10-K 1 oct10kar.txt OCT 31, 2001 10K AND ANNUAL REPORT FOR BLUE RIDGE REAL ESTATE CO. AND BIG BOULDER CORP. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ( ) ANNUAL REPORTS* PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934 (FEE REQUIRED) For the fiscal year ended OR (X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from 4/01/01 to 10/31/01 0-2844 (Blue Ridge) Commission File No. 0-2843 (Big Boulder) BLUE RIDGE REAL ESTATE COMPANY BIG BOULDER CORPORATION (exact name of Registrants as specified in their charters) State or other jurisdiction of incorporation or organization: Pennsylvania 24-0854342 (Blue Ridge) I.R.S. Employer Identification Number: 24-0822326 (Big Boulder) Address of principal executive office: Blakeslee, Pennsylvania Zip Code: 18610 Registrants' telephone number, including area code:570-443-8433 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, without par value, stated value $.30 per combined share* Page - 1 Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: Yes 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/A or any amendment to this Form 10-K. (X) The aggregate market value of common stock, without par value, stated value $.30 per combined share, held by non- affiliates at February 8, 2002, was $21,088,980. The market value per share is based upon the per share cost of shares as indicated over the counter on October 31, 2001. There is no established public trading market for the Companies' stock. Number of shares outstanding of each of the issuer's classes of common stock. Class Outstanding February 8, 2002 Common Stock, without par value 1,917,180 Shares stated value $.30 per combined share DOCUMENTS INCORPORATED BY REFERENCE Specified portions of the Companies' 2001 Annual Report to Shareholders are incorporated by reference into Part II hereof. Specified portions of the Companies' definitive Proxy Statement for the 2001 Transition Period Meetings of Shareholders to be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report and is incorporated herein by reference. __________________ *Under a Security Combination Agreementbetween Blue Ridge Real Estate Company ("Blue Ridge") and Big Boulder Corporation ("Big Boulder") (the "Corporations") and under the By-Laws of the Corporations, shares of the Corporations are combined in unit certificates, each certificate representing the same number of shares of each of the Corporations. Shares of each Corporation may be transferred only together with an equal number of shares of the other Corporation. For this reason, a combined Blue Ridge /Big Boulder Form 10-K is being filed. Except as otherwise indicated, all information applies to both Corporations. Page - 2 FORM 10-K PART I ITEM 1. BUSINESS BLUE RIDGE REAL ESTATE COMPANY Blue Ridge Real Estate Company ("Blue Ridge"), which was incorporated in Pennsylvania in 1911, is believed to be one of the largest owners of investment property in Northeastern Pennsylvania. It owns 18,709 acres of land which are predominately located in the Pocono Mountains. These lands are held entirely as investment property. Income is derived from these lands through leases, selective timbering by others, condemnation, sales, and other dispositions. Blue Ridge also owns the Jack Frost Mountain Ski Area, which is leased to Jack Frost Mountain Company, a 225-site campground, a retail store leased to Wal-Mart and a shopping center. The ski area, campground, retail store and shopping center are more fully described under Item 2. Jack Frost Mountain Company, a wholly-owned subsidiary of Blue Ridge was incorporated in Pennsylvania in 1980 and commenced operations on June 1, 1981. It was created to lease and operate the Jack Frost Mountain Ski Area and to provide certain services to other facilities, such as the Snow Ridge resort community, and to operate recreational facilities located within the Jack Frost Mountain tract. Northeast Land Company, a wholly owned subsidiary of Blue Ridge, was incorporated in Pennsylvania in 1967. The major assets of the company consist of 103 acres of land in Northeast Pennsylvania. Revenues are from managing the rental homes at Snow Ridge, Blue Heron, Laurelwoods and Midlake as resort accommodations, from real estate commissions for the sale of homes at these resort communities, and from Trust and Condo fees for Services to these resort communities. Northeast Land Company also receives revenue from a land lease to a Burger King franchise, and leased space on a 196-foot communication tower. BRRE Holdings, Inc., a wholly-owned subsidiary of Blue Ridge, was incorporated in Delaware in 1986. It was established for investment purposes. Blue Ridge employs 24 full-time employees. Jack Frost Mountain Company, which operates the Jack Frost Mountain Ski Area, has 44 full-time employees and during the skiing season there are approximately 500 additional employees. Northeast Land Company has 20 full-time employees. Page - 3 BIG BOULDER CORPORATION Big Boulder Corporation ("Big Boulder") was incorporated in Pennsylvania in 1949. The major assets of the company are 929 acres of land, which includes a 175-acre lake, the Big Boulder Ski Area, and the Mountain's Edge. The principal source of revenue for Big Boulder is derived from the Big Boulder Ski Area which is leased to Lake Mountain Company. Lake Mountain Company, a wholly-owned subsidiary of Big Boulder Corporation was incorporated in Pennsylvania in 1983 and commenced operations on June 1, 1983. It was created to lease and operate the Big Boulder Ski Area, and operate the recreational facilities as they are located within the Big Boulder Lake tract. BBC Holdings, Inc., a wholly-owned subsidiary of Big Boulder, was incorporated in Delaware in 1986. It was established for investment purposes. Big Boulder has no employees. Lake Mountain Company, which operates the Big Boulder Ski Area, no longer has any employees. The Lake Mountain Company has been merged with the payroll of Jack Frost Mountain Company. Big Boulder Ski area has 11 full- time employees. During the skiing season, there are approximately 525 additional employees. INDUSTRY SEGMENT INFORMATION Information with respect to business segments is presented in Note 13 to the Registrants' financial statements included in Item 8. The quarterly results of operations for seven months ended October 31, 2001 and Fiscal years 2001 and 2000 reflect the cyclical nature of the Companies' business since (a) the Companies' two ski facilities operate principally during the months of December through March and (b) land dispositions occur sporadically and do not follow any pattern during the fiscal year. Costs and expenses, net of revenues received in advance attributable to the ski facilities for the months of April through November, are deferred and recognized as revenue and operating expenses, ratably, over the operating period. ITEM 2. PROPERTIES A. BLUE RIDGE REAL ESTATE COMPANY The physical properties of Blue Ridge consist of approximately 18,812 acres owned by Blue Ridge and Northeast Land Company, the Jack Frost Mountain Ski Area, the Fern Ridge Campground, the Wal-Mart Store, the Dreshertown Shopping Center, a sewage treatment facility, corporate headquarters building, and other miscellaneous facilities. Page - 4 SKI FACILITIES The Jack Frost Mountain Ski Area, under lease to Jack Frost Mountain Company since June 1, 1981, is located near White Haven, Carbon County, Pennsylvania, and commenced operations in December 1972. The Jack Frost Mountain Ski Area consists of twenty-one slopes and trails including a snowboard slope, snowmobile course, snowtubing hill, five double chairlifts, two triple chairlifts, one quad chairlift, and various buildings including a Summit Lodge with food service, a cocktail lounge, a ski shop, and a ski rental shop. The total lift capacity per hour is 12,000 skiers. These lifts are in good condition and are operated as needed during the ski season. These facilities are situated on approximately 473 acres owned by Blue Ridge and leased to Jack Frost Mountain Company. The total capital investment in the ski area is $21,264,704, the major portion of which represents the cost of the slopes and trails, chairlifts, snowmaking equipment, water supply, roads and parking areas, and all buildings including the Summit Lodge. The remainder is for furnishings and equipment for the Summit Lodge, trucks, maintenance equipment, and miscellaneous outside equipment. At October 31, 2001 the out-standing debt on the Jack Frost Mountain Ski Area was $835,860. REAL ESTATE MANAGEMENT OPERATIONS The Wal-Mart Store located in Laurens, South Carolina, was acquired in September 1990 for cash consideration of $2,190,470 which was the total capital investment at October 31,2001. The building consists of 70,000 square feet, located on 10.217 acres of land and is leased to Wal-Mart on a triple net basis through January 31, 2039. At October 31, 2001 a mortgage totaling $1,262,628 was outstanding on this property. The Dreshertown Plaza Shopping Center, Dresher, Montgomery County, Pennsylvania, was acquired in July 1986 for consideration of $4,592,579. The center consists of approximately 101,233 square feet located on approximately 15 acres of land. On October 31, 2001, the center was 97% occupied under leases expiring on various dates from November 30, 2001 to October 31, 2021. The total capital investment in the shopping center is $5,459,641. At October 31, 2001, a mortgage totaling $4,815,000 was out-standing on this property. The Fern Ridge Campground is located at the intersection of Route 115 and Interstate 80 in Monroe County, Pennsylvania. This campground is built on 85 Page - 5 acres and consists of 225 campsites, 75 with water and electric, 25 with rustic cabins and the remaining 125 are wilderness sites. Its operating period is from April 1 through September 30. At October 31, 2001, the Companies' investment in this facility was $994,727. Blue Ridge owns 18,709 acres of land which are predominately located in the Pocono Mountains. The majority of this property is leased to various hunting clubs. Blue Ridge also owns several cottages in the area that are leased to private individuals. Blue Ridge owns and leases to Jack Frost Mountain Company a sewage treatment facility to serve the resort housing at Jack Frost Mountain. The total investment in this facility at October 31, 2001 was $1,227,655 with outstanding debt of $88,965. Blue Ridge also owns The Sports Complex at Jack Frost Mountain which consists of a swimming pool, fitness trail, tennis courts, motocross/B.M.X. and A.T.V. (All Terrain Vehicle) park and accompanying buildings. The Stretch is an exclusive fishing club. The Corporate Office Building is located on Route 940 and Mosey Wood Road. Northeast Land Company owns 103 acres of land which are located in the Pocono Mountains and a 196 foot communication tower. For the seven months ended October 31, 2001, revenues from operations of Blue Ridge and its subsidiaries amounted to $3,782,404. Jack Frost Mountain Ski Area had no ski revenue during this period. B. BIG BOULDER CORPORATION The physical properties owned by Big Boulder consist of approximately 929 acres, the Big Boulder Ski Area, a sewage treatment facility, a 200 foot communications tower, and the Mountain's Edge. SKI FACILITIES The Big Boulder Ski Area's physical properties have been leased to Lake Mountain Company since June 1, 1983, and are located in Kidder Township, Carbon County, Pennsylvania. Big Boulder Ski Area commenced operations in 1947. The Big Boulder Ski Area contains fourteen slopes and trails including a snowboard terrain park, snowtubing hill, five double chairlifts, two triple chairlifts, and various buildings including a base lodge, providing food service, a cocktail lounge, a ski shop and a ski rental service. The total lift capacity per hour is 9,600 skiers. These lifts are in good condition and are operated as needed Page - 6 during the ski season. These facilities are situated on approximately 90 acres owned by Big Boulder. The total capital investment in the ski area is $13,475,696. At October 31, 2001, the outstanding debt on the Big Boulder Ski Area was $434,061. REAL ESTATE MANAGEMENT OPERATIONS A sewage treatment facility was constructed by Big Boulder Corporation to serve the resort housing within the Big Boulder tract. The facility has the capacity of treating 225,000 gallons per day and is leased to Lake Mountain Company for operation. The capital investment in the facility at October 31, 2001, was $1,511,847 with an outstanding debt of $233,726 at that date. Big Boulder Corporation constructed the Mountain's Edge Restaurant which consists of 8,800 square feet and is located on the east shore of Big Boulder Lake, Kidder Township, Carbon County, Pennsylvania. The facility, leased to a private operator, commenced operations in May 1986. The restaurant has dining capacity for 100 patrons. The capital investment in the facility at October 31, 2001 was $1,594,192. Big Boulder owns 929 acres of land which are located in the Pocono Mountains. The Big Boulder Lake Club includes a 175-acre lake, swimming pool, tennis courts, boat docks and accompanying buildings. For the seven months ended October 31, 2001, revenues from operations of Big Boulder amounted to $979,663. Big Boulder Ski Area had no ski revenue during this period. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANTS
Age Office Held Since Patrick M. Flynn 25 2001 President Eldon D. Dietterick 56 1995 Executive Vice-President/Treasurer
All officers of the Registrants serve for a one-year period or until their election at the first meeting of the Board of Directors after the Annual Meeting of Shareholders. Page - 7 Patrick M. Flynn was appointed President in October 2001. He is the Director of Real Estate at Kimco Realty Corporation. Eldon D. Dietterick was appointed Executive Vice-President/Treasurer in October, 2001. He has been employed by the Registrants on a full-time basis since January 1985; he was appointed Secretary/Treasurer in October 1998. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Information required with respect to Registrants' common stock and related shareholder matters is incorporated herein by reference to the caption entitled "Price Range of Common Shares and Dividend Information" on Page 13 of the Transition Report for the Seven Months Ended October 31, 2001 to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Information required with respect to the specified financial data is incorporated herein by reference to Page 13 of the Transition Report for the Seven Months Ended October 31, 2001 to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required with respect to Registrants' financial condition, changes in financial condition and results of operations is incorporated herein by reference to Pages 13 and 14 of the Transition Report for the Seven Months Ended October 31, 2001 to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The required financial statements are incorporated herein by reference to Pages 2 through 12 of the Transition Report for the Seven Months Ended October 31, 2001 to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. Page - 8 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS The information concerning Directors required by Item 10 of Form 10-K is set forth under the caption "Election of Directors" in the Registrants' definitive Proxy Statement for the Transition Period for the Seven Months Ended October 31, 2001 Meetings of Shareholders to be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report and is incorporated herein by reference. The information concerning Executive Officers required by Item 10 of Form 10-K is set forth in Item 4A of this report.
CERTAIN SIGNIFICANT EMPLOYEES OF THE REGISTRANTS Employed in Present Age Position Since Richard T. Frey, Vice-President 51 2001 Carl V. Kerstetter, Director of Marketing 51 1991 Cynthia A. Barron, Controller 38 1996
Richard T. Frey, Carl V. Kerstetter and Cynthia A. Barron have been employed by the Registrants on a full-time basis for more than five years. ITEM 11. EXECUTIVE COMPENSATION The information concerning Executive Compensation required by Item 11 of Form 10-K is set forth under the caption "Renumeration of Executive Officers and Directors" in the registrant's definitive Proxy Statement for the Transition Period of the Seven Months Ended October 31, 2001 Meetings of Shareholders to be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the end of the fiscal transition period covered by this report and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 of Form 10-K is set forth under the caption "Holdings of Common Stock" in the Registrants' definitive Proxy Statement for the Transition Period of the Seven Months Ended October 31, 2001 Annual Meetings of Shareholders to be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the end of the transition period covered by this report and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. Page - 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A.(1) Financial statements included in Registrants' Transition Report for the Seven Months Ended October 31, 2001 Report to Shareholders on Pages 2 through 12 are incorporated by reference. The Report of Independent Auditors for the combined financial statements appears on Page 15 of this Form 10-K. (2) Financial Statement Schedules The following is a list of financial statement schedules filed as part of this Transition Period Report on Form 10-K. The report of Independent Auditors for the financial statement schedule appears on Page 14 of this Form 10-K. All other schedules omitted herein are so omitted because either (1) they are not applicable, (2) the required information is shown in the financial statements, or (3) conditions are present which permit their omission, as set forth in the instructions pertaining to the content of financial statements: Schedules: III. Real Estate and Accumulated Depreciation A.(3) Exhibits, Including Those Incorporated by Reference The following is a list of Exhibits filed as part of this Annual Report on Form 10-K. Where so indicated by footnote, Exhibits that were previously filed are incorporated by reference. For Exhibits incorporated by reference, the location of the Exhibit in the previous filing is indicated in parentheses.
Legend for Documents Incorporated Page Articles of Incorporation and By-Laws By Reference Number 3( 1).1 Articles of Incorporation (1) 3( 1).4 Articles of Amendment (2) 3(ii).1 By-Laws of Blue Ridge Real Estate Company as amended through July 25, 1990 (8) 3(ii).2 By-Laws of Big Boulder Corporation as amended through July 25, 1990 (8) Instruments Defining the Rights of Security Holders including Indentures 4.1 Specimen Certificate for Shares of (1) Common Stock Page - 10 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (Continued) Legend for Documents Incorporated By Reference 4.2 Security Combination Agreement (1) 4.3 Revised Specimen Unit Certificates for shares of common stock (7) Material Contracts Financial Agreements 10.1.1 Mortgage Relating to the Construction of the Jack Frost Mountain Ski Area (2) 10.1.2 Construction Loan - Jack Frost Mountain Ski Area (3) 10.1.3 Loan from PNC Bank, Wilkes-Barre (4) 10.1.4 First Mortgage, Principal Mutual, Building leased to Wal-Mart (8) 10.1.16 First Mortgage, First Union National Bank, Dreshertown Plaza Shopping Center, Montgomery County Acquisition of Properties 10.2.1 Acquisition of Dreshertown Plaza Shopping Center (6) 10.2.2 Acquisition of Building leased to Wal-Mart (8) Lease 10.3.1 Building leased to Wal-Mart (10) Agreement with Executive Officers and Director 10.4.1 Stock Option - Michael J. Flynn (9) Stock Option Agreement - Michael J. Flynn 13.1 The Registrants' Transition Report for the Seven Months Period Ended October 31, 2001 to Shareholders, to the extent referred to in the responses to the Items of this Transition Period Report. Subsidiaries of the Registrants 21.1 List of the Subsidiaries of the Registrants (6) (1) Filed September 23, 1966 as an Exhibit to Form 10 and incorporated herein by reference (2) Filed August 22, 1973 as an Exhibit to Form 10-K and incorporated herein by reference Page - 11 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - (Continued) (3) Filed August 27, 1975 as an Exhibit to Form 10-K and incorporated herein by reference (4) Filed February 7, 1975 as an Exhibit to Form 8-K and incorporated herein by reference (5) Northeast Land Company - Incorporated in Commonwealth of Pennsylvania Jack Frost Mountain Company - Incorporated in Commonwealth of Pennsylvania Lake Mountain Company - Incorporated in Commonwealth of Pennsylvania Big Boulder Lodge, Inc. - Incorporated in Commonwealth of Pennsylvania BRRE Holdings, Inc. - Incorporated in State of Delaware BBC Holdings, Inc. - Incorporated in State of Delaware (6) Filed August 28, 1987 as an Exhibit to Form 10-K and incorporated herein by reference (7) Filed August 28, 1990 as an Exhibit to Form 10-K and incorporated herein by reference (8) Filed August 26, 1991 as an Exhibit to Form 10-K and incorporated herein by reference (9) Filed August 26, 1994 as an Exhibit to Form 10-K and incorporated herein by reference (10) Filed August 29, 1995 as an Exhibit to Form 10-K and incorporated herein by reference.
Copies of Exhibits are available to Shareholders by Contacting Christine A. Liebold, Secretary, Blakeslee,PA 18610. A charge of $.25 per page to cover the Registrants' expenses will be made. Reports on Form 8-K None Page - 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. BLUE RIDGE REAL ESTATE COMPANY BLUE RIDGE REAL ESTATECOMPANY BIG BOULDER CORPORATION BIG BOULDER CORPORATION By:__/S/_____________________ By: /S/______________________ Eldon D. Dietterick Cynthia A. Barron Executive Vice-President Chief Accounting Officer And Treasurer Dated: 1-29-02 Dated: 1-29-02 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrants and in the capacities and on the dates indicated. Each person in so signing also makes, constitutes and appoints Patrick M. Flynn, President, his true and lawful attorney-in-fact, in his name, place and stead to execute and cause to be filed with the Securities and Exchange Commission any or all amendments to this report. Signature Title Date ___/s/____________________ 1-29-02 Michael J. Flynn Chairman of the Board ___/s/____________________ 1-29-02 Patrick M. Flynn President ___/s/____________________ 1-29-02 Eldon D. Dietterick Executive Vice-President & Treasurer ___/s/____________________ 1-29-02 Milton Cooper Director ___/s/____________________ 1-29-02 Wolfgang Traber Director Page - 13 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Blue Ridge Real Estate Company and Big Boulder Corporation: We have audited the combined financial statements of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries (the "Companies") as of October 31, 2001 and March 31, 2001, and for the seven months ended October 31, 2001 and the years ended March 31, 2001 and 2000, and have issued our report thereon dated January 11, 2002; such financial statements and report are included in your October 31, 2001 Annual Report to Shareholders and are incorporated herein by reference . Our audits also included the combined financial statement schedules of the Companies listed in Item 14. These financial statement schedules are the responsibility of the Companies' management. Our responsibility is to express an opinion based on our audit. In our opinion, such combined financial statement schedules, when considered in relation to the basic combined financial statements taken as a whole, present fairly in all material respects the information set forth therein. /S/ Parente Randolph, P.C. January 11, 2002 Wilkes-Barre, Pennsylvania Page - 14 INDEPENDENT AUDITORS' REPORT To the Shareholders of Blue Ridge Real Estate Company and Big Boulder Corporation: We have audited the combined balance sheets of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries (the "Companies") as of October 31, 2001 and March 31, 2001, and the related combined statements of operations and earnings retained in the business and cash flows for the seven months ended October 31, 2001 and the years ended March 31, 2001 and 2000. These financial statements are the responsibility of the Companies' management. Our responsibility is to expre ss an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 mana gement, 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 combined financial statements referred to above present fairly, in all material respects, the financial position of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries as of October 31, 2001 and March 31, 2001, and the results of their operations and their cash flows for the seven months ended October 31, 2001 and the years ended March 31, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America. /S/ Parente Randolph, P.C. Wilkes-Barre, Pennsylvania January 11, 2002 Page - 15 COMBINED SCHEDULE III. REAL ESTATE AND ACCUMULATED DEPRECIATION October 31, 2001
Column A Column B Column C Column D Initial Cost Cost Capitalized to Company Subsequent To Acquisition Buildings & Description Encumbrances Land Improvements Improvements Land located in N E PA including various improvements 1,867,766 49,915 5,575,561 Corporate Building 282,918 187,989 Buildings Leased to Others Eastern PA Exchanged Asset- Shopping Center 5,700,000 780,700 4,554,235 124,706 Other 0 0 0 2,437,509 Laurens,SC 1,600,000 276,000 1,914,470 0 TOTAL 7,300,000 2,924,466 6,801,538 8,325,765
Column E Column F Gross Amount at which Carried at Close of Period (1)(2) Land located in N E PA including Building Accumulated Various improvements Land Improvements Total Depreciation 1,868,506 5,624,736 7,493,242 3,040,202 Corporate Building 470,907 470,907 277,032 Buildings Leased to Others Eastern PA Exchanged Asset- Shopping Center 780,700 4,678,941 5,459,641 2,856,212 Other 0 2,437,508 2,437,508 1,357,946 Laurens, SC 276,000 1,914,470 2,190,470 696,653 TOTAL 2,925,206 15,126,562 18,051,768 8,228,045
Page - 16 Column G Column H Column I Life on which Depreciation in Date of Date latest income Construction Acquired Statement is computed Land located in NE PA Including various improvements Various Various 5 to 30 Yrs Corporate Building 1982 10 to 30 Yrs Buildings leased to others Eastern PA Exchanged Asset Shopping Center N/A Various 5 to 30 Yrs Other N/A Various 5 to 30 Yrs Laurens, SC N/A Various 5 to 30 Yrs
(1) Activity for the seven months ended October 31, 2001, and the fiscal years ended March 31, 2001 and March 31, 2000 is as follows:
10/31/01 3/31/01 3/31/00 Balance at beginning of year 17,961,131 17,012,095 16,159,756 Additions during year: Improvements 90,637 426,502 418,407 (reclassify) 0 523,738 434,015 18,051,768 17,962,335 17,012,178 Deductions during year: Cost of real estate sold 0 1204 83 Balance at end of year 18,051,768 17,961,131 17,012,095
(2) The aggregate cost for Federal Income Tax purposes at October 31, 2001 is $16,589,136. (3) Activity for the fiscal years ended October 31, 2001, March 31, 2001 & March 31, 2000 is as follows:
10/31/01 3/31/01 3/31/00 Balance at beginning of year 7,958,599 7,472,074 6,754,807 Additions during year: (Reclassification) 0 36,316 304,923 Current year depreciation 269,446 450,209 412,344 Less retirements 0 0 0 Balance at end of year 8,228,045 7,958,599 7,472,074
Page - 17 BLUE RIDGE REAL ESTATE COMPANY BIG BOULDER CORPORATION To Our Shareholders, We have decided to change the fiscal year from March 31st to October 31st. This allows for better consistency in reporting earnings for the ski and non-ski season activities. For the 7-month fiscal year ending October 31, 2001, the Companies report a net loss of ($804,422) or ($0.42) per combined share compared to a profit of $252,532 and $.13 for the previous 12-month period ending March 31, 2001. The loss represents accrued ski area expense recognized in the short reporting year. Accomplishments of 2001 The Team. A lot of emphasis is placed on retaining, motivating and hiring the best people to work at our ski slopes and other areas of activity. Training is given to our employees and those providing greater customer service can earn incentives. Our team has reviewed and improved most aspects of our operations. The management team is great. The Resorts. Ski Areas and other Facilities - This past year we invested $750,000 in capital improvements upgrading the lodges, installing a new food service facility at the Big Boulder Tubing Hill, a new Terrain Run at Big Boulder Ski Area, new snow grooming equipment, and upgrading the sound system and other facilities. Marketing Strategies. Several new promotions were introduced to help increase our market share. We formed a partnership with Pepsi. Pepsi advertised Jack Frost/Big Boulder on one million soda cans that offered discounted lift tickets through our website. Pepsi also gave permission for the co branding of the Big Boulder Terrain Run with the Mountain Dew logo and placed advertising for the Terrain Run on the back of Pepsi trucks. The local vendors throughout the ski season sponsor competitions. Arrangements were made wi th Chi Chi's Restaurants, and the Philadelphia radio stations, WYSP and WMMR to publicize our resorts. Online web sales - Our Internet sales have been very successful. Purchases of advance tickets, season passes, and the all-new Express Ticket/Express Equipment Rental increased significantly. Looking Ahead At this time, winter sports remain our primary business, and we are greatly affected by the annual snowfall in our area. During the non-ski season other profit centers, including Splatter Paintball Games, Traxx Motorsports Park, and Fern Ridge Campground, make a contribution to the companies' overall performance. We continue to evaluate untapped resources within its large land holdings and look for opportunities to unlock increased value for shareholders. The Real Estate market is improving in this area and at the right time we expect to take advantage of land sales, ventures involving new home construction, golf course development and forestry management. I want to thank our dedicated team of employees and managers for their great help during this year. I am looking forward to working with them in the coming year to help grow the Company and build shareholder value. Patrick M. Flynn President Blakeslee, Pennsylvania January 11, 2002 Page - 1 BLUE RIDGE REAL ESTATE COMPANY AND SUBSIDIARIES AND BIG BOULDER CORPORATION AND SUBSIDIARIES COMBINED BALANCE SHEETS October 31, 2001 and March 31, 2001
ASSETS 10/31/01 03/31/01 Current Assets: Cash and cash equivalents (all funds are interest bearing) $263,178 2,628,839 Accounts receivable 376,838 429,653 Inventories 231,771 141,611 Prepaid expenses and other current assets 730,382 403,313 Deferred operating costs 2,106,478 0 Deferred tax asset 0 345,810 Total current assets 3,708,647 3,949,226 Properties: Land, principally unimproved (19,741 respectively, acres per land ledger) 1,868,505 1,868,505 Land improvements, buildings and equipment 53,985,296 53,754,045 55,853,801 55,622,550 Less accumulated depreciation & amortization 36,636,005 35,597,696 19,217,796 20,024,854 $22,926,443 $23,974,080 LIABILITIES AND SHAREHOLDERS' EQUITY 10/31/01 03/31/01 Current liabilities: Notes payable - line of credit $648,195 $ 0 Current installments of long-term debt 720,435 757,228 Accounts and other payables 544,734 549,847 Accrued claims 134,770 80,433 Accrued income taxes 0 67,387 Deferred income taxes 625,292 0 Accrued pension expense 732,580 627,042 Accrued liabilities 999,527 1,087,851 Deferred revenue 638,875 316,753 Total current liabilities 5,044,408 3,486,541 Long-term debt, less current installments 6,949,805 7,277,413 Deferred income taxes 842,117 2,122,893 Other non-current liabilities 48,219 204,321 Deferred income non-current 515,631 515,631 Commitments and contingencies Combined shareholders' equity: Capital stock, without par value, stated value $.30 per combined share, Blue Ridge and Big Boulder each authorized 3,000,000 shares, each issued 2,198,148 shares 659,444 659,444 Capital in excess of stated value 1,461,748 1,461,748 Earnings retained in the business 9,479,453 10,283,875 11,600,645 12,405,067 Less cost of 280,968 and 277,221 shares of capital stock in treasury as of October 31, 2001 and March 31, 2001, respectively 2,074,382 2,037,786 9,526,263 10,367,281 $22,926,443 $23,974,080
The accompanying notes are an integral part of the combined financial statements. Page - 2
BLUE RIDGE REAL ESTATE COMPANY AND SUBSIDIARIES AND BIG BOULDER CORPORATION AND SUBSIDIARIES COMBINED STATEMENTS OF OPERATIONS AND EARNINGS RETAINED IN THE BUSINESS for the seven months ended October 31, 2001 and the years ended March 31, 2001 and 2000. 10/31/01 3/31/01 3/31/00 Revenues: Ski operations $ 0 $11,267,371 $11,565,643 Real estate management 1,562,649 3,109,799 2,901,700 Summer recreation operations 2,099,387 2,651,591 2,516,262 Rental income 1,100,031 1,867,690 1,903,314 4,762,067 18,896,451 18,886,919 Costs and expenses: Ski operations 1,100,477 11,246,003 11,135,115 Real estate management 1,419,318 2,676,191 2,727,460 Summer recreation operations 1,935,710 2,292,473 2,071,187 Rental income 576,287 950,258 936,870 General and administration 650,425 1,768,375 1,084,649 5,682,217 18,933,300 17,955,281 Income (loss) from operations (920,150) (36,849) 931,638 Other income (expense): Interest and other income 55,642 866,127 620,203 Interest expense (296,041) (736,865) (732,201) (240,399) 129,262 (111,998) Income (loss) before income taxes (1,160,549) 92,413 819,640 Provision(credit)for income taxes: Current (46,453) 259,417 382,000 Deferred (309,674) (419,536) (43,000) (356,127) (160,119) 339,000 Net income (loss) (804,422) 252,532 480,640 Earnings retained in business: Beginning of year 10,283,875 10,031,343 9,550,703 End of year $9,479,453 $10,283,875 $10,031,343 Basic and diluted earnings (loss) per weighted average combined share ($0.42) $0.13 $0.24
The accompanying notes are an integral part of the combined financial statements. Page - 3
BLUE RIDGE REAL ESTATE COMPANY AND SUBSIDIARIES AND BIG BOULDER CORPORATION AND SUBSIDIARIES COMBINED STATEMENTS OF CASH FLOWS for the seven months ended October 31, 2001 And the years ended March 31, 2001 and 2000 10/31/01 3/31/01 3/31/00 Cash Flows From (Used In) Operating Activities: Net income (loss) ($804,422) $252,532 $480,640 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 352,468 1,969,154 1,921,237 Deferred income taxes (309,674) (372,862) (43,000) Gain (loss) on sale of assets 2,438 (528,242) (19,006) Changes in operating assets and liabilities: Accounts receivable 52,815 19,185 110,840 Prepaid expenses & other current assets (417,229) 288,575 161,692 Deferred operating costs (1,310,033) 0 0 Accounts payable & accrued liabilities (89,664) 866,096 (324,934) Accrued income taxes (67,387) (225,726) 124,596 Deferred revenue 322,122 171,584 (111,308) Net cash provided by (used in) operating activities (2,268,566) 2,440,296 2,300,757 Cash Flows From (used in) Investing Activities: Deferred income 0 13,198 254,246 Proceeds from disposition of assets 20,757 529,446 19,089 Additions to properties (365,050) (1,874,588) (2,496,246) Net cash used in investing activities (344,293) (1,331,944) (2,222,911) Cash Flows From (used in) Financing Activities: Borrowings under short-term financing 648,195 2,050,000 2,550,000 Payment of short- financing 0 (2,050,000) (2,550,000) Additions to long-term debt 0 0 800,000 Payment of long-term debt (364,401) (784,153) (781,111) Purchase of treasury stock (36,596) (248,870) (250,413) Net cash used in financing activities 247,198 (1,033,023) (231,524) Net increase (decrease) in cash & cash equivalents (2,365,661) 75,329 (153,678) Cash & cash equivalents, beginning of year 2,628,839 2,553,510 2,707,188 Cash & cash equivalents, end of year $263,178 $2,628,839 $2,553,510 Supplemental disclosures of cash flow information: Cash paid during year for: Interest $302,209 $736,054 $732,458 Income taxes $136,311 $427,516 $335,395
The accompanying notes are an integral part of the combined Financial statements. Page - 4 NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF COMBINATION: The combined financial statements include the accounts of Blue Ridge Real Estate Company (Blue Ridge) and its wholly-owned subsidiaries, Northeast Land Company, Jack Frost Mountain Company, and BRRE Holdings, Inc.; and Big Boulder Corporation (Big Boulder) and its wholly-owned subsidiaries, Lake Mountain Company and BBC Holdings, Inc. Under a Security Combination Agreement between Blue Ridge and Big Boulder and under the bylaws of both Companies, shares of the Companies are combined in unit certificates, each certificate representing concurrent ownership of the same number of shares of each company; shares of each company may be transferred only together with an equal number of shares of the other company. All significant intercompany accounts and transactions are eliminated. REVENUE RECOGNITION: Revenues are derived from a wide variety of sources, including sales of lift tickets, ski school tuition, dining, retail stores, equipment rental, property management services and other recreational activities, and are recognized as services are performed. SEASONALITY: Operations are highly seasonal at both ski mountains with the majority of revenues realized during the ski season from late November through the end of March. The length of the ski season and the profitability of operations are significantly impacted by weather conditions. Although the mountains have snowmaking capacity to mitigate some of the effects of adverse weather conditions, abnormally warm weather or lack of adequate snowfall can materially affect revenues. DISPOSITION OF LANDS AND RESORT HOMES: The Companies recognize income on the disposition of real estate in accordance with the provisions of Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate" (SFAS 66). Down payments of less than 20% are accounted for as deposits as required by SFAS No 66. The costs of developing land for resale as resort homes and the costs of constructing certain related amenities are allocated to the specific parcels to which the costs relate. Such costs, as well as the costs of construction of the resort homes, are charged to operations as sales occur. Land held for resale and resort homes under construction are stated at lower of cost or market. PROPERTIES AND DEPRECIATION: Properties are stated at cost. Depreciation and amortization is provided principally using the straight-line method over the following years: Land improvements 10-30 Buildings 3-30 Equipment and furnishings 3-20 Ski facilities: Land improvements 10-30 Buildings 5-30 Machinery and equipment 5-20 Upon sale or retirement of depreciable property, the cost and related accumulated depreciation are removed from the related accounts, and resulting gains or losses are reflected in income. Interest, real estate taxes, and insurance costs, including those costs associated with holding unimproved land, are normally charged to expense as incurred. Interest cost incurred during construction of facilities is capitalized as part of the cost of such facilities. Maintenance and repairs are charged to expense, and major renewals and betterments are added to property accounts. Impairment losses are recognized in operating income as they are determined. The Companies review their long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In that event, the Companies calculate the expected future net cash flows to be generated by the asset. If those net future cash flows are less than the carrying value of the asset, an impairment loss is recognized in operating income. The impairment loss is the diff erence between the carrying value and the fair value of the asset. No such losses were recognized in the three years ended October 31, 2001. DEFERRED OPERATING COSTS: Deferred operating costs are capitalized from April through November for costs directly related to the winter ski season. These costs are deferred in order to match operating expenses of the ski season with revenues generated from ski activities. Deferred operating costs are then recognized ratably over the months of December through March, the ski season period. Significant expenditures capitalized as deferred operating costs at October 31, 2002 include depreciation, advertising, insurance, real e state taxes and other costs. INVENTORIES: Inventories consist of food, beverage and retail merchandise and are stated at cost which approximates market, with cost determined using the first-in, first-out method. DEFERRED REVENUE: Deferred revenues include revenues billed in advance for services and dues which are not yet earned. INCOME TAXES: The Companies' account for income taxes utilizing the asset and liability method of recognizing the tax consequence of transactions that have been recognized for financial reporting or income tax purposes. Among other things, this method requires current recognition of the effect of changes in statutory tax rates on previously provided deferred taxes. Valuation allowances are established, when necessary, to reduce tax assets to the amount expected to be realized. Blue Ridge, including its subsidiar ies, and Big Boulder, including its subsidiaries, report as separate entities for federal income tax purposes. State income taxes are reported on a separate company basis. Page - 5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): DEFFERED INCOME: Amounts received under a contract with the Pennsylvania Department of Transportation for reimbursement of the cost of a constructed asset are deferred. The amounts will be recognized as income over the period in which depreciation on those assets is charged. This asset has not yet been placed in service. ADVERTISING COSTS: Advertising costs directly related to ski operations are capitalized as deferred operating costs for the seven months ended October 31, 2001. All other advertising costs are expensed when incurred. Advertising expense for the seven months ended October 31, 2001 and the years ended March 31, 2001 and 2000 was $216,559, $1,538,647 and $1,488,268, respectively. USE OF ESTIMATES AND ASSUMPTIONS: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, the Companies consider cash equivalents to be all highly liquid investments with maturities of three months or less when acquired. CONCENTRATION OF CREDIT RISK: Financial instruments which potentially subject the Companies to concentration of credit risk consist principally of temporary cash investments. The Companies' temporary cash investments are held by financial institutions. The Companies have not experienced any losses related to these investments. EARNINGS (LOSS) PER SHARE: Basic earnings (loss) per share is calculated based on the weighted-average number of shares outstanding. Diluted earnings (loss) per share includes the dilutive effect of stock options. BUSINESS SEGMENTS: The Companies and the subsidiaries, under SFAS No. 131 operate in three business segments - Ski Operations, Real Estate Management/Rental Operations and Summer Recreation Operations. The Companies' two ski facilities operate principally during the months of December through March. Revenues generated from advance ticket sales have been recorded as deferred revenue, and likewise various operating costs directly related to the two ski facilities have been recorded as deferred operating costs. RECLASSIFICATION: Certain reclassifications have been made to conform to current year presentation. RECENT ACCOUNTING PRONOUNCEMENTS: In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133". SFAS No. 138 addresses a limited number of issues causing difficulties in the implementation of SFAS No. 133 and was required to be adopted concurrently with SFAS No. 133. The Companies do not engage in hedging activities and therefore the adoption of SFAS No. 133 and 138 did not have a material impact on the Companies' financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", but retains the requirements of SFAS No. 121 to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. SFAS No. 144 removes goodwill from its scope as the impairment of goodwill is addressed prospectively pursuant to SFAS No. 142. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those years. The Companies do not expect the adoption of SFAS No. 144 to have a material impact on its financial position or results of operations. 2. CHANGE IN FISCAL REPORTING PERIOD At an executive session held on August 28, 2001 the Board of Directors resolved that the companies fiscal year end be changed from March 31st to October 31st. This change is effective for each of the Companies October 31, 2001, resulting in a 7 month transition period which does not include any ski area revenue. The purpose is to allow for a more natural business year and to conform the Companies' reporting period to that of the majority stockholder's financial statements. The results of operations from the comparable 7 month period of the prior year are as follows:
UNAUDITED 10/31/01 10/31/00 Revenues $4,762,067 $5,057,853 Operating Income (loss) (920,150) 586,615 Provision (benefit) for income taxes (356,127) 297,000 Net income (loss) (804,422) 443,867 Earnings (loss) per share (0.42) 0.23
Page - 6 3. CONDENSED FINANCIAL INFORMATION: Condensed financial information of the constituent Companies, Blue Ridge and its subsidiaries and Big Boulder and its subsidiaries, at October 31, 2001, March 31, 2001, and 2000 and for each of the periods then ended is as follows:
Blue Ridge and Subsidiaries 7 Mos. Ended 10/31/01 03/31/01 03/31/00 FINANCIAL POSITION: Current assets $1,520,615 $1,346,838 $1,583,756 Total assets 16,028,020 16,368,221 16,527,534 Current liabilities 4,332,664 3,125,297 2,451,318 Shareholders'equity 3,894,672 4,404,959 4,445,461 OPERATIONS: Revenues 3,782,404 12,367,702 11,798,218 Income(loss)before taxes (536,374) (75,807) 464,004 Provision(credit)for income taxes (62,685) (284,176) 153,000 Net income (loss) (473,689) 208,369 311,004 Big Boulder and Subsidiaries 7 Mos. Ended 10/31/01 03/31/01 03/31/00 FINANCIAL POSITION: Current assets $2,188,032 $2,602,388 $2,662,277 Total assets 6,898,423 7,605,859 7,839,123 Current liabilities 711,744 361,244 440,784 Shareholders'equity 5,631,591 5,962,322 5,918,158 OPERATIONS: Revenues 979,663 6,528,749 7,088,701 Income(loss)before taxes (624,175) 168,220 355,636 Provision(credit)for income taxes (293,442) 124,057 186,000 Net income (loss) (330,733) 44,163 169,636
4. SHORT-TERM FINANCING: At October 31, 2001, Blue Ridge had utilized approximately $648,000 of a line of credit agreement with a bank, aggregating $2,000,000 available for short term financing, expiring November 30, 2002, which management expects to be renewed. The line of credit bears interest at .25% less than the prime rate (5.25% at October 31,2001). The weighted average interest rate at October 31, 2001 was 5.25%. The agreement requires, among other things, that the Companies comply with minimum current and total liabilities to tangible net worth ratios and meet a minimum debt service coverage ratio. 5. LONG-TERM DEBT: Long-term debt as of October 31, 2001 and March 31, 2001 consists of the following:
10/31/01 03/31/01 Mortgage note payable to bank, interest is LIBOR plus 160 basis points (3.9537% at October 31, 2001) payable monthly with principal reduction of $18,000 through maturity, August 2003 4,815,000 4,941,000 Mortgage note payable to bank, interest at 80% of the bank's prime rate (4.4% at October 31, 2001) payable in monthly installments of $24,187 plus interest through Fiscal 2005 1,112,612 1,281,922 Mortgage note payable to insurance company, interest fixed at 10.5% payable in monthly installments of $15,351 including interest through Fiscal 2014 1,262,628 1,291,719 Mortgage note payable to bank, interest at 6.84% payable monthly with principle reduction at $40,000 per month December to March through 2004 480,000 520,000 7,670,240 8,034,641 Less current installments 720,435 757,228 $6,949,805 $7,277,413
Properties at cost, which have been pledged as collateral for long-term debt, include the following at October 31, 2001: Investment properties leased to others $7,650,111 Ski facilities $19,515,837 The aggregate amount of long-term debt maturing in each of the five years Ending subsequent to October 31, 2001, is as follows: 2002-$720,435; 2003-$5,109,406; 2004-$517,036; 2005-$316,029; 2006-$82,323; thereafter $925,011.
6. INCOME TAXES: The provision (credit) for income taxes is as follows: 10/31/01 03/31/01 03/31/00 Currently payable Federal ($46,453) $259,417 $382,000 State 0 0 0 (46,453) 259,417 382,000 Deferred: Federal (537,361) (315,926) (43,000) State 227,687 (103 610) 0 (309,674) (419,536) (43,000) ($356,127) ($160,119) $339,000
Page - 7 6. INCOME TAXES(continued): A reconciliation between the amount computed using the statutory federal income tax rate and the provision (credit) for income taxes is as follows:
10/31/01 03/31/01 03/31/00 Computed at statutory rate ($394,587) $31,420 $279,000 State net operating losses subject to valuation allowance 0 0 46,000 State income taxes, net of federal income tax 218,656 0 0 Prior year overaccrual (130,594) (107,367) 0 Other (3,149) 3,919 6,000 AMT (utilization) tax (46,453) (88,091) 8,000 Provision(credit)for income Taxes ($356,127) ($160,119) $339,000
The components of the deferred tax assets and (liabilities) as of October 31, 2001 and March 31, 2001 are as follows:
10/31/01 03/31/01 Current deferred tax asset: Accrued expenses $0 $266,379 Deferred revenues 0 79,431 Current deferred tax asset 0 345,810 Current deferred tax liability: Deferred operating costs (855,092) 0 Accrued expenses 203,672 0 Deferred revenues 26,128 0 Current deferred tax liability (625,292) 0 Noncurrent deferred tax liability: Depreciation (2,533,090) (2,673,786) Deferred income, sewer line and tower 227,557 231,608 Net operating losses and AMT credit carryforward 2,289,811 631,723 Valuation allowance (826,395) (312,438) Noncurrent deferred tax liability (842,117) (2,122,893) Deferred income tax liability, net ($1,467,409) ($1,777,083)
At October 31, 2001, the Companies have $250,504 of Alternative Minimum Tax (AMT) credit carryforward available to reduce future federal income taxes. The AMT credit has no expiration date. The Companies have filed with the IRS, an application to change their tax year-end. In connection with this request, the Companies have agreed to certain regulatory provisions in order to obtain the IRS's approval. This relates primarily to the federal net operating loss created in the short tax period ended October 31, 2001, approximating $3,570,000. The Companies may not carry back the net operating loss. Instead, the Companies must carry the loss forward to apply to taxable income over the next six years. That is, the loss carryforward is limited in those years to one-sixth of the total amount. Any losses unused after the six years will expire in 2021. The Companies also have state net operating loss carryforwards of approximately $8,270,000 that will begin to expire in 2005. The Companies have recorded a valuation allowance against state net operating losses, which are not expected to be utilized. 7. PENSION BENEFITS:
Assumptions 10/31/01 03/31/01 03/31/00 Discount Rates used to determine projected benefit obligations as of October 31, 2001 and March 31, 2001 and 2000 7.25% 7.25% 7.50% Expected long-term rates of return on assets 8.50% 8.50% 8.50% Rates of increase in compensation levels 4.00% 5.00% 5.00%
Change in Benefit Obligation 10/31/01 03/31/01 Benefit obligation at beginning of year $3,422,856 $3,065,215 Service cost(net of expenses) 119,090 213,365 Interest cost 129,820 220,819 Plan amendments 0 0 Actuarial (gain) loss (267,227) 75,268 Benefit payments (82,795) (151,811) Benefit obligation at end of year $3,321,744 $3,422,856 Page - 8 7. PENSION BENEFITS (continued): Change in Plan Assets 10/31/01 03/31/01 Fair value of plan assets at beginning of year $2,983,503 $3,473,821 Actual return on plan assets (134,104) (311,801) Employer contributions 0 0 Benefits paid (82,795) (151,811) Actual expenses paid during the year (10,710) (26,706) Fair value of plan assets at end of year $2,755,894 $2,983,503 Reconciliation of Funded Status of the Plan 10/31/01 03/31/01 Funded status at end of year ($565,850) ($439,353) Unrecognized transition obligation 98,225 103,172 Unrecognized net prior service cost 8,914 9,270 Unrecognized net actuarial gain (273,869) (300,131) Net amount recognized at end of year ($732,580) ($627,042)
Components of Net Periodic Benefit Cost 10/31/01 03/31/01 03/31/00 Service Cost $130,757 $238,365 $240,936 Interest Cost 129,820 220,819 208,672 Expected return on plan assets 143,485 287,388 282,286 Net amortization and deferral: Amortization of transition obligation 4,947 8,480 8,480 Amortization of prior service cost 356 611 611 Amortization of accumulated gain (16,857) (48,721) (8,374) Net amortization and deferral ($11,554) ($39,630) $717 Total net periodic pension cost $105,538 $132,166 $168,039
8. PROPERTIES: Properties consist of the following at October 31, 2001 and March 31, 2001. 10/31/01 03/31/01 Land, principally unimproved $1,868,505 $1,868,505 Land improvements 5,624,734 5,534,798 Corporate buildings 470,907 470,907 Buildings leased to others 10,120,371 10,147,329 Ski facilities: Land 4,552 4,552 Land improvements 7,908,064 7,902,133 Buildings 6,529,121 6,528,611 Machinery & equipment 20,109,752 19,676,762 Equipment & furnishings 3,217,795 3,488,953 55,853,801 55,622,550 Less accumulated depreciation and Amortization 36,636,005 35,597,696 $19,217,796 $20,024,854
Buildings leased to others include land of $1,056,700 at October 31, 2001, and March 31, 2001 and 2000 9. ACCRUED LIABILITIES: Accrued liabilities consist of the following at October 31, 2001 and March 31, 2001.
10/31/01 3/31/01 Accrued Payroll $537,300 $693,347 Accrued Security & Other Deposits 162,266 133,898 Accrued Professional Fees 173,524 140,223 Accrued - Miscellaneous 126,437 120,383 $999,527 $1,087,851
Page - 9 10. LEASES: The Companies are lessors under various operating lease agreements for the rental of land, land improvements and investment properties leased to others. Rents are reported as income over the terms of the leases as they are earned. A shopping center is leased to various tenants for renewable terms averaging 6.38 years with options for renewal. A store has been net leased until January 2039. Information concerning rental properties and minimum future rentals under current leases as of October 31, 20 01, is as follows:
Properties Subject To Lease Accumulated Cost Depreciation Investment properties leased to others $7,962,742 $3,638,522 Land and land improvements 3,997,935 1,271,242 Minimum future rentals: Fiscal years ending October 31: 2002 1,698,232 2003 1,602,191 2004 1,475,062 2005 1,318,956 2006 1,238,885 Thereafter 18,359,456* $25,692,782
*Includes $1,254,750 under a land lease expiring in 2072 and $6,489,640 under a net lease for a store expiring in 2039. There were no contingent rentals included in income for the seven months ended October 31, 2001 or Fiscal 2001 or 2000. Under an agreement with a management company relating to the shopping center, in the event of the termination of the management contract or the sale of the property, the management company is entitled to approximately 25% of the fair market value after satisfaction of certain obligations. 11. FAIR VALUE: The Companies have estimated the fair value of their financial instruments at October 31, 2001, March 31, 2001 and 2000 as follows: The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair values. The carrying values of variable and fixed rate long-term debt are reasonable estimates of their fair values based on their discounted cash flows at discount rates currently available to the Companies for debt with similar terms and remaining maturities. 12. QUARTERLY FINANCIAL INFORMATION (Unaudited) The results of operations for each of the quarters in the last two years are presented below.
Earnings (Loss) Income(loss) Per Weighted Operating from Net Avg. Combined Quarter Revenues Operations Income (Loss) Share 7 mos. ended 10/31/01 1st $1,588,400 ($8,536) ($82,737) ($0.04) 2nd 2,808,940 278,979 42,477 0.02 $4,397,340 $270,443 ($40,260) ($0.02) Year ended 3/31/01 1st $1,647,042 $24,605 ($106,111) ($0.05) 2nd 2,875,633 537,481 575,832 0.29 3rd 4,082,883 (56,840) (77,026) (0.04) 4th 10,290,893 (542,095) (140,163) (0.07) $18,896,451 ($36,849) $252,532 $0.13
The quarterly results of operations for the seven months ended October 31, 2001 and Fiscal 2001 reflect the cyclical nature of the Companies' business since (1) the Companies' two ski facilities operate principally during the months of December through March and (2) land dispositions occur sporadically and do not follow any pattern during the fiscal year. Revenues generated from advance ticket sales have been recorded as deferred revenue, and likewise various operating costs directly related to the tw o ski facilities have been recorded as deferred operating costs. The fourth quarter of Fiscal 2001 was impacted by a $467,000 severance accrual due to a change in management. Page - 10 13. BUSINESS SEGMENT INFORMATION: The following information is presented in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In accordance with SFAS No. 131, the Companies' business segments were determined from the Companies' internal organization and management reporting, which are based primarily on differences in services. The Companies and the subsidiaries, under SFAS No.131, operate in three business segments consisting of the following: SKI OPERATIONS: Two ski areas located in the Pocono Mountains of Northeastern Pennsylvania REAL ESTATE MANAGEMENT/RENTAL OPERATIONS: Investment properties leased to others located in Eastern Pennsylvania and South Carolina, fees from managing investor-owned properties, principally resort homes, recreational club activities and services to the trusts that operate resort communities, sales of land held for resale and investment purposes, and rental of land and land improvements. SUMMER RECREATION OPERATIONS: Seasonal recreational operating centers located in the Pocono Mountains of Northeastern Pennsylvania - Splatter Paintball, Fern Ridge Campground, Lake Mountain Sports Club, numerous Summer Music Festivals and TRAXX Motocross, ATV and BMX Park. Income or loss for each segment represents total revenue less operating expenses. General and administrative expenses are allocated to each business segment based on percentage of revenue. Identifiable assets are those utilized in the operation of the respective segments; corporate assets consist principally of cash and non-revenue producing properties held for investment purposes.
10/31/01 03/31/01 03/31/00 Revenues: Ski operations $0 $11,267,371 $11,565,643 Real estate management/ Rental operations 2,662,680 4,977,489 4,805,014 Summer recreation operations 2,099,387 2,651,591 2,516,262 $4,762,067 $18,896,451 $18,886,919 Income:(loss) Ski operations ($1,100,477) $21,368 $430,528 Real estate management/ Rental operations 667,075 1,351,040 1,140,684 Summer recreation operations 163,677 359,118 445,075 ($269,725) $1,731,526 $2,016,287 General & administrative expenses: Ski Operations ($390,255) ($1,061,025) ($661,636) Real estate management/ Rental operations (169,110) (459,778) (271,162) Summer recreation operations (91,060) (247,572) (151,851) ($650,425) ($1,768,375) ($1,084,649) Interest and other income: Ski Operations $1,436 $17,710 $13,995 Real estate management/ Rental operations 54,206 848,417 606,208 Summer recreation operations 0 0 0 $55,642 $866,127 $620,203 Interest expense: Ski operations ($47,546) ($161,016) ($170,898) Real estate management/ rental operations (248,495) (575,849) (561,303) Summer recreation operations 0 0 0 ($296,041) ($736,865) ($732,201) Income (loss) before income taxes, ($1,160,549) $92,413 $819,640
For the seven months ended October 31, 2001 and Fiscal 2001 and 2000 no on customer represented 10% or more of total revenue. Identifiable assets, net of accumulated depreciation at October 31, 2001 and March 31, 2001 and 2000 and depreciation expense and capital expenditures for the years then ended by business segment are as follows:
Identifiable Depreciation Capital October 31, 2001 Assets Expense Expenditures Ski Operations $9,800,297 $0 $258,718 Real Estate Management/Rental Operations 9,629,654 217,202 8,666 Summer recreation operations 2,034,785 84,706 93,680 Other Corporate 1,461,707 50,560 3,986 Total $22,926,443 $352,468 $365,050 March 31, 2001 Assets Expense Expenditures Ski Operations $11,333,038 $1,327,065 $1,251,464 Real Estate Management/Rental Operations 8,971,600 363,542 48,838 Summer recreation operations 1,918,743 146,052 535,782 Other Corporate 1,750,699 132,495 38,503 Total $23,974,080 $1,969,154 $1,874,587 March 31, 2000 Assets Expense Expenditures Ski Operations $11,482,021 $1,346,750 $1,119,881 Real Estate Management/Rental Operations 9,921,036 361,871 330,347 Summer recreation operations 1,592,675 125,770 1,044,076 Other Corporate 1,370,925 86,846 1,942 Total $24,366,657 $1,921,237 $2,496,246
Page - 11 14. CONTINGENT LIABILITIES AND COMMITMENTS: The Companies are party to various legal proceedings incidental to their business. Certain claims, suits, and complaints arising in the ordinary course of business have been filed or are possible of assertion against the Companies. In the opinion of management, all such matters are without merit or are of such kind, or involve such amounts, that are not expected to have a material effect on the combined financial position or results of operations of the Companies. Blue Ridge has pledged approximately 20 acres of its leased land (cost $144,786) to serve as collateral, together with the lessee's land improvements, for the lessee's mortgage loan which amounts to approximately $1,264,000 at October 31, 2001. 15. STOCK OPTIONS AND CAPITAL STOCK: During Fiscal 1998, the Companies adopted an employee stock option plan, under which an officer was granted options to purchase shares of the Companies' common stock. The options expire July 1, 2003. Option activity during the periods ended October 31, 2001, March 31, 2001 and 2000 is as follows:
10/31/01 03/31/01 03/31/00 Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year:35,000 $6.75 35,000 $6.75 35,000 $6.75 Granted - - - - - - Exercised - - - - - - Canceled - - - - - - Outstanding at end of year 35,000 $6.75 35,000 $6.75 35,000 $6.75 Options exercisable At year-end 35,000 $6.75 35,000 $6.75 35,000 $6.75 Option price range $6.75 $6.75 $6.75 Weighted average fair value of options granted during year $- $- $-
The Companies elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options as permitted by SFAS No. 123, "Accounting for Stock Based Compensation." Under APB No. 25, because the exercise price of the employee stock options equals the estimated fair market value of the Companies' underlying stock on the date of the grant, no compensation expense is recognized. 16. PER SHARE DATA: Earnings per share for the 7 months ended October 31, 2001 and the years ended March 31, 2001 and 2000 are computed as follows:
10/31/01 03/31/01 03/31/00 Net Earnings ($804,422) $252,532 $480,640 Weighted average combined shares of common stock out- standing used to compute basic earnings per combined common share 1,917,858 1,926,402 1,962,491 Additional combined common shares to be issued assuming exercise of stock options, net of combined shares assumed re-acquired 12,470 10,195 10,295 Combined shares used to compute dilutive effect of stock option 1,930,328 1,936,597 1,972,786 Basic and diluted earnings per combined common share ($0.42) $0.13 $0.24
INDEPENDENT AUDITOR'S REPORT To Shareholders of Blue Ridge Real Estate Company and Big Boulder Corporation: We have audited the combined balance sheets of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries (the "Companies") as of October 31, 2001 and March 31, 2001 and the related combined statements of operations and earnings retained in the business and cash flows for the seven months ended October 31, 2001 and the years ended March 31, 2001 and 2000. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries as of October 31, 2001 and March 31, 2001, and the results of their operations and their cash flows for the seven months ended October 31, 2001 and the years ended March 31, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America. Parente Randolph, P.C. Wilkes-Barre, Pennsylvania January 11, 2002 Page - 12 PRICE RANGE OF COMMON SHARES AND DIVIDEND INFORMATION Prior to May 4, 1993, Blue Ridge Real Estate Company and Big Boulder Corporation common shares were listed and traded as unit certificates on the Over-the-Counter market and were quoted on the NASDAQ National Market System (Symbol: BLRGZ). Effective May 4, 1993, the Companies decided to discontinue their listing with NASDAQ. Subsequent to May 4, 1993, the Companies are aware of limited trades in their common stock; however, Management does not believe such limited activity constitutes an established public trading market. The following sets forth the high asked and low bid price quotations as reported on the monthly statistical reports of the National Association of Securities Dealers, Inc. for seven months ended October 31, 2001 and Fiscal Year 2001. No dividends were paid on common stock in either period.
7 Mos. Ended 10/31/01 HIGH LOW ASKED BID First Quarter 12.000 9.125 Second Quarter 16.000 10.000 1 month - 10/31/01 11.000 11.000 FISCAL YEAR 2001 HIGH LOW ASKED BID First Quarter 10.500 9.125 Second Quarter 10.500 9.250 Third Quarter 9.750 9.250 Fourth Quarter 10.875 9.250
The reported quotations represent prices between dealers, do not reflect retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions. The approximate number of holders of record of common stock on October 31, 2001 and March 31, 2001 were 597 and 608, respectively. BLUE RIDGE REAL ESTATE COMPANY AND SUBSIDIARIES AND BIG BOULDER CORPORATION AND SUBSIDIARIES COMBINED SUMMARY OF SELECTED FINANCIAL DATA
10/31/01 03/31/01 2000 Revenues $4,762,067 $18,896,451 $18,886,919 Net income(loss) (804,422) 252,532 480,640 Net income(loss)per combined share ($0.42) $0.13 $0.24 Cash dividends per combined share 0 0 0 Weighted average number of combined shares outstanding 1,917,858 1,926,402 1,962,491 Total assets 22,926,443 23,974,080 24,366,657 Long-term debt 7,670,240 8,034,641 8,818,794 Shareholders' equity 9,526,263 10,367,281 10,363,619 1999 1998 Revenues $17,787,480 $18,655,995 Net income(loss) (79,199) 394,593 Net income(loss)per combined share $(0.04) $0.20 Cash dividends per combined share 0 0 Weighted average number of combined shares outstanding 1,980,706 1,993,014 Total assets 23,807,755 23,943,980 Long-term debt 8,799,905 9,290,909 Shareholders' equity 10,133,392 10,413,858
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations SEVEN MONTHS ENDED OCTOBER 31, 2001 VERSUS FISCAL 2001 At an executive session held on August 28, 2001, the Board of Directors resolved that the Companies' fiscal year end be changed from March 31st to October 31st. This change is effective for each of the Companies as of October 31, 2001. The purpose of the change is to allow for a more natural business year and to conform the Companies reporting period to that of the majority stockholder's financial statements. Because of the change in fiscal year end, the Companies current report date of October 31, 2001 represents a seven-month period as compared to prior fiscal year end March 31, 2001, a twelve-month period. Therefore, the major reason for decreases in various operating revenues and expenses is the short reporting period. Another significant variance in comparing the seven months ended October 31, 2001 to year end March 31, 2001 is that the seven-month short period does not include any revenues and much decreased expenditures related to the two ski facilities, as the majority of ski operation revenue and expense is generated during the months of December through March. Revenues generated from advance ticket sales have been recorded as deferred revenue, and likewise various operating costs directly related to the two ski facilities have been recorded as deferred operating costs. For the seven months ended October 31, 2001, the Companies report a net loss of ($804,422) or ($0.42) per combined share as compared with a net income of $252, 532 or $0.13 per combined share for fiscal year end March 31, 2001. Combined revenue of $4,762,067 represents a decrease of $14,134,384 or a 75% decrease when compared to Fiscal 2001. Ski Operations decreased $11,267,371 or 100%, Summer Recreational Operations decreased $552,204 or 20% and Real Estate Management Operations decreased $2,314,809 or 47% when compared to Fiscal 2001. The Ski Operations had no skiers visit our slopes during the seven months ended October 31, 2001, as explained above, compared to 247,000 skier visits last season. Tubing also had no tuber visits at October 31, 2001 as compared to 83,000 tuber visits at March 31, 2001. Likewise, food and beverage operations and retail ski shop operations recognized no revenues during the short period ended October 31, 2001. For Fiscal year end 2002, expectations are that the number of skiers and tubers visiting our slopes, as well as revenues generated from skiing and tubing operations, food and beverage and retail ski shop sales will compare to ski seasons reported in previous March 31st fiscal year ends. The Summer Recreation Operations decrease is attributed to the summer music festivals (39%) not drawing as many consumers as in the past mainly due to inclement weather. The remaining decrease is the result of shorter operating periods for Splatter and TRAXX due to the new fiscal period. Page - 13 SEVEN MONTHS ENDED OCTOBER 31, 2001 VERSUS FISCAL 2001 (continued) The Real Estate Management Operations decrease is attributed to commissions for resale of homes in our resort communities (20%), fees for contract services provided to the homeowners of the resort communities (10%) and reduced rental revenue from the resort community homes (70%). The ski season generates a substantial volume of the home rental income, which due to the seven month period we did not recognize. The decreases were offset by an increase in Rents, Royalties and Other due to timbering revenues. No land sales occurred in the seven months ended October 31, 2001. In Fiscal 2001, 132 acres of land were sold for $521,607 with a basis of $1,204. Operating costs associated with Ski Operations decreased by $10,145,526 when compared to Fiscal 2001. This decrease is attributed to the absence of ski operations recognized during the short period, as stated above. Operating costs associated with Summer Recreation Operations decreased $356,763 when compared to Fiscal 2001. This decrease is attributed to the short period as noted above. Operating costs associated with Real Estate Management Operations decreased by $1,630,844 when compared to Fiscal 2001. This decrease is attributed to the seven month versus twelve month period comparison described above. General and Administration expenses decreased by $1,117,950 when compared to Fiscal 2001. This decrease is attributed to the seven month versus twelve month period comparison. Also, general and administration expenses in Fiscal 2001 had increased by $466,922 due to recognizing severance expense relating to changes in management. Interest and Other Income decreased by $829,076 when compared to Fiscal 2001. This decrease is mainly attributable to the sale of 132 acres of land during fiscal year ended March 31, 2001. The remaining decrease is attributed to the seven month period versus twelve month comparison described above. Interest expense decreased by $440,824 when compared to Fiscal 2001. This decrease is primarily attributed to a reduction in the principal on the Dreshertown Plaza note, favorable decreases in the prime rate and LIBOR rate of interest approximating 2.0% and 2.5%, respectively, during the seven months ended October 31, 2001, and the comparison of a seven month period to a twelve month period as described above. The effective Tax Rate for seven months ended October 31, 2001 and Fiscal 2001 was 41% respectively. FISCAL 2001 VERSUS FISCAL 2000 For Fiscal Year ended March 31, 2001, the Companies reported net income of $252,532 or $.13 per combined share as compared with a net income of $480,640 or $.24 per combined share for Fiscal 2000. Combined revenue of $18,896,451 represents an increase of $9,532 or less than 1% when compared to Fiscal 2000. Ski Operations decreased $298,272 or 3%, and Real Estate Management Operations increased $307,804 or 4% when compared to Fiscal 2000. The Ski Operations had approximately 247,000 skiers visit our slopes compared to 256,000 skier visits last season. The decrease of 9,000 skier visits represents a decrease of 4%. Revenue per skier was $31 compared to $30 last season for an increase of $1.00 or 3%. Tubing operations had approximately 83,000 tuber visits compared to 90,000 tuber visits last season. The decrease of 7,000 tuber visits represents a 8% decrease. Revenue per tuber was $15.18 compared to $13.84 last season for an decrease of $1.34 or 9%. The ski areas operated for a combined total of 200 days compared to 181 days last season. The food and beverage operation at the ski areas contributed revenue of $6.79 per skier visit. The retail shop operations at the ski areas contributed revenue of $2.12 per skier visit compared to $1.97 the previous season. The Real Estate Management Operations increase is attributed to commission for resale of homes in our resort communities (37%), fees for contract services provided to the homeowners of the resort communities (53%), and fishing and hunting leases (10%). The increases were offset by a decrease in festival revenues and fees for services provided to the Trusts of the resort communities. Disposition of properties occur sporadically and do not follow any pattern during the fiscal year. In Fiscal 2001, 132 acres of land was sold for $521,607 with a basis of $1,204. No major land sales occurred in Fiscal 2000. Operating costs associated with Ski Operations increased by $110,888 when compared to Fiscal 2000. This increase is attributed to seasonal labor costs. Operating costs associated with Real Estate Management Operations increased by $183,405 when compared to Fiscal 2000. This increase is attributed to increased expenses related to summer activities and the investment properties. General and Administration expenses increased by $683,726 when compared to Fiscal 2000. The increase is primarily due to severance expenses of $466,922 relating to management changes. The remaining increase is due to professional fees. Interest and Other income increased by $245,924 when compared to Fiscal 2000. This increase is attributable to reimbursement of estimated income taxes (25%) and overhead expenses related to the construction of the sewer line (15%) and an increase in disposed assets and resulting gains (60%). Interest expense increased by $4,664 when compared to Fiscal 2000. This increase is primarily attributed to an increase in LIBOR. The effective Tax Rate for Fiscal 2001 and 2000 was 34% and 41% respectively. LIQUIDITY AND CAPITAL RESOURCES: The Combined Statement of Cash Flows reflects net cash used in operating activities of ($2,268,566) for the seven months ended October 31, 2001 due to the short period and the absence of ski season revenues to offset certain costs and expenses, versus net cash provided by operating activities of $2,440,296 and $2,300,757 in Fiscal 2001 and 2000 respectively. The major capital investments made in the seven months ended October 31, 2001 were the repaving of the Jack Frost Mountain access road, the construction of a Snowboard Park at Big Boulder Ski Area and the purchase of two snowgroomers. These capital investments were financed wholly from working cash. During Fiscal 2001 a mortgage note payable with First Union National Bank in the amount of $4,941,000 was refinanced and will mature August 31, 2003. During the seven months ended October 31, 2001 the Companies borrowed against their $2,000,000 line of credit for a period of one month in varying amounts with a maximum of $648,195. During Fiscal 2001, the Companies borrowed against their $2,000,000 line of credit for a period of five months in varying amounts with a maximum of $1,950,000. The rate of interest is one quarter of one percentage point (0.25%) less than the Prime Rate. Management fully expects to renew the line of credit. Page - 14 In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133". SFAS No. 138 addresses a limited number of issues causing difficulties in the implementation of SFAS No. 133 and was required to be adopted concurrently with SFAS No. 133. The Companies do not engage in hedging activities and therefore the adoption of SFAS No. 133 and 138 did not have a material impact on the Companies' financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", but retains the requirements of SFAS No. 121 to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. SFAS No. 144 removes goodwill from its scope as the impairment of goodwill is addressed prospectively pursuant to SFAS No. 142. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those years. The Companies do not expect the adoption of SFAS No. 144 to have a material impact on its financial position or results of operations. MOVING FORWARD: The company expects to generate significant timbering and land sale revenues in the next fiscal year. Renovations are planned for the lodges at Jack Frost Mountain and Big Boulder Ski Areas. The areas will also receive new snow grooming equipment. Additional paintball fields and another track at our motocross park will be constructed at Jack Frost Mountain. Page - 15 BOARD OF DIRECTORS Milton Cooper Chairman, Kimco Realty Corporation; Director, Getty Petroleum Corp.; Director, Kimco Realty Corporation Michael J. Flynn Chairman of the Board and President of the Companies; Vice Chairman and Director, Kimco Realty Corporation Patrick M. Flynn President of the Companies Director of Real Estate, Kimco Realty Corporation Wolfgang Traber Chairman of the Board, Hanseatic Corporation & Co. N.Y. The above Directors serve both Companies. OFFICERS Patrick M. Flynn President Eldon D. Dietterick Executive Vice-President and Treasurer Richard R. Frey Vice-President Christine A. Liebold Secretary Cynthia A. Barron Controller The above Officers serve both Companies. TRANSFER AGENT HSBC Bank USA New York, New York INDEPENDENT AUDITORS Parente Randolph, PC Wilkes Barre, Pennsylvania Page - 16 NOTICE OF ANNUAL MEETINGS The Annual Meetings of Shareholders of Blue Ridge Real Estate Company and Big Boulder Corporation will be announced with mailing of Proxy Material in February. FORM 10-K AVAILABLE The Companies will furnish to any shareholder, without charge, a copy of their Fiscal Year 2001 Annual Report as filed with the Securities and Exchange Commission on Form 10-K. Written request should be directed to the attention of the Secretary, Blue Ridge Real Estate Company, P.O. Box 707, Blakeslee, PA 18610-0707 CORPORATE PROPERTIES Resorts in the Pocono Mountains Big Boulder Ski Area Jack Frost Mountain Fern Ridge Campground Investment Properties Dreshertown Plaza Shopping Center Dresher, Montgomery County, Pennsylvania Wal-Mart Store, Laurens, South Carolina The Mountains Edge, Lake Harmony, Pennsylvania Land Holdings Blue Ridge 18,709 acres of land, held for investment Big Boulder 929 acres of land, held for investment Northeast Land Company 103 acres of land Recreational Areas "The Stretch" on the Tunkhannock Porter Run Hunting Preserve Splatter (Paintball game) TRAXX, Motocross, ATV and BMX Park Page - 17