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 |
|
| For the quarterly period ended September 30, 2003 | ||
| OR | ||
| 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.
|
Delaware
|
65-0676005 | |
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |
|
501 East Camino Real Boca Raton, Florida (Address of Principal Executive Offices) |
33432 (Zip Code) |
|
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
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
As of November 3, 2003, there were 39,095,578 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.
| September 30, | June 30, | |||||||||
| 2003 | 2003 | |||||||||
| ASSETS | ||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 7,198 | $ | 8,110 | ||||||
|
Restricted cash
|
613 | 641 | ||||||||
|
Accounts receivable, net
|
16,184 | 20,960 | ||||||||
|
Inventory
|
6,472 | 6,616 | ||||||||
|
Current portion of Premier Club notes receivable
|
3,688 | 3,631 | ||||||||
|
Other current assets
|
3,424 | 3,238 | ||||||||
|
Total current assets
|
37,579 | 43,196 | ||||||||
|
Property and equipment, net
|
822,096 | 823,681 | ||||||||
|
Intangible assets, net
|
35,937 | 35,937 | ||||||||
|
Long-term portion of Premier Club notes receivable
|
8,522 | 8,157 | ||||||||
|
Other assets
|
8,900 | 9,179 | ||||||||
|
Total assets
|
$ | 913,034 | $ | 920,150 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
|
Current liabilities:
|
||||||||||
|
Accounts payable and accrued expenses
|
$ | 35,410 | $ | 33,515 | ||||||
|
Current portion of deferred revenue and advance
deposits
|
32,446 | 23,288 | ||||||||
|
Net liabilities of discontinued operations
|
1,074 | 1,074 | ||||||||
|
Current portion of credit line and note payable
|
20 | 79 | ||||||||
|
Total current liabilities
|
68,950 | 57,956 | ||||||||
|
Credit line and note payable
|
15,000 | 18,000 | ||||||||
|
Deferred revenue, net of current portion
|
33,431 | 33,498 | ||||||||
|
Other liabilities
|
9,560 | 9,560 | ||||||||
|
Deferred income taxes
|
28,194 | 34,242 | ||||||||
|
Senior subordinated notes payable
|
190,145 | 190,145 | ||||||||
|
Premier Club refundable membership fees
|
56,117 | 56,700 | ||||||||
|
Total liabilities
|
401,397 | 400,101 | ||||||||
|
Commitments and contingencies
|
||||||||||
|
Shareholders’ equity:
|
||||||||||
|
Class A Common Stock, $.01 par value,
100,000,000 shares authorized and 39,095,578 and 39,035,078
shares issued and outstanding at September 30, 2003 and
June 30, 2003, respectively
|
391 | 390 | ||||||||
|
Class B Common Stock, $.01 par value,
10,000,000 shares authorized and 255,000 shares issued and
outstanding at September 30, 2003 and June 30, 2003.
|
3 | 3 | ||||||||
|
Contributed capital
|
460,667 | 459,548 | ||||||||
|
Retained earnings
|
50,576 | 60,108 | ||||||||
|
Total shareholders’ equity
|
511,637 | 520,049 | ||||||||
|
Total liabilities and shareholders’ equity
|
$ | 913,034 | $ | 920,150 | ||||||
See accompanying notes to consolidated financial statements.
1
BOCA RESORTS, INC.
| 2003 | 2002 | |||||||||
|
Leisure and recreation revenue
|
$ | 46,989 | $ | 46,292 | ||||||
|
Operating expenses:
|
||||||||||
|
Cost of leisure and recreation services
|
26,614 | 26,401 | ||||||||
|
Selling, general and administrative expenses
|
20,889 | 20,114 | ||||||||
|
Depreciation
|
9,962 | 8,946 | ||||||||
|
Total operating expenses
|
57,465 | 55,461 | ||||||||
|
Operating loss
|
(10,476 | ) | (9,169 | ) | ||||||
|
Interest and other income
|
59 | 30 | ||||||||
|
Interest expense
|
(5,082 | ) | (5,611 | ) | ||||||
|
Loss before benefit for income taxes
|
(15,499 | ) | (14,750 | ) | ||||||
|
Benefit for income taxes
|
5,967 | 5,679 | ||||||||
|
Net loss
|
$ | (9,532 | ) | $ | (9,071 | ) | ||||
|
Net loss per share — basic and diluted
|
$ | (.24 | ) | $ | (.23 | ) | ||||
|
Weighted average shares used in computing net
loss per share — basic and diluted
|
39,325 | 39,651 | ||||||||
See accompanying notes to consolidated financial statements.
2
BOCA RESORTS, INC.
| 2003 | 2002 | ||||||||||
|
Operating activities:
|
|||||||||||
|
Net loss
|
$ | (9,532 | ) | $ | (9,071 | ) | |||||
|
Adjustments to reconcile net loss to net cash
provided by operating activities:
|
|||||||||||
|
Depreciation
|
9,962 | 8,946 | |||||||||
|
Impairment loss on land parcel
|
— | 2,341 | |||||||||
|
Gain on sale of land parcel
|
— | (2,291 | ) | ||||||||
|
Non-cash compensation expense
|
453 | — | |||||||||
|
Benefit for deferred income taxes
|
(5,967 | ) | (5,679 | ) | |||||||
|
Changes in operating assets and liabilities
|
|||||||||||
|
Accounts receivable
|
4,776 | 3,474 | |||||||||
|
Other assets
|
(185 | ) | 613 | ||||||||
|
Accounts payable and accrued expenses
|
4,993 | 3,193 | |||||||||
|
Deferred revenue and other liabilities
|
8,508 | 10,187 | |||||||||
|
Net liabilities of discontinued operations
|
— | (498 | ) | ||||||||
|
Net cash provided by operating activities
|
13,008 | 11,215 | |||||||||
|
Investing activities:
|
|||||||||||
|
Capital expenditures
|
(11,475 | ) | (11,250 | ) | |||||||
|
Change in restricted cash
|
28 | 72 | |||||||||
|
Net proceeds from the sale of land parcel
|
— | 5,641 | |||||||||
|
Net cash used in investing activities
|
(11,447 | ) | (5,537 | ) | |||||||
|
Financing activities:
|
|||||||||||
|
Borrowings under credit facilities
|
5,000 | 6,000 | |||||||||
|
Payments under long-term debt agreements and
credit facility
|
(8,059 | ) | (2,555 | ) | |||||||
|
Repurchases of common stock
|
— | (3,147 | ) | ||||||||
|
Proceeds from exercise of stock options
|
586 | — | |||||||||
|
Net cash provided by (used in) financing
activities
|
(2,473 | ) | 298 | ||||||||
|
Cash provided by (used in) continuing operations
|
(912 | ) | 6,474 | ||||||||
|
Cash used in discontinued operations
|
— | (498 | ) | ||||||||
|
Cash and cash equivalents, at beginning of period
|
8,110 | 3,691 | |||||||||
|
Cash and cash equivalents, at end of period
|
$ | 7,198 | $ | 9,667 | |||||||
See accompanying notes to consolidated financial statements.
3
BOCA RESORTS, INC.
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 periods presented. The results of operations for the three months ended September 30, 2003 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 Resort and Marina (Fort Lauderdale), and the Radisson Bahia Mar Resort and Yachting Center (Fort Lauderdale). The Company also owns and operates two golf clubs located in Florida, Grande Oaks Golf Club in Davie and Naples Grande Golf Club in Naples, and owns and operates two golf courses in Boca Raton that are part of the Boca Raton Resort & Club.
3. Earnings/(Loss) Per Common Share
Basic earnings/(loss) per share equals net income/(loss) divided by the number of weighted average common shares outstanding. Diluted earnings/(loss) per share includes the effects of common stock equivalents to the extent they are dilutive.
Options to purchase shares of common stock totaling 6.8 million and 6.5 million were outstanding during the three months ended September 30, 2003 and 2002, respectively, but were not included in the computation of loss per share because the effect would be antidilutive.
4. Stock Option Plan
The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for the options granted under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principals Board Opinion No. 25, “Accounting for Stock Issued to Employees.” No stock-based employee compensation cost is reflected in net loss, except for certain non-cash, non-recurring compensation expense associated with the modification in terms of certain stock option awards which totaled $453,000 (or $279,000 net of benefit for income taxes) during the three months ended September 30, 2003. The following table summarizes the effect of accounting for stock option awards as if the fair value recognition provisions of Statement of Financial
4
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
Accounting Standard (“SFAS”) No. 123, as amended by SFAS No. 148, had been applied for the three months ended September 30 (000’s omitted):
| 2003 | 2002 | |||||||
|
Net loss as reported
|
$ | (9,532 | ) | $ | (9,071 | ) | ||
|
Less: total stock based compensation determined
under fair value based method for awards, net of related tax
effects
|
(377 | ) | (408 | ) | ||||
|
Pro forma net loss
|
$ | (9,909 | ) | $ | (9,479 | ) | ||
|
Net loss per share — basic and diluted,
as reported
|
$ | (.24 | ) | $ | (.23 | ) | ||
|
Net loss per share — basic and diluted,
Pro forma
|
$ | (.25 | ) | $ | (.24 | ) | ||
The fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions for the three months ended September 30:
| 2003 | 2002 | |||||||
|
Risk free interest rate
|
1.00 | % | 1.50 | % | ||||
|
Expected lives
|
6 years | 6 years | ||||||
|
Expected volatility
|
30 | % | 30 | % | ||||
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, 2003, including the disclosure relating to critical accounting policies in Management’s Discussion and Analysis.
Business Philosophy
The Company’s 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 resort operations are generally seasonal. The resorts historically experience greater revenue, costs and income in the second and third quarters of the fiscal year ended June 30 due to increased occupancy and room rates during the winter months. Historically, 16%, 25%, 35% and 24% of annual revenue has been derived during the first, second, third and fourth fiscal quarters, respectively.
Events of September 11, 2001
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 operating results continue to track modestly below pre-September 11, 2001 levels.
Non-GAAP Financial Measures
This quarterly report on Form 10-Q contains a non-GAAP financial measure, within the meaning of applicable Securities and Exchange Commission rules, which we believe is useful to investors. This financial measure is loss before extraordinary and non-recurring items, interest expense, interest income, income taxes, depreciation and amortization (“LBITDA”). LBITDA is used by management, the lodging industry and certain investors as an indicator of the Company’s historical ability to service debt, to sustain potential future increases in debt and to satisfy capital requirements. However, LBITDA is not intended to represent cash flows for the period. In addition, it has not been presented as an alternative to either (a) operating income or loss (as determined by GAAP) as an indicator of operating performance or (b) cash flows from operating, investing and financing activities (as determined by GAAP) and is thus susceptible to varying calculations. LBITDA as presented may not be comparable to other similarly titled measures of other companies.
6
The accompanying table sets forth the operating results for the three months ended September 30 (000’s omitted):
| 2003 | 2002 | ||||||||||
|
Leisure and recreation revenue
|
$ | 46,989 | $ | 46,292 | |||||||
|
Operating expenses:
|
|||||||||||
|
Cost of leisure and recreation services
|
26,614 | 26,401 | |||||||||
|
Selling, general and administrative expenses:
|
|||||||||||
|
Leisure and recreation
|
18,865 | 18,789 | |||||||||
|
Corporate
|
2,024 | 1,325 | |||||||||
|
Amortization and depreciation:
|
|||||||||||
|
Leisure and recreation
|
9,909 | 8,893 | |||||||||
|
Corporate
|
53 | 53 | |||||||||
|
Total operating expenses
|
57,465 | 55,461 | |||||||||
|
Operating loss:
|
|||||||||||
|
Leisure and recreation
|
(8,399 | ) | (7,791 | ) | |||||||
|
Corporate
|
(2,077 | ) | (1,378 | ) | |||||||
|
Total operating loss
|
(10,476 | ) | (9,169 | ) | |||||||
|
Interest and other income
|
59 | 30 | |||||||||
|
Interest expense
|
(5,082 | ) | (5,611 | ) | |||||||
|
Loss before benefit for income taxes
|
(15,499 | ) | (14,750 | ) | |||||||
|
Benefit for income taxes
|
5,967 | 5,679 | |||||||||
|
Net loss
|
$ | (9,532 | ) | $ | (9,071 | ) | |||||
|
Net cash provided by operating activities
|
$ | 13,008 | $ | 11,215 | |||||||
|
Net cash used in investing activities
|
$ | (11,447 | ) | $ | (5,537 | ) | |||||
|
Net cash provided by (used in) financing
activities
|
$ | (2,473 | ) | $ | 298 | ||||||
|
LBITDA
|
$ | (61 | ) | $ | (223 | ) | |||||
The accompanying table reconciles LBITDA to loss before benefit for income taxes, the most comparable GAAP measure, for the three months ended September 30 (000’s omitted):
| 2003 | 2002 | |||||||
|
LBITDA
|
$ | (61 | ) | $ | (223 | ) | ||
|
Less: Depreciation
|
(9,962 | ) | (8,946 | ) | ||||
|
Less: Interest expense
|
(5,082 | ) | (5,611 | ) | ||||
|
Less: Non-recurring, non-cash compensation expense
|
(453 | ) | — | |||||
|
Plus: Interest income
|
59 | 30 | ||||||
|
Loss before benefit for income taxes
|
$ | (15,499 | ) | $ | (14,750 | ) | ||
The accompanying table sets forth additional operating data for the three months ended September 30 (000’s omitted, except operating statistics):
| 2003 | 2002 | % Change | ||||||||||||
|
Revenue:
|
||||||||||||||
|
Room revenue
|
$ | 16,297 | $ | 16,207 | 1 | % | ||||||||
|
Non-room related revenue
|
30,692 | 30,085 | 2 | % | ||||||||||