10-Q 1 brbb10q7.txt 3RD QUARTER 10Q FILING UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2002 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from.......... to.......... Blue Ridge 0-28-44 Commission File No.: Big Boulder 0-28-43 BLUE RIDGE REAL ESTATE COMPANY BIG BOULDER CORPORATION 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 Registrant's telephone number, including area code: (570)-443-8433 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 and Exchange Act of 1934 during the preceding 12 months (or for such 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period of this report: Class Outstanding at July 31, 2002 Common Stock, without par value, 1,916,180 stated value $.30 per combined share* *Under a Security Combination Agreement between Blue Ridge Real Estate Company ("Blue Ridge") and Big Boulder Corporation ("Big Boulder") (referred to as 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-Q is being filed. Except as otherwise indicated, all information applies to both Corporations. INDEX Page No. PART I - FINANCIAL INFORMATION Item 1-Financial Statements Combined Condensed Balance Sheets July 31, 2002 and October 31, 2001 1 & 2 Combined Condensed Statements of Operations - Three Months and Nine Months ended July 31, 2002 and June 30, 2001 3 Combined Condensed Statements of Cash Flows - Nine Months Ended July 31, 2002 and June 30, 2001 4 Notes to Financial Statements 5 Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations 6, 7, 8, & 9 Item 3-Quantitative and Qualitative Disclosures About Market Risk - Not applicable Item 4-Controls and Procedures 9 PART II - OTHER INFORMATION 9 Item 6-Exhibits and Reports on Form 8-K 9 Signatures 10 Chief Executive Officer Certification 11 Chief Financial Officer Certification 12 BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES BIG BOULDER CORPORATION AND SUBSIDIARIES COMBINED CONDENSED BALANCE SHEETS ASSETS July 31, October 31, 2002 2001 (UNAUDITED) (AUDITED) Current Assets Cash and cash equivalents (all funds are interest bearing) $ 956,262 $263,178 Accounts receivable 727,533 376,838 Inventories 198,618 231,771 Prepaid expenses, principally insurance and real estate taxes 946,623 730,382 Deferred operating costs 1,229,977 2,106,478 Total current assets 4,059,013 3,708,647 Properties: Land, principally unimproved (19,741 1,868,505 1,868,505 acres per land ledger) Land Improvements, buildings and equipment 54,797,267 53,985,296 56,665,772 55,853,801 Less accumulated depreciation and amortization 37,156,076 36,636,005 19,509,696 19,217,796 $23,568,709 $22,926,443 See accompanying notes to unaudited financial statements. 1 LIABILITIES AND SHAREHOLDERS' EQUITY July 31, October 31, 2002 2001 Current Liabilities: Notes payable - line of credit $0 $648,195 Current installments of long-term debt 724,854 720,435 Accounts and other payables 712,341 544,734 Accrued claims 189,963 134,770 Deferred income taxes 996,398 625,292 Accrued pension expense 858,580 732,580 Accrued liabilities 751,757 999,527 Deferred revenue 577,641 638,875 Total current liabilities 4,811,534 5,044,408 Long-term debt, less current installments 6,365,595 6,949,805 Deferred income taxes 1,044,269 842,117 Other non-current liabilities 32,419 48,219 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 have authorized 3,000,000 shares and each have issued 2,198,148 shares as of July 31, 2002 and as of October 31, 2001 659,444 659,444 Capital in excess of stated value 1,461,748 1,461,748 Earnings retained in the business 10,762,951 9,479,453 12,884,143 11,600,645 LESS: Cost of 281,968 and 280,968 shares of capital stock in treasury as April 30, 2002 & October 31, 2001, respectively. 2,084,882 2,074,382 10,799,261 9,526,263 $23,568,709 $22,926,443 See accompanying notes to unaudited financial statements. 2 BLUE RIDGE REAL ESTATE COMPANY AND SUBSIDIARIES BIG BOULDER CORPORATION AND SUBSIDIARIES COMBINED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended July 31, June 30, July 31, June 30, 2002 2001 2002 2001 Revenues: Ski operations $ 0 $ 0 $10,015,075 $11,267,371 Real estate management 1,212,214 620,094 3,573,726 2,321,511 Summer recreation operations 812,444 524,961 1,177,079 1,000,773 Rental income 466,069 443,345 1,412,009 1,372,521 2,490,727 1,588,400 16,177,889 15,962,176 Costs and expenses: Ski operations 559,815 0 9,488,541 11,246,003 Real estate management 805,953 579,162 2,244,714 1,982,328 Summer recreation Operations 655,172 525,553 1,087,108 1,123,339 Rental operations 220,073 240,895 675,940 741,204 General & administrative Expenses 67,593 251,326 563,855 1,476,773 2,308,606 1,596,936 14,060,158 16,569,647 Income (loss)from operations 182,121 (8,536) 2,117,731 (607,471) Other income (expense:) Interest & other income 5,684 15,560 22,017 296,698 Interest expense (87,894) (135,805) (282,992) (508,316) (82,210) (120,245) (260,975) (211,618) Income (loss) before income taxes 99,911 (128,781) 1,856,756 (819,089) Provision (benefit) for income taxes 90,535 (46,044) 573,258 (519,163) Net income (loss) $9,376 ($82,737) $1,283,498 ($299,926) Basic and diluted income (loss) per weighted average combined share $0.01 ($0.04) $0.67 ($0.16) See accompanying notes to unaudited financial statements. 3 BLUE RIDGE REAL ESTATE COMPANY BIG BOULDER CORPORATION and SUBSIDIARIES COMBINED CONDENSED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JULY 31, 2002 & JUNE 30, 2001 (UNAUDITED) 2002 2001 Cash Flows From(Used In) Operating Activities: Net Income(Loss) $1,283,498 ($299,926) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,758,883 2,176,313 Deferred income taxes 573,258 (722,299) Gain on sale of assets (1,632) (6,237) Changes in assets and liabilities: Accounts receivable (350,695) (64,687) Prepaid expenses and other current assets (183,088) (550,757) Deferred operating costs 520,560 2,383,010 Accounts Payable & accrued liabilities 85,230 658,298 Accrued income taxes 0 (123,156) Deferred revenue (61,234) 227,473 Net cash provided by operating activities 3,624,780 3,678,032 Cash Flows From (Used In) Investing Activities: Deferred Income 0 13,198 Proceeds from disposition of assets 17,191 24,586 Additions to properties (1,710,401) (952,842) Net cash used in investing activities (1,693,210) (915,058) Cash flows From (Used In) Financing Activities: Payment of short-term financing (1,448,195) (2,050,000) Proceeds from short-term financing 800,000 1,350,000 Payment of long-term debt (579,791) (762,644) Purchase of Treasury stock (10,500) (72,064) Net cash used in financing activities (1,238,486) (1,534,708) Net increase in cash and cash equivalents 693,084 1,228,266 Cash and cash equivalents, beginning of period 263,178 261,363 Cash and cash equivalents, end of period $956,262 $1,489,629 Supplemental disclosures of cash flow information: Cash paid during period: Interest $284,277 $511,900 Income taxes $ 14,012 $318,113 See accompanying notes to unaudited financial statements. 4 NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. The combined financial statements include the accounts of Blue Ridge Real Estate Company and its wholly-owned subsidiaries (Northeast Land Company, Jack Frost Mountain Company and BRRE Holdings, Inc.) and Big Boulder Corporation and its wholly-owned subsidiaries (Lake Mountain Company and BBC Holdings, Inc.). In the opinion of Management, the accompanying unaudited combined condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of July 31, 2002, and the results of operations and the statements of cash flows for the three and nine month periods ended July 31, 2002 and June 30, 2001. Certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These combined financial statements should be read in conjunction with the financial statements and notes thereto included in the Companies' Transition Report on Form 10-K for the seven months ended October 31, 2001. 2. 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 results of operations for the three and nine months are not necessarily indicative of the results to be expected for the full year since the Companies' two ski facilities operate principally during the months of December through March. Costs and expenses net of revenues received in advance attributable to the Ski Operations for the months of April through November are deferred and recognized as revenue and operating expenses, ratably, over the operating period. Therefore revenues and operating expenses of the Real Estate Management/Rental Operations and Summer Recreation Operations are as disclosed on the statement of operations. Depreciation of ski facility fixed assets is calculated over the 12-month period. The expense is deferred until the operating period, at which time it will be recognized ratably. 3. The provision for income taxes for the three and nine months ended July 31, 2002 represents the estimated annual effective tax rate for the year ending October 31, 2002. The effective income tax rate for the first nine months of Fiscal 2002 was 34%. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Due to the change in the Companies' fiscal year end, the most recent being October 31, 2001, the comparative quarterly information presented is from the most current comparable quarters which are the three and nine months ended June 30, 2001. It was not financially practicable to restate the prior fiscal information to match the newly stated quarters. Operations for the three and nine months ended July 31, 2002 resulted in a net income of $.01 and $.67 per combined share compared to a net loss of $(.04) and ($0.16) per combined share for the three and nine months ended June 30, 2001. Combined revenue of $2,490,727 and $16,177,889 for the three and nine months ended July 31, 2002 represents an increase of $902,327 and $215,713 as compared to the three and nine months ended June 30, 2001. Ski Operations remained unchanged at $0 for the three months ended July 31, 2002 and decreased $1,252,296 for the nine months ended June 30, 2001. Real Estate Management increased $592,120 and $1,252,215 for the three and nine months ended July 31, 2002 as compared to the three and nine months ended Ju ne 30, 2001. Summer Recreation Operations increased $287,483 and $176,306 for the three and nine months ended July 31, 2002 as compared to the three and nine months ended June 30, 2001. Rental income increased $22,724 and $39,488 for the three and nine months ended July 31, 2002 as compared to the three and nine months ended June 30, 2001. Ski Operations decrease was due to the extremely warm months of November and December 2001 which resulted in a much later opening date. Real Estate Management increase was due to the implementation of a timbering program. Management has instituted a program to begin selective timbering on the Companies land holdings. To date approximately 5% of the companies 19,741 acres have been marked for timbering. A forester has been hired to generate a long-term plan of managed timbering which pays specific attention to protecting the environment and retaining the value of the land. Bids are publicly sought for parcels which have had the timber selectively marked and calculated to board feet. For the nine months ended July 31, 2002 seven timber sales agreements have been entered into generating approximately $1,173,000 of revenue. Summer Recreation Activities increase was due to increased Splatter Paintball revenue (39%) and Lake Club revenue (61%). The comparative information specifically for summer operations includes 3 months of operation in 2001 versus 4 months in 2002. 6 Interest and Other Income decreased by $9,876 and $274,681 for the three and nine months ended July 31, 2002 as compared to the three and nine months ended June 30, 2001. This decrease is attributable to the revenue from Penn Dot Sewer Project (52%) and the reclassification of fuel tax credits (48%) being included in other income during the three and nine months ended June 30, 2001 that wasn't applicable to the three and nine months ended July 31, 2002. Operating costs increased by $895,403 and decreased by $1,596,571 for the three and nine months ended July 31, 2002 as compared to the three and nine months ended June 30, 2001. The increase in operating expenses for the three months ended July 31, 2002 as compared to the three months ended June 30, 2001 is the result of ski operation wages, benefits and payroll taxes being recognized for personnel performing services related to other revenue operations which were previously deferred during the three mont hs ended June 30, 2001 and the costs associated with the addition of timbering and land sales departments in Fiscal 2002. The decrease in operating expenses for the nine months ended July 31, 2002 as compared to the nine months ended June 30, 2001 is the result of the change in fiscal year end. General and Administrative expenses for the three and nine months ended July 31, 2002 decreased $183,733 and $912,918 as compared to the three and nine months ended June 30, 2001. This is the result of a reclassification of wages and benefits to the appropriate operating centers (15%), the payment of a severance package (53%) at March 31, 2001 and year end accrual adjustments (13%) at March 31, 2001. Interest expense for the three and nine months ended July 31, 2002 decreased $47,911 and $225,324 as compared to the three and nine months ended June 30, 2001. This decrease is attributable to a reduction in the prime interest rate (50%), pay down on notes payable (20%), and lower draws on the line of credit (10%). Options Granted Effective December 10, 2001 four corporate officers were granted stock options in varying amounts with a total of 11,000 shares. The option price of $10.50 was equal to the market value on the date of the grant. Because the exercise price of the stock options equaled the fair market value of the Companies' underlying stock on the date of the grant, no compensation expense has been recognized in the combined condensed statement of operations. 7 Per Share Data Loss per share are computed as follows; 9 Mos ended 9 Mos ended July 31, June 30, 2002 2001 Net Income (Loss) $1,283,498 ($299,926) Weighted average combined shares of common stock outstanding used to compute basic earnings per combined common share 1,916,513 1,921,596 Additional combined common shares to be issued assuming exercise of stock options, net of combined shares assumed reacquired 14,025 10,441 Combined shares used to complete dilutive effect of stock option 1,930,538 1,932,036 Basic earnings per combined common share $0.67 $(0.16) Diluted earnings per combined common share $0.67 $(0.16) Financial Condition, Liquidity and Capital Resources The deficit in working capital as of July 31, 2002, decreased by $583,240 as compared to October 31, 2001. The increase is primarily due to the cyclical nature of the Companies' business. The change in the balance of deferred operating costs from October 31, 2001 to July 31, 2002 was due primarily to revenue and expenses that are applicable to the ski facilities, which are deferred and recognized ratably during the months of December through March. Moving Forward Capital expenditures for the nine months ended July 31, 2002 were for the renovation and expansion of the Jack Frost Mountain Rental Shop, the expansion of the terrain park at Big Boulder and various equipment purchases at both ski areas all of which were financed through working capital. The Companies, in Fiscal 2002 will construct a new dual double chair lift at Jack Frost Mountain, purchase new snowmaking compressors and new snow grooming equipment for Big Boulder Ski Area. The Companies will also be emphasizing our timbering and land sales opportunities. The timbering program is designed to ensure that the highest standards are being met in regards to retaining the value of the land where timber is being harvested and that all environmental issues and concerns are addressed in a professional, environment friendly manner. The land sales department is aggressively marketing land parcels for residential and commercial development. The land department has started to identify a subdivision masterplan and will begin to seek potential buyers. Management intends to generate a consistent stream of additional revenue through selective sales and purchases of land. The possibility exists for entering into 1031 tax deferred exchanges with any of the land transactions, therefore exchanging land for revenue generating properties. The initiation of two business activities during Fiscal 2002 - land sales and the timbering program, has prompted Management to consider the possibility of creating a new business segment. 8 Management is also considering the organization of another subsidiary corporation - Boulder Creek Resort Company. The new company would be used as a marketing tool to consolidate and "brand" the Companies' holdings as one resort destination and also enable the advancement of the land sales division. An offer to purchase the Dreshertown Plaza Shopping Center has been presented to the Companies. Management is presently reviewing the proposal. No firm price has been determined PART II - OTHER INFORMATION Item 4. Controls and Procedures There have been no significant changes in the Companies internal controls or in any factors that could significantly affect the controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 99.1 Certification of chief executive officer 99.2 Certification of chief financial officer (b) Reports on Form 8-K None. The Companies have no matters to report with respect to Items 1, 2, 3, and 5. 9 FORM 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: BLUE RIDGE REAL ESTATE COMPANY BIG BOULDER CORPORATION (Registrant) (Signature) Eldon D. Dietterick Executive Vice President/Treasurer (Signature) Cynthia A. Barron Chief Accounting Officer Date: August 30, 2002 10 CERTIFICATION* I, Patrick M. Flynn, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Blue Ridge Real Estate Company and Big Boulder Corporation (together, the "registrants"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this quarterly report; Date: August 30, 2002 /s/ PATRICK M. FLYNN________ Patrick M. Flynn Chief Executive Officer and President _____________ * Pursuant to the transition provisions of Release No. 34-46427 (Aug. 28, 2002), the portions of this certification required by paragraphs (b)(4), (5) and (6) of Exchange Act Rule 13a-14 are inapplicable to this quarterly report. Accordingly, the portions have been omitted from this certification. 11 CERTIFICATION* I, Eldon D. Dietterick, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Blue Ridge Real Estate Company and Big Boulder Corporation (together, the "registrants"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this quarterly report; Date: August 30, 2002 /s/ ELDON D. DIETTERICK________ Eldon D. Dietterick Executive Vice President and Treasurer (chief financial officer) _____________ * Pursuant to the transition provisions of Release No. 34-46427 (Aug. 28, 2002), the portions of this certification required by paragraphs (b)(4), (5) and (6) of Exchange Act Rule 13a-14 are inapplicable to this quarterly report. Accordingly, the portions have been omitted from this certification. 12