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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
[ ] 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.
(FORMERLY KNOWN AS FLORIDA PANTHERS HOLDINGS, INC.)
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 65-00676005
(State of Incorporation) (I.R.S Employer Identification No.)
450 EAST LAS OLAS BOULEVARD
FORT LAUDERDALE, FLORIDA 33301
(Address of Principal Executive Offices) (Zip Code)
(954) 712-1300
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
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Class A Common Stock, New York Stock Exchange
par value $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 17, 1999, the registrant had 40,551,370 shares of Class A
common stock, $ .01 par value (the "Class A Common Stock"), outstanding and, at
such date, the aggregate market value of the shares of Class A Common Stock held
by non-affiliates of the registrant was approximately $294.9 million. As of
September 17, 1999 the registrant had 255,000 shares of Class B common stock $
.01 par value (the "Class B Common Stock"), outstanding, none of which was held
by a non-affiliate of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of the Registrant's Proxy Statement relating to the 1999
Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration statements.
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INDEX
TO FORM 10-K
PAGE
NUMBER
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security-Holders......... 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial Data..................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 26
Item 8. Financial Statements and Supplementary Data................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 51
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 51
Item 11. Executive Compensation...................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 51
Item 13. Certain Relationships and Related Transactions.............. 51
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 51
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Boca Resorts, Inc. (the "Company"), which was known as Florida Panthers
Holdings, Inc. until September 28, 1999, is a leading owner and operator of
leisure and recreation and entertainment/sports businesses. The Company's
leisure and recreation segment primarily consists of the ownership and operation
of six luxury resorts with hotels, conference facilities, golf courses, spas,
marinas and private clubs and its entertainment and sports segment primarily
includes the operations of the Florida Panthers Hockey Club (the "Panthers"),
the National Car Rental Center, a multi-purpose entertainment complex where the
Panthers play their home games, and related arena management operations.
Management believes that each of the Company's businesses operate premier
assets, which due to their market positions, attract a large base of loyal
customers with high disposable income, thereby allowing it to maximize revenue
and cash flow.
The leisure and recreation operations include the ownership of six
well-known, luxury resorts with a combined 2,985 rooms. The Company's resorts
include: the Boca Raton Resort and Club (Boca Raton, Florida), the Arizona
Biltmore Hotel (Phoenix, Arizona), the Registry Resort at Pelican Bay (Naples,
Florida), the Edgewater Beach Hotel (Naples, Florida), the Hyatt Regency Pier 66
Hotel and Marina (Fort Lauderdale, Florida), and the Radisson Bahia Mar Resort
and Yachting Center (Fort Lauderdale, Florida).
Each of the resorts possesses numerous competitive and operational
strengths. The resorts are unique, irreplaceable assets with high recognition
and strong positioning in their target markets. All of the resorts' facilities
and amenities provide multiple and diverse revenue streams and attract upscale
business and leisure customers. In addition, through the development of
additional guestrooms and/or resort amenities, the resorts have opportunities to
significantly increase revenue and cash flow.
The entertainment and sports operations primarily consist of ownership and
management of the Panthers, a National Hockey League franchise, and management
of the National Car Rental Center. The Panthers generate revenue through the
sale of tickets to Panthers' home games, the licensing of local market
television, cable network, and radio rights, from distributions under
revenue-sharing arrangements with the NHL covering national broadcasting
contracts, as well as other ancillary sources including expansion franchise
fees. In addition, the Company generates revenue through its participation in
the net operating income of the National Car Rental Center, where the Panthers
began playing their home games with the opening of the 1998-1999 NHL season.
BUSINESS STRATEGY
The Company's current business strategy is to focus on expanding its
leisure and recreation businesses. The Company's objective is to maximize the
cash flow from and the value of the Company's leisure and recreation businesses
by:
- Continuing internal growth through capital improvements at the
resorts. Management believes that the Company's resorts have the
opportunity for continued internal growth. In addition to normal
recurring maintenance capital expenditures over the past four years,
approximately $145 million has been invested in the resorts on capital
projects including the Boca Raton Resort and Club conference center, golf
course, tennis and fitness center, as well as various other property
renovations.
Management believes that these capital expenditures have resulted in
increases to the average daily room rates and have attracted higher
spending corporate and group guests resulting in increased total revenue
per available room. For the year ended June 30, 1999, the average daily
room rate was $201.40, room revenue per available room was $135.45 and
total revenue per available room was $312.64. For the year ended June 30,
1998, the average daily room rate was $189.31, room revenue per available
room was $129.82 and total revenue per available room was $290.18. These
statistics compare favorably to the luxury resort industry, which
according to Smith Travel Research, achieved an average daily room rate
of $166.05 and room revenue per available room of $120.69 in calendar
1998.
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The Company expects to undertake additional capital improvements at its
resorts provided that capital is available on suitable terms and that each
capital enhancement is projected to yield an acceptable return on
investment. Such capital improvements may include:
- Completion of a new championship golf course in Naples, Florida;
- At the Boca Raton Resort and Club, adding 114 luxury guestrooms,
renovating 100 guestrooms, as well as adding a spa complex and 30,000
square feet of retail/restaurant space;
- At the Registry Resort at Pelican Bay, adding conference space, a spa
complex, making beach facility improvements and adding a new pool
complex; and
- At the Arizona Biltmore Hotel, adding conference space and 100
guestrooms.
- Continued focus on upscale business and leisure customers. Management
believes that its focus on corporate group customers and upscale business
and leisure customers allows the Company to maximize total revenue per
available room. It has been management's experience that these customers
are more likely to use the additional amenities and facilities available
at the resorts, thereby increasing revenue. Additionally, group customers
tend to book reservations 12 to 36 months in advance of their stay, thus
enabling management to better estimate future revenue streams. Group
business has also been used by the Company to fill off peak leisure
periods. Management believes that by targeting upscale customers the
Company is well positioned to take advantage of demographic trends (which
include an aging "baby-boom" population with increasing disposable
income) creating increased demand for luxury resorts and related
amenities. Management also believes the resorts will be able to
capitalize on these trends given their properties' unique nature and
locations. The Company's ability to capitalize on these trends will be
enhanced by the high barriers of entry into the luxury resort industry.
- Seeking cross-marketing opportunities. Management believes the current
portfolio of luxury resorts provides the Company with a variety of
cross-marketing opportunities. For example, corporate and other group
customers that hold conferences on a regular basis often rotate their
conference locations. By offering a significant number of affiliated
luxury resort alternatives to corporate and group customers, management
believes that the Company will be able to encourage them to use the
resorts on a regular basis.
- Capitalizing on integration of recent acquisitions. Management believes
the integration of certain aspects of the resort operations will allow
the Company to capitalize on its experienced management team, as well as
to realize significant operating efficiencies. Each member of the leisure
and recreation senior management team has over 20 years of experience in
the resort and real estate industries. Management believes the team's
ability to develop incremental revenue streams and generate cash flow
growth has been demonstrated by the success of the Boca Raton Resort and
Club. In addition, managing all of the resorts by a single management
team with established practices and systems will improve the efficiency
of the resort operations. Management is focusing on integrating the
operations of all of the resorts, including reservations, purchasing,
training, information systems, insurance and marketing, in order to
achieve greater operating efficiencies and improved profit margins.
- Expanding Premier Club concept to other locations. The Company continues
to expand and develop its Premier Club concept, which was first
introduced in 1991 at the Boca Raton Resort and Club. Membership in the
Boca Raton Resort Premier Club allows Premier Club members access to the
Boca Raton Resort and Club grounds, restaurants, recreational facilities
and other private social functions, which are otherwise restricted to
resort guests. The Company reopened the Grande Oaks Golf Club in June
1999 offering members and guests of the Company's Fort Lauderdale hotels
play at a new 18-hole championship facility. Management intends to extend
the Premier Club concept to this and to other locations and resorts. By
doing so, management believes it will allow the Company to generate
substantial incremental revenue from existing or planned facilities and
services. Management antici-
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pates that the Premier Club will allow the Company to market resort
properties, restaurants, pools, and where available, tennis, golf, spas
and other leisure and recreational amenities to residents in local
communities in a country club/social club setting.
While it is the Company's primary focus to expand its leisure and
recreation business, management will continue to maximize its opportunities
within the entertainment and sports segment. Management believes the National
Car Rental Center, which was completed in October 1998, will significantly
increase the Company's ability to market and profit from the Panthers. In
addition, management believes the ability to participate in the revenue from
non-hockey events held at the National Car Rental Center will increase the cash
flow from the entertainment and sports operations. The Company participates in
all of the revenue from the National Car Rental Center, including revenue from
the sale of Panthers tickets, the leasing of luxury suites and premium club
seats, arena advertising and sponsorships, food and beverage concessions,
parking, as well as revenue from other entertainment events.
Management also continuously evaluates ownership, acquisition and
divestiture alternatives relating to the two business segments with the
intention of maximizing value.
LEISURE AND RECREATION BUSINESS
The following table sets forth a summary of the key features of each of the
Company's resorts:
NO. OF
NO. OF CONFERENCE NO. OF NO. OF NO. OF FOOD NO. OF
ROOMS/ SPACE GOLF TENNIS SWIMMING BOAT & BEVERAGE RETAIL
ACRES SUITES SQ. FT. COURSES COURTS POOLS SLIPS SITES SHOPS
----- ------ ---------- ------- ------ -------- ----- ---------- ------
Boca Raton Resort and Club...... 298 963 190,000 4(2) 30 5 25 15 14
Arizona Biltmore Hotel.......... 39 742(1) 60,000 2(3) 8 7 -- 5 6
Registry Resort at Pelican
Bay........................... 15 474 38,000 3(4) 15 3 -- 7 7
Edgewater Beach Hotel........... 2 126 3,600 3(4) -- 1 -- 2 1
Hyatt Regency Pier 66 Hotel and
Marina........................ 23 380 22,000 1(5) 2 3 142 6 3
Radisson Bahia Mar Resort and
Yachting Center............... 40 300 20,000 1(5) 4 1 350 2 5
--- ----- ------- --- -- -- --- -- --
417 2,985 333,600 10 59 20 517 37 36
=== ===== ======= === == == === == ==
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(1) Includes 122 rooms which were completed in September 1999.
(2) Boca Raton Resort and Club maintains two 18-hole golf courses on premises.
In addition, the resort has access to two 18-hole golf courses through use
agreements.
(3) Arizona Biltmore Hotel has access to two 18-hole golf courses through use
agreements.
(4) The Registry Resort at Pelican Bay and the Edgewater Beach Hotel have access
to the same two 18-hole golf courses through use agreements. In the future,
guests will also have access to the new 18-hole golf course in Naples which
is owned by the Company and is currently under development.
(5) Hyatt Regency Pier 66 Hotel and Marina and Radisson Bahia Mar Resort and
Yachting Center have access to the Grande Oaks Golf Club.
Amenities and services at the resorts include conference facilities, golf
courses, tennis facilities, spas, fitness centers, marinas, restaurants, retail
outlets, swimming pools, and other activities and services. The diversity and
number of amenities and services at the facilities provides the Company with
substantial non-room revenue. For the year ended June 30, 1999, approximately
57% of revenue from the leisure and recreation operations were generated from
non-room sources. In addition, luxury amenities and services allow the Company
to maintain premium pricing for its rooms. For the year ended June 30, 1999, the
average daily room rate for the Company's resort portfolio was $201.40, compared
to the average daily room rate of $166.05 for the luxury resort industry for
calendar 1998, according to Smith Travel Research.
The resorts' conference facilities and other amenities make them attractive
locations for group functions. The conference facilities include over 330,000
square feet of combined conference space and the Company maintains its own
in-house planning and logistics capabilities. In addition, management believes
the
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geographic diversity of the Company's resorts in eastern and western Florida and
Arizona will allow its sales people to market multiple resort locations to
corporate and association groups that prefer to rotate conference locations from
year to year.
The Company continues to expand and develop the Premier Club concept, which
was first introduced in 1991 at the Boca Raton Resort and Club. Membership in
the Boca Raton Resort Premier Club allows Premier Club members access to the
Boca Raton Resort and Club grounds, restaurants, recreational facilities and
other private social functions, which are otherwise restricted to resort guests.
The Boca Raton Resort Premier Club currently requires an initial membership fee
of $45,000 and annual social dues starting at $2,300. Additional dues are
required for members to have access to the resort's golf and tennis facilities.
Annual cash flow from Premier Club membership fees and dues has grown to $12.7
million in fiscal 1999, from $9.8 million in fiscal 1996. In addition, Premier
Club members generate additional revenue through the use of existing resort
facilities and services, which are available on a fee-for-use basis. In June
1999, the Company reopened Grande Oaks Golf Club, offering members and guests of
the Company's Fort Lauderdale resorts play at the redesigned 18-hole
championship facility and plans on expanding the Premier Club concept to this
and to the Company's other resorts through the development of additional
amenities and membership programs.
Additional information relating to the Company's resorts, including
renovations and distinctions, is set forth below.
BOCA RATON RESORT AND CLUB
- Renovations/Expansion. In January 1998, Boca Raton Resort completed a
$46.5 million expansion and renovation project which included: (1) a new
140,000 square foot conference facility; (2) a state-of-the-art tennis
and fitness center complex; (3) a new Bates-designed 18-hole golf course,
replacing one of its previous 18-hole golf courses; and (4) an expanded
650-space parking facility. The completion of the conference center
allows Boca Raton Resort to accommodate more than one large group at a
time, resulting in better utilization of its luxury guestrooms.
- Distinctions. Boca Raton Resort has consistently been awarded the
Readers' Award as one of the "Top 25 Hotels in North America" by Travel &
Leisure magazine and was named to Conde Nast Traveler's Gold List in 1998
and recognized in Executive Travel Magazine as one of the Top 3 Hotels of
the Americas in 1998.
ARIZONA BILTMORE HOTEL
- Renovations/Expansion. Arizona Biltmore completed a $50.0 million
property-wide renovation and expansion program in 1996 and added the spa
complex in late 1997. In September 1999, a $12.2 million expansion
project was completed which included 122 additional luxury guestrooms and
an Olympic size swimming pool.
- Distinctions. The property was featured in Architectural Digest in 1996,
was awarded the 1997 and 1998 Heritage Award of Excellence by the Urban
Land Institute, was featured in Historic Traveler Magazine in 1998 and
was named to Conde Nast Traveler's Gold List in 1998.
REGISTRY RESORT AT PELICAN BAY
- Distinctions. Registry Resort has consistently received the Mobile
Travel Guide's Four Star Award, as well as the AAA's Four Diamond Award,
and was cited in 1998 by Conde Nast Traveler magazine as one of the Top
50 U.S. Mainland Resorts. The Registry Resort was also awarded Tennis
magazine's 50 Greatest U.S. Tennis Resorts for 1998.
EDGEWATER BEACH HOTEL
- Renovations/Expansion. In 1997, Edgewater Beach Hotel completed a $2.2
million renovation of its 126 luxury suites, along with improvements to
its amenities.
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- Distinctions. In 1998, Edgewater Beach Hotel was featured in Resorts and
Great Hotels and received Wine Spectator magazine's Award of Excellence.
In 1995, the resort was named to Conde Nast Traveler's Best Places to
Stay in the World and has consistently received the Mobile Travel Guide's
Four Star Award and the AAA's Four Diamond Award.
HYATT REGENCY PIER 66 HOTEL AND MARINA
- Renovations/Expansion. Hyatt Regency Pier 66 completed an $8.4 million
renovation of its guestrooms in November 1998.
- Distinctions. Hyatt Regency Pier 66 has consistently received the Mobil
Travel Guide's Four Star Award, the AAA's Four Diamond Award, Successful
Meetings Magazine's Pinnacle Award in 1998 and Meetings and Conventions
Gold Key Award in 1998.
- Franchise Agreement. Upon the acquisition of Hyatt Regency Pier 66, the
Company assumed the rights under a 20-year franchise agreement with Hyatt
Franchise Corporation. The Hyatt franchise agreement terminates in
November 2014. The Hyatt franchise agreement provides for the payment of
monthly royalty fees equal to 5% of gross room revenue. The Hyatt
franchise agreement also provides for the payment to Hyatt of certain
Hyatt "allocable chain expenses" relating to sales and marketing costs
based on the total number of guestrooms at Hyatt Regency Pier 66 compared
to the average number of guestrooms in all Hyatt hotels in the United
States. A fee for the use of the Hyatt reservation system is also charged
to Hyatt Regency Pier 66. The Hyatt franchise agreement also requires
that a reserve, equal to 4% of gross room revenue, be maintained by Hyatt
Regency Pier 66 for replacement of furniture, fixtures and equipment and
for those repairs and maintenance costs that are capitalizable under
generally accepted accounting principles. The franchise agreement
requires significant renovations of guestrooms, corridors and other
public areas every five to six years. The replacement of other furniture,
fixtures and equipment, as defined in the agreement, is to occur every 10
to 12 years.
RADISSON BAHIA MAR RESORT AND YACHTING CENTER
- Renovations/Expansion. Radisson Bahia Mar completed an extensive $8.1
million renovation project in 1995 relating primarily to its guestrooms
and the relocation of its meeting space and restaurants.
- Distinctions. Radisson Bahia Mar has consistently received the Mobile
Travel Guide's Three Star Award and the AAA's Three Diamond Award, as
well as the 1995 Radisson President's Award and the 1998 Anchor Award
presented by Marine Industries Association of South Florida. The Radisson
Bahia Mar marina is host to the International Boat Show, an annual
six-day boating and marine event, which is billed as the world's largest
in-water boat show.
- License Agreement. Upon the acquisition of Radisson Bahia Mar, the
Company assumed the rights under the Radisson license agreement with
Radisson Hotels International, Inc., which expires in July 2004. The
terms of the Radisson license agreement allow the Company to operate the
hotel using Radisson's proprietary hotel management system. Annual fees
payable to Radisson pursuant to the Radisson license agreement are 5% of
gross room sales.
- Leases. The site of the resort is subject to a land lease that expires
in 2062.
In addition to the resort properties discussed above, the Company also owns
Grande Oaks Golf Club. The Grande Oaks Golf Club was formerly known as Rolling
Hills Golf Club, site of the hit comedy "Caddy Shack". The property now features
a redesigned 18-hole championship golf course, a par three golf course, a new
practice facility and a state-of-the-art clubhouse. The redesigned facility and
club opened in June 1999.
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ENTERTAINMENT AND SPORTS BUSINESS
HOCKEY OPERATIONS
The hockey operations primarily consist of the ownership and operation of
the Panthers. The Panthers began play during the 1993-1994 NHL season and have
been a highly successful franchise, reaching the playoffs in two out of the last
four seasons and competing in the 1996 Stanley Cup Championship. The Panthers
have developed a strong fan base in South Florida, selling out all of their home
games for the 1996-1997 and 1997-1998 NHL seasons, with attendance for the
1998-1999 season at the National Car Rental Center averaging approximately
18,000 per game, or 92% of capacity. Since moving to the National Car Rental
Center, the Panthers' average gate receipts have ranked in the top six among NHL
franchises.
The Company derives its hockey revenue principally from the sale of tickets
to the Panthers' home games and national and local broadcasting of Panthers
games and corporate sponsorship, advertising and promotion. Receipts from
tickets, broadcasting, advertising and promotions associated with the Panthers
are recorded as revenue on a per game basis over the NHL regular season. The
Panthers receive all revenue from the sale of tickets to the 41 regular season
home games and no revenue from the sale of tickets to the 41 regular season away
games. During the exhibition season the Company retains all the revenue from
Panthers' home games and shares in the revenue from certain exhibition games
played at neutral sites. If the Panthers make the playoffs, the team receives
revenue from the sale of tickets to home playoff games, with a portion of such
ticket revenue used for league operating costs and shared with the opposing
team.
The Panthers share equally with the other member clubs in expansion
franchise fees as well as in the NHL broadcasting contracts with Fox
Broadcasting Co., ESPN, Inc. and Molson Breweries of Canada Limited, and they
also have in place a local broadcasting contract with SportsChannel Florida
Associates, a Florida limited partnership, 70.0% of which is owned by H. Wayne
Huizenga, the Company's Chairman. From the Panthers' inception through the end
of the 1997-1998 season, the Panthers played all of their home games at the
14,700 seat Miami Arena. The size of the Miami Arena limited the Panthers'
ability to generate revenue from additional ticket sales, concessions and
merchandise sales, and unfavorable lease terms precluded the Panthers from
sharing in suite, building advertising and parking revenue. The Panthers'
operating results have improved significantly with their move to the National
Car Rental Center. The National Car Rental Center provides a variety of revenue
streams to the Company, including suite and premium club seat sales, building
advertising, parking, concessions, and net revenue generated from other
entertainment events held at the arena. Many of these revenue streams are
committed to on a multi-year basis.
The National Hockey League Governance. The NHL is generally responsible
for regulating the conduct of its members. The NHL establishes the regular
season and playoff schedules of the teams. It also negotiates, on behalf of its
members, the league's national over-the-air and cable television contracts and
the collective bargaining agreement with the NHL Players' Association. Each of
the members of the NHL is, in general, jointly and severally liable for the
league's liabilities and obligations and shares in its profits. Under the terms
of the NHL constitution and bylaws, league approval is required under certain
circumstances, including in connection with the sale or relocation of a member.
The NHL and the NHL Players' Association entered into the NHL Collective
Bargaining Agreement on August 11, 1995, which took retroactive effect as of
September 16, 1993. The NHL Collective Bargaining Agreement, as amended, expires
in September 2004. The Panthers will be required to provide appropriate security
by September 1, 2001 to ensure a $10.0 million payment to the NHL's collective
bargaining fund by April 15, 2003. The purpose of the fund is to strengthen the
NHL's bargaining position, if necessary, upon the expiration of its current
Collective Bargaining Agreement in September 2004. The Panthers' contribution
will be returned upon the execution of a new collective bargaining agreement.
Although no assurances can be provided, management believes the Panthers can
obtain sufficient financial resources to fund the required $10.0 million payment
by April 15, 2003.
Restrictions on Ownership. The NHL constitution and bylaws contain
provisions which may in some circumstances operate to prohibit a person from
acquiring the Class A Common Stock, thereby affecting its value. In general, any
acquisition of shares of Class A Common Stock which will result in a person or a
group
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of persons holding a 5.0% or more interest in the Company, and each acquisition
of shares of Class A Common Stock which will result in a person or a group of
persons holding any multiple of a 5.0% interest, will require the prior approval
of the NHL, which may be granted or withheld in the sole discretion of the NHL.
In addition, no person who directly or indirectly owns any interest in a
privately-held NHL team, or a 5.0% or more interest in any other publicly-held
NHL team, may own, directly or indirectly, a 5.0% or more interest in the
Company, without the prior approval of the NHL. Furthermore, the Panthers may
not grant a security interest in any of its assets, nor may any stockholder who
owns 5.0% or more of the Panthers' equity securities pledge such securities,
without the prior approval of the NHL, which may be withheld in the sole
discretion of the NHL. In connection with any such grant or pledge, the NHL will
require a consent agreement satisfactory to the NHL.
Control Requirement. Unless otherwise permitted by the NHL, H. Wayne
Huizenga is required to maintain voting control of the Company at all times. The
Company issued to Mr. Huizenga shares of Class B Common Stock to satisfy the
control requirements of the NHL. On each matter submitted for stockholder
approval, each share of Class B Common Stock is entitled to 10,000 votes while
each share of Class A Common Stock is entitled to one vote.
ARENA OPERATIONS
National Car Rental Center. In June 1996, the Company entered into a
30-year license agreement and co-terminus operating agreement with Broward
County pursuant to which it has the right to manage and operate the National Car
Rental Center. The National Car Rental Center is a state-of-the-art,
multi-purpose entertainment complex strategically located in the center of South
Florida's tri-county area, which encompasses a population of approximately 4.5
million. The National Car Rental Center has a seating capacity of 19,500 for
hockey games, over 30% more than the Miami Arena, including 72 luxury suites and
2,400 premium club seats. For the 1998-1999 season, the Panthers sold season
tickets for 15,500 of the arena's 19,500 seats. In its first year of operations,
the Company booked over 150 events for the National Car Rental Center, including
performances by Celine Dion, Elton John, Billy Joel, Cher and the Rolling
Stones.
The Company's 30-year operating agreement with Broward County entitles the
Company to retain (1) 95% of all revenue derived from the sale of general
seating tickets to the Panthers' home games and 100% of certain other
hockey-related advertising and merchandising revenue and (2) the first $14.0
million of net operating income generated by the National Car Rental Center, on
an annual basis, and 80% of all net operating income in excess of $14.0 million
generated by the National Car Rental Center, with Broward County receiving the
remaining 20%. "Net operating income" is defined to include (1) all other
revenue from the arena, including revenue from premium seating (which includes
luxury suites and club seating), building naming rights, non-hockey related
advertising, food and beverage concessions, parking and all other revenue
generated from non-hockey events, less (2) arena operating and certain financing
costs and reserves. The Company contracted with Leisure Management
International, Inc., an arena operating company owned 50% by Mr. Huizenga, to
manage and operate the National Car Rental Center for $200,000 annually with an
incentive bonus of up to $50,000 annually.
Miami Arena. The Company owns approximately 78% of the partnership
interests in Decoma Miami Associates, Ltd., which derives all of its revenue
from operating the Miami Arena. Revenue is derived from seat use charges imposed
on tickets sold at the Miami Arena, net of fixed and variable operating
payments. The Miami Arena has a seating capacity of 14,700, and is where the
Panthers played its home games through the 1997-1998 NHL season and where the
Miami Heat currently play its home games. A new arena is currently under
construction to serve as the new home to the Miami Heat. Management does not
expect the loss of the Miami Heat, as primary tenant at the Miami Arena, upon
completion of their new arena to have a material adverse effect on the Company.
See Item 3, "Legal Proceedings" for a further discussion of certain legal
proceedings relating to the Company's operation of the Miami Arena.
Incredible Ice Rinks. As part of the strategy to capitalize on the
popularity of hockey, the Company currently operates Incredible Ice and Gold
Coast Ice Arena, two ice rinks located in South Florida. Incredible Ice and Gold
Coast Ice Arena are open to the general public and derive their revenue from,
among other
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things, fees charged to the public for use of the facilities for various hockey
and skating programs, open skating sessions, food and beverage sales and retail
merchandise sales.
CUSTOMERS AND MARKETING
Leisure and Recreation Business. The core customer base for the leisure
and recreation business consists of corporate and other group customers,
affluent local residents, individual business travelers and upscale leisure
travelers. The Company's marketing efforts focus on increasing business with
existing customers as well as increasing the upscale clientele. The Company's
marketing efforts involve (1) use of a sales force to develop national corporate
and other group business for the resort facilities by focusing on identifying,
obtaining and maintaining corporate and other group accounts whose employees
conduct business nationwide and (2) the use of advertisements that target
individual business travelers and upscale leisure travelers in magazines such as
Conde Nast Traveler, Travel and Leisure, Travel Weekly and Meetings and
Conventions as well as newspapers such as The New York Times. The Company's
franchised resorts also benefit from the strong distribution resulting from the
national reservation systems of the franchisors of the Hyatt and Radisson
brands.
Entertainment and Sports Business. The Company markets the Panthers to
their local fan base in South Florida as well as to corporate sponsors.
Management intends to capitalize on the increasing popularity of hockey by
continuing to advertise and market the Panthers as well as continuing to enhance
the service and entertainment provided at games. Management also plans to
develop and enhance the relationships with corporate sponsors through the sale
of ticket and suite packages, advertising space and additional corporate
sponsorship programs. In addition, the Company plans to promote and book a
variety of additional sports and entertainment events at the National Car Rental
Center.
COMPETITION
Leisure and Recreation Business. The resort and hotel industry is highly
competitive. Competitive factors within the resort and hotel industry include
room rates, quality of accommodations, service levels, convenience of location,
reputation, reservation systems, name recognition, and availability of
alternative resort and hotel operations in local markets. The Company faces
competition from a variety of resort and hotel operations, as well as country
and other social clubs, many of which have greater financial and other resources
than the Company. An increase in the number of the competitors' resorts could
have a material adverse effect on the levels of occupancy and average room rates
of the resorts. Further, there can be no assurance that new or existing
competitors will not significantly reduce their rates or offer greater
convenience, services or amenities or significantly expand, improve or develop
facilities in the markets in which the resort facilities compete, thereby
adversely affecting the Company's resort and hotel operations.
Entertainment and Sports Business. The Panthers compete for entertainment
and sports dollars with other major league sports, college athletics and other
sports-related entertainment. During portions of its season, the Panthers
experience competition from professional basketball (the Miami Heat),
professional football (the Miami Dolphins) and professional baseball (the
Florida Marlins). Mr. Huizenga currently controls the Miami Dolphins. In
addition, minor league sports franchises (including minor league hockey),
colleges and universities, as well as public and private secondary schools in
South Florida, offer a full schedule of athletic events throughout the year. The
Panthers also compete for attendance and advertising revenue with a wide range
of other entertainment and recreational activities available in South Florida.
Additionally, subject to the terms of the NHL Collective Bargaining Agreement
and other agreements between the NHL and other entities, the Panthers compete
with other NHL and non-NHL teams, professional and otherwise, for available
players.
INSURANCE
The Company maintains comprehensive insurance on the resorts, including
liability, business interruption, fire and extended coverage, in the types and
amounts management believes are customary to the resort and hotel industry.
Nonetheless, there are certain types of losses, generally of a catastrophic
nature, that may
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be uninsurable or not economically feasible to insure. Management uses its
discretion in determining amounts, coverage limits and deductibility provisions
of insurance, with a view to obtaining appropriate insurance on the resorts at a
reasonable cost and on suitable terms. This may result in insurance coverage
that, in the event of loss, might not be sufficient to pay the full current
market value or current replacement value of the lost investment. In addition,
in the event of such loss the insurance proceeds received by the Company might
not be adequate to restore the economic position with respect to the resorts.
The Panthers maintain disability insurance for certain highly compensated
players, which insurance provides for up to 80% salary reimbursement after the
player misses 30 consecutive regular season games due to injury. In the event an
injured player is not insured or disability insurance does not cover the entire
amount of the injured player's salary, the Company may be obligated to pay all
or a portion of the injured player's salary. The Company maintains comprehensive
insurance on the Incredible Ice and Gold Coast Ice Arena facilities, including
liability, fire and extended coverage, in the types and amounts management
believes are customary to the ice rink industry.
ENVIRONMENTAL MATTERS
Under various federal, state, and local environmental laws and regulations,
an owner or operator of real property may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such real property, as
well as for the costs of complying with environmental laws regulating on-going
operations. In connection with the ownership and operation of the properties,
the Company may be potentially liable for any such costs. The Company has
obtained Phase I environmental site assessments for the real property on which
each of the resorts is located. In addition, Phase II environmental assessments
have been conducted at several properties. Phase I assessments are intended to
identify existing, potential and suspected environmental contamination and
regulatory compliance concerns, and generally include historical reviews of the
property, reviews of certain public records, preliminary visual investigations
of the site and surrounding properties and the preparation and issuance of
written reports. Phase II assessments involve the sampling of environmental
media, such as subsurface soil and groundwater, to confirm whether contamination
is present at areas of concern identified during the course of a Phase I
assessment.
The Phase I and Phase II assessments have not revealed any environmental
liability or compliance concerns that management believes would have a material
adverse effect on the business, nor is management aware of any such material
liability or concern. However, the environmental assessments have revealed the
presence of limited areas of contamination on the properties, some of which will
require remediation. The environmental assessments have also identified
operations that are not strictly in compliance with applicable environmental
laws or that will need to be upgraded to remain in compliance with applicable
environmental laws (including the presence of underground storage tanks at a few
of the properties). The most significant areas of contamination identified by
the Phase I and Phase II assessments involve areas at the Grande Oaks Golf Club
and the Company's property located in Plantation, Florida that are currently
being addressed. Pursuant to an agreement with the former owner of such
properties, the Company has the benefit of an indemnity that, based on currently
available information, management believes will defray most of the costs
associated with the investigation and remediation at these locations. Phase I
and Phase II assessments cannot provide full and complete knowledge of
environmental conditions and compliance matters. Therefore, management cannot
assure you that: (1) material environmental liabilities or compliance concerns
do not exist; (2) an identified matter that does not appear reasonably likely to
be material will not result in significantly greater expenditures than is
currently anticipated; or (3) there are no material environmental liabilities or
compliance concerns of which management is unaware.
EMPLOYEES
At June 30, 1999, the Company employed approximately 3,905 full-time and
approximately 663 part-time employees in connection with its leisure and
recreation business. The Company employs approximately 89 full-time employees
and 99 part-time employees in connection with its entertainment and sports
business. In addition, the Company employs 16 corporate administrative
personnel. Employees of the company that has been contracted to manage the
National Car Rental Center are excluded from these figures. None of the
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employees, other than the Panthers hockey players, are subject to any collective
bargaining agreement and the Company believes that its relationship with
employees is good.
SEASONALITY
The Company's revenue and income are dependent upon the activity in the
tourism and leisure industry in the markets served by the Company. Tourism is
dependent upon weather and the traditional seasons for travel. In addition, the
Company's entertainment and sports businesses are seasonal. The NHL regular
season begins during the fall and ends in late spring. As a result, the Company
realizes a majority of its hockey revenue and hockey expense during that period.
Because of this variability in demand, the Company's quarterly revenue may
fluctuate, and revenue for the first quarter of each year can be expected to be
lower than the remaining quarters. Although management believes that the
historical trend in quarterly revenue for the second, third and fourth quarters
of each year is generally higher than the first quarter, there can be no
assurance that this will occur in future periods. Accordingly, quarterly or
other interim results should not be considered indicative of results to be
expected for any quarter or for the full year.
TRADEMARKS
The Company has registered trademarks and service marks, some of which,
including several relating to the Boca Resort name, and "Panthers" related
marks, are of material importance to the Company's business. The Company's other
related marks, while valuable, are not material to its business. Trademarks are
valid as long as they are in use and/or their registrations are properly
maintained and they have not been found to be generic. The Company presently
uses two national trade names for two of its resorts pursuant to licensing
arrangements with national franchisors. The duration for use pursuant to the
licensing arrangements is disclosed under "Franchise Agreement" and "License
Agreement."
RISK FACTORS
The business, financial condition, results of operations and future
prospects of the Company, and the prevailing market price and performance of the
Company's Class A Common Stock, may be adversely affected by a number of
factors, including the matters discussed below. Such factors include, among
other items:
The Company's financing agreements limit operating flexibility. Certain of
the Company's loan agreements restrict, among other things, the ability to
borrow money; pay dividends on stock or make certain other restricted payments;
use assets as security in other transactions; make investments; enter into
certain transactions with the affiliates; and sell certain assets or merge with
other companies. These debt instruments also require the Company to maintain
specified consolidated financial ratios and satisfy certain consolidated
financial tests. Although management is confident that the Company will satisfy
all of these requirements, the Company's ability to meet those financial ratios
and financial tests may be affected by events beyond its control, and management
cannot assure you that the Company will meet those tests. If the Company fails
to meet those tests or breaches any of the covenants, the lenders under these
debt instruments could declare all amounts outstanding thereunder, together with
accrued interest, to be immediately due and payable. If the Company is unable to
repay those amounts, the lenders could proceed against the collateral granted to
them to secure that indebtedness. Even with the Company's ratio of assets to
debt at June 30, 1999 being 2.2 to 1, management cannot assure you that the
assets would be sufficient to repay in full such indebtedness or any other
indebtedness.
The Company may need additional financing. Management believes that the
cash flow from operations, together with borrowings available under the existing
credit facilities, will be sufficient to finance the business operations, meet
the debt obligations and fund the short-term growth strategy. At June 30, 1999,
$139.2 million was available to borrow under the Company's existing revolving
credit facilities. However, management cannot assure you that the business will
generate the level of cash flow from operations that it expects or that future
borrowings under the credit facilities will be available to the Company. If the
plans or assumptions change, if the assumptions prove to be inaccurate or if the
Company experiences unanticipated costs or
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competitive pressures, it may need to seek additional capital. Management
believes the Company can obtain additional capital by selling debt or equity
securities and/or by borrowing money, although no assurances can be provided
that it will be able to do so. If additional capital is not obtained when it is
needed, this may have a material adverse effect on the Company.
The Company may need to make significant capital expenditures to further
develop the resorts and these expenditures may involve risks. The Company's
growth strategy contemplates expanding the infrastructure at certain of the
resorts or expanding within the respective geographic markets of certain of the
resorts. The resorts may also need renovations or other capital improvements.
Unexpected excessive costs of any expansion or needed renovation or capital
improvements could have a material adverse effect on the Company's financial
condition or results of operations. Also, any capital expenditures for
expansion, renovation or improvement of the resorts may not generate the
financial returns expected. Such capital expenditures could involve certain
risks, including: the possibility of environmental problems; the possibility
that cash to fund renovations will not be available or that financing for
renovations will not be available on favorable terms; uncertainties as to market
demand or deterioration in market demand after commencement of renovations; the
emergence of unanticipated zoning and regulatory requirements; and competition
from other resorts, hotels and alternative lodging facilities.
The Company may not be able to successfully integrate the operations of
resorts that it has acquired. In order to take full economic advantage of the
resort acquisitions, the Company needs to effectively integrate the
administrative, financial and marketing organizations of each resort. The
Company also needs to effectively implement appropriate operational, financial
and management systems. This process may require a disproportionate amount of
time and attention of management and financial and other resources. Although
management believes the Company has the opportunity for synergies and cost
savings as a result of the resort acquisitions, the timing or amount of
synergies or cost savings that may ultimately be attained is uncertain. Some of
the anticipated economic advantages from the resort acquisitions may not be
achieved if the operations are not successfully integrated or if the appropriate
systems are not implemented in a timely manner. The difficulties of that
integration and implementation may initially be increased by the necessity of
coordinating and integrating personnel with different business backgrounds and
corporate cultures. Management cannot assure you that it will be able to
successfully integrate the operations of the resorts or implement the
appropriate systems. As a result, the business strategy might not be effective
and management may not be able to achieve its goals.
The Company faces a variety of risks from operating resorts. The Company
may encounter risks common to the operations of resorts, including over-building
(which may lower room rates), increases in operating costs due to inflation or
other factors, dependence on tourism and weather conditions and increases in
travel costs and poor economic conditions. In addition, the Company may face
risks relating to the concentration of the resorts in South Florida. Any of
these risks could have a material adverse effect on the Company's financial
condition or results of operations.
Control by H. Wayne Huizenga. The Company has two classes of common stock,
Class A Common Stock and Class B Common Stock. On each matter submitted for
stockholder approval each share of Class A Common Stock is entitled to one vote,
and each share of Class B Common Stock is entitled to 10,000 votes. The Company
has issued all of the shares of Class B Common Stock to Mr. Huizenga, assuring
that he will have voting control of the Company, in order to satisfy certain NHL
control requirements. As of June 30, 1999, Mr. Huizenga beneficially owned
voting stock of the Company with the power to vote approximately 98.8% of the
total votes entitled to be cast on any matter submitted to a vote of
stockholders. Mr. Huizenga may not sell his controlling interest in the Company
unless the NHL approves the sale. As the sole owner of Class B Common Stock, Mr.
Huizenga has the ability to indirectly control the management and policies as
well as the outcome of substantially all non-extraordinary matters submitted to
the stockholders for approval, including the election of directors.
Nothing in the charter or bylaws restricts the transfer of Class B Common
Stock. As a result, Mr. Huizenga may sell his controlling interest, subject to
the NHL approval, without the approval of the holders of Class A Common Stock.
However, if Mr. Huizenga were to sell his controlling interest, then certain
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change-of-control provisions of certain debt agreements may apply. Also, Mr.
Huizenga may receive a substantial premium price for selling his controlling
interest in the Company.
The Company depends on key personnel. For the foreseeable future, the
Company will be materially dependent on the services of Mr. Huizenga. The loss
of Mr. Huizenga's services could have a material adverse effect on the business.
The Company does not carry key man life insurance on Mr. Huizenga or any of the
officers or directors.
The Company's resort business is seasonal. The resort operations are
generally seasonal. The resorts historically experience greater revenue, costs
and profits in the second and third quarters of the fiscal year ended June 30
due to increased occupancy and room rates during the winter months.
The Company may need to make substantial capital expenditures in order to
comply with the Americans with Disabilities Act. The resorts and other
properties are subject to the requirements of the Americans with Disabilities
Act (the "ADA"), which generally requires that public accommodations be made
accessible to disabled persons. Management believes that the resorts and other
properties are in substantial compliance with the ADA and that the Company will
not be required to make substantial capital expenditures to address the
requirements of the ADA. However, compliance with the ADA could require removal
of access barriers and noncompliance could result in the imposition of fines by
the federal government or the award of damages to private litigants. If the
Company were required to make substantial alterations in one or more of the
resorts or the other properties in order to comply with the ADA, it's financial
condition and results of operations could be adversely affected.
The Company may become subject to liabilities under environmental
laws. Operating costs may be affected by the obligation to pay for the cost of
complying with existing environmental laws, ordinances and regulations,
including the cleanup of contamination, as well as the cost of complying with
future legislation. In connection with the acquisition of the resorts and other
properties, Phase I, and in some instances Phase II, environmental site
assessments were obtained in order to evaluate potential environmental
liabilities at these properties. Although these assessments have identified
certain matters that will require the Company to incur costs to remedy, based on
current information, none of these matters appears likely to have a material
adverse effect on the business, assets, results of operations or liquidity.
However, because these assessments cannot give full and complete knowledge of
environmental liability and compliance matters, management cannot assure you
that the costs of complying with environmental laws and of defending against
claims of liability arising under environmental laws will not have a material
adverse effect on the financial condition and results of operations. See
"Business -- Environmental Matters."
The Company may face a variety of risks if it enters into business
acquisitions, joint ventures and/or divestitures in the future. The Company has
achieved much of its growth through acquisitions. The growth strategy may lead
the Company to pursue additional acquisitions of resort-related, sports-related
or other types of businesses. In addition, the Company may pursue joint ventures
and/or divestitures in the future. The Company's success will depend upon the
ability to identify and finance attractive alternative business acquisitions,
ventures and/or divestitures. The risks related to acquisitions, joint ventures
and/or divestitures include: potential diversion of management; unanticipated
liabilities or contingencies from acquired businesses or ventures; environmental
and other regulatory costs; suitability of a joint venture partner; reduced
earnings due to increased goodwill amortization, increased interest costs and
costs related to integration of acquisitions; integrating the businesses that
the Company acquires; need to manage growth of acquired businesses or joint
ventures; and potential corporate reorganization and reallocation of resources
due to divestitures.
The Company has restrictions on ownership as a result of the National
Hockey League membership and the Panthers face potential liabilities. The
Panthers are generally jointly and severally liable with the other members of
the NHL for the debts and obligations of the National Hockey League. If another
member of the NHL does not pay its pro rata share of any NHL debt or obligation,
the Panthers would be obligated to pay a pro rata share of such debt or
obligation, after all other individual team remedies are exhausted, including
the sale of a member team.
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The NHL constitution and bylaws require a person or a group of persons
holding a 5.0% or more interest in the Company to obtain the prior approval of
the NHL. The NHL may withhold its approval in its sole discretion.
Year 2000 compliance. Management cannot assure you that the systems of
other companies on which the Company relies will be remedied for the year 2000
issue on time or that a failure to remedy the problem by another company would
not have a material adverse effect on the Company.
The Company could incur substantial liabilities if certain litigation is
resolved unfavorably. The Company is currently party to certain shareholder
derivative and purported class action litigation, which if concluded adversely
to the Company's interests could have a material adverse effect on the financial
condition or results of operations. See "Business -- Legal Proceedings."
The Company has a history of losses. The Company did not generate net
income for any year prior to the fiscal year ended June 30, 1998. These losses
were due primarily to the operations of the Panthers. However, for the years
ended June 30, 1999 and 1998 the Company generated net income of $5.4 million
and $1.3 million, respectively. The increase in net income is due in part to the
move into the high-end luxury resort business, which is generally more
profitable than professional sports franchises. Operating results for the
entertainment and sports business have also improved recently due in significant
part to the fact that the Company has been sharing in the net profits of the
newly-constructed National Car Rental Center. Despite the recent increase in net
income, management cannot assure you that the Company will generate net income
in the future.
ITEM 2. PROPERTIES
Management believes that all of its property facilities are sufficient for
its needs. The Company's corporate headquarters are located in Fort Lauderdale,
Florida in leased premises.
The Company considers its resorts to be leading establishments with respect
to desirability of location, size of facilities, physical condition, quality and
variety of services offered in the areas in which they are located. See further
description of properties under "Leisure and Recreation Business".
The Panthers, along with certain operating and management personnel,
utilize the National Car Rental Center, pursuant to a license agreement between
the Company and Broward County. The Company owns and operates the Incredible Ice
Arena and operates the Gold Coast Ice Arena pursuant to a lease.
Certain of the property of the Company and its subsidiaries are subject to
liens securing payment of portions of the Company's and its subsidiaries'
indebtedness.
ITEM 3. LEGAL PROCEEDINGS
On April 9, 1997, Allied Minority Contractors Association, Inc., South
Florida Chapter of NAMC, Overnight Success Construction, Inc., Reed Jr.
Plumbing, Inc. and Christopher Mallard (collectively, the "Broward County
Plaintiffs") filed a suit against Broward County and Arena Development in the
Seventeenth Judicial Circuit in and for Broward County, Florida. This suit
alleges that Broward County entered into the agreement with the Company to
develop the National Car Rental Center in violation of Florida law and Broward
County ordinances. The Broward County Plaintiffs seek, among other things, to
nullify the agreement between Broward County and the Company to develop the
National Car Rental Center. On July 10, 1997, the trial court denied the Broward
County Plaintiffs' motion for a temporary restraining order and on November 17,
1997 the trial court also denied plaintiff's motion for summary judgement. On
May 19, 1998, the trial court granted the Joint Motion of Broward County and
Arena Development to Disqualify Plaintiffs and their Counsel and to Dismiss.
Plaintiffs filed an appeal. On August 18, 1999, the Fourth District Court of
Appeal of the State of Florida affirmed the trial court's rulings. Plaintiffs
may attempt to seek further review from the Florida Supreme Court. The Company
intends to continue vigorously defending against this suit. An unfavorable
outcome of the suit may have a material adverse effect on the Company's
financial condition or results of operations.
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On January 28, 1997, February 4, 1997 and March 18, 1997, purported class
action lawsuits were filed against the Company and Messrs. Huizenga, Johnson,
Rochon, Berrard, Hudson, Dauria and Evans in the United States District Court
for the Southern District of Florida. On May 7, 1998, a consolidated and amended
class action complaint was filed combining these claims into one action. The
suits allege, among other things, that the defendants violated Section 10(b) of
the Exchange Act and Rule 10b-5 thereunder, by making untrue statements or
omitting material facts, in connection with sales of the Company's Class A
Common Stock by the plaintiff and others in the purported class between November
13, 1996 and December 22, 1996. The suit generally seeks, among other things,
certification as a class and an award of damages in an amount to be determined
at trial. On May 24, 1999, the court granted the defendants' motion and
dismissed Counts I and II of the complaint with prejudice, and dismissed Count
III (Section 20A of the Exchange Act) with leave to amend. On July 22, 1999,
plaintiffs filed an amended complaint against defendants Johnson, Rochon,
Berrard and Hudson. On September 13, 1999, all parties submitted a stipulation
to the court which provides for a dismissal with prejudice of all claims. Upon
entry by the court of the agreed final judgement, all claims in this action will
be dismissed with prejudice, with no liability to any of the defendants.
On October 9, 1997, Bernard Kalishman filed a purported shareholder
derivative and class action lawsuit on behalf of the Company, as nominal
defendant, against Messrs. Huizenga, Berrard, Johnson, Rochon, Hudson and Egan,
each as director of the Company and Richard Evans and William Torrey, both
former directors of the Company, in the Seventeenth Judicial Circuit in and for
Broward County, Florida. The suit alleges, among other things, that each of the
defendants (other than Mr. Egan) breached contractual and fiduciary obligations
owed to the Company and its stockholders by engaging in self-dealing
transactions in connection with the Company's purchase of Hyatt Regency Pier 66
Hotel and Marina and the Radisson Bahia Mar Resort and Yachting Center. The suit
seeks to impose a constructive trust on alleged excessive compensation paid to
the prior owners of Pier 66 and Bahia Mar or to have damages assessed against
the defendants or to rescind the transaction. The amended complaint also added
claims similar to those alleged in the class action lawsuit described in the
paragraph above and dropped Mr. Egan as a defendant. On June 3, 1999, the court
granted the defendants' motion to dismiss the derivative claims with prejudice.
On June 11, 1999, the plaintiff moved for rehearing on certain aspects of the
court's order, which motion has not yet been reheard. The Company intends to
continue vigorously defending against this suit. An unfavorable outcome of the
suit may have a material adverse effect on the Company's financial condition or
results of operations.
Decoma Miami Associates, Ltd. ("Decoma"), a Florida limited partnership in
which the Company has a 78% interest, has a contract (the MAC ) with the Miami
Sports and Exhibition Authority (MSEA), an agency of the City of Miami, to
operate the Miami Arena through July 8, 2020. In a complaint filed in the
Eleventh Judicial Circuit in and for Dade County, Florida on June 17, 1996,
subsequently amended on December 5, 1997, Decoma sought, among other relief, a
declaration that the MAC had been breached by MSEA's improper transfer to the
City of Miami of certain tax revenue that MSEA had pledged under the MAC for the
benefit of the Miami Arena and other limited applications. On September 9, 1999
the court ruled that MSEA's improper transfer of tax revenue violated the MAC
and that Decoma was entitled to terminate the MAC and entered a judgement
against MSEA for liquidated damages in the amount of approximately $12 million.
In the event MSEA should appeal this ruling, Decoma intends to continue to
vigorously enforce its remedies under the MAC.
The Company is not presently involved in any other material legal
proceedings. However, the Company may from time to time become a party to legal
proceedings arising in the ordinary course of business, which are incidental to
the business. While the results of the legal proceedings described above and
other proceedings which arose in the normal course of business cannot be
predicted with certainty, management believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, consolidated cash
flows or consolidated financial position. However, unfavorable resolution of
each matter individually or in the aggregate could have a material affect on the
consolidated results of operations or cash flows for the periods in which they
are resolved.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Class A Common Stock began trading on The Nasdaq National Market on
November 13, 1996 under the symbol "PUCK." On July 11, 1997, the Class A Common
Stock began trading on the New York Stock Exchange ("NYSE") under the symbol
"PAW." On September 29, 1999, the Class A Common Stock began trading on the NYSE
under the symbol "RST". The following table sets forth, for the periods
indicated, the range of the high and low sales prices per share for the Class A
Common Stock.
PRICE RANGE OF
CLASS A
COMMON STOCK
----------------
HIGH LOW
------- -------
FISCAL YEAR ENDED JUNE 30, 1999:
First Quarter............................................. $19 5/16 $10 3/4
Second Quarter............................................ 12 1/16 7 7/8
Third Quarter............................................. 10 7/8 7 3/4
Fourth Quarter............................................ 11 3/16 7 7/16
FISCAL YEAR ENDED JUNE 30, 1998:
First Quarter............................................. $24 5/8 $17 7/8
Second Quarter............................................ 24 3/4 16 5/8
Third Quarter............................................. 22 1/2 15 15/16
Fourth Quarter............................................ 22 3/8 17 1/2
On September 17, 1999, the last reported sales price of the Class A Common
Stock on the New York Stock Exchange was 9 5/8. As of the same date, there were
approximately 9,200 holders of record of the Class A Common Stock.
Since its inception, the Company has not paid any cash dividends on the
Class A Common Stock or the Class B Common Stock. The Company does not intend to
pay any cash dividends with respect to its common stock in the foreseeable
future. Certain of the Company's credit facilities restrict the ability of the
Company to pay dividends. In addition, the NHL Constitution and Bylaws prohibit
the Company from paying cash dividends, unless paying such cash dividends will
not impair the Company's ability to (1) meet its projected expenses for the
ensuing annual period without the use of borrowed funds, other than short-term
borrowings and (2) maintain adequate reserves to fund the future payment of all
deferred player compensation and other deferred obligations for past services.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth below should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto contained in Part
II, Item 8 of this Annual Report on Form 10-K. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
YEAR ENDED JUNE 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Revenue:
Leisure and recreation............ $324,127 $252,603 $ 17,567 $ -- $ --
Entertainment and sports.......... 62,608 40,642 36,695 34,087 17,746
-------- -------- -------- -------- --------
Total revenue..................... 386,735 293,245 54,262 34,087 17,746
Operating expenses:
Cost of leisure and recreation
services....................... 141,456 110,084 6,658 -- --
Cost of entertainment and sports
services....................... 52,901 45,919 35,135 35,958 17,210
Selling, general and
administrative expenses........ 101,023 91,579 15,150 8,371 5,569
Amortization and depreciation..... 31,176 23,155 5,698 9,815 6,266
-------- -------- -------- -------- --------
Operating income (loss)............. 60,179 22,508 (8,379) (20,057) (11,299)
Interest and other income........... 6,097 5,251 1,923 122 38
Interest and other expense.......... (56,249) (24,673) (3,364) (5,030) (3,741)
Minority interest................... (339) (1,813) (440) (174) (384)
-------- -------- -------- -------- --------
Income (loss) before extraordinary
item.............................. 9,688 1,273 (10,260) (25,139) (15,386)
Extraordinary item -- early
extinguishment of debt............ (4,287) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)................... $ 5,401 $ 1,273 $(10,260) $(25,139) $(15,386)
======== ======== ======== ======== ========
Net income (loss) per
share -- diluted.................. $ 0.15 $ 0.04 $ (0.74) $ (4.76) $ (2.96)
======== ======== ======== ======== ========
Shares used to compute diluted
income (loss) per share........... 37,146 34,888 13,829 5,276 5,203
======== ======== ======== ======== ========
OTHER DATA:
Net cash flow from operating,
investing and financing
activities........................ $(27,006) $ 23,519 $ 13,244 $ (772) $ (210)
EBITDA:
Leisure and recreation............ $101,013 $ 72,478 $ 5,512 $ -- $ --
Entertainment and sports.......... 4,563 (12,092) (6,040) (10,120) (4,995)
Corporate......................... (8,124) (9,472) (230) -- --
-------- -------- -------- -------- --------
Total EBITDA(1)........... $ 97,452 $ 50,914 $ (758) $(10,120) $ (4,995)
Membership fees deferred during..... -- -- --
the period(2)..................... 8,198 5,814 -- -- --
-------- -------- -------- -------- --------
Adjusted EBITDA(3).................. $105,650 $ 56,728 $ (758) $(10,120) $ (4,995)
EBITDA margin(4).................... 25% 17% (1)% (30)% (28)%
Adjusted EBITDA margin(5)........... 27% 19% (1)% (30)% (28)%
Capital expenditures................ $ 99,912 $ 51,206 $ 1,494 $ 140 $ 161
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AT JUNE 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 10,222 $ 37,228 $ 13,709 $ 465 $ 1,237
Restricted cash.......................... $ 44,830 $ 29,296 $ 30,110 $ -- $ --
Total current assets..................... $ 96,491 $ 111,182 $ 70,590 $ 3,756 $ 3,408
Total assets............................. $1,284,904 $1,128,207 $600,392 $ 47,760 $ 53,587
Total current liabilities................ $ 116,224 $ 403,096 $ 46,375 $ 67,786 $ 50,292
Total debt............................... $ 584,105 $ 540,626 $186,056 $ 85,172 $ 67,226
Non-current obligations.................. $ 676,576 $ 292,708 $251,003 $ 28,277 $ 25,643
Shareholders' equity (deficit)........... $ 490,280 $ 430,511 $301,153 $(48,303) $ (22,348)
- ---------------
(1) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization, minority interest and extraordinary items.
EBITDA and Adjusted EBITDA (see below) are used by management and certain
investors as indicators of the Company's historical ability to service debt,
to sustain potential future increases in debt and to satisfy capital
requirements. However, neither EBITDA nor Adjusted EBITDA is intended to
represent cash flows for the period. In addition, they have not been
presented as alternatives to either (a) operating income (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
are thus susceptible to varying calculations. EBITDA as presented may not be
comparable to other similarly titled measures of other companies.
(2) Represents the annual change in deferred revenue from the Premier Club at
the Boca Raton Resort and Club and Grande Oaks Golf Club. The Premier Club
currently requires a non-refundable initial membership fee. Initial
membership fees are recorded as revenue over the estimated life of the
membership. Unrecognized portions of the initial membership fees are
included in deferred revenue (for the current portion) and other non-current
liabilities (for the non-current portion) on the Consolidated Balance
Sheets.
(3) Adjusted EBITDA represents EBITDA plus the amount of net membership fees
deferred during the period.
(4) EBITDA margin is defined as EBITDA divided by revenue.
(5) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by the sum of
revenue plus net membership fees deferred during the period.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of the Company which are
included elsewhere herein.
ACQUISITIONS
The Company makes its decisions to acquire or invest in businesses based on
financial and strategic considerations. Each of the acquisitions summarized
below, with the exception of Decoma Miami Associates, Ltd. which took place
prior to the initial public offering ("IPO"), have been accounted for under the
purchase method of accounting and are included in the historical financial
statements from the date of acquisition. No significant acquisitions were made
during the year ended June 30, 1999.
ACQUISITIONS MADE DURING THE YEAR ENDED JUNE 30, 1998
In April 1998, the Company acquired the Edgewater Beach Hotel for $41.2
million, $20.7 million of which was paid in cash at closing and $20.5 million of
which was paid in cash in September 1998.
In March 1998, the Company acquired the Arizona Biltmore Hotel in exchange
for (1) payment of $126.0 million in cash at closing, (2) payment of $99.8
million in cash in December 1998, (3) payment of $500,000 in cash in August
1999, (4) warrants to purchase 500,000 shares of Class A Common Stock
exercisable at $24.00 per share at any time, in whole or in part, through March
2003 and (5) the assumption of $63.1 million of debt. The Company also agreed to
pay up to $50.0 million to the sellers conditioned upon their satisfactory
execution of certain developmental plans. The plans were delivered to the
Company in acceptable form in December 1998. The obligation was recorded as an
increase to intangible assets and notes payable. The $50.0 million is payable in
three equal annual cash installments, the first of which was made in April 1999.
An additional $8.3 million was prepaid in August 1999.
In November 1997, the Company acquired certain assets associated with
Grande Oaks Golf Club (formerly known as Rolling Hills Golf Club) in exchange
for $8.0 million in cash. The assets acquired consist of an 18-hole golf course
and a separate 9-hole golf course, a parking lot and 86 acres of undeveloped
land adjacent to the golf course. Since its acquisition, the Company has
redesigned the golf course and constructed a new clubhouse that was reopened in
June 1999.
In August 1997, the Company acquired its initial 68% ownership interest
(325 of the 474 units) in the Registry Resort at Pelican Bay for (1) 918,174
shares of Class A Common Stock, (2) warrants to purchase 325,000 shares of Class
A Common Stock (300,000 of which are exercisable at $25.85 per share and 25,000
of which are exercisable at $23.50 per share) and (3) $75.5 million in cash. The
warrants vest ratably on a quarterly basis and become fully exercisable on
December 31, 1999. The warrants expire in October 2003. As of June 30, 1998, the
Company acquired all but one of the remaining units of the property for
additional payments of $30.6 million (net of the payoff of certain mortgage
notes receivable to the Company associated with additional units). The Company
acquired the last unit in July 1998.
ACQUISITIONS MADE DURING THE YEAR ENDED JUNE 30, 1997
In June 1997, the Company acquired substantially all of the net assets of
the Boca Raton Resort and Club in exchange for (1) 272,303 shares of Class A
Common Stock, (2) rights to acquire 4,242,586 shares of Class A Common Stock for
no additional consideration and (3) warrants to purchase 869,810 shares of Class
A Common Stock at a purchase price of $29.01 per share. Half of the warrants
expired in December 1998 and the remaining warrants expire in December 1999.
In May 1997, the Company acquired the rights to operate Gold Coast Ice
Arena in exchange for 34,760 shares of Class A Common Stock. Gold Coast Ice
Arena provides open skating, ice hockey leagues and other programs to the
public.
In March 1997, the Company acquired all of the ownership interests,
comprised of capital stock and partnership interests, of each of the entities
which own, directly or indirectly, all of the general and limited
18
21
partnership interests in the Hyatt Regency Pier 66 Hotel and Marina for
4,450,000 shares of Class A Common Stock.
In March 1997, the Company acquired all of the ownership interests,
comprised of capital stock and partnership interests, of each of the entities
which own, directly or indirectly, all of the general and limited partnership
interests in the Radisson Bahia Mar Resort and Yachting Center in exchange for
3,950,000 shares of Class A Common Stock.
In January 1997, the Company acquired certain assets relating to the
Incredible Ice Arena in exchange for (1) $1.0 million in cash, (2) 212,766
shares of Class A Common Stock and (3) the assumption of a maximum of $8.1
million in construction-related obligations. The Incredible Ice Arena provides
open skating, ice hockey leagues and other ice programs to the public.
Prior to the completion of the IPO, the Company acquired from Mr. Huizenga,
the Company's Chairman, approximately 78% of the partnership interest in Decoma
Miami Associates, Ltd., an entity which manages the Miami Arena, in exchange for
870,968 shares of Class A Common Stock. This transaction was accounted for on a
historical cost basis in a manner similar to a pooling of interests as of the
date of the acquisition by Mr. Huizenga.
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BUSINESS SEGMENT INFORMATION
The accompanying table outlines business segment operating data (in 000's).
1999 1998 1997
-------- -------- --------
REVENUE:
Leisure and recreation.................................... $324,127 $252,603 $ 17,567
Entertainment and sports.................................. 62,608 40,642 36,695
-------- -------- --------
Total revenue..................................... 386,735 293,245 54,262
OPERATING EXPENSES:
Cost of services:
Cost of leisure and recreation services................ 141,456 110,084 6,658
Cost of entertainment and sports services.............. 52,901 45,919 35,135
Selling, general and administrative expenses:
Leisure and recreation................................. 83,427 71,800 5,397
Entertainment and sports............................... 8,415 10,002 7,854
Corporate.............................................. 9,181 9,777 1,899
Amortization and depreciation:
Leisure and recreation................................. 28,225 17,950 1,459
Entertainment and sports............................... 2,833 5,168 4,239
Corporate.............................................. 118 37 --
-------- -------- --------
Total operating expenses.......................... 326,556 270,737 62,641
-------- -------- --------
Operating income (loss):
Leisure and recreation................................. 71,019 52,769 4,053
Entertainment and sports............................... (1,541) (20,447) (10,533)
Corporate.............................................. (9,299) (9,814) (1,899)
-------- -------- --------
Total operating income (loss)..................... 60,179 22,508 (8,379)
Interest and other income................................... 6,097 5,251 1,923
Interest and other expense.................................. (56,249) (24,673) (3,364)
Minority interest........................................... (339) (1,813) (440)
-------- -------- --------
Income (loss) before extraordinary item..................... 9,688 1,273 (10,260)
Extraordinary item -- early extinguishment of debt.......... (4,287) -- --
-------- -------- --------
Net income (loss)........................................... $ 5,401 $ 1,273 $(10,260)
======== ======== ========
EBITDA:
Leisure and recreation.................................... $101,013 $ 72,478 $ 5,512
Entertainment and sports.................................. 4,563 (12,092) (6,040)
Corporate................................................. (8,124) (9,472) (230)
-------- -------- --------
Total............................................. $ 97,452 $ 50,914 $ (758)
======== ======== ========
ADJUSTED EBITDA:
Leisure and recreation.................................... $109,211 $ 78,292 $ 5,512
Entertainment and sports.................................. 4,563 (12,092) (6,040)
Corporate................................................. (8,124) (9,472) (230)
-------- -------- --------
Total............................................. $105,650 $ 56,728 $ (758)
======== ======== ========
SEASONALITY
The Company has historically experienced, and expects to continue to
experience, seasonal fluctuations in its gross revenue and net earnings. Peak
season at the resorts extends from January through April while regular season
for the Panthers commences in October and ends in April.
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23
IMPACT OF INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenue and results of operations. Based on the current economic
climate, the Company does not expect that inflation and changing prices will
have a material impact on the Company's revenue or earnings during fiscal 2000.
Many of the costs of operating the resorts can be fixed for certain periods of
time, reducing the short-term effects of changes in the rate of inflation. Room
rates, which are set on a daily basis, can be rapidly changed to meet changes in
inflation rates (as well as other changing market conditions). The Company has
less flexibility in changing group rates since guest reservations are typically
made up to one year in advance of the stay. To the extent inflationary trends
affect short-term interest rates, a portion of the Company's debt service costs
may be adversely affected.
CONSOLIDATED RESULTS OF OPERATIONS
Net income totaled $5.4 million and $1.3 million for the years ended June
30, 1999 and 1998, respectively. Net loss totaled $10.3 million for the year
ended June 30, 1997. The improvement in operating results from June 30, 1998 to
June 30, 1999 was due to better performance from each of the Company's business
segments, partially offset by higher interest expense on greater average
outstanding indebtedness. The improvement in operating results from June 30,
1997 to June 30, 1998 was the result of an increase in the number of resort
properties under ownership during the year ended June 30, 1998 (due to business
acquisitions). The improved operating results during the year ended June 30,
1998 were partially offset by higher corporate general and administrative
expenses and higher losses from the entertainment and sports business.
Additional information relating to the operating results for each business
segment is set forth below.
LEISURE AND RECREATION
The improvement in operating results from June 30, 1997 to June 30, 1998
was primarily due to business acquisitions. Accordingly, the discussion below is
limited to a discussion of variations in operating results from June 30, 1998 to
June 30, 1999.
Revenue
Leisure and recreation revenue totaled $324.1 million and $252.6 million
for the years ended June 30, 1999 and 1998, respectively. The increase was
partially the result of a full year of operations for the Arizona Biltmore Hotel
and the Edgewater Beach Hotel, which were both purchased in the second half of
fiscal 1999. In addition, the average daily rate ("ADR") for the Company's
resort portfolio increased to $201 for the year ended June 30, 1999, from $189
for the year ended June 30, 1998. The improvement in ADR was partially offset by
a slight decrease in the average occupancy rate. Nonetheless, total revenue per
available room ("REVPAR") increased to $313 for the year ended June 30, 1999,
from $290 for the year ended June 30, 1998. More than 50% of revenue for each
year was derived from non-room sources such as food and beverage sales, yachting
and marina revenue, club memberships, retail and other resort amenities.
Non-room revenue for the year ended June 30, 1999 increased to $183.7 million,
compared to $142.5 million for the year ended June 30, 1998. Total revenue per
available customer increased to $454 for the year ended June 30, 1999, from $413
for the year ended June 30, 1998.
Operating Expenses
Cost of leisure and recreation services totaled $141.5 million or 44% of
revenue for the year ended June 30, 1999, compared to $110.1 million or 44% of
revenue for the year ended June 30, 1998. Cost of leisure and recreation
services, which was proportionate with revenue for each period, primarily
consisted of direct costs to service rooms, marinas, food and beverage
operations, retail establishments and other amenities at the resorts.
Selling, general and administrative expenses ("S,G&A") of the leisure and
recreation business totaled $83.4 million or 26% of revenue for year ended June
30, 1999, compared to $71.8 million or 28% of revenue for the year ended June
30, 1998. S,G&A as a percent of revenue improved for the year ended June 30,
1999
21
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primarily because of certain cost efficiencies from business integration such as
consolidated marketing efforts and reduced overhead for such items as insurance
and professional fees. S,G&A primarily consisted of various fixed, indirect
costs, including utility and property costs, real estate taxes, insurance,
management and franchise agreement fees and administrative salaries and
expenses.
Amortization and depreciation expense for the leisure and recreation
business was $28.2 million and $18.0 million for the years ended June 30, 1999
and 1998, respectively. The increase was primarily because the Company owned the
Arizona Biltmore Hotel and the Edgewater Beach Hotel for the entire year during
fiscal 1999.
Operating Income
Operating income for the leisure and recreation business totaled $71.0
million and $52.7 million for the years ended June 30, 1999 and 1998,
respectively. The primary factors contributing to the improvement are (1) an
increase in revenue due to a full year of operations from the Arizona Biltmore
Hotel and the Edgewater Beach Hotel (2) improvements in ADR and REVPAR for the
aggregate resort portfolio and (3) higher profit margins as a result of cost
efficiencies from business integration.
ENTERTAINMENT AND SPORTS
The primary component of the entertainment and sports business is the
Panthers and related arena operations. Revenue and direct expenses associated
with the team are recorded over the regular hockey season. Operating losses were
$1.5 million, $20.4 million and $10.5 million for the years ended June 30, 1999,
1998 and 1997, respectively. Improvements in operating results from June 30,
1998 to June 30, 1999 were primarily attributable to the Panthers move from the
Miami Arena to the newly constructed National Car Rental Center where the
Panthers serve as primary tenants and share in all revenue streams. The decrease
in operating results from June 30, 1997 to June 30, 1998 was primarily the
result of higher Panthers' player salaries and the teams' failure to make the
playoffs.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
Corporate general and administrative expenses totaled $9.2 million and $9.8
million and $1.9 million for the years ended June 30, 1999, 1998, and 1997,
respectively. The decrease from June 30, 1998 to June 30, 1999 was because
certain non-recurring professional fees were incurred during fiscal 1998. The
increase from June 30, 1997 to June 30, 1998 was substantially the result of
additional legal, accounting, treasury and other corporate general and
administrative expenses associated with the Company's (1) increase in total
revenue and assets, (2) diversification into the resort hospitality business and
(3) public company compliance and reporting activities.
INTEREST AND OTHER INCOME
Interest and other income totaled $6.1 million, $5.3 million and $1.9
million for the years ended June 30, 1999, 1998 and 1997, respectively, and
primarily include expansion fee revenue and interest earned on cash and cash
equivalents. Expansion fee revenue represents the Panthers' share of a franchise
fee paid by new clubs being admitted into the NHL. The increase in interest and
other income from June 30, 1997 to June 30, 1998 was primarily because $2.9
million was received in expansion fee revenue during the year ended June 30,
1998, while no amounts were received during the year ended June 30, 1997.
INTEREST AND OTHER EXPENSE
Interest expense totaled $56.2 million, $24.7 million and $3.4 million for
the years ended June 30, 1999, 1998 and 1997, respectively. The increase in
interest expense during the periods was the result of higher debt levels assumed
or originated in connection with the acquisitions of resorts. In addition, the
average cost of borrowing increased from 8.2% for the year ended June 30, 1998
to 10.7% for the year ended June 30, 1999 primarily because 200 basis points (or
$12.2 million) in fees were expensed for certain short-term financing which was
repaid during the fourth quarter of fiscal 1999.
22
25
MINORITY INTEREST
Minority interest totaled $339,000, $1.8 million and $440,000 for the years
ended June 30, 1999, 1998 and 1997, respectively. Minority interest increased
during the year ended June 30, 1998 as a result of the initial 32% minority
interest in the Registry Resort at Pelican Bay (due to the Company's acquisition
of a 68% interest in the property in August 1997). By June 30, 1998, the Company
had increased its interest in the Registry Resort at Pelican Bay to 99% and
acquired the remaining 1% in July 1998. Minority interest for each period
presented also includes minority shareholders' proportionate share of the equity
in Decoma Miami Associates Ltd.
EXTRAORDINARY LOSS
In April 1999, the Company issued $340.0 million aggregate principal amount
of 9.875% senior subordinated notes due April 15, 2009 in a private placement
offering. The net proceeds of the offering were approximately $328.3 million and
were used to retire short-term and long-term indebtedness. In connection with
the retirement of such debt, the Company charged to operations debt issuance
costs related to the extinguished debt and recognized a $4.3 million
extraordinary loss.
EBITDA
EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization, minority interest and extraordinary items. EBITDA
and Adjusted EBITDA (see below) are used by management and certain investors as
indicators of the Company's historical ability to service debt, to sustain
potential future increases in debt and to satisfy capital requirements. However,
neither EBITDA nor Adjusted EBITDA is intended to represent cash flows for the
period. In addition, they have not been presented as alternatives to either (a)
operating income (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. EBITDA
as presented may not be comparable to other similarly titled measures of other
companies. EBITDA totaled $97.5 million, $50.9 million and $(758,000) for the
years ended June 30, 1999, 1998 and 1997, respectively. The improvement in
EBITDA was attributable to better operating results for each business segment
during the year ended June 30, 1999.
ADJUSTED EBITDA
Adjusted EBITDA represents EBITDA plus the amount of net membership fees
deferred during the period. The net membership fees deferred during the period
represents the annual change in deferred revenue from the Premier Club at the
Boca Raton Resort and Club and Grande Oaks Golf Club. Adjusted EBITDA totaled
$105.7 million, $56.7 million and $(758,000) for the years ended June 30, 1999,
1998 and 1997, respectively. The improvement in adjusted EBITDA was attributable
to better operating results for each business segment combined with higher
deferred Premier Club initiation fees during the year ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased to $10.2 million at June 30, 1999, from
$37.2 million at June 30, 1998. The major components of the change are discussed
below.
Net Cash Provided by Operating Activities
Net cash provided by operating activities totaled $68.8 million, $37.7
million and $2.9 million for the years ended June 30, 1999, 1998 and 1997,
respectively. The increase in cash flow from operations from June 30, 1998 to
June 30, 1999 was the result of receiving more cash flow from each business
segment. The increase in cash flow from June 30, 1997 to June 30, 1998 was
primarily the result of owning the Boca Raton Resort and Club, the Hyatt Regency
Pier 66 Hotel and Marina and the Radisson Bahia Mar Resort and Yachting Center
for the entire period during 1998.
23
26
Net Cash Used in Investing Activities
Net cash used in investing activities amounted to $115.4 million, $293.4
million and $515,000 for the years ended June 30, 1999, 1998 and 1997,
respectively.
There were no significant businesses acquired during the year ended June
30, 1999. During the year ended June 30, 1998, cash used in business
acquisitions and to acquire additional interests in a consolidated subsidiary of
the Company amounted to $260.8 million. During that year, the Company (1)
acquired its initial 68% ownership interest in the Registry Resort at Pelican
Bay of which $75.5 million of the purchase price was paid in cash, (2) closed on
additional units of the Registry Resort at Pelican Bay of which $30.6 million of
the purchase price was paid in cash, (3) acquired Grande Oaks Gulf Club for $8.0
million, (4) acquired the Arizona Biltmore Hotel of which $126.0 million of the
purchase price was paid in cash and (5) acquired the Edgewater Beach Hotel of
which $20.7 million of the purchase price was paid in cash. All resort
acquisitions during the year ended June 30, 1997 involved the issuance of common
stock or the assumption of debt in lieu of payment in cash.
Capital expenditures increased by $48.7 million to $99.9 million during the
year ended June 30, 1999, compared to $51.2 million for the year ended June 30,
1998. Capital expenditures totaled $1.5 million during the year ended June 30,
1997. During the year ended June 30, 1999, the Company spent $28.6 million on
the acquisition of land in Naples and Plantation, Florida. The Company plans to
use the parcels to construct additional recreational amenities that would be
available to guests of its Naples' and Fort Lauderdale resorts as well as
Premier Club members. Other capital spending during the year ended June 30, 1999
related to continued development and construction at Grande Oaks Golf Club,
continued construction of the 122 guestroom addition at the Arizona Biltmore
Hotel and other recurring furniture, fixture and equipment improvements at the
resorts. The capital expenditures for the year ended June 30, 1997 were
primarily associated with the Boca Raton Resort and Club's expansion program.
The expansion included an 18 court tennis club (which added to the existing 12
courts located in a separate complex), a new Bates-designed championship golf
course and a new 140,000 square foot conference center.
Under covenants to a senior note payable secured by the Boca Raton Resort
and Club, the Company is required to deposit excess operating cash into reserve
accounts which are accumulated and restricted to support future debt service,
facility expansion, furniture, fixture and equipment replacement and real estate
tax payments. Additionally, the Company's loan agreement for the Arizona
Biltmore Hotel requires the maintenance of customary capital expenditure reserve
funds for the replacement of assets. These reserve funds are classified as
restricted cash on the Consolidated Balance Sheets. The entertainment and sports
business also maintains restricted cash relating to the National Car Rental
Center. Restricted cash increased by $13.5 million during the year ended June
30, 1999, compared to a decrease of $13.2 million during the year ended June 30,
1998.
Cash Provided By Financing Activities
Net cash provided by financing activities amounted to $19.6 million, $279.2
million and $10.9 million for the years ended June 30, 1999, 1998 and 1997,
respectively. During the year ended June 30, 1999, the Company raised
approximately $40.0 million in net proceeds from the private placement sale of
4,022,561 shares of Class A Common Stock. The Company also raised approximately
$15.7 million in net proceeds from a rights offering covering 1,575,621 shares
of Class A Common Stock. However, the Company made $35.7 million in repayments,
net of borrowings, under credit facilities during the year ended June 30, 1999.
During the year ended June 30, 1998, the Company received $108.5 million of net
proceeds from the sale of Class A Common Stock and $170.7 million in borrowings,
net of repayments, under debt facilities. During the year ended June 30, 1997,
the Company completed its IPO for an aggregate of 7,300,000 shares of Class A
Common Stock, which resulted in net proceeds of $66.3 million. A portion of the
net proceeds from the IPO was used to retire debt. The Company also sold
2,460,000 shares of Class A Common Stock in a private placement transaction,
which yielded net proceeds of $65.6 million during the year ended June 30, 1997.
24
27
Capital Resources
The Company's capital resources are provided from both internal and
external sources. The primary capital resources from internal operations include
revenue from (1) room rentals, food and beverage sales, retail sales and golf,
tennis, marina and conference services at the resorts (2) Premier Club
memberships at the Boca Raton Resort and Club and Grande Oaks Golf Club and (3)
ticket, broadcasting, sponsorship, arena operations and other revenue derived
from ownership of the Panthers. The primary external sources of liquidity have
been the issuance of equity and debt securities and borrowing under term loans
and lines-of-credit.
During the year ended June 30, 1999, management was successful in
refinancing all of the Company's short-term indebtedness. In April 1999, the
Company issued $340.0 million aggregate principal amount of 9.875% senior
subordinated notes due April 15, 2009 in a private placement offering. In
addition, the Company obtained a new three-year, secured credit facility in the
amount of $146 million and repaid its indebtedness under its $35 million credit
facility. As of June 30, 1999, the Company had aggregate availability of $139.2
million under its two lines-of-credit. As a result of this availability and
expected cash from operations, management believes the Company has sufficient
funds to make its planned capital expenditures and support on-going operations,
including meeting debt service obligations.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Computer programs that have date-sensitive software may recognize a date using
00 as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruption of operations.
The Company has completed an assessment relative to the modification or
replacement of portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company has also reviewed its non-information technology systems with respect to
Y2K issues. In addition, communication with third parties has been undertaken to
determine the extent to which the Company's interface systems are vulnerable to
those third parties' failure to remediate their own Y2K issues. The Y2K
remediation project is substantially complete with a total project cost of
approximately $500,000.
The Company can give no guarantee that the systems of other companies on
which the Company's systems rely will be remedied for the Y2K issue on time or
that a failure to remedy the problem by another company would not have a
material adverse effect on the Company.
FORWARD LOOKING STATEMENTS
Some of the information in this report may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may", "will", "expect", "anticipate", "estimate",
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this report. The risk factors include certain known and unknown
risks and uncertainties, and could cause the Company's actual results to differ
materially from those contained in any forward looking statement.
These risk factors include, among others, the Company's ability to obtain
financing on acceptable terms to meet operating expenses and finance its growth,
competition in the Company's principal businesses, the Company's ability to
integrate and successfully operate acquired businesses and the risks associated
with these businesses, the Company's ability to develop and implement
operational and financial systems to manage rapidly growing operations, the
Company's limited history of operations in the leisure and recreation business,
the Company's dependence on key personnel and the Company's ability to properly
assess and capitalize on future business opportunities.
25
28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
26
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants.......... 28
Consolidated Balance Sheets as of June 30, 1999 and 1998.... 29
Consolidated Statements of Operations for the Years Ended
June 30, 1999, 1998 and 1997.............................. 30
Consolidated Statements of Shareholders' Equity (Deficit)
for the Years Ended June 30, 1999, 1998 and 1997.......... 31
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997.............................. 32
Notes to Consolidated Financial Statements.................. 33
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30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Boca Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Boca
Resorts, Inc. (a Delaware corporation, formerly Florida Panthers Holdings, Inc.)
and subsidiaries as of June 30, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for each
of the three years in the period ended June 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boca Resorts, Inc. and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
August 19, 1999.
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31
BOCA RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
(IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,222 $ 37,228
Restricted cash........................................... 44,830 29,296
Accounts receivable, net.................................. 24,349 28,574
Inventory................................................. 7,295 6,499
Current portion of Premier Club notes receivable.......... 3,427 4,089
Other current assets...................................... 6,368 5,496
---------- ----------
Total current assets.............................. 96,491 111,182
Property and equipment, net................................. 1,032,497 959,214
Intangible assets, net...................................... 116,427 36,926
Long-term portion of Premier Club notes receivable, net..... 7,073 7,828
Other assets................................................ 32,416 13,057
---------- ----------
Total assets...................................... $1,284,904 $1,128,207
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 57,178 $ 41,326
Current portion of deferred revenue....................... 27,581 35,114
Short-term debt........................................... -- 318,250
Current portion of lines-of-credit and notes payable...... 26,500 4,540
Other current liabilities................................. 4,965 3,866
---------- ----------
Total current liabilities......................... 116,224 403,096
Lines-of-credit and notes payable........................... 217,605 217,836
Premier Club refundable membership fees..................... 62,903 65,046
Other non-current liabilities............................... 17,211 9,826
Deferred income taxes payable............................... 38,857 --
Senior subordinated notes payable........................... 340,000 --
Minority interest........................................... 1,824 1,892
Commitments and contingencies (Note 13)
Shareholders' equity:
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized and 40,551,370 and 34,888,358 shares issued
and outstan