SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the quarterly period ended September 30, 2002 |
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OR |
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
Commission file number: 1-13173
BOCA RESORTS, INC.
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Delaware (State of Incorporation) |
65-0676005 (I.R.S. Employer Identification No.) |
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501 East Camino Real Boca Raton, Florida (Address of Principal Executive Offices) |
33432 (Zip Code) |
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Registrant’s telephone number, including area code: (561) 447-5300
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report: Not Applicable
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
As of November 14, 2002, there were 38,947,079 shares of Class A Common Stock, $.01 par value per share, and 255,000 shares of Class B Common Stock, $.01 par value per share, outstanding.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
BOCA RESORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | June 30, | |||||||||
| 2002 | 2002 | |||||||||
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ASSETS |
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Current assets:
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||||||||||
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Cash and cash equivalents
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$ | 9,667 | $ | 3,691 | ||||||
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Restricted cash
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649 | 721 | ||||||||
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Accounts receivable, net
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18,117 | 21,591 | ||||||||
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Inventory
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6,415 | 6,433 | ||||||||
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Current portion of Premier Club notes receivable
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3,602 | 3,382 | ||||||||
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Other current assets
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3,583 | 3,223 | ||||||||
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Total current assets
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42,033 | 39,041 | ||||||||
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Property and equipment, net
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817,951 | 822,630 | ||||||||
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Intangible assets, net
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34,518 | 34,518 | ||||||||
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Long-term portion of Premier Club notes receivable
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7,256 | 7,410 | ||||||||
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Other assets
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12,457 | 13,137 | ||||||||
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Total assets
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$ | 914,215 | $ | 916,736 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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||||||||||
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Accounts payable and accrued expenses
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$ | 32,464 | $ | 30,222 | ||||||
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Current portion of deferred revenue and advance
deposits
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33,258 | 22,355 | ||||||||
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Net liabilities of discontinued operations
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1,938 | 2,436 | ||||||||
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Current portion of credit line and note payable
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231 | 227 | ||||||||
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Total current liabilities
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67,891 | 55,240 | ||||||||
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Credit line and note payable
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22,234 | 18,793 | ||||||||
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Deferred revenue, net of current portion
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38,085 | 38,073 | ||||||||
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Other liabilities
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9,591 | 9,695 | ||||||||
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Deferred income taxes
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24,373 | 30,052 | ||||||||
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Senior subordinated notes payable
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192,895 | 192,895 | ||||||||
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Premier Club refundable membership fees
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55,092 | 55,716 | ||||||||
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Commitments and contingencies
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Shareholders’ equity:
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||||||||||
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Class A Common Stock, $.01 par value,
100,000,000 shares authorized and 39,247,079 and 39,538,479
shares issued and outstanding at September 30, 2002 and
June 30, 2002, respectively
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392 | 395 | ||||||||
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Class B Common Stock, $.01 par value,
10,000,000 shares authorized and 255,000 shares issued and
outstanding at June 30, 2002 and 2001.
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3 | 3 | ||||||||
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Contributed capital
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461,421 | 464,565 | ||||||||
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Retained earnings
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42,238 | 51,309 | ||||||||
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Total shareholders’ equity
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504,054 | 516,272 | ||||||||
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Total liabilities and shareholders’ equity
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$ | 914,215 | $ | 916,736 | ||||||
See accompanying notes to consolidated financial statements.
1
BOCA RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| 2002 | 2001 | |||||||||
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Leisure and recreation revenue
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$ | 46,292 | $ | 39,520 | ||||||
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Operating expenses:
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Cost of leisure and recreation services
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26,401 | 24,046 | ||||||||
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Selling, general and administrative expenses
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20,114 | 19,300 | ||||||||
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Depreciation
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8,946 | 7,710 | ||||||||
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Loss on early retirement of debt
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— | 1,415 | ||||||||
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Total operating expenses
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55,461 | 52,471 | ||||||||
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Operating loss
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(9,169 | ) | (12,951 | ) | ||||||
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Interest and other income
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30 | 717 | ||||||||
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Interest expense
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(5,611 | ) | (6,954 | ) | ||||||
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Loss from continuing operations before income
taxes
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(14,750 | ) | (19,188 | ) | ||||||
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Benefit for income taxes
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5,679 | 7,675 | ||||||||
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Loss from continuing operations
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(9,071 | ) | (11,513 | ) | ||||||
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Gain on disposition of discontinued operations,
net of income taxes
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— | 23,728 | ||||||||
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Net income (loss)
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$ | (9,071 | ) | $ | 12,215 | |||||
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Loss per share from continuing operations
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$ | (0.23 | ) | $ | (0.29 | ) | ||||
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Income per share from discontinued operations
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— | 0.59 | ||||||||
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Net income (loss) per share —
basic and diluted
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$ | (0.23 | ) | $ | 0.31 | |||||
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Shares used in computing income (loss) per
share — basic and diluted
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39,651 | 39,931 | ||||||||
See accompanying notes to consolidated financial statements.
2
BOCA RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2002 | 2001 | ||||||||||
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Operating activities:
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Net income (loss)
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$ | (9,071 | ) | $ | 12,215 | ||||||
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Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
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Amortization and depreciation
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8,946 | 7,710 | |||||||||
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Benefit for deferred income taxes
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(5,679 | ) | (7,675 | ) | |||||||
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Impairment loss on land parcel
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2,341 | — | |||||||||
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Gain on sale of land parcel
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(2,291 | ) | — | ||||||||
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Gain on disposition of discontinued operations,
net of income taxes
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— | (23,728 | ) | ||||||||
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Loss on early retirement of debt
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— | 1,415 | |||||||||
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Changes in operating assets and liabilities
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Accounts receivable
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3,474 | 2,069 | |||||||||
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Other assets
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613 | 1,150 | |||||||||
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Accounts payable and accrued expenses
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3,193 | 483 | |||||||||
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Deferred revenue and other liabilities
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10,187 | 13,015 | |||||||||
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Net liabilities from discontinued operations
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(498 | ) | — | ||||||||
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Net cash provided by operating activities
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11,215 | 6,654 | |||||||||
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Investing activities:
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Net proceeds from the sale of land parcel
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5,641 | — | |||||||||
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Net proceeds from the disposition of discontinued
operations
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— | 81,919 | |||||||||
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Capital expenditures
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(11,250 | ) | (22,929 | ) | |||||||
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Change in restricted cash
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72 | (3,175 | ) | ||||||||
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Net cash provided by (used in) investing
activities
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(5,537 | ) | 55,815 | ||||||||
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Financing activities:
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Borrowings under credit facilities
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6,000 | — | |||||||||
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Payments under long-term debt agreements and
credit facility
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(2,555 | ) | (50 | ) | |||||||
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Repurchases of 9.875% senior subordinated notes
payable
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— | (50,000 | ) | ||||||||
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Repurchases of common stock
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(3,147 | ) | (555 | ) | |||||||
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Proceeds from exercise of stock options
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— | 530 | |||||||||
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Net cash provided by (used in) in financing
activities
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298 | (50,075 | ) | ||||||||
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Cash provided by (used in) continuing operations
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6,474 | (69,525 | ) | ||||||||
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Cash provided by (used in) discontinued operations
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(498 | ) | 81,919 | ||||||||
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Cash and cash equivalents, at beginning of period
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3,691 | 9,909 | |||||||||
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Cash and cash equivalents, at end of period
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$ | 9,667 | $ | 22,303 | |||||||
See accompanying notes to consolidated financial statements.
3
BOCA RESORTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Boca Resorts, Inc. and subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the financial information furnished in this report reflects all material adjustments (including normal recurring accruals) necessary for a fair presentation of the results for the interim period presented. The results of operations for the three months ended September 30, 2002 are not necessarily indicative of the results to be expected for the entire year primarily due to seasonal variations. All significant intercompany accounts have been eliminated.
2. Nature of Operations
The Company is an owner and operator of five luxury resorts located in Florida with hotels, conference facilities, golf courses, spas, marinas and private clubs. The Company’s resorts include the Boca Raton Resort & Club (Boca Raton), the Registry Resort at Pelican Bay (Naples), the Edgewater Beach Hotel (Naples), the Hyatt Regency Pier 66 Hotel and Marina (Fort Lauderdale), and the Radisson Bahia Mar Resort and Yachting Center (Fort Lauderdale). The Company also owns and operates two championship golf courses located in Florida - Grande Oaks Golf Club in Davie and Naples Grande Golf Club in Naples.
The Company sold its entertainment and sports business, which primarily consisted of the operations of the Florida Panthers Hockey Club and related arena management operations, on July 25, 2001. Accordingly, the Company’s entertainment and sports business has been accounted for as discontinued operations and the accompanying Consolidated Financial Statements presented herein report separately the net assets and operating results of this discontinued operation.
3. Earnings Per Common Share
Basic earnings per share equals net income divided by the number of weighted average common shares outstanding. Diluted earnings per share includes the effects of common stock equivalents to the extent they are dilutive.
The following options to purchase shares of common stock were outstanding during the periods presented, but were not included in the computation of earnings per share because the Company reported a loss from continuing operations during the periods and, therefore, the effect would be antidilutive.
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2002 | 2001 | |||||||
| (In Thousands) | ||||||||
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Number of shares covered by options
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6,532 | 5,758 | ||||||
4. Recently Implemented Accounting Standards
In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. The new rules apply to the classification and impairment analysis conducted on long-lived assets other than intangible assets and was adopted by the Company on July 1, 2001. The new rules provide a single accounting treatment for the impairment of long-lived assets and implementation guidance regarding impairment calculations. This statement also modifies accounting and disclosure requirements for discontin-
4
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ued operations. The adoption of SFAS No. 144 did not have a material impact on the Company’s results of operations or financial position.
In April 2002, the FASB issued SFAS No. 145, which rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”. Previously, SFAS No. 4 required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Under SFAS No. 145, gains and losses from extinguishment of debt are classified as extraordinary items only if they meet the criteria in Accounting Principles Board (“APB”) Opinion 30, “Reporting the Results of Operations – Discontinued Events and Extraordinary Items”. Applying the provisions of APB Opinion 30 will distinguish transactions that are part of an entity’s recurring operations from those that are unusual or infrequent, or that meet the criteria for classification as an extraordinary item. The Company adopted SFAS No. 145 on July 1, 2002. Accordingly, losses on the extinguishment of debt that were classified as an extraordinary item in the prior period presented, have been reclassified to recurring operations.
5. Comprehensive Income (loss)
Comprehensive income (loss) was the same as net income (loss) for the three months ended September 30, 2002 and 2001.
6. Long-Lived Assets and Assets to be Disposed of
In August 2002, the Company sold a land parcel located in Naples, Florida for $5.7 million. The transaction yielded net proceeds of $5.6 million and a pre-tax gain of $2.3 million, which is included in interest and other income in the accompanying Unaudited Condensed Consolidated Statements of Operations.
In October 2002, the Company entered into a contract for sale on a land parcel located in Plantation, Florida for $7.2 million, which is expected to close not later than December 20, 2002. During the three months ended September 30, 2002, the Company recorded an impairment loss of $2.3 million to reflect the difference between the carrying value of this land parcel and the net realizable value. The impairment loss is included in interest and other income in the accompanying Unaudited Condensed Consolidated Statements of Operations.
5
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This report may not contain all the information that is important to you and should be read together with the Annual Report on Form 10-K for the fiscal year ended June 30, 2002, including the disclosure relating to critical accounting policies in Management’s Discussion and Analysis.
Business Strategy
The Company’s current business strategy is to focus on internal expansion and development opportunities at its existing resort properties. However, management continuously evaluates ownership, acquisition and divestiture alternatives with the intention of maximizing shareholder value.
Seasonality
The Company’s business operations are generally seasonal. The Company’s resorts historically experience greater revenue, costs and earnings in the third quarter of the fiscal year ended June 30 due to increased occupancy and room rates during the winter months. Historically, approximately 16%, 25%, 35% and 24% of annual revenue has been derived during the first, second, third and fourth fiscal quarters, respectively.
Management Outlook
During the three-month period following the September 11, 2001 terrorist attacks on New York’s World Trade Center towers and on the Pentagon, the Company’s results of operations were adversely affected by travel disruption and short-term cancellation of group bookings at its properties. The Company’s resorts have experienced an increase in demand since the beginning of the calendar year, however, the Company continues to experience an overall slower recovery than expected because of the difficult economic conditions.
The weakness in the economy has made it more difficult for management to predict future results than in the past. Even though the Company has a solid base of large group business already on the books, reservation patterns have become increasingly short-term as it relates to its leisure customer, and small group market. The weaker economy has also made it more difficult to achieve originally anticipated levels of ancillary spending. To remain competitive and combat the short-term uncertainty, the Company has introduced various value-added programs targeting both its leisure and group customer. Because of these factors, management expects that its operating results for the remainder of fiscal 2003 will be lower than originally anticipated, but higher than the comparable prior year periods.
6
The accompanying table sets forth the operating results for the three months ended September 30 (expressed in 000’s):
| 2002 | 2001 | ||||||||||
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Leisure and recreation revenue
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$ | 46,292 | $ | 39,520 | |||||||
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Operating expenses:
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Cost of leisure and recreation services
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26,401 | 24,046 | |||||||||
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Selling, general and administrative expenses:
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Leisure and recreation
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18,789 | 17,761 | |||||||||
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Corporate
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1,325 | 1,539 | |||||||||
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Depreciation:
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Leisure and recreation
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8,893 | 7,643 | |||||||||
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Corporate
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53 | 67 | |||||||||
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Loss on early retirement of debt
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— | 1,415 | |||||||||
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Total operating expenses
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55,461 | 52,471 | |||||||||
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Operating loss:
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Leisure and recreation
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(7,791 | ) | (9,930 | ) | |||||||
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Corporate
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(1,378 | ) | (3,021 | ) | |||||||
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Total operating loss
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(9,169 | ) | (12,951 | ) | |||||||
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Interest and other income
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30 | 717 | |||||||||
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Interest expense
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(5,611 | ) | (6,954 | ) | |||||||
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Loss from continuing operations before income
taxes
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(14,750 | ) | (19,188 | ) | |||||||
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Benefit for income taxes
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5,679 | 7,675 | |||||||||
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Loss from continuing operations
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(9,071 | ) | (11,513 | ) | |||||||
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Gain on disposition of discontinued operations,
net of income taxes
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— | 23,728 | |||||||||
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Net income (loss)
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$ | (9,071 | ) | $ | 12,215 | ||||||
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Net cash provided by operating activities
|
$ | 11,215 | $ | 6,654 | |||||||
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Net cash provided by (used in) investing
activities
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$ | (5,537 | ) | $ | 55,815 | ||||||
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Net cash provided by (used in) financing
activities
|
$ | 298 | $ | (50,075 | ) | ||||||
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EBITDA (EBITDA loss):
|
|||||||||||
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Leisure and recreation
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$ | 1,102 | $ | (2,287 | ) | ||||||
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Corporate
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(1,325 | ) | (1,539 | ) | |||||||
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Total
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$ | (223 | ) | $ | (3,826 | ) | |||||
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Adjusted EBITDA (Adjusted EBITDA loss):
|
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Leisure and recreation
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$ | 957 | $ | (1,706 | ) | ||||||
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Corporate
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(1,325 | ) | (1,539 | ) | |||||||
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Total
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$ | (368 | ) | $ | (3,245 | ) | |||||
7
The accompanying table sets forth additional operating data for the three months ended September 30 (expressed in 000’s except operating statistics):
| 2002 | 2001 | % Chg. | ||||||||||||
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Revenue:
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Room revenue
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$ | 16,207 | $ | 13,874 | 17 | % | ||||||||
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Non-room related revenue
|
30,085 | 25,646 | 17 | % | ||||||||||
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Total leisure and recrea | ||||||||||||||