Bluegreen Vacations Holding Corp - Quarter Report: 2005 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the Quarter Ended March 31, 2005

OR

Commission File Number
333-72213

BFC Financial Corporation

Not Applicable
(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, and (2) has been subject to such filing requirements for the past 90 days.

YES þ                     NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

YES þ                     NO o

Indicate the number of shares outstanding for each of the Registrant’s classes of common stock, as of the latest practicable date at May 4, 2005:

Class A Common Stock of $.01 par value, 23,863,402 shares outstanding.
Class B Common Stock of $.01 par value, 4,290,872 shares outstanding.

BFC Financial Corporation and Subsidiaries
Index to Unaudited Consolidated Financial Statements

2

BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition — Unaudited
(In thousands, except share data)

See accompanying notes to unaudited consolidated financial statements.

3

BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations — Unaudited
(In thousands, except per share data)

      See accompanying notes to unaudited consolidated financial statements.

4

BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations — Unaudited
(In thousands, except per share data)

See accompanying notes to unaudited consolidated financial statements.

5

BFC Financial Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income — Unaudited
(In thousands, except per share data)

The components of other comprehensive income relate to the Company’s net unrealized gains (losses) on securities available for sale, net of income taxes and the Company’s proportionate shares of non-wholly owned subsidiaries other comprehensive income, net of income taxes, such as net unrealized losses on securities available for sale and unrealized gains or loss associated with investment in unconsolidated real estate subsidiary.

See accompanying notes to unaudited consolidated financial statements.

6

BFC Financial Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity — Unaudited
For the Three Months Ended March 31, 2005
(In thousands)

See accompanying notes to unaudited consolidated financial statements.

7

BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows — Unaudited
(In thousands)

(Continued)

See accompanying notes to unaudited consolidated financial statements.

8

BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows — Unaudited
(In thousands)

See accompanying notes to unaudited consolidated financial statements.

9

BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements

1. Presentation of Interim Financial Statements

      BFC Financial Corporation (“BFC” or the “Company”) is a diversified holding company with investments in companies engaged in retail and commercial banking, full service investment banking and brokerage, homebuilding, master planned community development and time share and vacation ownership. The Company also holds interests in an Asian-themed restaurant chain and various real estate and venture capital investments. The Company’s principal holdings consist of direct controlling interests in BankAtlantic Bancorp, Inc. (“BankAtlantic Bancorp”) and Levitt Corporation (“Levitt”). Through its control of BankAtlantic Bancorp, BFC has indirect controlling interests in BankAtlantic and its subsidiaries (“BankAtlantic”) and RB Holdings, Inc. and its subsidiaries (“Ryan Beck”). Through its control of Levitt, BFC has indirect controlling interests in Levitt and Sons, LLC (“Levitt and Sons”), Bowden Building Corporation (“Bowden”) and Core Communities, LLC (“Core Communities”) and an indirect non-controlling interest in Bluegreen Corporation (“Bluegreen”). BFC also holds a direct non-controlling minority investment in Benihana, Inc. (“Benihana”). As a result of the Company’s position as the controlling stockholder of BankAtlantic Bancorp, the Company is a “unitary savings bank holding company” regulated by the Office of Thrift Supervision.

      BankAtlantic Bancorp (NYSE:BBX) is a Florida-based diversified financial services holding company. BankAtlantic Bancorp’s principal assets include the capital stock of BankAtlantic and Ryan Beck. BankAtlantic is a federal savings bank headquartered in Fort Lauderdale, Florida, which provides traditional retail banking services and a wide range of commercial banking products and related financial services through a network of 75 branches. Ryan Beck is an investment banking firm which is a federally registered broker-dealer. Ryan Beck is a full service broker-dealer headquartered in Florham Park, New Jersey. Ryan Beck provides financial advice to individuals, institutions and corporate clients through 39 offices in 14 states. Ryan Beck also engages in the underwriting, distribution and trading of tax-exempt, equity and debt securities.

      Levitt (NYSE:LEV) engages in homebuilding, land development and other real estate activities through Levitt and Sons, Core Communities, Levitt Commercial, LLC (“Levitt Commercial”), Bowden, and investments in real estate projects. Levitt also owns approximately 31% of the outstanding common stock of Bluegreen, a New York Stock Exchange-listed (NYSE:BXG) company that acquires, develops, markets and sells vacation ownership interests in primarily “drive-to” resorts and develops and sells residential home sites around golf courses or other amenities. Levitt acquired Bowden on April 28, 2004 for approximately $7.4 million.

      The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, majority-controlled subsidiaries, including BankAtlantic Bancorp and Levitt, majority-owned joint ventures and variable interest entities in which the Company’s subsidiaries are the primary beneficiary, as defined by Financial Accounting Standards Board (“FASB”) revised Interpretation No. 46 “Consolidation of Variable Interest Entities” (“FIN 46”).

      As a holding company with control positions in BankAtlantic Bancorp and Levitt, generally accepted accounting principles (GAAP) require the consolidation of the financial results of both companies with those of BFC. As a consequence, the assets and liabilities of both entities are presented on a consolidated basis in BFC’s financial statements. However, except as otherwise noted, the debts and obligations of the consolidated entities 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 the entity. The recognition by BFC of income from controlled entities is determined based on the percentage of its economic ownership in those entities. As shown below, BFC’s economic ownership in BankAtlantic Bancorp and Levitt is 21.8% and 16.6%, respectively, which results in BFC recognizing 21.8% and 16.6% of BankAtlantic Bancorp’s and Levitt’s net income, respectively.

10

      BFC’s ownership in BankAtlantic Bancorp and Levitt as of March 31, 2005 was as follows:

      The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals, except for litigation settlement gain during the three months ended March 31, 2004.) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2004. All significant inter-company balances and transactions have been eliminated in consolidation.

      Certain amounts for prior periods have been reclassified to conform to the statement presentation for 2005.

2. 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 and regulatory environment. The activities of reportable segments exclude discontinued operations, extraordinary gains (losses) and income (loss) from changes in accounting principles.

      The information provided for Segment Reporting is based on internal reports utilized by management. The presentation and allocation of interest expense and overhead and the net contribution for the operating segments may not reflect the actual economic costs, contribution or results of operations 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 would, in management’s view, likely not be impacted.

      The Company is currently organized into three reportable segments: BFC Activities, Financial Services and Homebuilding &Real Estate Development.

      The following summarizes the aggregation of the Company’s operating segments into reportable segments:

BFC Activities

11

BankAtlantic Bancorp or Levitt, but include the provision for income taxes relating to the tax effect of the Company’s earnings from BankAtlantic Bancorp and Levitt. BankAtlantic Bancorp and Levitt are consolidated in our financial statements, as described earlier.

Financial Services

Homebuilding & Real Estate Development

      The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Inter-company loans, interest income and interest expense and management and consulting fees are eliminated for consolidated presentation. The Company evaluates segment performance based on net income after tax.

      The table below reflects the consolidated data of our business segments for the three months ended March 31, 2005 and 2004 (in thousands):

12

3. Stock Based Compensation

      The Company currently accounts for stock option grants under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. No compensation expense is recognized because all stock options granted have exercise prices not less than market value of the Company’s stock on the date of grant.

13

      The following table illustrates the effect on net income available to common shareholders and earnings per share as of common stock as if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS 148, “Accounting for Stock-Based compensation — Transition and Disclosure”, to stock-based employee compensation (in thousands, except per share data):

      During the three months ended March 31, 2005 and 2004 the Company received net proceeds of $12,000 and $626,000, respectively, from the exercise of stock options. . During the quarter ended March 31, 2004 the Company accepted 6,092 shares of Class A Common Stock and 86,873 shares of Class B Common Stock with a fair value of $1.4 million as consideration for the exercise price of stock options and optionees’ minimum statutory withholding taxes related to option exercises.

4. Advances from the Federal Home Loan Bank

      Of the $1.5 billion of FHLB advances outstanding at March 31, 2005, $531 million mature between 2008 and 2011 and have a weighted average interest rate of 5.41%, and $994 million are LIBOR-based floating rate advances that mature between 2005 and 2006 and have a weighted average interest rate of 2.89%.

      During the three months ended March 31, 2004 BankAtlantic prepaid $108 million of Federal Home Loan Bank (“FHLB”) advances incurring prepayment penalties of $11.7 million.

14

5. Defined Benefit Pension Plan

      At December 31, 1998, BankAtlantic Bancorp froze its defined benefit pension plan (“Plan”). All participants in the Plan ceased accruing service benefits beyond that date. BankAtlantic Bancorp is subject to future pension expense or income based on future actual plan returns and actuarial values of the Plan obligations to employees. Under the Plan, net periodic pension expense (benefit) incurred includes the following components (in thousands):

      BankAtlantic did not contribute to the Plan during the three months ended March 31, 2005 and 2004. BankAtlantic is not required to contribute to the Plan for the year ending December 31, 2005.

6. Securities Owned

      Ryan Beck’s securities owned activities were associated with sales and trading activities conducted both as principal and as agent on behalf of individual and institutional investor clients of Ryan Beck. Transactions as principal involve making markets in securities which are held in inventory to facilitate sales to and purchases from customers. Ryan Beck also realizes gains and losses from proprietary trading activities.

      Ryan Beck’s securities owned (at fair value) consisted of the following (in thousands):

      In the ordinary course of business, Ryan Beck borrows or carries excess funds under an agreement with its clearing broker. Securities owned are pledged as collateral for clearing broker borrowings. As of March 31, 2005 and December 31, 2004, balances due from the clearing broker were $1.1 million and $16.6 million, respectively.

15

      Ryan Beck’s securities sold but not yet purchased consisted of the following (in thousands):

      Securities sold, but not yet purchased, are a part of Ryan Beck’s normal activities as a broker and dealer in securities and are subject to off-balance sheet risk should Ryan Beck be unable to acquire the securities for delivery to the purchaser at prices equal to or less than the current recorded amounts.

7. Loans Receivable

      The loan portfolio consisted of the following components (in thousands):

      At March 31, 2005, loans to Levitt from BankAtlantic and BankAtlantic Bancorp had an outstanding balance of approximately $7.6 million and $16.0 million, respectively. At December 31, 2004, loans to Levitt from BankAtlantic and BankAtlantic Bancorp had an outstanding balance of approximately $8.6 million and $38.0

16

million, respectively. These inter-company loans and related interest were eliminated in consolidation. At March 31, 2005, BankAtlantic had $3.8 million of undisbursed loans in process to Levitt.

8. Real Estate Held for Development and Sale

      Real estate held for development and sale consists of the combined activities of Levitt and its subsidiaries as well as the real estate held by a joint venture that was acquired in connection with the Community Savings Bankshares (“Community”) acquisition during March 2002 in which BankAtlantic Bancorp is the primary beneficiary. Also included in other real estate held for development and sale is BFC’s real estate, Burlington Manufacturers Outlet Center (“BMOC”), a shopping center in North Carolina and the unsold land at the commercial development known as Center Port in Pompano Beach, Florida. Also included in other real estate held for development and sale is real estate associated with branch banking facilities.

      Real estate held for development and sale consisted of the following (in thousands):

9. Investments in Unconsolidated Subsidiaries

      The consolidated statements of financial condition include the following amounts for investments in and advances to unconsolidated subsidiaries consisting of the following (in thousands):

      Levitt’s investment in Bluegreen is accounted for under the equity method. At March 31, 2005, Levitt owned approximately 9.5 million shares, or approximately 31% of Bluegreen’s outstanding common stock.

17

      Bluegreen’s unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of income are as follows (in thousands):

Unaudited Condensed Consolidated Balance Sheets

Unaudited Condensed Consolidated Statements of Income

10. Minority Interest

      At March 31, 2005 and December 31, 2004, minority interest was approximately $647.1 million and $612.7 million, respectively. The following table summarizes the minority interest held by others in our subsidiaries (in thousands):

11. BankAtlantic Branch Sale

      In January 2005, BankAtlantic sold a branch that was acquired in March 2002 in connection with the Community acquisition. The branch was not meeting performance expectations and the location of the branch caused higher than average operating expenses.

18

      The following tables summarizes the assets sold, liabilities transferred and cash outflows associated with the branch sale (in thousands).

12. Interest expense of consolidated entities, net of interest capitalized

      Interest incurred relating to land under development and construction is capitalized to real estate inventories during the active development period of the property at the effective rates paid on borrowings. Capitalization of interest is discontinued when development ceases at a project. Capitalized interest is expensed as a component of cost of sales as related homes, land and units are sold. The following table is a summary of interest expense on notes and mortgage notes payable and the amounts capitalized (in thousands):

13. Junior Subordinated Debentures

      In March 2005, Levitt formed a statutory business trust Levitt Capital Trust 1, (the “Trust”) for the purpose of issuing trust preferred securities and investing the proceeds thereof in Levitt’s junior subordinated debentures (the “Debentures”). On March 15, 2005, the Trust issued $22.5 million of trust preferred securities. The Trust used the proceeds from issuing the trust preferred securities to purchase an identical amount of Debentures from Levitt. Interest on the Debentures and distributions on the trust preferred securities will be payable quarterly in arrears at a fixed rate of 8.11% through March 30, 2010 and thereafter at a floating rate of 3.85% over 3-month London Interbank Offered Rate (“LIBOR”) until the scheduled maturity date of March 30, 2035. Distributions on the trust preferred securities will be cumulative and based upon the liquidation value of the trust preferred security. The trust preferred securities will be subject to mandatory redemption, in whole or in part, upon repayment of the Debentures at maturity or their earlier redemption. The Debentures are redeemable five years from the issue date or sooner following certain specified events. In addition, Levitt contributed $696,000 to the Trust in exchange for the Trust’s common securities, all of which are owned by Levitt, and those proceeds were also used to purchase an identical amount of Debentures from Levitt. The terms of the Trust’s common securities are nearly identical to the trust preferred securities. The issuance of trust preferred securities was part of a larger pooled trust securities offering which was not registered under the Securities Act of 1933. Proceeds were used to repay approximately $22.0 million of indebtedness to BankAtlantic Bancorp.

19

14. Contingencies and Financial Instruments with off-Balance Sheet Risk

      Financial instruments with off-balance sheet risk were (in thousands):

BFC

      Other than the Benihana Preferred Stock commitment, BFC did not directly have any financial instruments with off-balance sheet risk and the remaining instruments indicated above are those of our controlled entities, BankAtlantic Bancorp and Levitt and their affiliates and are all non-recourse to BFC.

BankAtlantic Bancorp

      BankAtlantic previously disclosed that it had identified deficiencies in its compliance with the USA PATRIOT Act, anti-money laundering laws and the Bank Secrecy Act and that it has been cooperating with regulators and other federal agencies concerning these deficiencies. BankAtlantic has provided and is continuing to provide information to the government pursuant to a number of subpoenas relating to, among other things, numerous customers and transactions and the Bank’s policies and procedures. BankAtlantic Bancorp cannot predict whether or to what extent civil or criminal regulatory action or monetary or other penalties will be pursued against BankAtlantic or the BankAtlantic Bancorp by regulators or other federal agencies. No amounts have been recorded at March 31, 2005 in the financial statements relating to possible penalties from federal agencies.

      Standby letters of credit are conditional commitments issued by BankAtlantic to guarantee the performance of a customer to a third party. BankAtlantic’s 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 $36.9 million at March 31, 2005. 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 $18.7 million at March 31, 2005. 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 March 31, 2005 and December 31, 2004 was $87,000 and $114,000, respectively, of unearned guarantee fees. There were no obligations associated with these guarantees recorded in financial statements.

Levitt

      At March 31, 2005, Levitt had approximately $211.7 million of commitments to purchase properties for development. Approximately $37.3 million of these commitments are subject to due diligence and satisfaction of

20

certain requirements and conditions, including financing contingencies. At March 31, 2005, cash deposits of approximately $3.8 million secured Levitt’s commitments under these contracts.

      At March 31, 2005, Levitt had outstanding surety bonds and letters of credit of approximately $69.4 million related primarily to its obligations to various governmental entities to construct improvements in Levitt’s various communities. Levitt estimates that approximately $50.3 million of work remains to complete these improvements. Levitt does not believe that any outstanding bonds or letters of credit will likely be drawn upon.

      In connection with the development of certain of Levitt’s communities, Levitt has established community development districts to access bond financing for the funding of infrastructure development and other projects within the community. If Levitt were not able to establish community development districts, Levitt would need to fund community infrastructure development out of operating income or through other sources of financing or capital. The bonds issued are obligations of the community development district and are repaid through assessments on property within the district. To the extent that Levitt owns property within a district when assessments are levied, Levitt will be obligated to pay such assessments when they are due. As of March 31, 2005, development districts in Tradition had $62.8 million of community development district bonds outstanding for which no assessments had been levied. As of March 31, 2005, Levitt owned approximately 66% of the property in the districts.

      Levitt has entered into an indemnity agreement with a joint venture partner relating to that partner’s guarantee of the joint venture’s indebtedness. Levitt’s maximum exposure under the indemnity agreement is estimated to be approximately $500,000. Based on the joint venture assets securing the indebtedness, it is reasonably likely that no payment will be required under the indemnity agreement.

15. Certain Relationships and Related Party Transactions

      BFC is the controlling shareholder of BankAtlantic Bancorp and Levitt. BFC also has an indirect non-controlling interest in Benihana and, through Levitt, an indirect ownership interest in Bluegreen. The majority of BFC’s capital stock is owned or controlled by the Company’s Chairman, Chief Executive Officer and President, and by the Company’s Vice Chairman, both of whom are also directors of the Company, executive officers and directors of BankAtlantic Bancorp and Levitt, and directors of Bluegreen. The Company’s Vice Chairman is also a director of Benihana.

      BFC, BankAtlantic Bancorp, Levitt and Bluegreen share various office premises and employee services, pursuant to the arrangements described below.

      During 2004, BankAtlantic Bancorp maintained service arrangements with BFC and Levitt, pursuant to which BankAtlantic Bancorp provided the following back-office support functions to Levitt and BFC: human resources, risk management, project planning, system support and investor and public relation services. For such services, BankAtlantic Bancorp is compensated for its costs plus 5%. Additionally, BankAtlantic Bancorp rents office space to Levitt and BFC on a month-to-month basis and receives rental payments at agreed upon rates that many not be equivalent to market rates. These amounts were eliminated in the Company’s statement of operations.

21

      The table below shows the service fees and rent payments received by BankAtlantic Bancorp from BFC and Levitt for office space rent and back-office support functions for the three months ended March 31, 2005 and 2004 (in thousands):

      Additionally, during the three months ended March 31, 2005 and 2004, Levitt paid BankAtlantic $29,000 and $15,000, respectively, for project management services and BankAtlantic Bancorp recognized expenses of $148,000 and $54,000, respectively, for risk management services provided by Bluegreen. For these services, BankAtlantic Bancorp pays or is compensated, as applicable, on a cost plus 5% basis.

      BFC, Levitt and two technology venture partnerships in which BFC has controlling interests maintained cash balances at BankAtlantic amounting to $49.3 million at March 31, 2005 and $39.6 million as of December 31, 2004.

      Florida Partners Corporation owns 133,314 shares of the Company’s Class B Common Stock and 1,270,294 shares of the Company’s Class A Common Stock. Alan B. Levan may be deemed to beneficially be the principal shareholder and is a member of the Board of Florida Partners Corporation. Glen R. Gilbert, Executive Vice President and Secretary of the Company holds similar positions at Florida Partners Corporation.

16. Earnings per share

      The Company has two classes of common stock outstanding. The two-class method is not presented because the Company’s capital structure does not provide for different dividend rates or other preferences, other than voting rights, between the two classes. The number of options considered outstanding shares for diluted earnings per share is based upon application of the treasury stock method to the options outstanding as of the end of the period. I.R.E. Realty Advisory Group, Inc. (“RAG”) owns 4,764,284 of BFC Financial Corporation’s Class A Common Stock and 500,000 shares of BFC Financial Corporation Class B Common Stock. Because the Company owns 45.5% of the outstanding common stock of RAG, 2,165,367 shares of Class A Common Stock and 227,250 shares of Class B Common Stock are eliminated from the number of shares outstanding for purposes of computing earnings per share.

22

      The following reconciles the numerators and denominators of the basic and diluted earnings per share computation for the three months ended March 31, 2005 and 2004 (in thousands, except per share data).

23

17. Parent Company Financial Information

      BFC’s parent company unaudited Condensed Statements of Financial Condition at March 31, 2005 and December 31, 2004, unaudited Condensed Statements of Operations and unaudited Condensed Statements of Cash Flows for the three months ended March 31, 2005 and 2004 are shown below:

Parent Company Condensed Statements of Financial Condition — Unaudited
(In thousands)