. Operating results for
the three and six months ended June 30, 2010 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2010. These unaudited consolidated financial
statements should be read in conjunction with the Companys audited consolidated financial
statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2009. All significant inter-company balances and transactions have been
eliminated in consolidation.
Certain amounts for prior periods have been reclassified to conform to the current periods
presentation.
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. The Company
currently reports the results of operations of these business activities 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 the Land Division.
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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. Due to this decision, the assets associated with the
Projects 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 Consolidated Statements of
Financial Condition. Additionally, the results of operations for the Projects were reclassified to
income from discontinued operations in the Consolidated Statements of Operations. On June 10,
2010, Core sold the Projects to Inland Real Estate Acquisition, Inc. (Inland) for approximately
$75.4 million. As a result of the sale, Core realized a gain on sale of discontinued operations of
approximately $2.6 million in the second quarter of 2010. See Note 5 for further information.
On February 28, 2007, BankAtlantic Bancorp completed the sale to Stifel Financial Corp
(Stifel) of Ryan Beck Holdings, Inc. (Ryan Beck), a subsidiary of BankAtlantic Bancorp engaged
in retail and institutional brokerage and investment banking. Under the terms of the Ryan Beck
sales agreement, BankAtlantic Bancorp received additional consideration based on Ryan Beck revenues
over the two year period following the closing of the sale. Included in the Companys Consolidated
Statement of Operations in discontinued operations for the six months ended June 30, 2009 was $4.2
million of earn-out consideration.
2. Cumulative Effect of Change in Accounting Principle
On January 1, 2010, BFC, Bluegreen and BankAtlantic Bancorp adopted an amendment to the
accounting guidance for transfers of financial assets and an amendment to the accounting guidance
associated with the consolidation of VIEs. As a result of the
adoption of these accounting standards, Bluegreen consolidated seven existing special purpose
finance entities (QSPEs) associated with prior securitization transactions which previously
qualified for off-balance sheet sales treatment, and BankAtlantic Bancorp consolidated its joint
venture that conducts a factoring business. Accordingly, Bluegreens special purpose finance
entities and BankAtlantic Bancorps factoring joint venture are now consolidated in BFCs financial
statements. The consolidation of Bluegreens special purpose finance entities resulted in a
one-time non-cash after-tax reduction to retained earnings of $2.1 million. No charges were
recorded to retained earnings in connection with the consolidation of BankAtlantic Bancorps
factoring joint venture.
The consolidation of Bluegreens special purpose finance entities also resulted in the
following impacts to BFCs Consolidated Statement of Financial Condition at January 1, 2010: (1)
assets increased by $413.8 million, primarily representing the consolidation of notes receivable,
net of allowance, partially offset by the elimination of retained interests; (2) liabilities
increased by $416.1 million, primarily representing the consolidation of non-recourse debt
obligations to securitization investors, partially offset by the elimination of certain deferred
tax liabilities; and (3) total equity decreased by approximately $2.3 million, including a decrease
to noncontrolling interest of approximately $1.1 million.
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The impact of the adoption of the change in accounting principle on the related assets,
related liabilities, noncontrolling interests and total equity are as follows (in thousands):
Consolidation | |||||||||||||||||||||
BankAtlantic | |||||||||||||||||||||
December 31, | Bluegreens | Bancorps | January 1, | ||||||||||||||||||
2009 | QSPEs | Joint Venture (1) | Total | 2010 | |||||||||||||||||
Restricted cash |
$ | 24,020 | 36,518 | | 36,518 | 60,538 | |||||||||||||||
Loans receivable |
3,678,894 | | 3,214 | 3,214 | 3,682,108 | ||||||||||||||||
Notes receivable |
277,274 | 377,265 | | 377,265 | 654,539 | ||||||||||||||||
Real estate inventory |
494,291 | 16,403 | | 16,403 | 510,694 | ||||||||||||||||
Retained interest in notes receivable
sold |
26,340 | (26,340 | ) | | (26,340 | ) | | ||||||||||||||
Investment in unconsolidated affiliates |
15,272 | | (3,256 | ) | (3,256 | ) | 12,016 | ||||||||||||||
Other assets |
96,750 | 9,970 | 367 | 10,337 | 107,087 | ||||||||||||||||
Change in related assets |
$ | 4,612,841 | 413,816 | 325 | 414,141 | 5,026,982 | |||||||||||||||
Other liabilities |
$ | 186,453 | 3,544 | 18 | 3,562 | 190,015 | |||||||||||||||
Deferred income taxes |
31,204 | 1,233 | | 1,233 | 32,437 | ||||||||||||||||
Receivable -backed notes payable |
237,416 | 411,369 | | 411,369 | 648,785 | ||||||||||||||||
Change in related liabilities |
$ | 455,073 | 416,146 | 18 | 416,164 | 871,237 | |||||||||||||||
Total BFCs shareholders equity |
$ | 245,059 | (1,212 | ) | | (1,212 | ) | 243,847 | |||||||||||||
Noncontrolling interests |
158,852 | (1,118 | ) | 307 | (811 | ) | 158,041 | ||||||||||||||
Total equity |
$ | 403,911 | (2,330 | ) | 307 | (2,023 | ) | 401,888 | |||||||||||||
(1) | As a result of the adoption of the accounting guidance associated with the consolidation of VIEs, we consolidated BankAtlantic Bancorps factoring joint venture, BankAtlantic Business Capital, LLC (BBC). Prior to January 1, 2010, the investment in BBC was accounted for using the equity method of accounting. |
3. Liquidity
BFC
Except as otherwise noted, the debts and obligations of BankAtlantic Bancorp, Bluegreen,
Woodbridge and Core are not direct obligations of BFC and generally are non-recourse to BFC.
Similarly, the assets of those entities are not available to BFC, absent a dividend or distribution
from those entities. BFCs principal sources of liquidity are its available cash, short-term
investments, dividends or distributions from subsidiaries and dividends from Benihana. As
discussed further in this report, recent tax law changes have resulted in the receipt of
significant tax refunds.
We may use our available funds to make additional investments in the companies within our
consolidated group, invest in equity securities and other investments, fund operations or
repurchase shares of our Class A Common Stock pursuant to our share repurchase program. The current
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 six months ended June
30, 2010 or the year ended December 31, 2009. As discussed further in this report, during June and
July 2010, BFC acquired an aggregate of 10,000,000 shares of BankAtlantic Bancorps Class A Common
Stock for an aggregate purchase price of $15 million as a result of its exercise of subscription
rights distributed in BankAtlantic Bancorps recently completed rights offering to its
shareholders.
Since March 2009, BFC has not received cash dividends from BankAtlantic Bancorp and does not
expect to receive cash dividends from BankAtlantic Bancorp for the foreseeable future because
BankAtlantic Bancorp is currently prohibited from paying dividends on its common stock.
Furthermore, certain of Bluegreens credit facilities contain terms which may limit the payment of
cash dividends.
We believe that our current financial condition and credit relationships, together with
anticipated cash from operating activities and other sources of funds, including tax refunds and
proceeds from the disposition of certain properties or investments, will provide for anticipated
near-term liquidity needs. With respect to long-term liquidity requirements, BFC may also seek to
raise funds through the issuance of long-term secured or unsecured indebtedness, equity and/or debt
securities or through the sale of assets; however, there is no assurance that any of
these alternatives will be available to BFC on attractive terms, or at all.
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Woodbridge
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, an overall softening of
demand for new homes and a decline in the overall economy. In 2009, the housing industry continued
to face significant challenges and Woodbridge made the decision to cease all activities at Carolina
Oak. In the fourth quarter of 2009, we reviewed the inventory of real estate at Carolina Oak for
impairment and as a result, recorded a $16.7 million impairment charge to adjust the carrying
amount of Carolina Oaks inventory to its fair value of $10.8 million. Woodbridge is the obligor
under a $37.2 million loan that is collateralized by the Carolina Oak property. During 2009, the
lender declared the loan to be in default and filed an action for foreclosure and 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 continues to seek a
satisfactory conclusion with regard to the debt, however, the outcome of these efforts and the
litigation is uncertain.
As previously disclosed, under Florida law, holders of Woodbridges Class A Common Stock who
did not vote to approve the merger between Woodbridge and BFC 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 that 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. Woodbridge is currently a party to legal
proceedings relating to 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 the Companys Consolidated Statements of Financial Condition 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 the payment that will ultimately be required to be made to the Dissenting Holders, which
amount may be greater than the $4.6 million that we have accrued.
Core Communities
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 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 and is seeking to liquidate its assets in an orderly way. Core is currently in default
under the terms of all of its outstanding debt totaling approximately $139.2 million. 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. During
February 2010, with Cores concurrence, a significant portion of the land in Tradition Hilton Head
was placed under the control of a court appointed receiver. In connection with the receivership,
Core entered into a separate agreement with the lender that, among other things, grants Core a
right of first refusal to purchase the $25.3 million loan in the event that the lender decides to
sell the loan to a third party. This loan is collateralized by inventory that had a net carrying
value of $33 million, net of impairment charges during 2009 of approximately $29.6 million.
Separately, on April 7, 2010 and April 8, 2010, another of Cores lenders filed a foreclosure
action in South Carolina and Florida, respectively, seeking foreclosure of mortgage loans totaling
approximately $113.8 million, plus additional interest and costs and expenses, including attorneys
fees. Core is currently in negotiations with the lender regarding, among other things, accelerating
the foreclosure actions, granting the lender a perfected first lien and security interest in
certain additional Core subsidiaries, and releasing and indemnifying Core from any future
obligations. As of June 30, 2010, the net carrying value of Cores inventory collateralizing the
defaulted loans that are the subject of foreclosure proceedings was $82 million, net of impairment
charges during 2009 of approximately $33.7 million. There was no impairment charge during the six
months ended June 30, 2010. While negotiations with its lenders continue, there is no assurance
that Core will be successful in reaching any agreement with its lenders with respect to resolution
of its obligations.
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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 was
scheduled in three installments: the first installment of $100,000 was due on October 21, 2009; the
second installment of $450,000 was due on January 1, 2010; and the final installment of $450,000
was due on April 1, 2010. Additionally, Core was obligated to fund certain staffing costs of
$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 nonpayment. 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.
On June 10, 2010, Core sold the Projects to Inland for approximately $75.4 million. As a
result of the sale, Core realized a gain on sale of discontinued operations of approximately $2.6
million in the second quarter of 2010. The sale resulted in net cash proceeds to Core of
approximately $1.5 million. See Note 5 for further information regarding the Projects.
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 of severance charges recorded during the fourth quarter of 2009. In the three and six
months ended June 30, 2010, severance related payments at Core totaled approximately $378,000 and
$1.0 million, respectively.
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 it is not currently anticipated that Woodbridge will provide additional funds to
Core. 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. See
Note 19 for Cores results which are reported in the Real Estate Operations segment.
BankAtlantic Bancorp and BankAtlantic
Both BankAtlantic Bancorp Parent Company and BankAtlantic actively manage their liquidity and
cash flow needs. BankAtlantic Bancorp Parent Company had cash of $8.4 million as of June 30, 2010,
does not have debt maturing until March 2032 and has the ability to defer interest payments on its
junior subordinated debentures until December 2013; however, based on current interest rates,
accrued and unpaid interest of approximately $72.6 million would be due in December 2013 if
interest is deferred until that date. BankAtlantic Bancorp Parent Companys operating expenses for
the three and six months ended June 30, 2010 were $3.4 million and $5.0 million, respectively, and
$1.9 million and $3.6 million for the three and six months ended June 30, 2009, respectively.
BankAtlantics liquidity is dependent, in part, on its ability to maintain or increase deposit
levels and the availability of borrowings under its lines of credit and Treasury and Federal
Reserve lending programs. As of June 30, 2010, BankAtlantic had $454 million of cash and
approximately $788 million of available unused borrowings, consisting of $588 million of unused
FHLB line of credit capacity, $191 million of unpledged securities, and $9 million of available
borrowing capacity at the Federal Reserve. However, such available borrowings are subject to
periodic reviews and may be terminated, suspended or reduced at any time. Additionally, interest
rate changes, additional collateral requirements, disruptions in the capital markets or
deterioration in BankAtlantics financial condition may reduce the amounts it is able to borrow or
make terms of the borrowings and deposits less favorable. As a result, there is a risk that the
cost of funds will increase or that the availability of funding sources may decrease.
The substantial uncertainties throughout the Florida and national economies and the U.S.
banking industry coupled with current market conditions have adversely affected BankAtlantic
Bancorps and BankAtlantics results. As of June 30, 2010, BankAtlantics capital was in excess of
all regulatory well capitalized levels. However, the OTS, in its discretion, can at any time
require an institution to maintain capital amounts and ratios above the established well
capitalized requirements based on its view of the risk profile of the specific institution.
BankAtlantics communications with the OTS include providing information on an ad-hoc, one-time or
regular basis related to areas of regulatory oversight and bank operations. As part of such
communications, BankAtlantic has provided to its regulators forecasts, strategic business plans and
other information relating to anticipated asset balances, asset quality, capital levels, expenses,
anticipated earnings, levels of brokered deposits and liquidity, and has indicated that
BankAtlantic has no plans to pay dividends to BankAtlantic Bancorp Parent Company. If higher
capital requirements are imposed by its regulators, BankAtlantic could be required to raise
additional capital. If BankAtlantic is required to raise additional capital, there is no assurance
that BankAtlantic Bancorp Parent
Company or BankAtlantic would be successful in raising the additional capital on favorable
terms or at all and it may involve the issuance of securities in transactions highly dilutive to
BankAtlantic Bancorps existing shareholders, including BFC. Although BankAtlantic Bancorp and
BankAtlantic have experienced operating losses since June 2007, BankAtlantic maintains capital at
well capitalized levels and BankAtlantic Bancorp Parent Company believes that it maintains
sufficient liquidity to fund operations at least through June 30, 2011. However, if unanticipated
market factors emerge and/or BankAtlantic Bancorp is unable to execute its plans or if BankAtlantic
or BankAtlantic Bancorp requires capital and BankAtlantic Bancorp is unable to raise capital, it
could have a material adverse impact on BFCs business, results of operations and financial
condition.
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4. Share Acquisitions
Bluegreen Share Acquisition
On November 16, 2009, approximately 7.4 million shares of common stock of Bluegreen were
purchased for an aggregate purchase price of approximately $23 million, increasing our interest
from 9.5 million shares, or 29%, of Bluegreens common stock to 16.9 million shares, or 52%, of
Bluegreens common stock which represents a controlling interest in Bluegreen. As a result, the
Company consolidates all of Bluegreens wholly-owned subsidiaries and entities in which Bluegreen
holds a controlling financial interest. The Company also consolidates Bluegreen/Big Cedar
Vacations, LLC (the Bluegreen/Big Cedar Joint Venture), in which Bluegreen holds a 51% equity
interest, has an active role as the day-to-day manager of its activities, and has majority voting
control of its management committee. The operating results of Bluegreen are included in the
Companys Bluegreen Resorts and Bluegreen Communities segments.
As part of the accounting for the November 2009 Bluegreen share acquisition, management is
continuing to evaluate the fair value of Bluegreens inventory and certain of Bluegreens
contracts, and as such, certain amounts at December 31, 2009 and June 30, 2010 are estimates and
are subject to revision as more detailed analyses are completed and additional information becomes
available. Any change resulting from the final evaluation of the inventory and contracts of
Bluegreen as of the acquisition date may change the amount of the $183.1 million bargain purchase
gain recorded during the fourth quarter of 2009.
Additional Shares Purchased in BankAtlantic Bancorps Rights Offering
On June 18, 2010, BankAtlantic Bancorp commenced a rights offering (the Rights Offering) to
its shareholders of record as of the close of business on June 14, 2010 (the Record Date). In
the Rights Offering, BankAtlantic Bancorp distributed to each eligible shareholder 0.327
subscription rights for each share of BankAtlantic Bancorps Class A Common Stock and Class B
Common Stock owned as of the close of business on the Record Date. Fractional subscription rights
were rounded up to the next largest whole number. Each subscription right entitled the holder
thereof to purchase one share of BankAtlantic Bancorps Class A Common Stock at the purchase price
of $1.50 per share. Shareholders who exercised their basic subscription rights in full were also
given the opportunity to request to purchase any additional shares of BankAtlantic Bancorps Class
A Common Stock that remained unsubscribed for at the expiration of the Rights Offering at the same
$1.50 per share purchase price, subject to certain determinations and allocations. The Rights
Offering expired on July 20, 2010.
During June 2010, BFC exercised its basic subscription rights, in full, amounting to 5,986,865
shares of BankAtlantic Bancorps Class A Common Stock, and requested to purchase an additional
4,013,135 shares of BankAtlantic Bancorps Class A Common Stock to the extent available. In
connection with the exercise of its subscription rights, BFC delivered to BankAtlantic Bancorp
$15.0 million in cash, which represented the full purchase price for all of the shares subscribed
for by BFC. In exchange, BFC was issued 4,697,184 shares of BankAtlantic Bancorps Class A Common
Stock on June 28, 2010, which represented a portion of its basic subscription rights exercise. The
issuance of these shares increased BFCs ownership interest in BankAtlantic Bancorp from 37% to 43%
and BFCs voting interest in BankAtlantic Bancorp from 66% to 69%. The balance of BFCs
subscription was treated as an advance to BankAtlantic Bancorp, as evidenced by a related $8.0
million promissory note executed by BankAtlantic Bancorp in favor of BFC. The promissory note had
a scheduled maturity of July 30, 2010 and was payable in cash or shares of BankAtlantic Bancorps
Class A Common Stock issuable to BFC in connection with its exercise of subscription rights in the
Rights Offering. The promissory note was eliminated in consolidation as of June 30, 2010. See Note
21, Certain Relationships and Related Party Transactions, for further information regarding the
promissory note. In July 2010, in connection with the completion of the Rights Offering, the
promissory note was satisfied in accordance with its terms through the issuance to BFC
of the additional 5,302,816 shares of BankAtlantic Bancorps Class A Common Stock subscribed
for by BFC in the Rights Offering, which increased BFCs ownership interest in BankAtlantic Bancorp
to 45% and BFCs voting interest in BankAtlantic Bancorp to 71%.
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BFCs acquisition of shares of BankAtlantic Bancorps Class A Common Stock in the Rights
Offering is being accounted for as an equity transaction in accordance with Financial Accounting
Standards Board (FASB) authoritative guidance in connection with noncontrolling interests in
consolidated financial statements which provides that changes in a parents ownership interest
which do not result in the parent losing its controlling interest are reported as equity
transactions.
5. Discontinued Operations
Real Estate
Core Communities
In December 2009, Core Communities reinitiated efforts to sell the Projects and began
soliciting bids from several potential buyers for the immediate sale of the Projects in their
present condition. Due to this decision, the assets associated with the Projects were 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 Consolidated
Statements of Financial Condition. Additionally, the results of operations for the Projects were
reclassified to income from discontinued operations in the Consolidated Statements of Operations.
Depreciation related to these assets held for sale ceased in December 2009. The Company elected
not to separate these assets in the Consolidated Statements of Cash Flows for the periods
presented. Management 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 aggregate carrying value of the Projects to fair value less the
estimated costs to sell and, accordingly, recorded an impairment charge of approximately $13.6
million in the fourth quarter of 2009.
On June 10, 2010, Core sold the Projects to Inland for approximately $75.4 million. As a
result of the sale, a gain on sale of discontinued operations of approximately $2.6 million was
realized in the second quarter of 2010. In connection with the sale, the lender reduced the
outstanding balance of the loans related to the assets held for sale by approximately $800,000 as a
result of negotiations with the lender. Core used the proceeds from the sale to Inland to repay
these loans. As a result, Core was released from its obligations with the lender.
The following table summarizes information regarding the assets held for sale and liabilities
related to the assets held for sale for the Projects (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Restricted cash |
$ | | 538 | |||||
Property and equipment, net |
| 61,588 | ||||||
Other assets |
| 9,774 | ||||||
Assets held for sale |
$ | | 71,900 | |||||
Accounts payable, accrued liabilities and other |
$ | | 1,602 | |||||
Notes and mortgage payable |
| 74,749 | ||||||
Liabilities related to assets held for sale |
$ | | 76,351 | |||||
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The following table summarizes the results of operations for the Projects (in thousands):
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue and other income |
$ | 1,117 | 2,181 | 2,951 | 4,183 | |||||||||||
Costs and expenses |
1,020 | 2,042 | 3,103 | 4,848 | ||||||||||||
Income (loss) before income taxes |
97 | 139 | (152 | ) | (665 | ) | ||||||||||
Gain on sale of discontinued
operations |
2,617 | | 2,617 | | ||||||||||||
(Provision) benefit for income taxes |
| | | | ||||||||||||
Income (loss) from discontinued
operations |
$ | 2,714 | 139 | 2,465 | (665 | ) | ||||||||||
Financial Services
On February 28, 2007, BankAtlantic Bancorp sold Ryan Beck to Stifel. The Stifel sales
agreement provided for contingent earn-out payments, payable in cash or shares of Stifel common
stock, at Stifels election, based on certain defined Ryan Beck revenues over the two-year period
immediately following the Ryan Beck sale, which ended on February 28, 2009. The contingent
earn-out payments were accounted for when earned as additional proceeds from the sale of Ryan Beck
common stock. BankAtlantic Bancorp received additional earn-out consideration of $4.2 million
during the six months ended June 30, 2009. The $4.2 million
of earn-out consideration is included as discontinued operations in the Companys Consolidated Statements of Operations for the six
months ended June 30, 2009.
6. Fair Value Measurement
Fair value is defined as the price that would be received on the sale of an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
There are three main valuation techniques to measuring the fair value of assets and liabilities:
the market approach, the income approach and the cost approach. The accounting literature defines
an input fair value hierarchy that has three broad levels and gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3).
The valuation techniques are summarized below:
The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities.
The income approach uses financial models to convert future amounts to a single present
amount. These valuation techniques include present value and option-pricing models.
The cost approach is based on the amount that currently would be required to replace the
service capacity of an asset. This technique is often referred to as current replacement costs.
The input fair value hierarchy is summarized below:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at each reporting date. An active market for
the asset or liability is a market in which transactions for the asset or liability occur with
sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price
in an active market provides the most reliable evidence of fair value and is used to measure fair
value whenever available.
17
Table of Contents
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly. If the asset or liability has a
specified (contractual) term, a Level 2 input must be observable for substantially the full term of
the asset or liability. Level 2 inputs include: Quoted prices for similar assets or liabilities in
active markets; quoted prices for identical or similar assets or liabilities in markets that are
not active, that is, markets in which there are few transactions for the asset or liability, the
prices are not current,
or price quotations vary substantially either over time or among market makers (for example,
some brokered markets), or in which little information is released publicly (for example, a
principal-to-principal market); inputs other than quoted prices that are observable for the asset
or liability (for example, interest rates and yield curves observable at commonly quoted intervals,
volatilities, prepayment speeds, loss severities, credit risks, and default rates).
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are
only used to measure fair value to the extent that observable inputs are not available, thereby
allowing for situations in which there is little, if any, market activity for the asset or
liability at the measurement date.
The following table presents major categories of the Companys assets measured at fair value
on a recurring basis at June 30, 2010 (in thousands):
Fair Value Measurements using | ||||||||||||||||
Quoted prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
June 30, | Assets | Inputs | Inputs | |||||||||||||
Description | 2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Mortgage-backed securities |
$ | 135,573 | | 135,573 | | |||||||||||
REMICS (1) |
87,270 | | 87,270 | | ||||||||||||
Agency bonds |
50,101 | | 50,101 | | ||||||||||||
Municipal bonds |
570 | | 570 | | ||||||||||||
Other bonds |
250 | | | 250 | ||||||||||||
Foreign currency put options |
638 | 638 | | | ||||||||||||
Benihana Convertible
Preferred Stock |
20,159 | | | 20,159 | ||||||||||||
Other equity securities |
33,323 | 33,323 | | | ||||||||||||
Total |
$ | 327,884 | 33,961 | 273,514 | 20,409 | |||||||||||
(1) | Real estate mortgage investment conduits (REMICS) are pass-through entities that hold residential loans. Investors in these entities are issued ownership interests in the entities in the form of a bond. The securities are guaranteed by government agencies. |
The following table presents major categories of the Companys assets measured at fair value
on a recurring basis as of December 31, 2009 (in thousands):
Quoted prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
December 31, | Assets | Inputs | Inputs | |||||||||||||
Description | 2009 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Mortgage-backed securities |
$ | 211,945 | | 211,945 | | |||||||||||
REMICS (1) |
107,347 | | 107,347 | | ||||||||||||
Other bonds |
250 | | | 250 | ||||||||||||
Benihana Convertible Preferred Stock |
17,766 | | | 17,766 | ||||||||||||
Other equity securities |
9,067 | 9,067 | | | ||||||||||||
Total securities available for sale
at fair value |
346,375 | 9,067 | 319,292 | 18,016 | ||||||||||||
Retained interest in notes
receivable sold |
26,340 | | | 26,340 | ||||||||||||
Total |
$ | 372,715 | 9,067 | 319,292 | 44,356 | |||||||||||
(1) | Real estate mortgage investment conduits (REMICS) are pass-through entities that hold residential loans. Investors in these entities are issued ownership interests in the entities in the form of a bond. The securities are guaranteed by government agencies. |
There were no recurring liabilities measured at fair value on a recurring basis in the Companys
financial statements.
18
Table of Contents
The following table presents major categories of assets measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) for the three months ended June 30, 2010 (in
thousands):
For the Three Months Ended June 30, 2010 | ||||||||||||
Benihana | ||||||||||||
Convertible | ||||||||||||
Other Bonds | Preferred Stock | Total | ||||||||||
Beginning Balance |
$ | 250 | 20,247 | 20,497 | ||||||||
Total gains and losses (realized/unrealized)
|
||||||||||||
Included in earnings |
| | | |||||||||
Included in other comprehensive income |
| (88 | ) | (88 | ) | |||||||
Purchases, issuances, and settlements |
| | | |||||||||
Transfers in and/or out of Level 3 |
| | | |||||||||
Balance at June 30, 2010 |
$ | 250 | 20,159 | 20,409 | ||||||||
The following table presents major categories of assets measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) for the three months ended June 30, 2009 (in
thousands):
Three Months Ended June 30, 2009 | ||||||||||||||||
Benihana | ||||||||||||||||
Convertible | Equity | |||||||||||||||
Other Bonds | Preferred Stock | Securities | Total | |||||||||||||
Beginning Balance |
$ | 250 | 16,384 | 1,252 | 17,886 | |||||||||||
Total gains and losses
(realized/unrealized) |
||||||||||||||||
Included in earnings |
| | (1,378 | ) | (1,378 | ) | ||||||||||
Included in other comprehensive
income |
| 4,127 | 336 | 4,463 | ||||||||||||
Purchases, issuances, and settlements |
| | | | ||||||||||||
Transfers in and/or out of Level 3 |
| | | | ||||||||||||
Ending balance |
$ | 250 | 20,511 | 210 | 20,971 | |||||||||||
The following tables present major categories of assets measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2010 and
2009 (in thousands):
For the Six Months Ended June 30, 2010 | ||||||||||||||||||||
Retained | ||||||||||||||||||||
Interests in | Benihana | |||||||||||||||||||
Notes | Other | Convertible | Equity | |||||||||||||||||
Receivable Sold | Bonds | Preferred Stock | Securities | Total | ||||||||||||||||
Beginning Balance |
$ | 26,340 | 250 | 17,766 | | 44,356 | ||||||||||||||
Total gains
and losses (realized/unrealized) Included in earnings |
| | | | | |||||||||||||||
Cumulative effect of change in
accounting principle (1) |
(26,340 | ) | | | | (26,340 | ) | |||||||||||||
Included in other comprehensive
income |
| | 2,393 | | 2,393 | |||||||||||||||
Purchases, issuances, and settlements |
| | | | | |||||||||||||||
Transfers in and/or out of Level 3 |
| | | | | |||||||||||||||
Balance at June 30, 2010 |
$ | | 250 | 20,159 | | 20,409 | ||||||||||||||
(1) | Retained interests in notes receivable sold was eliminated upon a change in accounting principle. For further information see Note 2. |
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For the Six Months Ended June 30, 2009 | ||||||||||||||||
Benihana | ||||||||||||||||
Other | Convertible | Equity | ||||||||||||||
Bonds | Preferred Stock | Securities | Total | |||||||||||||
Beginning Balance |
$ | 250 | 16,426 | 1,588 | 18,264 | |||||||||||
Total gains and losses
(realized/unrealized) |
||||||||||||||||
Included in earnings |
| | (1,378 | ) | (1,378 | ) | ||||||||||
Included in other comprehensive
income |
| 4,085 | | 4,085 | ||||||||||||
Purchases, issuances, and settlements |
| | | | ||||||||||||
Transfers in and/or out of Level 3 |
| | | | ||||||||||||
Ending balance |
$ | 250 | 20,511 | 210 | 20,971 | |||||||||||
The valuation techniques and the inputs used in our financial statements to measure the fair
value of our recurring financial instruments are described below.
The fair values of agency bonds, municipal bonds mortgage-backed and real estate mortgage
conduit securities are estimated using independent pricing sources and matrix pricing. Matrix
pricing uses a market approach valuation technique and Level 2 valuation inputs as quoted market
prices are not available for the specific securities that BankAtlantic Bancorp owns. The
independent pricing sources value these securities using observable market inputs including:
benchmark yields, reported trades, broker/dealer quotes, issuer spreads and other reference data
in the secondary institutional market which is the principal market for these types of assets. To
validate fair values obtained from the pricing sources, BankAtlantic Bancorp reviews fair value
estimates obtained from brokers, investment advisors and others to determine the reasonableness of
the fair values obtained from independent pricing sources. BankAtlantic Bancorp reviews any price
that it determines may not be reasonable and requires the pricing sources to explain the
differences in fair value or reevaluate its fair value.
Other bonds and equity securities are generally fair valued using the market approach and
quoted market prices (Level 1) or matrix pricing (Level 2 or Level 3) with inputs obtained from
independent pricing sources, if available. Also non-binding broker quotes are obtained to validate
fair values obtained from matrix pricing. However, for certain equity and debt securities in which
observable market inputs cannot be obtained, these securities are valued either using the income
approach and pricing models that BankAtlantic Bancorp has developed or based on observable market
data that BankAtlantic Bancorp adjusted based on judgment of the factors BankAtlantic Bancorp
believes a market participant would use to value the securities (Level 3).
The fair value of foreign currency put options was obtained using the market approach and
quoted market prices using Level 1 inputs.
The estimated fair value of the Companys investment in Benihanas Series B Convertible
Preferred Stock (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 of Benihanas common stock that BFC would receive upon conversion of its
shares of Benihana Convertible Preferred Stock.
The following table presents major categories of assets measured at fair value on a
non-recurring basis as of June 30, 2010 (in thousands):
Fair Value Measurements Using | ||||||||||||||||||||
Quoted prices in | ||||||||||||||||||||
Active Markets | Significant | Significant | ||||||||||||||||||
for Identical | Other Observable | Unobservable | ||||||||||||||||||
June 30, | Assets | Inputs | Inputs | Total | ||||||||||||||||
Description | 2010 | (Level 1) | (Level 2) | (Level 3) | Impairments | |||||||||||||||
Loans measured for
impairment using the fair
value
of the underlying collateral |
$ | 302,199 | | | 302,199 | 74,584 | ||||||||||||||
Impaired real estate owned |
6,578 | | | 6,578 | 1,364 | |||||||||||||||
Impaired real estate held
for sale |
3,490 | | | 3,490 | 1,532 | |||||||||||||||
Total |
$ | 312,267 | | | 312,267 | 77,480 | ||||||||||||||
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The following table presents major categories of assets measured at fair value on a
non-recurring basis as of June 30, 2009 (in thousands):
Fair Value Measurements Using | ||||||||||||||||||||
Quoted prices in | ||||||||||||||||||||
Active Markets | Significant | Significant | ||||||||||||||||||
for Identical | Other Observable | Unobservable | ||||||||||||||||||
June 30, | Assets | Inputs | Inputs | Total | ||||||||||||||||
Description | 2009 | (Level 1) | (Level 2) | (Level 3) | Impairments | |||||||||||||||
Loans measured for
impairment using the
fair value of the underlying
collateral |
$ | 177,326 | | | 177,326 | 37,744 | ||||||||||||||
Impaired real estate owned |
2,955 | | | 2,955 | 623 | |||||||||||||||
Impaired real estate held
for sale |
2,130 | | | 2,130 | 33 | |||||||||||||||
Impaired goodwill |
| | | | 8,541 | |||||||||||||||
Investment in Bluegreen |
23,984 | 23,984 | | | 20,401 | |||||||||||||||
Total |
$ | 206,395 | 23,984 | | 182,411 | 67,342 | ||||||||||||||
There were no material liabilities measured at fair value on a non-recurring basis in the
Companys financial statements.
Loans Receivable Measured For Impairment
Impaired loans receivable are generally valued based on the fair value of the underlying
collateral. BankAtlantic Bancorp primarily uses third party appraisals to assist in measuring
non-homogenous impaired loans. These appraisals generally use the market or income approach
valuation technique and use market observable data to formulate an opinion of the fair value of the
loans collateral. However, the appraiser uses professional judgment in determining the fair value
of the collateral or properties, and these values may also be adjusted for changes in market
conditions subsequent to the appraisal date. When current appraisals are not available for certain
loans receivable, judgment on market conditions is used to adjust the most current appraisal. The
sales prices may reflect prices of sales contracts not closed, and the amount of time required to
sell out the real estate project may be derived from current appraisals of similar projects. As a
consequence, the calculation of the fair value of the collateral uses Level 3 inputs. BankAtlantic
Bancorp generally uses third party broker price opinions or an automated valuation service to
measure the fair value of the collateral for impaired homogenous loans in the establishment of
specific reserves or charge-downs when these loans become 120 days delinquent. The third party
valuations from real estate professionals use Level 3 inputs in the determination of the fair
values.
Impaired Real Estate Owned and Real Estate Held for Sale
Real estate is generally valued with the assistance of third party appraisals or broker price
opinions. These appraisals generally use the market approach valuation technique and use market
observable data to formulate an opinion of the fair value of the properties. However, the
appraisers or brokers use professional judgments in determining the fair value of the properties
and these values may also be adjusted for changes in market conditions subsequent to the valuation
date. As a consequence of using broker price opinions and adjustments to appraisals, the fair
values of the properties are considered a Level 3 valuation.
Impaired Goodwill
In determining the fair value of BankAtlantic Bancorps reporting units in the test of
goodwill for impairment, BankAtlantic Bancorp uses discounted cash flow valuation techniques. This
method requires assumptions for expected cash flows and applicable discount rates. The aggregate
fair value of all reporting units derived from the above valuation methodology 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 respective company. 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 include anticipated growth in loans, tax certificates,
securities, interest rates and revenue. The discount rates are estimated based on a 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 and, accordingly, minor changes in
these assumptions could significantly impact 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. As a result of the
significant judgments used in determining the fair value of the reporting units, the fair values of
the reporting units use Level 3 inputs in the determination of fair value.
21
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Included on the Companys Consolidated Statements of Financial Condition as of June 30, 2010
and December 31, 2009 is goodwill of $12.2 million associated with BankAtlantics capital services
reporting unit which was tested for potential impairment on September 30, 2009 (the annual testing
date) and was determined not to be impaired. There were no events that occurred since the annual
testing date that BankAtlantic Bancorp believes would more likely than not reduce the carrying
value of BankAtlantics capital services reporting unit below its fair value.
Financial Disclosures about Fair Value of Financial Instruments
The following table presents information for financial instruments at June 30, 2010 and
December 31, 2009 (in thousands):
June 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 500,422 | 500,422 | 316,080 | 316,080 | |||||||||||
Interest bearing deposits in other
financial institutions |
33,863 | 33,863 | | | ||||||||||||
Restricted cash |
50,618 | 50,618 | 24,020 | 24,020 | ||||||||||||
Securities available for sale |
327,246 | 327,246 | 346,375 | 346,375 | ||||||||||||
Derivatives |
638 | 638 | | | ||||||||||||
Investment securities |
1,981 | 1,981 | 9,654 | 9,654 | ||||||||||||
Tax Certificates |
139,731 | 142,302 | 110,991 | 112,472 | ||||||||||||
Federal home loan bank stock |
48,751 | 48,751 | 48,751 | 48,751 | ||||||||||||
Retained interest in notes receivable sold |
| | 26,340 | 26,340 | ||||||||||||
Loans receivable including
loans held for sale, net |
3,377,438 | 3,004,589 | 3,683,441 | 3,381,796 | ||||||||||||
Notes receivable |
620,498 | 655,000 | 277,274 | 277,274 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
$ | 3,984,480 | 3,987,121 | 3,948,818 | 3,950,840 | |||||||||||
Advances from FHLB |
115,000 | 115,000 | 282,012 | 282,912 | ||||||||||||
Securities sold under agreements to repurchase
and short-term borrowings |
26,795 | 26,795 | 27,271 | 27,271 | ||||||||||||
Receivable-backed notes payable |
592,533 | 580,318 | 237,416 | 237,416 | ||||||||||||
Notes and mortgage notes payable and other
borrowings |
369,510 | 367,464 | 395,361 | 392,047 | ||||||||||||
Mortgage payables associated with assets
held for sale |
| | 74,749 | 74,749 | ||||||||||||
Junior subordinated debentures |
453,829 | 219,938 | 447,211 | 170,598 |
Management has made estimates of fair value that it believes to be reasonable. However,
because there is no active market for many of these financial instruments and management has
derived the fair value of the majority of these financial instruments using the income approach
technique with Level 3 unobservable inputs, there is no assurance that the estimated value would be
received upon sale or disposition of the asset or pay the estimated value upon disposition of the
liability in advance of its scheduled maturity. Management estimates used in its net present value
financial models rely on assumptions and judgments regarding issues where the outcome is unknown
and actual results or values may differ significantly from these estimates. The Companys fair
value estimates do not consider the tax effect that would be associated with the disposition of the
assets or liabilities at their fair value estimates.
22
Table of Contents
Interest bearing deposits in other financial institutions are certificates of deposits
guaranteed by the FDIC with maturities of less than one year. Due to the FDIC guarantee and the
short maturity of these certificates of deposit, the fair value of these deposits approximates the
carrying value.
Fair values are estimated for loan portfolios with similar financial characteristics. Loans
receivable are segregated by category, and each loan category is further segmented into fixed and
adjustable interest rate categories and into performing and non-performing categories.
The fair value of performing loans is calculated by using an income approach with Level 3
inputs. The fair value of performing loans is estimated by discounting forecasted cash flows
through the estimated maturity using estimated market discount rates that reflect the interest rate
risk inherent in the loan portfolio. The estimate of average maturity is based on BankAtlantic
Bancorps historical experience with prepayments for each loan classification, modified as
required, by an estimate of the effect of current economic and lending conditions. Management of
BankAtlantic Bancorp assigns a credit risk premium and an illiquidity adjustment to these loans
based on risk grades and delinquency status.
The fair value of tax certificates was calculated using the income approach with Level 3
inputs. The fair value is based on discounted expected cash flows using discount rates that we
believe take into account the risk of the cash flows of tax certificates relative to alternative
investments.
The fair value of Federal Home Loan Bank stock is its carrying amount.
The fair values of Bluegreen notes receivable are based on estimated future cash flows
considering contractual payments and estimates of prepayments and defaults, discounted at a market
rate.
As permitted by applicable accounting guidance, the fair value of deposits with no stated
maturity, such as non-interest bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, is shown in the above table at its book value. The fair value of
certificates of deposit is based on an income approach with Level 3 inputs. The fair value is
calculated by using the discounted value of contractual cash flows with the discount rate estimated
using current rates offered by BankAtlantic for similar remaining maturities.
The fair value of short-term borrowings is calculated using the income approach with Level 2
inputs. Contractual cash flows are discounted based on current interest rates. The carrying value
of these borrowings approximates fair value as maturities are generally less than thirty days.
The fair value of FHLB advances was calculated using the income approach with Level 2 inputs.
The fair value was based on discounted cash flows using rates offered for debt with comparable
terms to maturity and issuer credit standing.
The fair values of BankAtlantics subordinated debentures were based on discounted values of
contractual cash flows at a market discount rate adjusted for non-performance risk.
The estimated fair values of notes and mortgage notes payable and other borrowings, including
receivable-backed notes payable were based upon current rates and spreads it would pay to obtain
similar borrowings and also used discounted values of contractual cash flows at a market discount
rate.
The fair value of BankAtlantic Bancorps mortgage-backed bonds included in notes and mortgage
notes payable and other borrowings as of December 31, 2009 was based on discounted values of
contractual cash flows at a market discount rate. The mortgage-backed bonds were retired during
the six months ended June 30, 2010 resulting in a $7,000 loss.
In determining the fair value of BankAtlantic Bancorps junior subordinated debentures,
BankAtlantic Bancorp used NASDAQ price quotes available with respect to its $64.8 million of
publicly traded trust preferred securities related to its junior subordinated debentures (public
debentures). However, $250.4 million of the outstanding trust preferred securities related to its
junior subordinated debentures are not traded, but are privately held in pools (private
debentures) and with no liquidity or readily determinable source for valuation. BankAtlantic
Bancorp has deferred the payment of interest with respect to all of its junior subordinated
debentures as permitted by the terms of these securities. Based on the deferral status and the lack
of liquidity and ability of a holder to actively
sell such private debentures, the fair value of these private debentures may be subject to a
greater discount to par and have a lower fair value than indicated by the public debenture price
quotes. However, due to their private nature and the lack of a trading market, fair value of the
private debentures was not readily determinable at June 30, 2010 and December 31, 2009, and as a
practical alternative, BankAtlantic Bancorp used the NASDAQ price quotes of the public debentures
to value its remaining outstanding junior subordinated debentures whether privately held or
publicly traded.
23
Table of Contents
The estimated fair value of Woodbridges and Bluegreens junior subordinated debentures as of
June 30, 2010 and December 31, 2009 were based on a discounted value of contractual cash flows at a
market discount rate or market price quotes from the over-the-counter bond market.
The carrying amount and fair values of BankAtlantics commitments to extend credit, standby
letters of credit, financial guarantees and forward commitments are not considered significant.
(See Note 20 for the contractual amounts of BankAtlantics financial instrument commitments.)
7. Securities Available for Sale
The following tables summarize securities available for sale (in thousands):
As of June 30, 2010 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
Government agency securities: |
||||||||||||||||
Mortgage-backed securities |
$ | 127,159 | 8,414 | | 135,573 | |||||||||||
Agency bonds |
49,992 | 109 | | 50,101 | ||||||||||||
REMICS (1) |
84,229 | 3,041 | | 87,270 | ||||||||||||
Total mortgage-backed securities |
261,380 | 11,564 | | 272,944 | ||||||||||||
Investment securities: |
||||||||||||||||
Municipal bonds |
574 | | 4 | 570 | ||||||||||||
Other bonds |
250 | | | 250 | ||||||||||||
Benihana Convertible Preferred Stock |
16,426 | 3,733 | | 20,159 | ||||||||||||
Equity and other securities |
33,151 | 174 | 2 | 33,323 | ||||||||||||
Total investment securities |
50,401 | 3,907 | 6 | 54,302 | ||||||||||||
Total |
$ | 311,781 | 15,471 | 6 | 327,246 | |||||||||||
As of December 31, 2009 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
Government agency securities: |
||||||||||||||||
Mortgage-backed securities |
$ | 202,985 | 8,961 | 1 | 211,945 | |||||||||||
REMICS (1) |
104,329 | 3,037 | 19 | 107,347 | ||||||||||||
Total mortgage-backed securities |
307,314 | 11,998 | 20 | 319,292 | ||||||||||||
Investment securities: |
||||||||||||||||
Other bonds |
250 | | | 250 | ||||||||||||
Benihana Convertible Preferred Stock |
16,426 | 1,340 | | 17,766 | ||||||||||||
Equity and other securities |
8,947 | 126 | 6 | 9,067 | ||||||||||||
Total investment securities |
25,623 | 1,466 | 6 | 27,083 | ||||||||||||
Total |
$ | 332,937 | 13,464 | 26 | 346,375 | |||||||||||
(1) | REMICS are pass-through entities that hold residential loans. Investors in these entities are issued ownership interests in the entities in the form of a bond. The securities are guaranteed by government agencies. |
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The following tables show the gross unrealized losses and fair value of the Companys
securities available for sale with unrealized losses that are deemed temporary, aggregated by
investment category and length of time that individual securities have been in a continuous
unrealized loss position, at June 30, 2010 and December 31, 2009 (in thousands):
As of June 30, 2010 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
Municipal bonds |
570 | (4 | ) | | | 570 | (4 | ) | ||||||||||||||||
Equity securities |
| | 8 | (2 | ) | 8 | (2 | ) | ||||||||||||||||
Total available
for sale securities: |
$ | 570 | (4 | ) | 8 | (2 | ) | 578 | (6 | ) | ||||||||||||||
As of December 31, 2009 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
Mortgage-backed securities |
$ | | | 159 | (1 | ) | 159 | (1 | ) | |||||||||||||||
REMICS |
| | 21,934 | (19 | ) | 21,934 | (19 | ) | ||||||||||||||||
Equity securities |
4 | (6 | ) | | | 4 | (6 | ) | ||||||||||||||||
Total available
for sale securities: |
$ | 4 | (6 | ) | 22,093 | (20 | ) | 22,097 | (26 | ) | ||||||||||||||
The
unrealized losses on the equity securities and municipal bonds is insignificant.
Accordingly, the Company does not consider these investments other-than-temporarily impaired at
June 30, 2010.
Unrealized losses on debt securities outstanding greater than twelve months at December 31,
2009 were primarily the result of interest rate changes. These securities are guaranteed by
government sponsored enterprises. These securities are of high credit quality, and management
believes that these securities may recover their losses in the foreseeable future. Further,
management does not currently intend to sell these debt securities and believes it will not be
required to sell these debt securities before the price recovers.
The scheduled maturities of debt securities available for sale were (in thousands):
Debt Securities | ||||||||
Available for Sale | ||||||||
Estimated | ||||||||
Amortized | Fair | |||||||
June 30, 2010 (1) | Cost | Value | ||||||
Due within one year |
$ | 718 | 718 | |||||
Due after one year, but within five years |
50,138 | 50,245 | ||||||
Due after five years, but within ten years |
27,708 | 28,585 | ||||||
Due after ten years |
183,640 | 194,216 | ||||||
Total |
$ | 262,204 | 273,764 | |||||
(1) | Scheduled maturities in the above table are based on contractual maturities but may vary significantly from actual maturities due to prepayments. |
Included in Financial Services securities activities, net in the Companys Consolidated
Statements of Operations and Consolidated Statements of Cash Flows were (in thousands):
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Gross gains on securities sales |
$ | | 2,070 | 3,138 | 6,510 | |||||||||||
Gross losses on securities sales |
| | | | ||||||||||||
Proceed from sales of securities |
| 43,277 | 46,911 | 205,679 | ||||||||||||
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Management reviews its investment portfolios for other-than-temporary declines in value
quarterly. As a consequence of the BankAtlantic Bancorps review during 2009, the Company
recognized $1.4 million of other-than-temporary declines in value related to an equity investment
in an unrelated financial institution.
BFC Benihana Investment
The Company owns 800,000 shares of Benihanas 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, 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 approximately 19% voting interest and an
approximately 9% economic interest in Benihana.
The Convertible Preferred Stock was acquired pursuant to an agreement with Benihana on June 8,
2004 to purchase an aggregate of 800,000 shares of Convertible Preferred Stock for $25.00 per
share. The shares of the Convertible Preferred Stock have voting rights on an as if converted
basis together with Benihanas Common Stock on all matters put to a vote of the holders of
Benihanas Common Stock. The approval of a majority of the holders of the Convertible Preferred
Stock then outstanding, voting as a single class, are required for certain events outside the
ordinary course of business. 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 at the
original issue price of $20 million plus accumulated dividends on July 2, 2014 unless BFC elects to
extend the mandatory redemption date to a later date not to extend beyond July 2, 2024. At June 30,
2010, the closing price of Benihanas Common Stock was $6.41 per share. The market value of the
Convertible Preferred Stock if converted at June 30, 2010 would have been approximately $10.1
million.
At June 30, 2010, the Companys estimated fair value of its investment in Benihanas
Convertible Preferred Stock was approximately $20.2 million, which includes a gross unrealized gain
of approximately $2.4 million for the six months ended June 30, 2010. 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 of Benihanas Common Stock that BFC would receive upon
conversion of its shares of Benihanas Convertible Preferred Stock.
8. Derivatives
During the three months ended June 30, 2010, BankAtlantic expanded its cruise ship automated
teller machine (ATM) operations and began dispensing foreign currency from certain ATMs on cruise
ships. At June 30, 2010, BankAtlantic had $6.5 million of foreign currency in cruise ship ATMs and
recognized a $0.7 million foreign currency unrealized exchange loss which is included in Financial
Services other non-interest income in the Companys
Consolidated Statement of Operations. BankAtlantic
purchased foreign currency put options as an economic hedge for the foreign currency in its cruise
ship ATMs. The terms of the put options and the fair value as of June 30, 2010 were as follows (in
thousands, except strike price):
Contract | Expiration | Strike | Fair | |||||||||||||
Amount | Date | Price | Premium | Value | ||||||||||||
| 2,800 | Nov-10 | $ | 1.34 | $ | 166 | 333 | |||||||||
1,600 | Dec-10 | 1.34 | 104 | 200 | ||||||||||||
400 | Jan-11 | 1.34 | 28 | 53 | ||||||||||||
400 | Apr-11 | 1.34 | 31 | 52 | ||||||||||||
| 5,200 | $ | 329 | 638 | ||||||||||||
Included in Financial Services securities activities, net in the Companys Consolidated
Statement of Operations was $0.3 million of unrealized gains associated with the above put options
for the three and six months ended June 30, 2010. The put options were included in derivatives in
the Companys Consolidated Statement of Financial Condition as of June 30, 2010.
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9. Loans Receivable
The consolidated loan portfolio consisted of the following (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Real estate loans: |
||||||||
Residential |
$ | 1,385,403 | 1,538,906 | |||||
Builder land loans |
23,482 | 57,807 | ||||||
Land acquisition and development |
150,305 | 182,235 | ||||||
Land acquisition, development and
construction |
14,327 | 26,184 | ||||||
Construction and development |
180,469 | 211,809 | ||||||
Commercial |
707,850 | 688,386 | ||||||
Consumer home equity |
633,126 | 669,690 | ||||||
Small business |
211,829 | 213,591 | ||||||
Other loans: |
||||||||
Commercial business |
129,648 | 155,226 | ||||||
Small business non-mortgage |
95,717 | 99,113 | ||||||
Consumer loans |
19,300 | 15,935 | ||||||
Deposit overdrafts |
5,701 | 4,816 | ||||||
Total gross loans |
3,557,157 | 3,863,698 | ||||||
Adjustments: |
||||||||
Premiums, discounts and net deferred fees |
2,282 | 2,414 | ||||||
Allowance for loan losses |
(187,862 | ) | (187,218 | ) | ||||
Loans receivable net |
$ | 3,371,577 | 3,678,894 | |||||
Loans held for sale |
$ | 5,861 | 4,547 | |||||
Loans held for sale at June 30, 2010 and December 31, 2009 are loans originated with the
assistance of an independent mortgage company. The mortgage company provides processing and closing
assistance to BankAtlantic. Pursuant to an agreement between the parties, the mortgage company
purchases the loans from BankAtlantic within a defined period of time after the date of funding.
BankAtlantic earns the interest income during the period that BankAtlantic owns the loan. Gains
from the sale of loans held for sale were $87,000 and $141,000 for the three and six months ended
June 30, 2010, respectively, and were $151,000 and $263,000 for the three and six months ended June
30, 2009, respectively.
BankAtlantic Bancorp sold a land acquisition and development loan during the three months
ended June 30, 2010, for net proceeds of $450,000 resulting in net charge-offs of $453,000. During
the six months ended June 30, 2010 BankAtlantic Bancorp sold builder land bank loans and land
acquisition and development loans for net proceeds of $26.9 million resulting in charge-offs of
$20.1 million. Since BankAtlantic Bancorp had previously established $17.7 million of specific
valuation allowances on these loans as of December 31, 2009, BankAtlantic Bancorp incurred a $2.4
million additional writedown in connection with the sales.
Undisbursed loans in process consisted of the following components (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Construction and development |
$ | 33,403 | 43,432 | |||||
Commercial |
30,159 | 25,696 | ||||||
Total undisbursed loans in process |
$ | 63,562 | 69,128 | |||||
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Allowance for Loan Losses (in thousands):
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Balance, beginning of period |
$ | 177,597 | 158,397 | 187,218 | 137,257 | |||||||||||
Loans charged-off |
(39,167 | ) | (30,332 | ) | (80,590 | ) | (54,261 | ) | ||||||||
Recoveries of loans
previously charged-off |
879 | 661 | 1,926 | 1,453 | ||||||||||||
Net charge-offs |
(38,288 | ) | (29,671 | ) | (78,664 | ) | (52,808 | ) | ||||||||
Provision for loan losses |
48,553 | 43,494 | 79,308 | 87,771 | ||||||||||||
Balance, end of period |
$ | 187,862 | 172,220 | 187,862 | 172,220 | |||||||||||
The following summarizes impaired loans (in thousands):
June 30, 2010 | December 31, 2009 | |||||||||||||||
Gross | Gross | |||||||||||||||
Recorded | Specific | Recorded | Specific | |||||||||||||
Investment | Allowances | Investment | Allowances | |||||||||||||
Impaired loans with specific
valuation allowances |
$ | 368,312 | 101,100 | 249,477 | 70,485 | |||||||||||
Impaired loans without
specific
valuation allowances |
208,734 | | 196,018 | | ||||||||||||
Total |
$ | 577,046 | 101,100 | 445,495 | 70,485 | |||||||||||
Impaired loans without specific valuation allowances represent loans that were written-down to
the fair value of the collateral less cost to sell, loans in which the collateral value less cost
to sell was greater than the carrying value of the loan, loans in which the present value of the
cash flows discounted at the loans effective interest rate was equal to or greater than the
carrying value of the loan, or large groups of smaller-balance homogeneous loans that are
collectively measured for impairment.
BankAtlantic Bancorp continuously monitors collateral dependent loans and performs an
impairment analysis on these loans quarterly. Generally, a full appraisal is obtained when a real
estate loan is evaluated for impairment and an updated full appraisal is obtained within one year
from the prior appraisal date, or earlier if management deems it appropriate based on significant
changes in market conditions. In instances where a property is in the process of foreclosure, an
updated appraisal may be postponed beyond one year, as an appraisal is required on the date of
foreclosure; however, such loans are subject to quarterly impairment analyses. Included in total
impaired loans as of June 30, 2010 was $396.8 million of collateral dependent loans, of which
$197.7 million were measured for impairment using current appraisals and $199.1 million were
measured by adjusting appraisals that were less than one year old, as appropriate, to reflect
changes in market conditions subsequent to the last appraisal date. Appraised values were adjusted
down by an aggregate amount of $37.2 million to reflect current market conditions on 30 loans due
to property value declines since the last appraisal dates.
As of June 30, 2010, impaired loans with specific valuation allowances had been previously
written down by $88.3 million and impaired loans without specific valuation allowances had been
previously written down by $58.6 million. BankAtlantic had commitments to lend $5.3 million of
additional funds on impaired loans as of June 30, 2010.
Interest income which would have been recorded under the contractual terms of impaired loans
and the interest income actually recognized were (in thousands):
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Contracted interest
income |
$ | 6,388 | 6,408 | 12,065 | 11,505 | |||||||||||
Interest income
recognized |
(769 | ) | (734 | ) | (1,013 | ) | (1,428 | ) | ||||||||
Foregone interest income |
$ | 5,619 | 5,674 | 11,052 | 10,077 | |||||||||||
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10. Notes Receivable
The table below sets forth information relating to Bluegreen notes receivable (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Notes receivable, gross |
$ | 756,307 | 356,133 | |||||
Discount on notes receivable |
(68,758 | ) | (74,873 | ) | ||||
Notes receivable, net of discount |
687,549 | 281,260 | ||||||
Allowance for loan losses |
(67,051 | ) | (3,986 | ) | ||||
Notes receivable, net |
$ | 620,498 | 277,274 | |||||
The
accretable portion of the discount on the purchase price related to notes receivable acquired in connection with the
Bluegreen share purchase on November 16, 2009 is being accreted using the effective interest method
and recognized as interest income over the life of the loans. As a result, the Company recognized
$3.3 million and $5.8 million, respectively, for the three and six months ended June 30, 2010
relating to the accretion of such discount.
The table below sets forth the activity in the allowance for uncollectible notes receivable
during the six months ended June 30, 2010 (in thousands):
Balance at December 31, 2009 |
$ | 3,986 | ||
One-time impact of the amendment to the accounting
guidance for transfer of financial assets and the
amendment to the accounting guidance for the
consolidation of VIEs (see Note 2) |
86,252 | |||
Provision for loan losses |
11,995 | |||
Write-offs of uncollectible receivables |
(35,182 | ) | ||
Balance at June 30, 2010 |
$ | 67,051 | ||
All of Bluegreens vacation ownership interests (VOIs) notes receivable, which comprise the
majority of the notes receivable, bear interest at fixed rates. The weighted-average interest rate
charged on loans secured by VOIs was 15.2% and 14.9% at June 30, 2010 and December 31, 2009,
respectively. Approximately 85% of Bluegreens notes receivable secured by home sites bear interest
at variable rates, while the balance bears interest at fixed rates. The weighted-average interest
rate charged on notes receivable secured by home sites was 7.9% and 8.8% at June 30, 2010 and
December 31, 2009, respectively.
Bluegreens VOI notes receivable are generally secured by property located in Florida,
Louisiana, Nevada, New Jersey, Michigan, Missouri, Pennsylvania, South Carolina, Tennessee,
Virginia, Wisconsin, and Aruba. The majority of Bluegreen Communities notes receivables are secured
by home sites in Georgia, Texas, and Virginia.
11. Variable Interest Entities Bluegreen
In accordance with the guidance for the consolidation of variable interest entities, Bluegreen
analyzes its variable interests, including loans, guarantees, and equity investments, to determine
if an entity in which it has a variable interest is a variable interest entity. Bluegreens
analysis includes both quantitative and qualitative reviews. Bluegreen bases its quantitative
analysis on the forecasted cash flows of the entity, and it bases its qualitative analysis on its
review of the design of the entity, its organizational structure including decision-making ability,
and relevant financial agreements. Bluegreen also uses qualitative analyses to determine if it must
consolidate a variable interest entity as the primary beneficiary.
Bluegreen sells, without recourse, through special purpose finance entities, VOI notes
receivable originated by Bluegreen Resorts. These transactions are designed to provide liquidity
for Bluegreen and transfer the economic risks and certain of the benefits of the notes receivable
to third parties. In a securitization, various classes of debt securities are issued by the
special purpose finance entities that are generally collateralized by a single tranche of
transferred assets, which consist of VOI notes receivable. Bluegreen services the notes receivable
for a fee. With each securitization, Bluegreen generally retains a portion of the securities.
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Pursuant to generally accepted accounting principles that were in effect prior to 2010, seven
of Bluegreens eight special purpose finance entities met the definition of a qualified special
purpose entity, and Bluegreen was not required to consolidate those seven entities in its financial
statements. Upon the adoption of the new accounting guidance related to transfers of financial
assets (see Note 2 for additional information), Bluegreen was required to evaluate these entities
for consolidation. Since Bluegreen created these entities to serve as a financing vehicle for
holding assets and related liabilities, and the entities have no equity investment at risk, they
are considered variable interest entities. Furthermore, since Bluegreen continues to service the
notes and retain rights to receive benefits that are potentially significant to the entities,
Bluegreen concluded that it is the entities primary beneficiary and, therefore, now consolidates
these entities into its financial statements. Please see Note 2 for the impact of initial
consolidation of these entities.
At June 30, 2010, the principal balance of VOI notes receivable included within the Companys
Consolidated Statement of Financial Condition that are restricted to satisfy obligations of the
variable interest entities obligations totaled $567.8 million. In addition, approximately $33.0
million of Bluegreens restricted cash is held in accounts for the benefit of the variable interest
entities. Further, at June 30, 2010, the carrying amount of the consolidated liabilities included
within the Companys Consolidated Statement of Financial Condition for these variable interest
entities totaled $485.9 million, comprised of non-recourse receivable-backed notes payable. The
debt of these entities is generally non-recourse to Bluegreen. See Note 15, Receivable-Backed Notes
Payable, below.
Under the terms of Bluegreens timeshare note sales, Bluegreen has the right at its option to
repurchase or substitute for defaulted mortgage notes at the outstanding principal balance plus
accrued interest or, in some facilities, at 24% of the original sale price associated with the
defaulted mortgage note. The transaction documents typically limit such repurchases or
substitutions to 15-20% of the receivables originally funded into the transaction. Voluntary
repurchases or substitutions by Bluegreen of defaulted notes during the six months ended June 30,
2010 were $24.3 million.
12. Real Estate Inventory
Real estate held for development and sale consisted of the following (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Land and land development costs |
$ | 244,344 | 264,454 | |||||
Bluegreen Resorts |
231,508 | 222,026 | ||||||
Other costs |
518 | 552 | ||||||
Land and facilities held for sale |
6,528 | 7,259 | ||||||
Total |
$ | 482,898 | 494,291 | |||||
Inventory consisted of the combined real estate assets of Bluegreen Resorts, Bluegreen
Communities, Core Communities, Carolina Oak, and BankAtlantic Bancorps land facilities held for
sale.
As a result of Bluegreens continued low sales volume, reduced prices, and the impact of
reduced sales on the forecasted sell-out period of its communities projects, the Company recorded non-cash
charges to cost of real estate sales of approximately $3.3 million, net of purchase accounting
adjustments, during the six months ended June 30, 2010, to write-down the inventory balances of
certain phases of Bluegreens completed communities properties, to their
estimated fair value less costs to sell.
13. Investments in Unconsolidated Affiliates
As previously discussed, approximately 7.4 million additional shares of Bluegreens common
stock were purchased on November 16, 2009, increasing our ownership in Bluegreen to 16.9 million
shares, or 52%, of Bluegreens outstanding common stock. As a result of the purchase, the Company
has a controlling interest in Bluegreen and, accordingly, has consolidated Bluegreens results
since November 16, 2009 into the Companys financial statements.
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Prior to November 16, 2009, the investment in Bluegreen was accounted for using the equity
method of accounting. The cost of the Bluegreen investment was adjusted to recognize the Companys
interest in Bluegreens earnings or losses. The difference between a) the Companys ownership
percentage in Bluegreen multiplied by its earnings and b) the amount of the Companys equity in
earnings of Bluegreen as reflected in the Companys financial statements related to the
amortization or accretion of purchase accounting made at the time of the initial acquisition of
Bluegreens common stock and a basis difference due to impairment charges recorded on the
investment in Bluegreen, as described below. During the six months ended June 30, 2009, the
Company recorded a $20.4 million impairment charge relating to our investment in Bluegreen. No
impairment charges were recorded during the quarter ended June 30, 2009.
The following table shows the reconciliation of the Companys pro rata share of Bluegreens
net income to the Companys share of total earnings from Bluegreen for the three and six months
ended June 30, 2009, prior to our consolidation of Bluegreen in November 2009 (in thousands):
Three Months Ended | Six Months Ended | |||||||
June 30, 2009 | June 30, 2009 | |||||||
Pro rata share of Bluegreens net income |
$ | 2,076 | 3,158 | |||||
Amortization of basis difference (a) |
8,638 | 13,892 | ||||||
Total earnings from Bluegreen Corporation |
$ | 10,714 | 17,050 | |||||
(a) | As a result of the impairment charges previously taken under the equity method prior to our consolidation of Bluegreen in November 2009, a basis difference was created between the investment in Bluegreen and the underlying assets and liabilities carried on the books of Bluegreen. Therefore, earnings from Bluegreen were adjusted each period to reflect the amortization of this basis difference. As such, a methodology was established to allocate the impairment loss to the relative estimates of the fair value of Bluegreens underlying assets based upon the position that the impairment loss was a reflection of the perceived value of these underlying assets. The appropriate amortization was calculated based on the estimated useful lives of the underlying assets and other relevant data associated with each asset category. |
14. Goodwill
The Company tests goodwill for potential impairment annually or during interim periods if
impairment indicators exist. In response to the deteriorating economic and real estate
environments and the effects that the external environment had on BankAtlantic Bancorps business
units, BankAtlantic reduced its asset balances with a view toward strengthening its regulatory
capital ratios and revised its projected operating results to reflect a smaller organization.
Based on the results of an interim goodwill impairment evaluation undertaken during the first
quarter of 2009, an impairment charge of $8.5 million, net of purchase accounting from the step
acquisition of approximately $0.6 million, was recorded during the three months ended March 31,
2009. Management did not perform a goodwill impairment test as of June 30, 2009 as there were no
significant changes in impairment indicators during the period. No such impairments were recorded
during the six months ended June 30, 2010.
15. Notes and Mortgage Notes Payable and Other Borrowings
Woodbridge
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, an overall softening of
demand for new homes and a decline in the overall economy. In 2009, the housing industry continued
to face significant challenges and Woodbridge made the decision to cease all activities at Carolina
Oak. In the fourth quarter of 2009, we reviewed the inventory of real estate at Carolina Oak for
impairment and as a result, recorded a $16.7 million impairment charge to adjust the carrying
amount of Carolina Oaks inventory to its fair value of $10.8 million. Woodbridge is the obligor
under a $37.2 million loan that is collateralized by the Carolina Oak property. During 2009, the
lender declared the loan to be in default and filed an action for foreclosure and 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 continues to seek a
satisfactory conclusion with regard to the debt; however, the outcome of these efforts and the
litigation is uncertain.
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Core
Core is currently in default under the terms of all of its outstanding debt totaling
approximately $139.2 million. 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. During February 2010, with Cores concurrence, a significant
portion of the land in Tradition Hilton Head was placed under the control of a court appointed
receiver. In connection with the receivership, Core entered into a separate agreement with the
lender that, among other things, grants Core a right of first refusal to purchase the $25.3 million
loan in the event that the lender decides to sell the loan to a third party. This loan is
collateralized by inventory that had a net carrying value of $33 million, net of impairment charges
during 2009 of approximately $29.6 million. Separately, on April 7, 2010 and April 8, 2010, another of
Cores lenders filed a foreclosure action in South Carolina and Florida, respectively, seeking
foreclosure of mortgage loans totaling approximately $113.8 million, plus additional interest and
costs and expenses, including attorneys fees. Core is currently in negotiations with the lender
regarding, among other things, accelerating the foreclosure actions, granting the lender a
perfected first lien and security interest in certain additional Core subsidiaries, and releasing
and indemnifying Core from any future obligations. As of June 30, 2010, the net carrying value of
Cores inventory collateralizing the defaulted loans that are the subject of foreclosure
proceedings was $82 million, net of impairment charges during 2009 of approximately $33.7 million.
There was no impairment charge during the six months ended June 30, 2010. While negotiations with
its lenders continue, there is no assurance that Core will be successful in reaching any agreement
with its lenders with respect to resolution of its obligations.
Bluegreen
Bluegreens pledged assets under its facilities and notes payable as of June 30, 2010 and
December 31, 2009 had a carrying amount of approximately $388.5 million and $336.6 million,
respectively.
The GMAC AD&C Facility. During the six months ended June 30, 2010, Bluegreen repaid $15.9
million of the outstanding balance under this facility.
H4BG Communities Facility. During April 2010, GMAC assigned all rights, title, and interest in
the GMAC Communities Facility to H4BG, LP. This assignment did not affect any of the material
financial terms of the loan agreement. During the six months ended June 30, 2010, Bluegreen repaid
$3.2 million on this facility.
The Wachovia Notes Payable. On April 30, 2010, Bluegreen executed an agreement with Wells
Fargo Bank, N.A., the parent company of Wachovia (Wells Fargo), to refinance the remaining $21.9
million outstanding under the Wachovia Notes Payable into a new term loan. See Wells Fargo Term
Loan below for further details.
The
Wachovia Line-of-Credit. On April 30, 2010, the remaining
$14.5 million outstanding was refinanced by
Wells Fargo. See Wells Fargo Term Loan below for further details.
The Wells Fargo Term Loan. On April 30, 2010, Bluegreen entered into a definitive agreement
with Wells Fargo, which amended, restated and consolidated Bluegreens notes payable to Wachovia
and the line-of-credit issued by Wachovia into a single term loan with Wells Fargo (the Wells
Fargo Term Loan). The notes payable and line of credit which were consolidated into the Wells
Fargo Term Loan had a total outstanding balance of $36.4 million as of April 30, 2010. In
connection with the closing of the Wells Fargo Term Loan, Bluegreen made a principal payment of
$0.4 million, reducing the balance to $36.0 million, and paid accrued interest on the existing
Wachovia debt. The interest rate on the Wells Fargo Term Loan at June 30, 2010 was 7.22%.
Principal payments are effected through agreed-upon release prices as real estate collateralizing
the Wells Fargo Term Loan is sold, subject to minimum remaining required amortization of $4.4
million in 2010, $10.6 million in 2011 and $20.2 million in 2012. In addition to the resort
projects previously pledged as collateral for the various notes payable to Wachovia, Bluegreen
pledged additional timeshare interests, resorts real estate, and the residual interests in certain
of Bluegreens sold VOI notes receivables as collateral for the Wells Fargo Term Loan. Wells Fargo
has the right to receive as additional collateral, the residual interest in one future transaction
which creates such a retained interest. During the six months ended June 30, 2010, Bluegreen
repaid $1.2 million on this facility.
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Receivable-Backed Notes Payable
Bluegreens pledged receivables under its receivable-backed notes payable as of June 30, 2010
and
December 31, 2009 had a principal balance before purchase accounting adjustments of
approximately $695.7 million and $292.9 million, respectively.
Liberty Bank Facility. During the six months ended June 30, 2010, Bluegreen pledged $22.9
million of VOI notes receivable to this facility and received cash proceeds of $20.6 million.
Bluegreen also made repayments of $8.9 million on the facility during the six months ended June 30,
2010. In July 2010, Bluegreen transferred $4.7 million of VOI notes receivable to Liberty and
received cash proceeds of $4.2 million.
GE Bluegreen/Big Cedar Receivables Facility. During the six months ended June 30, 2010,
Bluegreen repaid $4.6 million on this facility.
The Wells Fargo Facility. During the six months ended June 30, 2010, Bluegreen repaid $7.1
million on this facility.
BB&T Purchase Facility. During the six months ended June 30, 2010, Bluegreen made repayments
of $17.5 million on the facility and did not pledge any additional VOI notes receivable to this
facility. On June 29, 2010, BB&T extended the revolving advance period of the facility to August
30, 2010, with any further extension being subject to BB&T approval. No other significant changes
were made to the terms of the facility in connection with this extension.
As discussed further in Notes 2 and 11 above, on January 1, 2010, Bluegreen consolidated seven
of its special purpose finance entities and associated receivable-backed notes payable. These
entities and their associated debt were not required to be consolidated during periods prior to
January 1, 2010. Historically, Bluegreen has been a party to a number of securitization-type
transactions, in which it sold receivables to one of its special purpose finance entities 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). Under these arrangements, the cash payments received from obligors
on the receivables sold are generally applied monthly to pay fees to service providers, make
interest and principal payments to investors, and fund required reserves, if any, with the
remaining balance of such cash retained by Bluegreen; 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. 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. As of June 30, 2010, Bluegreen was in compliance with all applicable
terms and no trigger events had occurred.
The table below sets forth the balances as of June 30, 2010 of Bluegreens receivable-back
notes payable facilities (in thousands):
Non-recourse receivable-backed notes | As of | |||||||||||
payable previously reported as off-balance | June 30, 2010 | |||||||||||
sheet (1): | Debt Balance | Interest Rate | ||||||||||
BB&T Purchase Facility |
$ | 113,799 | 5.75 | % | ||||||||
GE 2004 Facility |
11,080 | 7.16 | % | |||||||||
2004 Term Securitization |
22,772 | 5.27 | % | |||||||||
2005 Term Securitization |
65,140 | 5.98 | % | |||||||||
GE 2006 Facility |
55,995 | 7.35 | % | |||||||||
2006 Term Securitization |
59,875 | 6.16 | % | |||||||||
2007 Term Securitization |
113,830 | 7.32 | % | |||||||||
2008 Term Securitization |
43,455 | 7.88 | % | |||||||||
Total |
$ | 485,946 | ||||||||||
(1) | With the exception of the BB&T Purchase Facility, non-recourse receivable-backed notes payable were reported off-balance sheet prior to January 1, 2010. |
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Junior Subordinated Debentures
As more fully described in Note 23 Junior Subordinated Debentures to the Companys audited
consolidated financial statements included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2009, some of the Companys subsidiaries have formed statutory business trusts
(collectively, the Trusts), each of which issued trust preferred securities and invested the
proceeds thereof in its junior subordinated debentures. The Trusts are variable interest entities
in which the Companys subsidiaries are not the primary beneficiaries as defined by the accounting
guidance for consolidation. Accordingly, the Company does not consolidate the operations of the
Trusts; instead, the Trusts are accounted for under the equity method of accounting.
On March 30, 2010, the interest rate on the securities issued by Levitt Capital Trust (LCT)
I contractually changed from a fixed-rate of 8.11% to a variable rate equal to the 3-month LIBOR +
3.85% (4.38% as of June 30, 2010).
On July 30, 2010, the interest rate on the securities issued by the LCT II contractually
changed from a fixed-rate of 8.09% to a variable rate equal to the 3-month LIBOR + 3.80%.
On March 30, 2010, the interest rate on the securities issued by Bluegreen Statutory Trust
(BST) I contractually changed from a fixed-rate of 9.160% to a variable rate equal to the 3-month
LIBOR + 4.90% (5.43% as of June 30, 2010).
On July 30, 2010, the interest rate on the securities issued by BST II and BST III
contractually changed from a fixed-rate of 9.158% and 9.193%, respectively, to a variable rate
equal to the 3-month LIBOR + 4.85%.
16. Development Bonds Payable
In connection with the development of certain of Cores projects, community development,
special assessment or improvement districts were established that may have utilized tax-exempt bond
financing to fund construction or acquisition of certain on-site and off-site infrastructure
improvements near or at these communities. 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 is required to pay 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 June 30, 2010 and December 31, 2009 consisted of district bonds
totaling $218.7 million at each of these dates with outstanding amounts of approximately $173. 8
million and $170.8 million, respectively. Bond obligations at June 30, 2010 mature in 2035 and
2040. As of June 30, 2010, Core owned approximately 4% 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 three months ended June 30, 2010
and 2009, Core recorded a liability of approximately $66,000 and $158,000, respectively, in
assessments on property owned by it in the districts. During the six months ended June 30, 2010 and
2009, Core recorded a liability of approximately $225,000 and $317,000, 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 interest in property within the special assessment
district as of June 30, 2010, 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 pursuant to the guarantees.
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A liability was recorded 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 June 30, 2010, the liability related to developer obligations
associated with Cores ownership of the property was $175,000 after the sale of Cores commercial
leasing projects in June 2010 (See Note 5 for information relating to the sale). At December 31,
2009, the liability related to developer obligations was $3.3 million, of which $3.1 million was
included in the liabilities related to assets held for sale in the accompanying Consolidated
Statements of Financial Condition as of December 31, 2009.
17. Interest Expense
The following table is a summary of the Companys consolidated interest expense and the
amounts capitalized (in thousands):
For the Three Months Ended, | For the Six Months Ended, | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Real Estate and Other: |
||||||||||||||||
Interest incurred on borrowings |
$ | 20,183 | 3,881 | 40,185 | 7,763 | |||||||||||
Interest capitalized |
(114 | ) | (651 | ) | (185 | ) | (2,285 | ) | ||||||||
20,069 | 3,230 | 40,000 | 5,478 | |||||||||||||
Financial Services: |
||||||||||||||||
Interest on deposits |
6,021 | 11,527 | 13,078 | 24,514 | ||||||||||||
Interest on advances from FHLB |
1 | 5,082 | 959 | 12,246 | ||||||||||||
Interest on short term borrowings |
7 | 19 | 15 | 191 | ||||||||||||
Interest on debentures and bonds payable |
3,922 | 4,186 | 7,743 | 8,622 | ||||||||||||
9,951 | 20,814 | 21,795 | 45,573 | |||||||||||||
Total interest expense |
$ | 30,020 | 24,044 | 61,795 | 51,051 | |||||||||||
18. Noncontrolling Interests
The following table summarizes the noncontrolling interests held by others in the Companys
subsidiaries at June 30, 2010 and December 31, 2009 (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
BankAtlantic Bancorp |
$ | 44,175 | 88,910 | |||||
Bluegreen |
42,726 | 41,905 | ||||||
Joint ventures |
31,249 | 28,037 | ||||||
$ | 118,150 | 158,852 | ||||||
The following table summarizes the noncontrolling interests (loss) earnings recognized by
others with respect to the Companys subsidiaries for the three and six months ended June 30, 2010
and 2009 (in thousands):
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Noncontrolling interest |
||||||||||||||||
Continuing Operations: |
||||||||||||||||
BankAtlantic Bancorp |
$ | (32,336 | ) | (26,868 | ) | (45,355 | ) | (59,517 | ) | |||||||
Woodbridge |
| 412 | | 12,322 | ||||||||||||
Bluegreen |
4,096 | | 1,300 | | ||||||||||||
Joint ventures |
1,225 | (267 | ) | 2,375 | (486 | ) | ||||||||||
$ | (27,015 | ) | (26,723 | ) | (41,680 | ) | (47,681 | ) | ||||||||
Noncontrolling interest |
||||||||||||||||
Discontinued Operations: |
||||||||||||||||
BankAtlantic Bancorp |
$ | | | | 2,943 | |||||||||||
Woodbridge |
| 106 | | (508 | ) | |||||||||||
$ | | 106 | | 2,435 | ||||||||||||
Net Loss Attributable to
Noncontrolling
Interests |
$ | (27,015 | ) | (26,617 | ) | (41,680 | ) | (45,246 | ) | |||||||
35
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19. Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial
information is available that is regularly reviewed by the chief operating decision maker in
assessing performance and deciding how to allocate resources. Reportable segments consist of one or
more operating segments with similar economic characteristics, products and services, production
processes, type of customer, distribution system or regulatory environment.
The information provided for segment reporting is based on internal reports utilized by
management of the Company and its respective subsidiaries. The presentation and allocation of
assets and results of operations may not reflect the actual economic costs of the segments as stand
alone businesses. If a different basis of allocation were utilized, the relative contributions of
the segments might differ but the relative trends in segments operating results would, in
managements view, likely not be impacted.
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 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.
These business activities 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 this segment, Woodbridge Other Operations (which was
previously a separate 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 Core
Communities and Carolina Oak.
BFCs consolidated financial statements include the results of operations of Bluegreen since
November 16, 2009 when we acquired a controlling interest in Bluegreen, and Bluegreens results of
operations are reported through the Bluegreen Resorts and Bluegreen Communities segments. Prior to
November 16, 2009, we owned approximately 9.5 million shares of Bluegreens common stock,
representing approximately 29% of such stock, the investment in Bluegreen was accounted for under
the equity method of accounting, and our interest in Bluegreens earnings and losses was 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 accounting policies of the segments are generally the same as those described in the
summary of significant accounting policies in the Companys Annual Report on Form 10-K for the year
ended December 31, 2009. Intersegment transactions are eliminated in consolidation. The Company
evaluates segment performance based on its segment net income (loss).
The following summarizes the aggregation of the Companys operating segments into reportable
segments:
BFC Activities
The BFC Activities segment consists of BFC operations, our investment in Benihana, and other
operations of Woodbridge described below. BFC operations primarily consist 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 to BankAtlantic Bancorp and Bluegreen. This segment also includes investments
made by BFC/CCC, Inc., our wholly owned subsidiary (BFC/CCC). Other operations includes the
consolidated operations of Pizza Fusion Holdings, Inc. (Pizza Fusion), a restaurant franchisor
operating within the quick service and organic food industries, the activities of Cypress Creek
Capital Holdings, LLC (Cypress Creek Capital) and Snapper Creek Equity Management, LLC (Snapper
Creek) and other investments. 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 our interest in Bluegreens earnings or loss was included in the BFC Activities
segment.
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Table of Contents
Real Estate Operations
The Companys Real Estate Operations segment consists of the operations of Core Communities,
Carolina Oak, which was 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.
Bluegreen Resorts
Bluegreen
Resorts develops, markets and sells VOIs in its resorts through the Bluegreen
Vacation Club, and provides fee-based management services to resort
property owners associations. Bluegreen Resorts also earns fees from
third parties for providing sales, marketing, construction management, title and
fee-based
management services to third-party resort developers and owners.
Bluegreen Communities
Bluegreen Communities acquires large tracts of real estate, which are subdivided, improved (in
some cases to include a golf course on the property and other related amenities) and sold,
typically on a retail basis as homesites.
BankAtlantic
The Companys BankAtlantic segment consists of the banking operations of BankAtlantic.
BankAtlantic Bancorp Parent Company
The BankAtlantic Bancorp Parent Company segment consists of the operations of BankAtlantic
Bancorp Parent Company, including the cost of acquisitions, asset and capital management and
financing activities and the results of BankAtlantic Bancorps asset work out subsidiary.
37
Table of Contents
The table below sets forth the Companys segment information as of and for the three month
periods ended June 30, 2010 and 2009 (in thousands):
BankAtlantic | Unallocated | |||||||||||||||||||||||||||||||
Bancorp | Amounts | |||||||||||||||||||||||||||||||
BFC | Real Estate | Bluegreen | Bluegreen | Parent | and | Segment | ||||||||||||||||||||||||||
2010 | Activities | Operations | Resorts | Communities | BankAtlantic | Company | Eliminations | Total | ||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||||||||||
Sales of real estate |
$ | | 2,455 | 48,183 | 2,937 | | | | 53,575 | |||||||||||||||||||||||
Other resorts and communities operations
revenue |
| | 16,423 | 499 | | | | 16,922 | ||||||||||||||||||||||||
Other real estate revenues |
482 | 297 | 12,130 | | | | (17 | ) | 12,892 | |||||||||||||||||||||||
Interest income |
| | | | 43,271 | 81 | 30,467 | 73,819 | ||||||||||||||||||||||||
Financial Services non-interest income |
| | | | 26,271 | 274 | (501 | ) | 26,044 | |||||||||||||||||||||||
Total revenues |
482 | 2,752 | 76,736 | 3,436 | 69,542 | 355 | 29,949 | 183,252 | ||||||||||||||||||||||||
Costs and Expenses: |
||||||||||||||||||||||||||||||||
Cost of sales of real estate |
| 2,175 | 9,065 | 2,404 | | | | 13,644 | ||||||||||||||||||||||||
Cost of sales of other revenues |
| | 11,452 | 913 | | | | 12,365 | ||||||||||||||||||||||||
Interest expense |
1,643 | 1,867 | | | 6,263 | 3,660 | 16,587 | 30,020 | ||||||||||||||||||||||||
Provision for loan losses |
| | | | 43,634 | 4,919 | | 48,553 | ||||||||||||||||||||||||
Selling, general and administrative |
7,141 | 1,802 | 38,960 | 4,216 | | | 10,147 | 62,266 | ||||||||||||||||||||||||
Other expenses |
| | | | 59,515 | 3,393 | (647 | ) | 62,261 | |||||||||||||||||||||||
Total costs and expenses |
8,784 | 5,844 | 59,477 | 7,533 | 109,412 | 11,972 | 26,087 | 229,109 | ||||||||||||||||||||||||
Loss on settlement of investment in
Woodbridges subsidiary |
(1,135 | ) | | | | | | | (1,135 | ) | ||||||||||||||||||||||
Gain on sale
of assets |
| 275 | | | | | | 275 | ||||||||||||||||||||||||
Equity in earnings from unconsolidated
affiliates |
4 | | | | | 237 | 35 | 276 | ||||||||||||||||||||||||
Other income |
1,772 | 433 | | | | | (1,281 | ) | 924 | |||||||||||||||||||||||
(Loss) income from continuing operations
before
income taxes |
(7,661 | ) | (2,384 | ) | 17,259 | (4,097 | ) | (39,870 | ) | (11,380 | ) | 2,616 | (45,517 | ) | ||||||||||||||||||
Less: Provision (benefit) for income taxes |
(5,449 | ) | | | | | | 5,841 | 392 | |||||||||||||||||||||||
(Loss) income from continuing operations |
(2,212 | ) | (2,384 | ) | 17,259 | (4,097 | ) | (39,870 | ) | (11,380 | ) | (3,225 | ) | (45,909 | ) | |||||||||||||||||
Income from discontinued operations |
| 2,714 | | | | | | 2,714 | ||||||||||||||||||||||||
Net (loss)
income |
$ | (2,212 | ) | 330 | 17,259 | (4,097 | ) | (39,870 | ) | (11,380 | ) | (3,225 | ) | (43,195 | ) | |||||||||||||||||
Less: Net loss attributable to
noncontrolling interests |
(27,015 | ) | (27,015 | ) | ||||||||||||||||||||||||||||
Net loss attributable to BFC |
$ | 23,790 | (16,180 | ) | ||||||||||||||||||||||||||||
Total assets at June 30, 2010 |
$ | 166,260 | 180,635 | 901,087 | 105,339 | 4,611,282 | 401,842 | (216,180 | ) | 6,150,265 | ||||||||||||||||||||||
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Table of Contents
BankAtlantic | Unallocated | |||||||||||||||||||||||
Bancorp | Amounts | |||||||||||||||||||||||
BFC | Real Estate | Parent | and | Segment | ||||||||||||||||||||
2009 | Activities | Operations | BankAtlantic | Company | Eliminations | Total | ||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Sales of real estate |
$ | | 1,728 | | | 39 | 1,767 | |||||||||||||||||
Other real estate revenues |
202 | 675 | | | (8 | ) | 869 | |||||||||||||||||
Interest income |
| | 56,991 | 196 | 292 | 57,479 | ||||||||||||||||||
Financial Services non-interest income |
| | 32,751 | (971 | ) | (403 | ) | 31,377 | ||||||||||||||||
Total revenues |
202 | 2,403 | 89,742 | (775 | ) | (80 | ) | 91,492 | ||||||||||||||||
Costs and Expenses: |
||||||||||||||||||||||||
Cost of sales of real estate |
17 | 1,269 | | | 15 | 1,301 | ||||||||||||||||||
Interest expense |
1,883 | 1,347 | 16,913 | 4,002 | (101 | ) | 24,044 | |||||||||||||||||
Provision for loan losses |
| | 35,955 | 7,539 | | 43,494 | ||||||||||||||||||
Selling, general and administrative |
7,550 | 4,211 | | | (487 | ) | 11,274 | |||||||||||||||||
Other expenses |
| | 61,077 | 1,860 | (344 | ) | 62,593 | |||||||||||||||||
Total costs and expenses |
9,450 | 6,827 | 113,945 | 13,401 | (917 | ) | 142,706 | |||||||||||||||||
Equity in earnings (loss) from unconsolidated affiliates |
10,697 | | 25 | (2 | ) | 35 | 10,755 | |||||||||||||||||
Other income |
1,434 | 126 | | | (766 | ) | 794 | |||||||||||||||||
Income (loss) from continuing operations before income
taxes |
2,883 | (4,298 | ) | (24,178 | ) | (14,178 | ) | 106 | (39,665 | ) | ||||||||||||||
Less: Provision (benefit) for income taxes |
| | | | | | ||||||||||||||||||
Income (loss) from continuing operations |
2,883 | (4,298 | ) | (24,178 | ) | (14,178 | ) | 106 | (39,665 | ) | ||||||||||||||
Income from discontinued operations |
| 139 | | | | 139 | ||||||||||||||||||
Net income (loss) |
$ | 2,883 | (4,159 | ) | (24,178 | ) | (14,178 | ) | 106 | (39,526 | ) | |||||||||||||
Less: Net loss attributable to noncontrolling interests |
(26,617 | ) | (26,617 | ) | ||||||||||||||||||||
Net loss attributable to BFC |
$ | 26,723 | (12,909 | ) | ||||||||||||||||||||
Total assets at June 30, 2009 |
$ | 200,494 | 373,774 | 5,189,711 | 469,533 | (420,515 | ) | 5,812,997 | ||||||||||||||||
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Table of Contents
The table below sets forth the Companys segment information as of and for the six month
periods ended June 30, 2010 and 2009 (in thousands):
BankAtlantic | Unallocated | |||||||||||||||||||||||||||||||
Bancorp | Amounts | |||||||||||||||||||||||||||||||
BFC | Real Estate | Bluegreen | Bluegreen | Parent | and | Segment | ||||||||||||||||||||||||||
2010 | Activities | Operations | Resorts | Communities | BankAtlantic | Company | Eliminations | Total | ||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||||||||||
Sales of real estate |
$ | | 2,455 | 63,112 | 6,603 | | | | 72,170 | |||||||||||||||||||||||
Other resorts and communities operations
revenue |
| | 32,093 | 850 | | | | 32,943 | ||||||||||||||||||||||||
Other real estate revenues |
869 | 934 | 22,310 | | | | (34 | ) | 24,079 | |||||||||||||||||||||||
Interest income |
| | | | 90,986 | 159 | 60,772 | 151,917 | ||||||||||||||||||||||||
Financial Services non-interest income |
| | | | 54,528 | 543 | (937 | ) | 54,134 | |||||||||||||||||||||||
Total revenues |
869 | 3,389 | 117,515 | 7,453 | 145,514 | 702 | 59,801 | 335,243 | ||||||||||||||||||||||||
Costs and Expenses: |
||||||||||||||||||||||||||||||||
Cost of sales of real estate |
| 2,175 | 12,173 | 8,192 | | | | 22,540 | ||||||||||||||||||||||||
Cost of sales of other revenues |
| | 23,395 | 1,660 | | | | 25,055 | ||||||||||||||||||||||||
Interest expense |
3,481 | 3,850 | | | 14,519 | 7,223 | 32,722 | 61,795 | ||||||||||||||||||||||||
Provision for loan losses |
| | | | 75,668 | 3,640 | | 79,308 | ||||||||||||||||||||||||
Selling, general and administrative |
13,628 | 4,461 | 68,774 | 6,868 | | | 22,873 | 116,604 | ||||||||||||||||||||||||
Other expenses |
| | | | 112,236 | 5,037 | (1,002 | ) | 116,271 | |||||||||||||||||||||||
Total costs and expenses |
17,109 | 10,486 | 104,342 | 16,720 | 202,423 | 15,900 | 54,593 | 421,573 | ||||||||||||||||||||||||
Loss on settlement of investment in
Woodbridges subsidiary |
(1,135 | ) | | | | | | | (1,135 | ) | ||||||||||||||||||||||
Gain on sale of assets |
| 275 | | | | | | 275 | ||||||||||||||||||||||||
Equity in (loss) earnings from
unconsolidated affiliates |
(27 | ) | | | | | 426 | 70 | 469 | |||||||||||||||||||||||
Other income |
3,166 | 486 | | | | | (2,290 | ) | 1,362 | |||||||||||||||||||||||
(Loss) income from continuing operations
before income taxes |
(14,236 | ) | (6,336 | ) | 13,173 | (9,267 | ) | (56,909 | ) | (14,772 | ) | 2,988 | (85,359 | ) | ||||||||||||||||||
Less: Provision (benefit) for income taxes |
(5,647 | ) | | | | 90 | | 1,358 | (4,199 | ) | ||||||||||||||||||||||
(Loss) income from continuing operations |
(8,589 | ) | (6,336 | ) | 13,173 | (9,267 | ) | (56,999 | ) | (14,772 | ) | 1,630 | (81,160 | ) | ||||||||||||||||||
Income from discontinued operations |
| 2,465 | | | | | | 2,465 | ||||||||||||||||||||||||
Net (loss) income |
$ | (8,589 | ) | (3,871 | ) | 13,173 | (9,267 | ) | (56,999 | ) | (14,772 | ) | 1,630 | (78,695 | ) | |||||||||||||||||
Less: Net loss attributable
to noncontrolling interests |
(41,680 | ) | (41,680 | ) | ||||||||||||||||||||||||||||
Net loss attributable to BFC |
$ | 43,310 | (37,015 | ) | ||||||||||||||||||||||||||||
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BankAtlantic | Unallocated | |||||||||||||||||||||||
Bancorp | Amounts | |||||||||||||||||||||||
BFC | Real Estate | Parent | and | Segment | ||||||||||||||||||||
2009 | Activities | Operations | BankAtlantic | Company | Eliminations | Total | ||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Sales of real estate |
$ | | 3,155 | | | 39 | 3,194 | |||||||||||||||||
Other real estate revenues |
501 | 1,277 | | | (17 | ) | 1,761 | |||||||||||||||||
Interest income |
| | 119,400 | 405 | 582 | 120,387 | ||||||||||||||||||
Financial Services non-interest income |
| | 65,538 | (629 | ) | (732 | ) | 64,177 | ||||||||||||||||
Total revenues |
501 | 4,432 | 184,938 | (224 | ) | (128 | ) | 189,519 | ||||||||||||||||
Costs and Expenses: |
||||||||||||||||||||||||
Cost of sales of real estate |
17 | 1,962 | | | 15 | 1,994 | ||||||||||||||||||
Interest expense |
2,772 | 2,706 | 37,553 | 8,232 | (212 | ) | 51,051 | |||||||||||||||||
Provision for loan losses |
| | 79,475 | 8,296 | | 87,771 | ||||||||||||||||||
Selling, general and administrative |
14,543 | 8,649 | | | (963 | ) | 22,229 | |||||||||||||||||
Other expenses |
| | 132,780 | 3,564 | (1,195 | ) | 135,149 | |||||||||||||||||
Total costs and expenses |
17,332 | 13,317 | 249,808 | 20,092 | (2,355 | ) | 298,194 | |||||||||||||||||
Gain on settlement of investment in
Woodbridges subsidiary |
26,985 | | | | 13,384 | 40,369 | ||||||||||||||||||
Equity in earnings from unconsolidated affiliates |
16,962 | | 103 | 116 | 69 | 17,250 | ||||||||||||||||||
Impairment of unconsolidated affiliates |
(20,401 | ) | | | | | (20,401 | ) | ||||||||||||||||
Impairment of investments |
(2,396 | ) | | | | | (2,396 | ) | ||||||||||||||||
Other income |
2,879 | 410 | | | (1,530 | ) | 1,759 | |||||||||||||||||
Income (loss) from continuing operations
before income taxes |
7,198 | (8,475 | ) | (64,767 | ) | (20,200 | ) | 14,150 | (72,094 | ) | ||||||||||||||
Less: Provision (benefit) for income taxes |
| | | | | | ||||||||||||||||||
Income (loss) from continuing operations |
7,198 | (8,475 | ) | (64,767 | ) | (20,200 | ) | 14,150 | (72,094 | ) | ||||||||||||||
(Loss) income from discontinued operations |
| (665 | ) | | 4,201 | | 3,536 | |||||||||||||||||
Net income (loss) |
$ | 7,198 | (9,140 | ) | (64,767 | ) | (15,999 | ) | 14,150 | (68,558 | ) | |||||||||||||
Less: Net loss attributable to noncontrolling interests |
(45,246 | ) | (45,246 | ) | ||||||||||||||||||||
Net loss attributable to BFC |
$ | 59,396 | (23,312 | ) | ||||||||||||||||||||
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20. Commitments, Contingencies and Financial Instruments with Off-Balance Sheet Risk
BFC
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 June 30, 2010 and December 31,
2009, the carrying amount of this investment was approximately $673,000 and $690,000, 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 each 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.
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 June 30, 2010 and December 31, 2009, the carrying amount of this investment was
approximately $310,000 and $319,000, 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 proceeding under the U.S. Bankruptcy Code or
similar state insolvency laws or in the event of any transfer 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 based on the potential indemnification by unaffiliated members and the
limit of the specific obligations to non-financial matters.
Based on the current accounting guidance associated with the consolidation of variable
interest entities implemented on January 1, 2010, we are not classified as primary beneficiaries in
connection with the above mentioned BFC/CCC investments and do not consolidate these entities into
our financial statements. We do not have the power to direct the activities that can significantly
impact the performance of these entities.
Core
At each of June 30, 2010 and December 31, 2009, Core had outstanding surety bonds of
approximately $860,000, 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 be drawn upon.
Woodbridge
Levitt and Sons, Woodbridges former wholly-owned homebuilding subsidiary, had approximately
$33.3 million of surety bonds related to its ongoing projects at November 9, 2007, the date on
which Levitt and Sons and substantially all of its subsidiaries filed voluntary bankruptcy
petitions (the Chapter 11 Cases). In the event that these obligations are drawn and paid by the
surety, Woodbridge could be responsible for up to $7.6 million plus costs and expenses in
accordance with the surety indemnity agreements executed by Woodbridge. At June 30, 2010 and
December 31, 2009, Woodbridge had $490,000 and $527,000, respectively, in surety bond accruals
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 $37,000 during the six months ended June 30, 2009, in accordance with the
indemnity agreement for bond claims paid during the period, while no reimbursements were made in
the six months ended June 30, 2010. In addition, no reimbursements were made in the three months
ended June 30, 2010 or 2009. 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 its $490,000 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. 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 was being litigated with the municipality, and Woodbridge has complied with that
request. In August 2010, Woodbridge was granted a motion for summary judgment terminating any
obligations under the bonds. It is anticipated that the municipality will seek rehearing and, if it
is denied, will prosecute an appeal of the courts decision.
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On
February 20, 2009, the Bankruptcy Court presiding over the
Chapter 11 Cases 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 which may be payable 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 reduced to $29.7 million. Additionally, in the second quarter of 2010,
we increased the $10.7 million accrual by approximately
$1.1 million, representing a portion of an additional tax
refund which we expect to receive due to a recent change in Internal
Revenue Service guidance that will likely be required to be paid to
the Debtors Estate pursuant to the Settlement Agreement. As of June 30, 2010, we had
accrued a liability of approximately $11.8 million which represents a portion of tax refunds to be
shared with the Debtors Estate pursuant to the settlement agreement.
As previously disclosed, under Florida law, holders of Woodbridges Class A Common Stock who
did not vote to approve the merger between Woodbridge and BFC 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 that 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. Woodbridge is currently a party to legal
proceedings relating to 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 the Companys Consolidated Statements of Financial Condition representing in the
aggregate Woodbridges offer to the Dissenting Holders. However, the appraisal rights litigation
is currently ongoing and its outcome is uncertain. There is no assurance as to the amount of cash
that we will be required to pay to the Dissenting Holders, and such amount may be greater than the
$4.6 million that we have accrued.
Bluegreen
Tennessee Tax Audit
In 2005, the State of Tennessee Audit Division (the Division) audited certain subsidiaries
within Bluegreen Resorts for the period from December 1, 2001 through December 31, 2004. On
September 23, 2006, the Division issued a notice of assessment for approximately $652,000 of
accommodations tax based on the use of Bluegreen Vacation Club accommodations by Bluegreen Vacation
Club members who became members through the purchase of non-Tennessee property. Bluegreen believes
the attempt to impose such a tax is contrary to Tennessee law and has vigorously opposed, and
intends to continue to vigorously oppose, such assessment by the Division. An informal conference
was held in December 2007 to discuss this matter with representatives of the Division. No formal
resolution of the issue was reached during the conference and no further action has to date been
initiated by the State of Tennessee. While the timeshare industry has been successful in
challenging the imposition of sales taxes on the use of accommodations by timeshare owners, there
is no assurance that Bluegreen will be successful in contesting the current assessment.
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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 alleged that Bluegreen used sales and marketing methods
or practices that were unlawful under Pennsylvania law and sought a permanent injunction preventing
Bluegreen from using such methods and practices in the future. The lawsuit also sought civil
penalties and restitution on behalf of Pennsylvania consumers. The lawsuit did not seek to
permanently restrain Bluegreen or any of its affiliates from doing business in the Commonwealth of
Pennsylvania. The parties reached a settlement on this matter and a consent was signed which
received Court approval on May 26, 2010. Pursuant to the terms of the settlement, Bluegreen paid
$200,000 to the Attorney Generals Office and agreed to a 30-day tail period within which
additional consumers meeting certain eligibility requirements can apply for relief. That period has
now ended with no material changes in the amounts payable by Bluegreen.
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 claims entitlement to the amount in escrow. Bluegreen
maintains that its decision not to close on the purchase of the property was proper under the terms
of the purchase and sale contract and therefore Bluegreen is entitled to a return of the full
escrow deposit. The seller amended its complaint to include a fraud count. Bluegreen believes the
fraud allegations are without merit and intends to vigorously defend this claim.
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. The Court has agreed to hear oral arguments from the parties on whether the
Court should accept the plaintiffs appeal. 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.
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Separately, one of the amenity lakes in the Mountain Lakes development did not reach the
expected water level after construction was completed. Owners of homesites 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 entire $3.4 million settlement
was paid in March of 2010. Additional claims may be pursued in the future by certain individual
lot owners within
the Mountain Lakes subdivision in connection with these matters, but it is not possible at
this time to estimate the likelihood of loss or amount of potential exposure with respect to any
such matters, including the likelihood that any such loss may exceed the amount accrued.
Catawba Falls Preserve Homeowners Association Demand Letter
By letter dated October 2, 2008, the Catawba Falls Preserve Homeowners Association demanded
payment for (i) construction of pedestrian pathways and certain equestrian stables allegedly
promised by Bluegreen but never constructed, (ii) repairs to roads and culverts within the
community, and (iii) landscaping improvements to the communitys gated entrance. The parties
reached settlement with Bluegreen agreeing to pay the Association a nominal sum and convey to the
Association title to two lots located within the Catawba Falls Preserve subdivision.
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 filed this
action alleging fraud, negligent misrepresentation, breach of contract, and negligence with regards
to the Ridgelake Shores subdivision, developed in Montgomery County, Texas, specifically, the
usability of the lakes within the community for fishing and sporting and the general level of
quality at the community. The lawsuit seeks material damages and the payment of costs to remediate
the lake. Bluegreen intends to vigorously defend the lawsuit.
Schawrz, 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 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 filed 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 on behalf of more than 100 persons
claimed to have been harmed by the alleged activities in a similar manner. Bluegreen has filed a
response with the Court in opposition to class certification. No decision has yet been made by the
Court as to whether they will certify a class. Bluegreen denies the allegations and intends to
vigorously defend the lawsuit.
BankAtlantic Bancorp
Financial instruments with off-balance sheet risk were (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Commitments to sell fixed rate residential loans |
$ | 19,663 | 23,255 | |||||
Commitments to originate loans held for sale |
13,801 | 18,708 | ||||||
Commitments to originate loans held to maturity |
16,312 | 43,842 | ||||||
Commitments to extend credit, including the
undisbursed
portion of loans in process |
383,201 | 396,627 | ||||||
Standby letters of credit |
14,665 | 13,573 | ||||||
Commercial lines of credit |
87,960 | 74,841 |
Standby letters of credit are conditional commitments issued by BankAtlantic to guarantee the
performance of a customer to a third party. BankAtlantics standby letters of credit are generally
issued to customers in the construction industry guaranteeing project performance. These types of
standby letters of credit had a maximum exposure of $12.8 million at June 30, 2010. BankAtlantic
also issues standby letters of credit to commercial lending customers guaranteeing the payment of
goods and services. These types of standby letters of credit had a maximum exposure of $1.8 million
at June 30, 2010. These guarantees are primarily issued to support public and private borrowing
arrangements and have maturities of one year or less. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan facilities to customers.
BankAtlantic may hold certificates of deposit and residential and commercial liens as collateral
for such commitments. Included in other liabilities at
June 30, 2010 and December 31, 2009 were in each period $5,000, of unearned guarantee fees.
There were no obligations associated with these guarantees recorded in the financial statements.
Management of BankAtlantic Bancorp, based on discussions with legal counsel, has recognized
legal reserves of $1.0 million and believes its results of operations or financial condition will
not be materially impacted by the resolution of these matters. However, there is no assurance that
BankAtlantic Bancorp will not incur losses in excess of reserved amounts or in amounts that will be
material to its results of operations or financial condition.
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Concentration of Credit Risk
BankAtlantic has a high concentration of its consumer home equity and commercial loans in the
State of Florida. Real estate values and general economic conditions have significantly
deteriorated since the origination dates of these loans. If market conditions in Florida do not
improve or deteriorate further, BankAtlantic may be exposed to significant credit losses in these
loan portfolios.
BankAtlantic purchases residential loans located throughout the country. The majority of
these residential loans are jumbo residential loans. A jumbo loan has a principal amount above the
industry-standard definition of conventional conforming loan limits. These loans could potentially
have outstanding loan balances significantly higher than related collateral values in distressed
areas of the country as a result of the decline in real estate values in residential housing
markets. Also included in this purchased residential loan portfolio are interest-only loans. The
structure of these loans results in possible increases in a borrowers loan payments when the
contractually required repayments change due to interest rate movement and the required
amortization of the principal amount. These payment increases could affect a borrowers ability to
meet the debt service on or repay the loan and lead to increased defaults and losses. At June 30,
2010, BankAtlantics residential loan portfolio included $640.0 million of interest-only loans,
which represents 48.8% of the residential loan portfolio, with 26.1% of the aggregate principal
amount of these interest-only loans secured by collateral located in California. Interest only
residential loans scheduled to become fully amortizing during the six months ended December 31,
2010 and during the year ended December 31, 2011 are $1.6 million and $58.4 million, respectively.
21. Certain Relationships and Related Party Transactions
BFC is the controlling shareholder of BankAtlantic Bancorp and Bluegreen. Woodbridge Holdings
Corporation (formerly Levitt Corporation) became a wholly owned subsidiary of BFC upon consummation
of the merger between Woodbridge and BFC on September 21, 2009. Prior to the merger, BFC held an
approximately 59% voting interest in Woodbridge. BFC also has a direct non-controlling interest in
Benihana. Shares of BFCs Class A and Class B common stock representing a majority of BFCs total
voting power are owned or controlled by the Companys Chairman, President and Chief Executive
Officer, Alan B. Levan, and by the Companys Vice Chairman, John E. Abdo, both of whom are also
directors of Bluegreen and Benihana, and executive officers and directors of BankAtlantic Bancorp
and BankAtlantic.
The following table presents related party transactions between the Company, BankAtlantic
Bancorp, and Bluegreen at June 30, 2010 and December 31, 2009, and for the three and six months
ended June 30, 2010 and 2009. Woodbridges 2009 amounts are included in the amounts set forth for
BFC. Amounts related to BankAtlantic Bancorp and BankAtlantic and services provided to Bluegreen
after we acquired a controlling interest in Bluegreen (in November 2009) were eliminated in
consolidation.
BankAtlantic | ||||||||||||||||
BFC | Bancorp | Bluegreen | ||||||||||||||
For the Three Months Ended June 30, 2010 |
||||||||||||||||
Shared service income (expense) |
(a | ) | $ | 675 | (550 | ) | (125 | ) | ||||||||
Facilities cost and information technology |
(a | ) | $ | (141 | ) | 127 | 14 | |||||||||
For the Three Months Ended June 30, 2009 |
||||||||||||||||
Shared service income (expense) |
(a | ) | $ | 594 | (458 | ) | (136 | ) | ||||||||
Facilities cost and information technology |
(a | ) | $ | (122 | ) | 108 | 14 | |||||||||
Interest income (expense) from cash balance/deposits |
(b | ) | $ | 9 | (9 | ) | | |||||||||
For the Six Months Ended June 30, 2010 |
||||||||||||||||
Shared service income (expense) |
(a | ) | $ | 1,269 | (1,042 | ) | (227 | ) | ||||||||
Facilities cost and information technology |
(a | ) | $ | (280 | ) | 253 | 27 | |||||||||
Interest income (expense) from cash balance/deposits |
(b | ) | $ | 1 | (1 | ) | | |||||||||
For the Six Months Ended June 30, 2009 |
||||||||||||||||
Shared service income (expense) |
(a | ) | $ | 1,179 | (906 | ) | (273 | ) | ||||||||
Facilities cost and information technology |
(a | ) | $ | (257 | ) | 226 | 31 | |||||||||
Interest income (expense) from cash balance/deposits |
(b | ) | $ | 28 | (28 | ) | | |||||||||
At June 30, 2010 |
||||||||||||||||
Cash and cash equivalents and (deposits) |
(b | ) | $ | 3,773 | (3,773 | ) | | |||||||||
At December 31, 2009 |
||||||||||||||||
Cash and cash equivalents and (deposits) |
(b | ) | $ | 20,862 | (20,862 | ) | |
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(a) | Pursuant to the terms of shared service agreements between the Company and BankAtlantic Bancorp, subsidiaries of the Company provide shared service operations in the areas of human resources, risk management, investor relations, executive office administration and other services to BankAtlantic Bancorp. Additionally, the Company provides certain risk management and administrative services to Bluegreen. The costs of shared services are allocated based upon the usage of the respective services. Also, as part of the shared service arrangement, the Company pays BankAtlantic Bancorp and Bluegreen for office facilities costs relating to the Company and its shared service operations. In March 2008, BankAtlantic entered into an agreement with Woodbridge to provide information technology support in exchange for monthly payments to BankAtlantic of $10,000, including a one-time set up charge of $20,000 in 2009. Monthly payments were increased to $15,000 effective July 1, 2009. | |
(b) | As of June 30, 2010 and December 31, 2009, the Company had cash and cash equivalents accounts at BankAtlantic with balances of approximately $3.8 million and $20.9 million, respectively. These accounts were on the same general terms as deposits made by unaffiliated third parties. Additionally, during 2009, the Company invested funds through the Certificate of Deposit Account Registry Service (CDARS) program at BankAtlantic, which facilitates the placement of funds into certificates of deposits issued by other financial institutions in increments of less than the standard FDIC insurance maximum to insure that both principal and interest are eligible for full FDIC insurance coverage. At December 31, 2009, the Company had $7.7 million invested through the CDARS program at BankAtlantic. The Company did not have any funds invested through the CDARS program at BankAtlantic at June 30, 2010. |
In June 2010, BankAtlantic and BankAtlantic Bancorp Parent Company entered into a real estate
advisory service agreement with BFC for assistance relating to the work-out of loans and the sale
of real estate owned. BFC will receive a monthly fee of $12,500 from each of BankAtlantic and
BankAtlantic Bancorp Parent Company and if BFCs efforts result in net recoveries of any
nonperforming loan or the sale of real estate owned, BFC will receive a fee equal to 1% of the net
value recovered.
On June 28, 2010, BFC loaned approximately $8.0 million to BankAtlantic Bancorp, and
BankAtlantic Bancorp executed a promissory note agreement in favor of BFC with a maturity date of
July 30, 2010. The note provided for payment either in cash or shares of BankAtlantic Bancorps
Class A Common Stock, depending on the results of BankAtlantic Bancorps Rights Offering and the
number of shares allocable to BFC pursuant to the offering. At June 30, 2010, the promissory note
due from BankAtlantic Bancorp was eliminated in the Companys consolidated financial statements. In
July 2010, BankAtlantic Bancorp satisfied the promissory note in full through the issuance of
5,302,816 shares of BankAtlantic Bancorps Class A Common stock in respect of BFCs exercise of
both its Basic Subscription Rights and Over-Subscription Request in the Rights Offering.
The Company leases office space to Pizza Fusion for approximately $68,000 annually pursuant to
a month-to-month lease which commenced in September 2008. During each of the six months ended June
30, 2010 and 2009, Pizza Fusion paid approximately $36,000 under this lease agreement.
During the six months ended June 30, 2010 and 2009, we were reimbursed approximately $1.6
million and $602,000, respectively, from Bluegreen for various advisory services and certain
expenses incurred in assisting Bluegreen in its efforts to explore potential additional sources of
liquidity.
In prior periods, BankAtlantic Bancorp issued options to purchase shares of its Class A common
stock to employees of Woodbridge prior to the spin-off of Woodbridge to BankAtlantic Bancorps
shareholders. Additionally, certain employees of BankAtlantic Bancorp have transferred to
affiliate companies and BankAtlantic Bancorp has elected, in accordance with the terms of
BankAtlantic Bancorps stock option plans, not to cancel the stock options held by those former
employees. BankAtlantic Bancorp accounts for these options to former employees as employee stock
options because these individuals were employees of BankAtlantic Bancorp on the grant date.
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Outstanding options to purchase BankAtlantic Bancorp stock held by former employees consisted
of the following as of June 30, 2010:
Class A | Weighted | |||||||
Common | Average | |||||||
Stock | Price | |||||||
Options outstanding |
44,176 | $ | 52.38 | |||||
Options non-vested |
5,281 | $ | 95.10 |
During the year ended December 31, 2007, BankAtlantic Bancorp issued to BFC employees that
performed services for BankAtlantic Bancorp options to acquire 9,800 shares of BankAtlantic
Bancorps Class A common stock at an exercise price of $46.90. These options vest in five years
and expire ten years from the grant date. BankAtlantic recorded $12,000 and $25,000 of service
provider expenses relating to these options for the three and six months ended June 30, 2010 and
2009, respectively.
Certain of the Companys affiliates, including its executive officers, have independently made
investments with their own funds in both public and private entities that the Company sponsored in
2001 and in which it holds investments.
Florida Partners Corporation owns 133,314 shares of the Companys Class B Common Stock and
1,270,294 shares of the Companys Class A Common Stock. Alan B. Levan may be deemed to be the
controlling shareholder of Florida Partners Corporation, and is also a member of its Board of
Directors.
During December 2009, BFCs wholly owned subsidiary, Snapper Creek Equity Management, LLC, was
engaged by Benihana to provide certain management, financial advisory and other consulting
services. For the six months ended June 30, 2010, the consulting fees payable to Snapper Creek
Equity Management under this arrangement were approximately $350,000. Benihana also recently
engaged Risk Management Services (RMS), a wholly-owned subsidiary of BFC, to provide insurance
and risk management services. Fees paid or owed to RMS under this arrangement were not significant
for the six months ended June 30, 2010.
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22. Loss Per Common Share
The following table presents the computation of basic and diluted loss per common share
attributable to the Company (in thousands, except for per share data):
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic (loss) earnings per common share |
||||||||||||||||
Numerator: |
||||||||||||||||
Loss from continuing operations |
$ | (45,909 | ) | (39,665 | ) | (81,160 | ) | (72,094 | ) | |||||||
Less: Noncontrolling interests loss from continuing operations |
(27,015 | ) | (26,723 | ) | (41,680 | ) | (47,681 | ) | ||||||||
Loss attributable to BFC |
(18,894 | ) | (12,942 | ) | (39,480 | ) | (24,413 | ) | ||||||||
Preferred stock dividends |
(187 | ) | (187 | ) | (375 | ) | (375 | ) | ||||||||
Loss allocable to common stock |
(19,081 | ) | (13,129 | ) | (39,855 | ) | (24,788 | ) | ||||||||
Income from discontinued operations |
2,714 | 139 | 2,465 | 3,536 | ||||||||||||
Less: Noncontrolling interests income discontinued operations |
| 106 | | 2,435 | ||||||||||||
Income from discontinued operations attributable to BFC |
2,714 | 33 | 2,465 | 1,101 | ||||||||||||
Net loss allocable to common shareholders |
$ | (16,367 | ) | (13,096 | ) | (37,390 | ) | (23,687 | ) | |||||||
Denominator: |
||||||||||||||||
Basic weighted average number of common shares outstanding |
75,379 | 45,126 | 75,378 | 45,120 | ||||||||||||
Basic (loss) earnings per common share: |
||||||||||||||||
Loss per share from continuing operations |
$ | (0.26 | ) | (0.29 | ) | (0.53 | ) | (0.55 | ) | |||||||
Earnings per share from discontinued operations |
0.04 | 0.00 | 0.03 | 0.03 | ||||||||||||
Basic loss per share |
$ | (0.22 | ) | (0.29 | ) | (0.50 | ) | (0.52 | ) | |||||||
Diluted earnings (loss) per common share: |
||||||||||||||||
Numerator: |
||||||||||||||||
Loss allocable to common stock |
$ | (19,081 | ) | (13,129 | ) | (39,855 | ) | (24,788 | ) | |||||||
Income from discontinued operations allocable to common stock |
2,714 | 33 | 2,465 | 1,101 | ||||||||||||
Net loss allocable to common stock |
$ | (16,367 | ) | (13,096 | ) | (37,390 | ) | (23,687 | ) | |||||||
Denominator |
||||||||||||||||
Diluted weighted average number of common shares outstanding |
75,379 | 45,126 | 75,378 | 45,120 | ||||||||||||
Diluted (loss) earnings per share |
||||||||||||||||
Loss per share from continuing operations |
$ | (0.26 | ) | (0.29 | ) | (0.53 | ) | (0.55 | ) | |||||||
Earnings per share from discontinued operations |
0.04 | 0.00 | 0.03 | 0.03 | ||||||||||||
Diluted loss per share |
$ | (0.22 | ) | (0.29 | ) | (0.50 | ) | (0.52 | ) | |||||||
During the three months ended June 30, 2010 and 2009, options to acquire 2,494,779 shares of
Class A Common Stock and 1,777,729 shares of Class A Common Stock, respectively, and during the six
months ended June 30, 2010 and 2009, options to acquire 2,494,779 shares of Class A Common Stock
and 1,777,729 shares of Class A Common Stock, respectively, were anti-dilutive and not included in
the calculation of diluted loss per share.
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23. Parent Company Financial Information
BFCs parent company accounting policies are generally the same as those described in the
summary of significant accounting policies appearing in the Companys Annual Report on Form 10-K
for the year ended December 31, 2009. The Companys investments in BankAtlantic Bancorp, Bluegreen
and the Companys wholly-owned subsidiaries and venture partnerships are presented in the parent
company financial statements as if accounted for using the equity method of accounting.
BFCs parent company unaudited condensed statements of financial condition at June 30, 2010
and December 31, 2009, unaudited condensed statements of operations for the three and six month
periods ended June 30, 2010 and 2009 and unaudited condensed statements of cash flows for the six
months ended June 30, 2010 and 2009 are shown below:
Parent Company Condensed Statements of Financial Condition
(In thousands)
(In thousands)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 5,638 | 1,308 | |||||
Securities available for sale |
42,369 | 18,981 | ||||||
Investment in Woodbridge Holdings, LLC |
146,255 | 197,264 | ||||||
Investment in BankAtlantic Bancorp, Inc. |
27,598 | 47,555 | ||||||
Investment in and advances in other subsidiaries |
2,062 | 2,218 | ||||||
Notes receivable |
7,954 | | ||||||
Other assets |
1,784 | 1,279 | ||||||
Total assets |
$ | 233,660 | 268,605 | |||||
Liabilities and Shareholders Equity |
||||||||
Advances from wholly owned subsidiaries |
$ | 833 | 818 | |||||
Other liabilities |
11,256 | 11,699 | ||||||
Total liabilities |
12,089 | 12,517 | ||||||
Redeemable 5% Cumulative Preferred Stock |
11,029 | 11,029 | ||||||
Shareholders equity |
210,542 | 245,059 | ||||||
Total liabilities and shareholders equity |
$ | 233,660 | 268,605 | |||||
Parent Company Condensed Statements of Operations
(In thousands)
(In thousands)
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
$ | 542 | 333 | 805 | 616 | |||||||||||
Expenses |
2,632 | 2,012 | 4,546 | 4,035 | ||||||||||||
(Loss) before earnings (loss) from subsidiaries |
(2,090 | ) | (1,679 | ) | (3,741 | ) | (3,419 | ) | ||||||||
Equity in (loss) earnings in Woodbridge Holdings, LLC |
2,117 | 193 | (8,549 | ) | 3,928 | |||||||||||
Equity in loss in BankAtlantic Bancorp |
(19,237 | ) | (11,464 | ) | (27,033 | ) | (24,823 | ) | ||||||||
Equity in earnings (loss) in other subsidiaries |
316 | 8 | (157 | ) | (99 | ) | ||||||||||
Loss before income taxes |
(18,894 | ) | (12,942 | ) | (39,480 | ) | (24,413 | ) | ||||||||
Income taxes |
| | | | ||||||||||||
Loss from continuing operations |
(18,894 | ) | (12,942 | ) | (39,480 | ) | (24,413 | ) | ||||||||
Equity in earnings in subsidiaries discontinued operations |
2,714 | 33 | 2,465 | 1,101 | ||||||||||||
Net loss |
(16,180 | ) | (12,909 | ) | (37,015 | ) | (23,312 | ) | ||||||||
5% Preferred Stock dividends |
(187 | ) | (187 | ) | (375 | ) | (375 | ) | ||||||||
Net loss allocable to common stock |
$ | (16,367 | ) | (13,096 | ) | (37,390 | ) | (23,687 | ) | |||||||
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Parent Company Statements of Cash Flow
(In thousands)
(In thousands)
For the Six Months | ||||||||
Ended June 30, | ||||||||
2010 | 2009 | |||||||
Operating Activities: |
||||||||
Net cash used in operating activities |
$ | (4,416 | ) | (3,006 | ) | |||
Investing Activities: |
||||||||
Purchase of securities available for sale |
(35,011 | ) | | |||||
Proceeds from sales of securities available for sale |
2,499 | | ||||||
Proceeds from maturities of securities available for sale |
11,546 | | ||||||
Distribution from subsidiaries |
45,085 | 84 | ||||||
Increase in note receivable due from BankAtlantic Bancorp |
(7,954 | ) | | |||||
Acquisition of BankAtlantic Bancorp Class A shares |
(7,046 | ) | | |||||
Net cash provided by investing activities |
9,119 | 84 | ||||||
Financing Activities: |
||||||||
Proceeds from issuance of Common Stock upon exercise of stock option |
2 | | ||||||
Preferred stock dividends paid |
(375 | ) | (375 | ) | ||||
Net cash used in financing activities |
(373 | ) | (375 | ) | ||||
Increase (decrease) in cash and cash equivalents |
4,330 | (3,297 | ) | |||||
Cash at beginning of period |
1,308 | 9,218 | ||||||
Cash at end of period |
$ | 5,638 | 5,921 | |||||
Supplementary disclosure of non-cash investing and financing activities |
||||||||
Net increase in shareholders equity from the effect of subsidiaries
capital transactions, net of income taxes |
$ | 1,249 | 732 | |||||
BFCs prorata share of the cumulative effect of accounting changes
recognized by Bluegreen |
| 486 | ||||||
Net decrease in shareholders equity resulting from cumulative effect of
change in accounting principle |
(1,212 | ) | |
During the six months ended June 30, 2010, BFC received cash dividends from Woodbridge in the
amount of $45 million and no cash dividends from BankAtlantic Bancorp. For the six months ended
June 30, 2009, BFC received cash dividends of $84,000 from BankAtlantic Bancorp and no cash
dividends from Woodbridge.
At June 30, 2010 and December 31, 2009, securities available for sale include approximately
$22.1 million and $1.1 million, respectively, of readily marketable securities, as well as our
investment in Benihanas Convertible Preferred Stock of $20.2 million and $17.8 million at June 30,
2010 and December 31, 2009, respectively.
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24. Litigation
Except as set forth below, there have been no material changes in our legal proceedings from those
disclosed in Note 23 Litigation to the Companys
unaudited consolidated financial statements included in the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (see also Note
20 in this report for information relating to all of Bluegreens material legal proceedings).
Surety Bond Claim (Westchester Fire Insurance Company v. City of Brooksville)
This litigation arose from a dispute regarding liability under two performance bonds for
infrastructure issued in connection with a plat issued by the City of Brooksville for a single
family housing project that was not commenced. The project had been abandoned by Levitt and Sons
prior to its bankruptcy filing as non-viable as a consequence of the economic downturn and, in
connection with the Levitt and Sons bankruptcy, the mortgagee, Key Bank, was permitted by agreement
to initiate and conclude a foreclosure leading to the acquisition of the property by Key Banks
subsidiary. The City of Brooksville contended that, notwithstanding that the development had not
proceeded and was not likely to proceed at any known time in the future, it was entitled to recover
the face of the amount of the bonds in the approximate amount of $5.4 million. The company filed a
suit for declaratory judgment (in the name of its surety, Westchester) against the City of
Brooksville contending that the obligation under the bonds had terminated. On August 2, 2010, the
United States District Court for the Middle District of Florida granted Westchesters motion for
summary judgment, terminating any obligation under the bonds. It is anticipated that the City
will seek rehearing and, if it is denied, will prosecute an appeal of the courts decision.
In the ordinary course of business, the Company and its subsidiaries are also parties to
proceedings or lawsuits as plaintiff or defendant involving its operations and activities. 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.
25. New Accounting Pronouncements
Beginning with the period ended March 31, 2010, new accounting guidance was implemented
requiring the following additional disclosure regarding fair value measurements: (1) transfers in
and out of Level 1 and 2 measurements and the reasons for the transfers, and (2) a presentation of
gross activity within the Level 3 roll forward. The guidance also included clarifications to
existing disclosure requirements on the level of disaggregation and disclosures regarding inputs
and valuation techniques. The guidance is applicable to all disclosures about recurring and
nonrecurring fair value measurements. The effective date of the guidance was the first interim or
annual reporting period beginning after December 15, 2009, except for the gross presentation of the
Level 3 roll forward information, which is required for annual reporting periods beginning after
December 15, 2010 and for interim reporting periods within those years. The additional disclosures
made in accordance with this new guidance did not have a material effect on the Companys financial
statements.
In July 2010, the FASB issued new disclosure guidance about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. The new guidance provides enhanced disclosures
related to the credit quality of financing receivables which includes the Companys loans
receivable and the allowance for credit losses, and provides that new and existing disclosures
should be disaggregated based on how an entity develops its allowance for credit losses and how it
manages credit exposures. Under the new guidance, additional disclosures required for loans
receivable include information regarding the aging of past due receivables, credit quality
indicators, and modifications of financing receivables. The new guidance is effective for periods
ending after December 15, 2010, with the exception of the amendments to the roll forward of the
allowance for credit losses and the disclosures about modifications which are effective for periods
beginning after December 15, 2010. Comparative disclosures are required only for periods ending
subsequent to initial adoption. The Company is currently assessing the effects of adopting the
provisions of this new guidance.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
The objective of the following discussion is to provide an understanding of the financial
condition and results of operations of BFC Financial Corporation and its subsidiaries for the three
and six months ended June 30, 2010 and 2009. As of June 30, 2010, BFC had total assets of
approximately $6.2 billion, liabilities of approximately $5.8 billion and equity of approximately
$328.7 million, including noncontrolling interest of approximately $118.2 million.
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,
including BankAtlantic (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).
Historically, BFCs business strategy has been to invest in and acquire businesses in diverse
industries either directly or through controlled subsidiaries. However, BFC believes that, in the
short term, the Companys and its shareholders interests are best served by BFC providing
strategic support to its existing investments. In furtherance of this strategy, the Company took
several steps in 2009 and 2010, including those described below, which it believes will enhance the
Companys prospects. During the third quarter of 2009, BFC and Woodbridge Holdings Corporation
consummated their merger pursuant to which Woodbridge became a wholly-owned subsidiary of BFC.
During the fourth quarter of 2009, our ownership interest in
Bluegreen increased to 52% as a result of the purchase of an additional 23% interest in Bluegreen. The acquisition of this control position in Bluegreen
resulted in a bargain purchase gain under generally accepted accounting principles (GAAP) of
approximately $183.1 million in the fourth quarter of 2009. We have also increased our investment in BankAtlantic Bancorp through our
participation in BankAtlantic Bancorps rights offerings to its shareholders during the third
quarter of 2009 and the second quarter of 2010, which in the aggregate increased our economic
interest in BankAtlantic Bancorp to 45% and our voting interest in BankAtlantic Bancorp to 71%. In addition, we have taken actions to
restructure Core in recognition of the continued depressed real estate market and Cores inability
to meet its obligations. In
the future, we will consider other such opportunities that could alter our ownership in our
affiliates or seek to make opportunistic investments outside of our
existing portfolio; however, we do not currently have
pre-determined parameters as to the industry or structure of any future investment. In furtherance
of our goals, we will continue to evaluate various financing transactions that may present
themselves, including raising additional debt or equity as well as other alternative sources of new
capital.
During July 2010, Benihana announced its intention to engage in a formal review of
strategic alternatives, including a possible sale of the company. BFC is supportive of Benihana in
achieving its objectives.
On June 18, 2010, BankAtlantic Bancorp commenced a rights offering (the Rights Offering) to
its shareholders of record as of the close of business on June 14, 2010 (the Record Date). In
the Rights Offering, BankAtlantic Bancorp distributed to each eligible shareholder 0.327
subscription rights for each share of BankAtlantic Bancorps Class A Common Stock and Class B
Common Stock owned as of the close of business on the Record Date. Fractional subscription rights
were rounded up to the next largest whole number. Each subscription right entitled the holder
thereof to purchase one share of BankAtlantic Bancorps Class A Common Stock at the purchase price
of $1.50 per share. Shareholders who exercised their Basic Subscription Rights in full were also
given the opportunity to request to purchase any additional shares of BankAtlantic Bancorps Class
A Common Stock that remained unsubscribed at the expiration of the Rights Offering at the same
$1.50 per share purchase price, subject to certain determinations and allocations. The Rights
Offering expired on July 20, 2010.
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During June 2010, BFC exercised its basic subscription rights, in full, amounting to 5,986,865
shares of BankAtlantic Bancorps Class A Common Stock, and requested to purchase an additional
4,013,135 shares of BankAtlantic Bancorps Class A Common Stock to the extent available. In
connection with the exercise of its subscription rights, BFC delivered to BankAtlantic Bancorp
$15.0 million in cash, which represented the full purchase price for all of the shares subscribed
for by BFC. In exchange, BFC was issued 4,697,184 shares of BankAtlantic Bancorps Class A Common
Stock on June 28, 2010, which represented a portion of its basic
subscription rights exercise. The issuance of these shares increased BFCs ownership interest
in BankAtlantic Bancorp from 37% to 43% and BFCs voting interest in BankAtlantic Bancorp from 66%
to 69%. The balance of BFCs subscription was treated as an advance to BankAtlantic Bancorp, as
evidenced by a related $8.0 million promissory note executed by BankAtlantic Bancorp in favor of
BFC. The promissory note had a scheduled maturity of July 30, 2010 and was payable in cash or
shares of BankAtlantic Bancorps Class A Common Stock issuable to BFC in connection with its
exercise of subscription rights in the Rights Offering. The promissory note was eliminated in
consolidation as of June 30, 2010. See Note 21 of the Notes to Unaudited Consolidated Financial
Statements for further information regarding the promissory note. In July 2010, in connection with
the completion of the Rights Offering, the promissory note was satisfied in accordance with its
terms through the issuance to BFC of the additional 5,302,816 shares of BankAtlantic Bancorps
Class A Common Stock subscribed for by BFC in the Rights Offering, which increased BFCs ownership
interest in BankAtlantic Bancorp to 45% and BFCs voting interest in BankAtlantic Bancorp to 71%.
As previously disclosed, 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 those
held by Dissenting Holders) 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.
On November 16, 2009, approximately 7.4 million shares of common stock of Bluegreen were
purchased for an aggregate purchase price of approximately $23 million. We previously owned
approximately 9.5 million shares of Bluegreens common stock and, as a result, our ownership
interest in Bluegreen increased from 29% of Bluegreens outstanding common stock to approximately
52%. Accordingly, we now have a controlling interest in Bluegreen and, under GAAP, Bluegreens
results since the November 16, 2009 acquisition date are consolidated in our financial statements.
Prior to November 16, 2009, our approximate 29% equity investment in Bluegreen was accounted for
using the equity method.
GAAP requires that BFC consolidate the financial results of the entities in which it has a
controlling interest. As a consequence, the assets and liabilities of all such 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 BankAtlantic Bancorp,
Bluegreen, Woodbridge and Core, 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
from those entities, which may be limited or restricted. The recognition by BFC of income from
controlled entities is determined based on the total percent of economic ownership in those
entities. At June 30, 2010, BFC owned an approximately 43% ownership interest and an approximately
69% voting interest in BankAtlantic Bancorp, and approximately 52% of Bluegreens common stock.
On
February 20, 2009, the Bankruptcy Court presiding over the
Chapter 11 cases 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 which may be payable 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 reduced to $29.7 million. Additionally, in the second quarter of 2010,
we increased the $10.7 million accrual by approximately
$1.1 million representing the portion of an additional tax
refund which we expect to receive due to a recent change in
Internal Revenue Service (IRS) guidance that will likely
be required to be paid to the Debtors Estate pursuant to the
Settlement Agreement. As of June 30, 2010, we had accrued a liability of
approximately $11.8 million which represents a portion of tax refunds to be shared with the Debtors
Estate pursuant to the settlement agreement.
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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. Due to this decision, the assets associated with the
Projects 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 Consolidated Statements of
Financial Condition. Additionally, the results of operations for the Projects were reclassified to
income from discontinued operations in the Consolidated Statements of Operations. On June 10,
2010, Core sold the Projects to Inland Real Estate Acquisition, Inc. (Inland) for approximately
$75.4 million. As a result of the sale, Core realized a gain on sale of discontinued operations of
approximately $2.6 million in the second quarter of 2010. See Note 5 of the Notes to Unaudited
Consolidated Financial Statements for further information.
On January 1, 2010, BFC, Bluegreen and BankAtlantic Bancorp adopted an amendment to the
accounting guidance associated with the consolidation of variable interest entities (VIEs) and
the accounting guidance for transfers of financial assets. The adoption of these standards resulted
in Bluegreen consolidating seven of its special purpose finance entities and BankAtlantic Bancorp
consolidating its joint venture that conducts a factoring business. For further information, see
Note 2 of the Notes to Unaudited Consolidated Financial Statements.
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. The Company currently reports
the results of operations of its business activities through six reportable segments: BFC
Activities, Real Estate Operations, Bluegreen Resorts, Bluegreen Communities, and the two
reportable segments through which Financial Services activities are conducted, 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 the Land Division.
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 Bluegreens common stock, representing approximately 29% of such stock, the
investment in Bluegreen was accounted for using the equity method of accounting, and our interest
in Bluegreens earnings and losses was 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.
Forward Looking Statements
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 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 and our other filings with the Securities and Exchange Commission (SEC),
including those discussed in the Risk Factors section of the Companys Annual Report on Form 10-K
for the year ended December 31, 2009. 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.
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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:
| risks associated with the Companys current business strategy, including the risk that BFC will not be in a position to provide strategic support to its affiliated entities or that such support will not achieve the anticipated benefits and may negatively impact our cash flow; | ||
| 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 risk that creditors of the Companys subsidiaries or other third parties may seek to recover distributions or dividends made by such subsidiaries or other amounts owed by such subsidiaries from their respective parent companies, including BFC; | ||
| 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; | ||
| 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 uncertainty regarding the amount of cash that will be required to be paid to Woodbridge shareholders who exercised appraisal rights in connection with Woodbridges merger with BFC; | ||
| the risks related to the indebtedness of Woodbridge and its subsidiaries, including the risks relating to the indebtedness currently in default and the risk that negotiations relating to the resolution of the indebtedness and the release from the obligations under any or all of the debt may not be successful; | ||
| the risks relating to Cores liquidity, cash position and ability to continue operations, including the risk that Core could be obligated to make additional payments under its outstanding development bonds, or incur additional impairment charges and losses beyond those already incurred; | ||
| the risk that Cores restructuring activities could result in the lenders choosing to foreclose on any property which serves as collateral for defaulted loans or take other remedial actions available to them, and Core could incur additional impairment charges and losses beyond those already incurred; | ||
| 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; | ||
| risks associated with the accounting for the Bluegreen share acquisition, including the estimates and analyses used to determine the final evaluation of the inventory of Bluegreen as of the acquisition date and the effect, if any, on the amount of the $183.1 million bargain purchase gain recorded at December 31, 2009; | ||
| 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; | ||
| risks relating to our investment in Benihana, including the risk that Benihana may not be successful in its efforts to explore strategic alternatives, including the sale of Benihana, and the risk that any such strategic alternative, if consummated, may not have a favorable impact on our investment in Benihana or otherwise on our financial condition, cash position and operating results; | ||
| the risk that the amount of any tax refund that we may receive in the future may be less than expected or received later than expected; |
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| the risks related to litigation and other legal proceedings against BFC and its subsidiaries, including the costs and expenses of such proceedings, as well as the risk associated with a finding of liability or damages; 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 or sustained high unemployment rates on its business generally, BankAtlantics regulatory capital ratios, the ability of its borrowers to service their obligations and its customers to maintain account balances and the value of collateral securing its loans; | ||
| credit risks and loan losses, and the related sufficiency of the allowance for loan losses, including the impact on the credit quality of BankAtlantic Bancorp 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 BankAtlantic Bancorps trade area and where collateral is located; | ||
| the quality of BankAtlantic Bancorps real estate based loans including its residential land acquisition and development loans (including Builder land bank loans, Land acquisition and development loans and Land acquisition, development and construction loans) as well as Commercial land loans, other Commercial real estate loans; and Residential loans and Consumer loans; and conditions specifically in those market sectors; | ||
| the quality of BankAtlantic Bancorps Commercial business loans and conditions specifically in that market sector; | ||
| the risks of additional charge-offs, impairments and required increases in BankAtlantic Bancorp allowance for loan losses especially if the economy and real estate markets in Florida do not improve; | ||
| the impact of additional regulation and litigation regarding overdraft fees; | ||
| 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; | ||
| 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 or strategies not resulting in the growth of core deposits or profitability; | ||
| BankAtlantic Bancorp may not be able to sell its Tampa operations on acceptable terms or at all; | ||
| BankAtlantic Bancorp expense reduction initiatives may not be successful and additional cost savings may not be achieved; | ||
| BankAtlantic Bancorp may seek to raise additional capital and such capital may be highly dilutive to BankAtlantic Bancorps shareholders or may not be available; | ||
| the impact of periodic valuation testing of goodwill, deferred tax assets and other assets; | ||
| past performance, actual or estimated new account openings and balance growth may not be indicative of future results; 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:
| the state of the economy, generally, interest rates and the availability of financing affect Bluegreens ability to market vacation ownership interests (VOIs) and residential homesites; | ||
| Bluegreen would incur substantial losses and its liquidity position could be adversely impacted if the customers it finances default on their obligations; | ||
| Bluegreens business plan historically has depended on its ability to sell or borrow against its notes receivable to support its liquidity and profitability; | ||
| while Bluegreen has attempted to restructure its business to reduce its need for and reliance on financing for liquidity in the short term, there is no assurance that such restructuring will be successful or that its business and profitability will not otherwise continue to depend on its ability to obtain financing, which may not be available on favorable terms, or at all; |
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| Bluegreens results of operations and financial condition could be adversely impacted if its estimates concerning its notes receivable are incorrect, and its new credit underwriting standards may not have the anticipated favorable impact on performance; | ||
| Bluegreens future success depends on its ability to market its products successfully and efficiently; | ||
| Bluegreen is subject to the risks of the real estate market and the risks associated with real estate development, including the decline in real estate values and the deterioration of real estate sales; | ||
| Bluegreens adoption on January 1, 2010, of the accounting guidance requiring the consolidation of its special purpose finance entities had a material adverse impact on its net worth, leverage, and book value per share, and could have an adverse impact on its profits in the future; | ||
| Bluegreen may not be successful in increasing or expanding its fee-based services relationships and its fee-based service activities may not be profitable, which may have an adverse impact on its results of operations and financial condition; | ||
| claims for development-related defects could adversely affect Bluegreens financial condition and operating results; | ||
| the resale market for VOIs could adversely affect Bluegreens business; | ||
| Bluegreen 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. In addition, results of audits of Bluegreens tax returns or those of its subsidiaries may have a material and adverse impact on its financial condition; | ||
| environmental liabilities, including claims with respect to mold or hazardous or toxic substances, could have a material adverse impact on Bluegreens business; | ||
| the ratings of third-party rating agencies could adversely impact Bluegreens ability to obtain, renew, or extend credit facilities, debt, or otherwise raise capital; | ||
| in the near term, Bluegreen has significant debt maturing and advance periods expiring on its receivable-backed credit facilities, which could adversely impact its liquidity position, and, it may not be successful in refinancing or renewing the debt on favorable terms, if at all; | ||
| Bluegreens financial statements are prepared based on certain estimates, including those related to future cash flows which in turn are based upon expectations of its performance given current and projected forecasts of the economy and real estate markets in general. Bluegreens results and financial condition may be materially and adversely impacted if the adverse conditions in the real estate market continue for longer than expected or deteriorate further or if its performance does not otherwise meet its expectations; and | ||
| the loss of the services of Bluegreens key management and personnel could adversely affect its business. |
In addition to the risks and factors identified above, reference is also made to other risks
and factors detailed in reports filed by the Company, BankAtlantic Bancorp and Bluegreen with the
SEC.
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 statements 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)
impairment of goodwill and long-lived assets; (iii) valuation of securities as well as the
determination of other-than-temporary declines in value; (iv) accounting for
business combinations, including the valuation of the fair value of assets and liabilities in the
application of the acquisition method of accounting; (v) the valuation of real estate; (vi)
revenue and cost recognition on percentage of completion; (vii) estimated cost to complete
construction; (viii) the valuation of equity method investments; (ix) accounting for deferred tax
asset valuation allowance; and (x) accounting for contingencies. For a more detailed discussion of
these critical accounting policies see Critical Accounting Policies appearing in our Annual
Report on Form 10-K for the year ended December 31, 2009.
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New Accounting Pronouncements
See Note 25 of the Notes to Unaudited Consolidated Financial Statements included under Item
1 of this report for a discussion of new accounting pronouncements applicable to the Company and
its subsidiaries.
Summary of Consolidated Results of Operations
The table below sets forth the Companys summarized results of operations (in thousands):
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Income (loss) from operations: |
||||||||||||||||
Real Estate and Other |
$ | 5,341 | (1,309 | ) | (9,389 | ) | 12,873 | |||||||||
Financial Services |
(51,250 | ) | (38,356 | ) | (71,771 | ) | (84,967 | ) | ||||||||
Loss from continuing operations |
(45,909 | ) | (39,665 | ) | (81,160 | ) | (72,094 | ) | ||||||||
Income from discontinued operations |
2,714 | 139 | 2,465 | 3,536 | ||||||||||||
Net loss |
(43,195 | ) | (39,526 | ) | (78,695 | ) | (68,558 | ) | ||||||||
Less: Net loss attributable to noncontrolling interests |
(27,015 | ) | (26,617 | ) | (41,680 | ) | (45,246 | ) | ||||||||
Net loss attributable to BFC |
(16,180 | ) | (12,909 | ) | (37,015 | ) | (23,312 | ) | ||||||||
5% Preferred stock dividends |
(187 | ) | (187 | ) | (375 | ) | (375 | ) | ||||||||
Net loss allocable to common stock |
$ | (16,367 | ) | (13,096 | ) | (37,390 | ) | (23,687 | ) | |||||||
Consolidated net loss for the three and six months ended June 30, 2010 was $16.2 million and
$37.0 million compared with a net loss of $12.9 million and $23.3 million, respectively, for the
same periods in 2009. The results from discontinued operations relate to Ryan Beck and Core
Communities commercial leasing projects, as discussed further in Note 5 of the Notes to Unaudited
Consolidated Financial Statements.
The 5% Preferred Stock dividend represents the dividends paid by the Company on its 5%
Cumulative Preferred Stock.
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.
Consolidated Financial Condition
Total assets at June 30, 2010 and December 31, 2009 were $6.2 billion and $6.0 billion,
respectively. On January 1, 2010, BFC, Bluegreen and BankAtlantic Bancorp adopted an amendment to
the accounting guidance for transfers of financial assets and an amendment to the accounting
guidance associated with the consolidation of VIEs. As a result of the adoption of these accounting
standards, Bluegreen consolidated seven existing special purpose finance entities associated with
prior securitization transactions that previously qualified for off-balance sheet sales treatment,
and BankAtlantic Bancorp consolidated its joint venture that conducts a factoring business.
Accordingly, Bluegreens consolidated special purpose finance entities and BankAtlantic Bancorps
consolidated factoring joint venture are now consolidated in BFCs financial statements. The
consolidation of Bluegreens special purpose finance entities resulted in a one-time non-cash
after-tax reduction to retained earnings of $2.1 million. No charges were recorded in connection
with consolidation of BankAtlantic Bancorps factoring joint venture. The adoption of this change
in accounting principle also resulted in the following impacts to the Companys Consolidated
Statement of Financial Condition at January 1, 2010: (1) assets increased by $414.1 million,
primarily representing the consolidation of notes receivable, net of allowance, partially offset by
the elimination of Bluegreens retained interests; (2) liabilities increased by $416.2 million,
primarily representing the consolidation of non-recourse debt
obligations associated with third parties, partially offset by the
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elimination of certain
deferred tax liabilities; and (3) total equity decreased by approximately $2.0 million, including a
decrease of approximately $811,000 to noncontrolling interests (see Note 2 of the Notes to
Unaudited Consolidated Financial Statements for further information). Other than such increases
and decreases, the changes in components of total assets from December 31, 2009 to June 30, 2010
were primarily comprised of:
| an increase in cash and cash equivalents primarily reflecting a $191.2 million increase in BankAtlantic Bancorps cash balances at the Federal Reserve Bank associated with daily cash management activities. For the six months ended June 30, 2010, cash provided by operations was approximately $176.3 million, cash provided by investing activities was approximately $298.7 million and cash used in financing activities was approximately $290.6 million; | ||
| an increase in BankAtlantic Bancorps interest-bearing deposits at other financial institutions associated with the investment of excess cash as yields on certificates of deposit at federally insured financial institutions were higher than alternative short term investment yields; | ||
| a decrease in securities available for sale reflecting BankAtlantic Bancorps sale of $43.8 million of mortgage-backed securities, as well as repayments partially offset by a $50 million purchase of federal agency debt securities; | ||
| an increase in derivatives associated with a foreign currency derivative position executed during the second quarter of 2010 as an economic hedge of foreign currency used in BankAtlantics ATM cruise ship operations; | ||
| a decrease in current income tax receivables primarily resulting from the receipt of income tax refunds associated with recent tax law changes which extended the net operating loss carry-back period from two years to up to five years; | ||
| an increase in BankAtlantic Bancorps tax certificate balances primarily relating to the purchase of $93.1 million of tax certificates during the second quarter of 2010; | ||
| a decrease in BankAtlantic Bancorps loan receivable balances associated with $80.6 million of charge-offs, $19.3 million of loans transferred to REO, $45.8 million from the sale of loans and repayments of loans in the normal course of business combined with a significant decline in loan originations and purchases; | ||
| a decrease in accrued interest receivable primarily resulting from tax certificate activities and lower loan balances at BankAtlantic Bancorp; | ||
| a decrease in real estate inventory primarily resulting from the sale of a BankAtlantic Bancorp property; | ||
| an increase in BankAtlantic Bancorps real estate owned and other repossessed assets associated with residential and commercial loan foreclosures; and | ||
| a decrease in assets held for sale resulting from the sale of Cores Projects in June 2010. See Note 5 of the Notes to Unaudited Consolidated Financial Statements for further information. |
The Companys total liabilities at June 30, 2010 were $5.8 billion compared to $5.6 billion
at December 31, 2009. Other than increases due to the change in
accounting principle at January 1,
2010, the primary changes in components of total liabilities from December 31, 2009 to June 30,
2010 were summarized below:
| a decrease in BankAtlantics interest bearing deposit account balances associated with a $210.6 million decline in certificate of deposit balances partially offset by higher interest-bearing checking and savings account balances; | ||
| an increase in BankAtlantics non-interest-bearing deposit balances primarily due to increased customer balances in checking accounts; | ||
| lower FHLB advances at BankAtlantic due to repayments using proceeds from the sales of securities and loan repayments and increases in deposit account balances; | ||
| an increase in BankAtlantic Bancorps junior subordinated debentures due to interest deferrals; | ||
| an increase in other liabilities associated with $30.0 million of securities purchased pending settlement at BankAtlantic Bancorp; and | ||
| a decrease in liabilities related to assets held for sale resulting from the sale of Cores Projects in June 2010. See Note 5 of the Notes to Unaudited Consolidated Financial Statements for further information. |
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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 consist of our 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 and Bluegreen. BFC operations also include
investments made by BFC/CCC, Inc. Woodbridge other operations consists of the operations of Pizza
Fusion Holdings, Inc. (Pizza Fusion), 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.
The discussion that follows reflects the operations and related matters of BFC Activities (in
thousands).
For the Three Months | Change | For the Six Months | Change | |||||||||||||||||||||
Ended June 30, | 2010 vs. | Ended June 30, | 2010 vs. | |||||||||||||||||||||
2010 | 2009 | 2009 | 2010 | 2009 | 2009 | |||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Other revenues |
$ | 482 | 202 | 280 | 869 | 501 | 368 | |||||||||||||||||
482 | 202 | 280 | 869 | 501 | 368 | |||||||||||||||||||
Cost and Expenses |
||||||||||||||||||||||||
Cost of sales of real estate |
| 17 | (17 | ) | | 17 | (17 | ) | ||||||||||||||||
Interest expense, net |
1,643 | 1,883 | (240 | ) | 3,481 | 2,772 | 709 | |||||||||||||||||
Selling, general and administrative
expenses |
7,141 | 7,550 | (409 | ) | 13,628 | 14,543 | (915 | ) | ||||||||||||||||
8,784 | 9,450 | (666 | ) | 17,109 | 17,332 | (223 | ) | |||||||||||||||||
(Loss) gain on settlement of investment in
Woodbridges subsidiary |
(1,135 | ) | | (1,135 | ) | (1,135 | ) | 26,985 | (28,120 | ) | ||||||||||||||
Equity in earnings (loss) from
unconsolidated affiliates |
4 | 10,697 | (10,693 | ) | (27 | ) | 16,962 | (16,989 | ) | |||||||||||||||
Impairment of unconsolidated affiliates |
| | | | (20,401 | ) | 20,401 | |||||||||||||||||
Impairment of investments |
| | | | (2,396 | ) | 2,396 | |||||||||||||||||
Other income |
1,772 | 1,434 | 338 | 3,166 | 2,879 | 287 | ||||||||||||||||||
(Loss) income from continuing operations
before income taxes |
(7,661 | ) | 2,883 | (10,544 | ) | (14,236 | ) | 7,198 | (21,434 | ) | ||||||||||||||
Less: Benefit for income taxes |
(5,449 | ) | | (5,449 | ) | (5,647 | ) | | (5,647 | ) | ||||||||||||||
Net (loss) income |
$ | (2,212 | ) | 2,883 | (5,095 | ) | (8,589 | ) | 7,198 | (15,787 | ) | |||||||||||||
Other revenues for the three and six months ended June 30, 2010 relate to franchise revenues
generated by Pizza Fusion totaling $482,000 and $869,000 compared to $202,000 and $501,000,
respectively, for the same periods in 2009.
Interest expense consists of interest incurred less interest capitalized. Interest incurred
totaled $1.6 million and $3.5 million for the three and six months ended June 30, 2010 compared
with $1.9 million and $3.7 million for the same periods in 2009. No interest was capitalized during
the three or six months ended June 30, 2010 or the three months ended June 30, 2009, while interest
capitalized during the six months ended June 30, 2009 totaled $931,000. This resulted in net
interest expense of $1.6 million and $3.5 million during the three and six months ended June 30,
2010, respectively, compared to $1.9 million and $2.8 million, respectively, of net interest
expense in the same 2009 periods.
General and administrative expenses decreased $409,000 to $7.1 million for the three months
ended June 30, 2010 from $7.6 million for the same period in 2009. For the six months ended June
30, 2010, general and administrative expenses decreased $915,000 to $13.6 million from $14.5
million for the same period in 2009. The decrease in general and administrative expenses during the
six months ended June 30, 2010, was primarily attributable to lower severance charges and lower
bonuses offset in part by higher accrued audit fees incurred during 2010 relating to the 2009
year-end audit, increased professional services and a write-off of intangible assets related to
Pizza Fusion. Included in the general and administrative expenses for the six months ended June
30, 2010 is management advisory service fees earned in connection with an agreement with Bluegreen
(See Note 21 of the Notes to Unaudited Consolidated Financial Statements for further
information).
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BFC Activities
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 three and six months ended June 30, 2009 was $10.7
million and $17.1 million, respectively (after the amortization of approximately $8.6 million and
$13.9 million for the three and six months ended June 30, 2009, respectively, related to the change
in the basis as a result of impairment charges on this investment). During the six months ended
June 30, 2009, we recorded $20.4 million of impairment charges relating to our equity method
investment in Bluegreen.
During the six months ended June 30, 2009, we recorded impairment charges of $2.4 million on
our investment in Office Depots common stock. The Company sold its remaining shares of Office
Depots common stock during the fourth quarter of 2009.
During the second quarter of 2010, we recognized a tax benefit of approximately $5.4 million
resulting from an expected additional tax refund due to a recent change in IRS guidance, of which
approximately $1.1 million may be payable to the Levitt and Sons estate. The $1.1 million was
recorded in the (loss) gain on settlement of investment in Woodbridges subsidiary and is subject
to change pending a final review of the $5.4 million expected tax refund by the IRS. The gain on
settlement of investment in Woodbridges subsidiary during the six months ended June 30, 2009
reflected the reversal into income of the loss in excess of investment in Levitt and Sons after
Levitt and Sons bankruptcy was finalized. The reversal resulted in a $40.4 million gain on a
consolidated basis in the first quarter of 2009, of which $27 million was recorded in the BFC
Activities segment.
2008 and 2007 Step acquisitions Purchase Accounting
BFCs 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 then in effect. Accordingly, the assets and liabilities acquired were
revalued to reflect market values at the respective dates of acquisition. 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 decreased our consolidated net loss for the
three months ended June 30, 2010 by approximately $23,000 and increased our consolidated net loss
for the six months ended June 30, 2010 by approximately $62,000. The net impact also decreased our
consolidated net loss for the three and six months ended June 30, 2009 by approximately $91,000 and
$760,000, respectively.
BFC Activities- Liquidity and Capital Resources
As of June 30, 2010 and December 31, 2009, we had cash, cash equivalents and short-term
investments totaling approximately $46 million and $45 million, respectively. The increase in cash,
cash equivalents and short term investments at June 30, 2010 compared to December 31, 2009
primarily resulted from the receipt of an income tax refund of approximately $29.2 million. This
increase was offset by cash used to fund BFCs operating and general and administrative expenses
and to purchase shares of BankAtlantic Bancorps Class A Common Stock in BankAtlantic Bancorps
Rights Offering as described below.
On June 18, 2010, BankAtlantic Bancorp commenced a rights offering (the Rights Offering) to
its shareholders of record as of the close of business on June 14, 2010 (the Record Date). In
the Rights Offering, BankAtlantic Bancorp distributed to each eligible shareholder 0.327
subscription rights for each share of BankAtlantic Bancorps Class A Common Stock and Class B
Common Stock owned as of the close of business on the Record Date. Fractional subscription rights
were rounded up to the next largest whole number. Each subscription right entitled the holder
thereof to purchase one share of BankAtlantic Bancorps Class A Common Stock at the purchase price
of $1.50 per share. Shareholders who exercised their basic subscription rights in full were also
given the opportunity to request to purchase any additional shares of BankAtlantic Bancorps Class
A Common Stock that remained unsubscribed for at the expiration of the Rights Offering at the same
$1.50 per share purchase price, subject to certain determinations and allocations. The Rights
Offering expired on July 20, 2010.
During June 2010, BFC exercised its basic subscription rights, in full, amounting to 5,986,865
shares of BankAtlantic Bancorps Class A Common Stock, and requested to purchase an additional
4,013,135 shares of BankAtlantic Bancorps Class A Common Stock to the extent available. In
connection with the exercise of its subscription rights, BFC delivered to BankAtlantic Bancorp
$15.0 million in cash, which represented the full purchase price for all of the shares subscribed
for by BFC. In exchange, BFC was issued 4,697,184 shares of BankAtlantic Bancorps Class A Common
Stock on June 28, 2010, which represented a portion of its basic subscription rights exercise. The
issuance of these shares increased BFCs ownership interest in BankAtlantic Bancorp from 37% to 43%
and BFCs voting interest in BankAtlantic Bancorp from 66% to 69%. The balance of BFCs
subscription was treated as an advance to BankAtlantic Bancorp, as evidenced by a related $8.0
million promissory note executed by BankAtlantic Bancorp in favor of BFC. The promissory note had
a scheduled maturity of July 30, 2010 and was payable in cash or shares of BankAtlantic Bancorps
Class A Common Stock issuable to BFC in connection with its exercise of subscription rights in the
Rights Offering. The promissory note was eliminated in consolidation as of June 30, 2010. See Note
21 of the Notes to Unaudited Consolidated Financial Statements, Certain Relationships and Related
Party Transactions, for further information regarding the
promissory note. In July 2010, in connection with the completion of the Rights Offering, the
promissory note was satisfied in accordance with its terms through the issuance to BFC of the
additional 5,302,816 shares of BankAtlantic Bancorps Class A Common Stock subscribed for by BFC in
the Rights Offering, which increased BFCs ownership interest in BankAtlantic Bancorp to 45% and
BFCs voting interest in BankAtlantic Bancorp to 71%.
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BFC Activities
Except as otherwise noted, the debts and obligations of BankAtlantic Bancorp, Bluegreen,
Woodbridge and Core are not direct obligations of BFC and generally are non-recourse to BFC.
Similarly, the assets of those entities are not available to BFC, absent a dividend or distribution
from those entities. BFCs principal sources of liquidity are its available cash, short-term
investments, dividends or distributions from our subsidiaries and dividends from Benihana. In
connection with recent tax law changes, we received approximately $29.2 million of tax refunds and
expect to receive an additional approximately $10.8 million when the final review is completed by
the Internal Revenue Service. Pursuant to the Levitt and Sons bankruptcy settlement agreement, we
agreed that a portion of the tax refund attributable to the Debtors Estate for periods prior to the
bankruptcy would be paid to the estate, and it is estimated that approximately $11.8 million will
be paid to the estate pursuant to this agreement.
We
will use our available funds to fund operations and meet our
obligations, we may also
use available funds to make additional investments in the companies within our consolidated
group, invest in equity securities and other investments, or repurchase shares of our common stock
pursuant to our share repurchase program.
Since March 2009, BFC has not received cash dividends from BankAtlantic Bancorp and does not
expect to receive cash dividends from BankAtlantic Bancorp for the foreseeable future because
BankAtlantic Bancorp is currently prohibited from paying dividends on its common stock.
Furthermore, certain of Bluegreens credit facilities contain terms which might limit the payment
of cash dividends.
We believe that our current financial condition and credit relationships, together with
anticipated cash flows from operating activities and other sources of funds, including tax refunds and
proceeds from the disposition of certain properties or investments, will provide for anticipated
near-term liquidity needs. With respect to long-term liquidity requirements, in addition to the
foregoing, BFC may also seek to raise funds through the issuance of long-term secured or unsecured
indebtedness, equity and/or debt securities or through the sale of assets; however, there is no
assurance that any of these alternatives will be available to BFC on attractive terms, or at all.
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. 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 six months ended June 30, 2010 or the year ended December 31,
2009.
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, an overall softening of
demand for new homes and a decline in the overall economy. In 2009, the housing industry continued
to face significant challenges and Woodbridge made the decision to cease all activities at Carolina
Oak. In the fourth quarter of 2009, we reviewed the inventory of real estate at Carolina Oak for
impairment and as a result, recorded a $16.7 million impairment charge to adjust the carrying
amount of Carolina Oaks inventory to its fair value of $10.8 million. Woodbridge is the obligor
under a $37.2 million loan that is collateralized by the Carolina Oak property. During 2009, the
lender declared the loan to be in default and filed an action for foreclosure, and 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 continues to seek
satisfactory conclusion with regard to the debt; however, the outcome of these efforts and the
litigation is uncertain.
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BFC Activities
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 related to the Levitt and Sons bankruptcy filing.
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 the first quarter of 2009, resulting in a $40.4 million gain on
settlement of investment in subsidiary.
In November 2009, the Workers, Homeownership, and Business Assistance Act of 2009 (the Act)
was enacted and extended the net operating loss (NOL) carry-back period from two years to up to
five years for the 2008 or the 2009 tax years and as a result, the Act allows us 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. The amount of the expected refund to the
Company has been determined to be approximately $40.0 million, of which approximately $29.2 million
has been received. The balance of the tax refund claim of approximately $10.8 million will most
likely be paid when the Internal Revenue Service completes its review. 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 which may be payable to the Debtors
Estate pursuant to the Settlement Agreement. The gain on settlement of investment in subsidiary of
$40.4 million recorded in the first quarter of 2009 was reduced by the $10.7 million accrual
recorded in the fourth quarter of 2009 resulting in a $29.7 million gain on settlement of
investment in subsidiary for the year ended December 31, 2009. Additionally, in the second quarter
of 2010, we increased the $10.7 million accrual by approximately
$1.1 million, representing the portion of an additional tax
refund which we expect to receive due to a recent change in Internal
Revenue Service guidance that will likely be required to be paid to
the Debtors Estate pursuant to the Settlement Agreement. As of June 30,
2010, we had accrued a liability of approximately $11.8 million which represents a portion of tax
refunds to be shared with the Debtors Estate pursuant to the settlement agreement.
As discussed above, on September 21, 2009, BFC and Woodbridge consummated their previously
announced merger pursuant to which Woodbridge merged with 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. The Dissenting Holders 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 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, and there is no
assurance as to the amount of cash that we will be required to pay to the Dissenting Holders, which
amount may be greater than the $4.6 million that we have accrued.
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 on its shares of Benihanas Convertible Preferred Stock 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 not later than July 2, 2024.
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BFC Activities
On June 21, 2004, the Company sold 15,000 shares 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 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.
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 June 30, 2010 and December 31,
2009, the carrying amount of this investment was approximately $673,000 and $690,000, 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.
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 June 30, 2010 and December 31, 2009, the carrying amount of this investment was
approximately $310,000 and $319,000, 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 proceeding under the U.S. Bankruptcy Code or
similar state insolvency laws or in the event of any transfer 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 based on the potential indemnification by unaffiliated members and the
limit of the specific obligations to non-financial matters.
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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, 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.
Woodbridges operations historically were concentrated in the real estate industry which is
cyclical in nature. During 2009 and the six months ended June 30, 2010, 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. The decrease in land
sales 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 during 2009, which included $13.6 million of impairment charges related to assets
held for sale. Core is currently in default under the terms of all of its indebtedness having an
aggregate outstanding principal amount of $139.2 million. See Cores Liquidity and Capital
Resources below for more information regarding the status of Cores outstanding indebtedness.
As a consequence of 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.
Real Estate Operations
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
(In thousands) | 2010 | 2009 | Change | 2010 | 12009 | Change | ||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Sales of real estate |
$ | 2,455 | 1,728 | 727 | 2,455 | 3,155 | (700 | ) | ||||||||||||||||
Other revenues |
297 | 675 | (378 | ) | 934 | 1,277 | (343 | ) | ||||||||||||||||
Total revenues |
2,752 | 2,403 | 349 | 3,389 | 4,432 | (1,043 | ) | |||||||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Cost of sales of real estate |
2,175 | 1,269 | 906 | 2,175 | 1,962 | 213 | ||||||||||||||||||
Selling, general and
administrative expenses |
1,802 | 4,211 | (2,409 | ) | 4,461 | 8,649 | (4,188 | ) | ||||||||||||||||
Interest expense |
1,867 | 1,347 | 520 | 3,850 | 2,706 | 1,144 | ||||||||||||||||||
Total costs and expenses |
5,844 | 6,827 | (983 | ) | 10,486 | 13,317 | (2,831 | ) | ||||||||||||||||
Gain on sale of real estate assets |
275 | | 275 | 275 | | 275 | ||||||||||||||||||
Interest and other income |
433 | 126 | 307 | 486 | 410 | 76 | ||||||||||||||||||
Loss from continuing
operations before income taxes |
(2,384 | ) | (4,298 | ) | 1,914 | (6,336 | ) | (8,475 | ) | 2,139 | ||||||||||||||
Benefit for income taxes |
| | | | | | ||||||||||||||||||
Loss from continuing operations |
(2,384 | ) | (4,298 | ) | 1,914 | (6,336 | ) | (8,475 | ) | 2,139 | ||||||||||||||
Discontinued operations: |
||||||||||||||||||||||||
Income (loss) from
discontinued operations, net
of tax |
2,714 | 139 | 2,575 | 2,465 | (665 | ) | 3,130 | |||||||||||||||||
Net income (loss) |
$ | 330 | (4,159 | ) | 4,489 | (3,871 | ) | (9,140 | ) | 5,269 | ||||||||||||||
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Real Estate
For the Three Months Ended June 30, 2010 Compared to the Same 2009 Period
Revenues from sales of real estate for the three months ended June 30, 2010 and 2009 were
primarily comprised of land and home sales, and recognition of deferred revenue. During the three
months ended June 30, 2010, we sold approximately 8 acres, which generated revenues of
approximately $2.5 million, compared to the sale of approximately 3 acres, which generated revenues
of approximately $424,000 in the same 2009 period. We did not recognize deferred revenue on
previously sold land in the three months ended June 30, 2010, compared to approximately $1.1
million recognized in the three months ended June 30, 2009. Additionally, we earned $320,000 in
revenues from sales of real estate as a result of one home sold in the three months ended June 30,
2009, compared to no home sales in the same 2010 period.
Other revenues decreased to $297,000 for the three months ended June 30, 2010 from $675,000
for the same period in 2009. The decrease was due to lower rental income as a tenant did not renew
its lease agreement which expired in March 2010.
Cost of sales of real estate increased to $2.2 million for the three months ended June 30,
2010 from $1.3 million for the same 2009 period. The increase in cost of sales of real estate was
mainly due to an increase in sales of real estate at Core in the three months ended June 30, 2010
compared to the same 2009 period. The increase was partially offset by a decrease in the
recognition of deferred revenue in the second quarter of 2010 compared to the same 2009 period as
no deferred revenue was recognized in 2010.
Selling, general and administrative expenses decreased to $1.8 million for the three months
ended June 30, 2010 from $4.2 million for the same 2009 period. The decrease reflects the overall
slowdown of activities at Core, including specifically lower compensation and benefits expense and
lower office related expenses reflecting a lower headcount as a result of reductions in force at
Core in 2009, lower sales and marketing expenses as neither Core nor Carolina Oak engaged in
advertising activities in the quarter ended June 30, 2010, and lower developer expenses related to
property owner associations in Tradition, Florida.
Interest incurred totaled $1.9 million for the three months ended June 30 2010 and $2.0
million for the same 2009 period. No interest was capitalized in the three months ended June 30,
2010 while interest capitalized totaled $673,000 for the three months ended June 30, 2009. Net
interest expense increased in the three months ended June 30, 2010 compared to the same period in
2009 primarily as a result of the Companys decision to cease capitalizing interest in light of the
significantly reduced development activities in Florida and the suspension of development
activities in South Carolina. The increase was partially offset by lower interest rates for the
three months ended June 30, 2010 compared to the same period in 2009. Historically, the capitalized
interest allocated to inventory is charged to cost of sales as land and homes are sold. Cost of
sales of real estate for the three months ended June 30, 2010 and 2009 did not include any
significant amounts of previously capitalized interest.
Interest and other income increased to $433,000 during three months ended June 30, 2010 from
$126,000 during the same period in 2009. This increase was mainly due to fees reimbursed to us
during the three months ended June 30, 2010 associated with a land sale in Tradition, Florida, as
well as fees received in connection with sales made in prior periods.
Income from discontinued operations, all of which related to Cores Projects, increased to
$2.7 million in the three months ended June 30, 2010 from $139,000 in the same period in 2009. The
increase was due to a gain of approximately $2.6 million recorded in connection with the sale of
the Projects in June 2010. See Note 5 of the Notes to Unaudited Consolidated Financial Statements
for further information.
For the Six Months Ended June 30, 2010 Compared to the Same 2009 Period
During the six months ended June 30, 2010, we sold approximately 8 acres, which generated
revenues of approximately $2.5 million, compared to the sale of approximately 13 acres, which
generated revenues of approximately $1.1 million in the same 2009 period. We did not recognize
deferred revenue on previously sold land in the six months ended June 30, 2010, compared to
approximately $1.9 million in the six months ended June 30, 2009. Additionally, we earned $320,000
in revenues from sales of real estate as a result of 1 home sold in the six months ended June 30,
2009, compared to no home sales in the same 2010 period.
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Other revenues decreased to $934,000 for the six months ended June 30, 2010 from $1.3 million
for the
same period in 2009. The decrease was due to lower rental income as a tenant did not renew its
lease agreement which expired in March 2010.
Cost
of sales of real estate remained relatively unchanged totaling
$2.2 million for the six months
ended June 30, 2010 and $2.0 million for the same 2009 period. Costs of sales related to land
sales were higher in the six months ended June 30, 2010 compared to the same 2009 period, offset by
a decrease in the recognition of deferred revenue in the six months ended June 30, 2010 compared to
the same 2009 period as no deferred revenue was recognized in 2010.
Selling, general and administrative expenses decreased to $4.5 million for the six months
ended June 30, 2010 from $8.6 million for the same 2009 period. The decrease reflects the overall
slowdown of activities at Core , including specifically lower compensation and benefits expense and
lower office related expenses reflecting a lower headcount as a result of reductions in force at
Core in 2009, lower sales and marketing expenses as neither Core nor Carolina Oak engaged in
advertising activities in the six months ended June 30, 2010, and lower developer expenses related
to property owner associations in Tradition, Florida. In addition, there was lower severance
expense at Core in the six months ended June 30, 2010 compared to the same 2009 period. These
decreases were slightly offset by an increase in professional services and property tax expenses in
the six months ended June 30, 2010 compared to the same 2009 period
Interest incurred totaled $3.8 million for the six months ended June 30 2010 and $4.1 million
for the same 2009 period. No interest was capitalized in the six months ended June 30, 2010 while
interest capitalized totaled $1.4 million for the six months ended June 30, 2009. Net interest
expense increased in the six months ended June 30, 2010 compared to the same period in 2009
primarily as a result of the Companys decision to cease capitalizing interest in light of the
significantly reduced development activities in Florida and the suspension of development
activities in South Carolina. The increase was partially offset by lower interest rates for the
six months ended June 30, 2010 compared to the same period in 2009. Historically, the capitalized
interest allocated to inventory is charged to cost of sales as land and homes are sold. Cost of
sales of real estate for the six months ended June 30, 2010 and 2009 did not include any
significant amounts of previously capitalized interest.
Interest and other income increased to $486,000 during the six months ended June 30, 2010 from
$410,000 during the same period in 2009. This increase was mainly due to consulting fees
reimbursed to us during the six months ended June 30, 2010 associated with a land sale in
Tradition, Florida as well as fees received in connection with sales made in prior periods. The
increase was partially offset by lower forfeited deposits as no deposits were forfeited in the six
months ended June 30, 2010.
Income from discontinued operations, all of which related to Cores Projects, increased to
$2.5 million in the six months ended June 30, 2010 from a loss of $665,000 in the same period in
2009. The increase was due to a gain of approximately $2.6 million recorded in connection with the
sale of the Projects in June 2010. See Note 5 of the Notes to Unaudited Consolidated Financial
Statements for further information.
Cores Liquidity and Capital Resources
At June 30, 2010 and December 31, 2009, Core had cash and cash equivalents of $5.1 million and
$2.9 million, respectively. Cash increased by $2.2 million during the six months ended June 30,
2010 mainly due to the receipt of cash proceeds from a land sale comprising approximately 8 acres
in Tradition, Florida and net cash proceeds from the sale of the commercial leasing projects,
partially offset by cash used to fund Cores general and administrative expenses and severance
payments related to its recent reduction in work force. At June 30, 2010, 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 significant signs of recovery, particularly in the geographic regions where Cores
properties are located. The decrease in land sales 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 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 and is seeking to liquidate its assets in an orderly way. Core is currently in default
under the terms of all of its outstanding debt totaling approximately $139.2 million. Core
continues to pursue all options with its lenders, including offering deeds in lieu and other
similar transactions wherein Core would relinquish title to
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substantially all of its assets. During February, 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. In connection with the receivership, Core entered into a separate agreement with the
lender that, among other things, grants Core a right of first refusal to purchase the $25.3 million
loan in the event that the lender decides to sell the loan to a third party. This loan is
collateralized by inventory that had a net carrying value of $33 million, net of impairment charges
during 2009 of approximately $29.6 million. Separately, on April 7, 2010 and April 8, 2010, another
of Cores lenders filed a foreclosure action in South Carolina and Florida, respectively, seeking
foreclosure of mortgage loans totaling approximately $113.8 million, plus additional interest,
costs and expenses, including attorneys fees. Core is currently in negotiations with the lender,
regarding, among other things, accelerating the foreclosure actions, granting the lender a
perfected first lien and security interest in certain additional Core subsidiaries, and releasing
and indemnifying Core from any future obligations. As of June 30, 2010, the net carrying value of
Cores inventory collateralizing the defaulted loans that are the subject of these foreclosure
proceedings was $82 million, net of impairment charges during 2009 of approximately $33.7 million.
There was no impairment charge in the six months ended June 30, 2010. While negotiations with its
lenders continue, there is no assurance that Core will be successful in reaching any agreement with
its lenders with respect to resolution of its obligations.
In December 2009, Core reinitiated efforts to sell the Projects and began soliciting bids from
several potential buyers to purchase assets associated with the Projects. Due to this decision, the
assets associated with the Projects were classified as discontinued operations for all periods
presented in accordance with the accounting guidance for the disposal of long-lived assets. On June
10, 2010, Core completed the sale of the Projects to Inland with a sales price of approximately
$75.4 million. As a result of the sale, Core realized a gain on sale of discontinued operations of
approximately $2.6 million in the second quarter of 2010. The sale resulted in net cash proceeds to
Core of approximately $1.5 million. See Note 5 of the Notes to Unaudited Consolidated Financial
Statements for further information.
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
was scheduled in three installments: the first installment of $100,000 was due on October 21, 2009;
the second installment of $450,000 was due on January 1, 2010; and the final installment of
$450,000 was due on April 1, 2010. Additionally, Core was obligated to fund certain staffing costs
of $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. 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.
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. In the
three and six months ended June 30, 2010, severance related payments at Core totaled approximately
$378,000 and $1.0 million, respectively.
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 it is not currently anticipated that Woodbridge will provide any funds to Core.
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. Cores
results are reported in the Real Estate Operations segment. See Note 19 of the Notes to Unaudited
Consolidated Financial Statements included in Item 1 of this report.
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.
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Cores bond financing at June 30, 2010 and December 31, 2009 consisted of district bonds
totaling $218.7 million at each of these dates with outstanding amounts of approximately $173.8
million and $170.8 million, respectively. Bond obligations at June 30, 2010 mature in 2035 and
2040. As of June 30, 2010, Core owned approximately 4% 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 three months ended June 30, 2010
and 2009, Core recorded a liability of approximately $66,000 and $158,000, respectively, in
assessments on property owned by it in the districts. During the six months ended June 30, 2010 and
2009, Core recorded a liability of approximately $225,000 and $317,000, 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 June 30, 2010, 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 June 30,
2010, the liability related to developer obligations associated with Cores ownership of the
property was $175,000 after the sale of Cores commercial leasing projects in June 2010 (See Note 5
of the Notes to Unaudited Consolidated Financial Statements for information relating to the
sale). At December 31, 2009, the liability related to developer obligations was $3.3 million, of
which $3.1 million was included in the liabilities related to assets held for sale in the
accompanying consolidated statement of financial condition as of December 31, 2009.
The following table summarizes our Real Estate and Other contractual obligations (excluding
Bluegreen) as of June 30, 2010 (in thousands):
Payments due by period | ||||||||||||||||||||
Less than | 13 - 36 | 37 - 60 | More than | |||||||||||||||||
Category (1) | Total | 12 Months | Months | Months | 60 Months | |||||||||||||||
Debt obligations (2) |
$ | 273,077 | 176,580 | 496 | 10,790 | 85,211 | ||||||||||||||
Operating lease obligations |
710 | 475 | 176 | 59 | | |||||||||||||||
Severance related
termination obligations |
159 | 159 | | | | |||||||||||||||
Total obligations |
$ | 273,946 | 177,214 | 672 | 10,849 | 85,211 | ||||||||||||||
(1) | Debt obligations consist of notes, mortgage notes and bonds payable and junior subordinated debentures. 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. Debt obligations include defaulted loans totaling approximately $176.4 million as of June 30, 2010, 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 3 of the Notes to Unaudited Consolidated Financial Statements included in Item 1 of this report for more information regarding the defaulted loans. | |
(2) | These amounts represent scheduled principal payments. |
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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.
At each of June 30, 2010 and December 31, 2009, Core had outstanding surety bonds of
approximately $860,000, 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 be drawn upon.
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 $7.6 million plus costs
and expenses in accordance with the surety indemnity agreements executed by Woodbridge. At June 30,
2010 and December 31, 2009, Woodbridge had $490,000 and $527,000, respectively, in surety bond
accruals 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 $37,000 during the six months ended June 30, 2009, in accordance with the
indemnity agreement for bond claims paid during the period, while no reimbursements were made in
the six months ended June 30, 2010. In addition, no reimbursements were made in the three months
ended June 30, 2010 or 2009. 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 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. However, based on claims made on the bonds, the surety requested
that Woodbridge post a $4.0 million escrow deposit while the matter is being litigated with the
municipality and Woodbridge complied with that request. In August 2010, Woodbridge was granted a
motion for summary judgment terminating any obligations under the bonds. It is anticipated that the
municipality will seek rehearing and, if it is denied, will prosecute an appeal of the courts
decision.
Bluegreen
Bluegreens results of operations for the three and six months ended June 30, 2010 are reported
through two reportable segments which are Bluegreen Resorts and Bluegreen Communities. For the
three and six months ended June 30, 2009, our earnings attributable to Bluegreen were reported as
part of Woodbridge other operations which continues to be included in the BFC Activities segment.
Bluegreens results for the three and six months ended June 30, 2010 reflect its continued
efforts to improve its cash flows from operations by targeting higher cash from sales of VOIs by
continuing to improve its selling and marketing efficiencies in its Resorts Division and by efforts
to increase its cash fee-based service businesses. While its cash flows from operations and its
Resorts Division segment operating margin reflects the success of these efforts, the Communities
Division continued to be impacted by low consumer demand for homesites.
During the three months ended June 30, 2010:
| The Bluegreen Communities Division generated a segment operating loss of approximately $4.1 million. | ||
| Bluegreens fee-based service business sold $18.2 million of third-party developer inventory and earned sales and marketing commissions of $12.1 million. | ||
| Bluegreens adoption of the amendment to the accounting guidance associated with the consolidation of VIEs on January 1, 2010, resulted in its consolidation of seven existing special purpose financing entities that are associated with past securitization transactions. In addition to the changes to the Companys Consolidated Statement of Financial Condition (see Note 2 of the Notes to the Unaudited Consolidated Financial Statements"), the consolidation of these special purpose finance entities impacted the Statement of Operations during the three months ended June 30, 2010 by increasing Bluegreens interest income from VOI notes receivable and increasing interest expense on notes payable, compared to prior periods. |
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As discussed further under Liquidity and Capital Resources, Bluegreen Resorts sales and
marketing 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 by Bluegreen 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 or similar arrangements 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. The term securitization market continues to be limited and, as a
result, Bluegreen believes that financial institutions have been and continue to be more cautious
about entering 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 timeshare 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.
While Bluegreen believes that the market for its Resorts product remains relatively strong,
Bluegreen is continuing to deemphasize its sales operations to conserve cash because of the
uncertainties in the credit markets. In an effort to conserve cash and availability under its note
receivable credit facilities, Bluegreen implemented strategic initiatives which have included
closing certain sales offices; eliminating what Bluegreen identified as lower-efficiency marketing
programs; emphasizing cash sales and higher cash down payments as well as pursuing its cash
fee-based services business; reducing overhead, including eliminating a significant number of staff
positions across a variety of areas at multiple locations; reducing capital expenditures; limiting
sales to borrowers who meet Bluegreens FICO®