10-K 1 br10k-ar.txt BLUE RIDGE/BIG BOULDER FISCAL 2002 10K AND ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORTS* PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934 (FEE REQUIRED) For the fiscal year ended October 31, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to 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* 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___ 1 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 14, 2003, was $20,310,978. The market value per share is based upon the per share cost of shares as indicated over the counter on October 31, 2002. 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 14, 2003 Common Stock, without par value 1,916,130 Shares stated value $.30 per combined share DOCUMENTS INCORPORATED BY REFERENCE Specified portions of the Companies' 2002 Annual Report to Shareholders are incorporated by reference into Part II hereof. Specified portions of the Companies' definitive Proxy Statement for the 2002 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 fiscal year covered by this report and is incorporated herein by reference. __________________ *Under a Security Combination Agreement between 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. 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 18,682 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 23 full-time employees. Jack Frost Mountain Company, which operates the Jack Frost Mountain Ski Area, has 51 full-time employees and during the skiing season there are approximately 500 additional employees. Northeast Land Company has 16 full-time employees. 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 the Fiscal year 2002, the seven months ended October 31, 2001 and Fiscal year 2001 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. 4 ITEM 2. PROPERTIES A. BLUE RIDGE REAL ESTATE COMPANY The physical properties of Blue Ridge consist of approximately 18,785 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. 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, four double chairlifts, two triple chairlifts, one quad chairlift, one dual double 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 13,200 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 $23,071,734, 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, 2002 the out-standing debt on the Jack Frost Mountain Ski Area was $1,683,028. 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 31,2002. 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, 2002 a mortgage totaling $1,208,439 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 5 5 acres of land. On October 31, 2002, the center was 97% occupied under leases expiring on various dates from November 30, 2002 to October 31, 2021. The total capital investment in the shopping center is $5,507,866. At October 31, 2002, a mortgage totaling $4,599,000 was out-standing on this property and was classified as a current obligation. 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 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, 2002, the Companies' investment in this facility was $994,727. Blue Ridge owns 18,682 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 and two communications towers (a 196 foot and an 85 foot). 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, 2002 was $1,242,089 with outstanding debt of $65,757. 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 Fiscal year ended October 31, 2002, revenues from operations of Blue Ridge and its subsidiaries amounted to $12,731,076. Approximately 41% of this revenue or $5,235,583 was derived from the Jack Frost Mountain Ski Area which operated 85 days during the fiscal year. 6 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, two communications towers (a 200 foot and a 300 foot), 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 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 $13,477,413. At October 31, 2002, the outstanding debt on the Big Boulder Ski Area was $320,827. 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, 2002, was $1,517,769 with an outstanding debt of $172,754 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, 2002 was $1,597,453. 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. 7 For the Fiscal year ended October 31, 2002, revenues from operations of Big Boulder amounted to $5,904,835. Approximately 81% of this revenue or $4,779,492 was derived from the Big Boulder Ski Area which operated 75 days during the fiscal year. 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 26 2001 President Eldon D. Dietterick 57 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. 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 17 of the Fiscal 2002 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Information required with respect to the specified financial data is incorporated herein by reference to Page 17 of the Fiscal 2002 Annual Report to Shareholders. 8 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 17 to 20 of the Fiscal 2002 Annual Report to Shareholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The required financial statements are incorporated herein by reference to Pages 2 through 16 of the Fiscal 2002 Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. 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 2002 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 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 52 2001 Carl V. Kerstetter, Director of Marketing 52 1991 Cynthia A. Barron, Controller 39 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. 9 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 2002 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 fiscal year 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 Kimco Realty Corporation is the controlling shareholder and is presently providing consulting services to the Companies. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. (1) Financial statements included in Registrants' Fiscal 2002 Annual Report to Shareholders on Pages 2 through 16 are incorporated by reference. The Report of Independent Auditors for the combined financial statements appears on Page 22 of this Form 10-K. (2) Financial Statement Schedules The following is a list of financial statement schedules filed as part of this Annual Report on Form 10-K. The report of Independent Auditors for the financial statement schedule appears on Page 21 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: 10 Schedules: III. Real Estate and Accumulated Depreciation (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 Articles of Incorporation and By-Laws By Reference 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 Common Stock (1) 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 10.1.5 Mortgage Relating to New Lift - Jack Frost Ski Area, Manufacturers and Traders Trust Company 11 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 10.4.2 Stock Option - Patrick M. Flynn Stock Option Agreement - Patrick M. Flynn 10.4.3 Stock Option - Eldon D. Dietterick Stock Option Agreement - Eldon D. Dietterick 10.4.4 Stock Option - Richard T. Frey Stock Option Agreement - Richard T. Frey 10.4.5 Stock Option - Mark Daubert Stock Option Agreement - Mark Daubert 13.1 The Registrants' Fiscal 2002 Annual Report to Shareholders, to the extent referred to in the responses to the Items of this Annual Report. Subsidiaries of the Registrants 21.1 List of the Subsidiaries of the Registrants (6) 99.1 Certification of Chief Executive Officer 99.2 Certification of Chief Financial Officer (1) Filed September 23, 1966 as an Exhibit to Form 10-K and incorporated herein by reference (2) Filed August 22, 1973 as an Exhibit to Form 10-K and incorporated herein by reference (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 12 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - (Continued) 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 13 ____________________________________________________EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the fiscal year ended October 31, 2002 of Blue Ridge Real Estate Company and Big Boulder Corporation (together , the "Registrants") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick M. Flynn, Chief Executive Officer and President of the Registrants, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 78o(d); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrants. /s/ PATRICK M. FLYNN Patrick M. Flynn Chief Executive Officer and President January 29, 2003 14 ____________________________________________________EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the fiscal year ended October 31, 2002 of Blue Ridge Real Estate Company and Big Boulder Corporation (together , the "Registrants") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eldon D. Dietterick, Executive Vice President and Treasurer (chief financial officer)of the Registrants, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 78o(d); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrants. /s/ ELDON D. DIETTERICK Eldon D. Dietterick Executive Vice President and Treasurer (Chief Financial Officer) January 29, 2003 15 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 ESTATE COMPANY BIG BOULDER CORPORATION BIG BOULDER CORPORATION By:__________________________ By: _________________________ Patrick M. Flynn Eldon D. Dietterick President Exec. Vice-President/Treasurer Dated: 1-29-03 Dated: 1-29-03 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 _______________________ 1-29-03 Michael J. Flynn Chairman of the Board _______________________ 1-29-03 Patrick M. Flynn President _______________________ 1-29-03 Eldon D. Dietterick Executive Vice-President & Treasurer _______________________ 1-29-03 Milton Cooper Director _______________________ 1-29-03 Wolfgang Traber Director 16 CERTIFICATION I, PATRICK M. FLYNN, certify that: 1. I have reviewed this annual report on Form 10-K of Blue Ridge Real Estate Company/Big Boulder Corporation; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respect the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers, and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): 17 a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. January 17, 2003 ________________________________ Patrick M. Flynn President 18 CERTIFICATION I, ELDON D. DIETTERICK, certify that: 1. I have reviewed this annual report on Form 10-K of Blue Ridge Real Estate Company/Big Boulder Corporation; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respect the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers, and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): 19 a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. January 17, 2003 ______________________________________ Eldon D. Dietterick Executive Vice President and Treasurer 20 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, 2002 and 2001, and for the year ended October 31, 2002, the seven months ended October 31, 2001 and the year ended March 31, 2001, and have issued our report thereon dated January 17, 2003; such financial statements and report are included in your October 31, 2002 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. Wilkes-Barre, Pennsylvania January 17, 2003 21 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, 2002 and 2001, and the related combined statements of operations and earnings retained in the business and cash flows for the year ended October 31, 2002, the seven months ended October 31, 2001 and the year ended March 31, 2001. 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, 2002 and 2001, and the results of their operations and their cash flows for the year ended October 31, 2002, the seven months ended October 31, 2001 and the year ended March 31, 2001 in conformity with accounting principles generally accepted in the United States of America. /S/ Parente Randolph, P.C. Wilkes-Barre, Pennsylvania January 17, 2003, except for Note 4 and Note 5 paragraph (b), as to which the date is January 28, 2003 22 Combined Schedule III REAL ESTATE AND ACCUMULATED DEPRECIATION OCTOBER 31, 2002 COLUMN A COLUMN B COLUMN C COLUMN D Cost Capitalized Initial Cost Subsequent to to company Acquisition Buildings & Description Encumbrances Land Improvements Improvements Land located in N.E. Pa including various improvements 1,867,766 49,915 5,451,399 Corporate Building 282,918 470,907 Building Leased to Others Eastern Pa Exchanged Asset - Shopping Center 5,700,000 780,700 4,554,235 172,931 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 8,249,828 Column E Column F Gross Amount at which carried at close of Period (1) (2) Building Accumulated Land Improvements Total Depreciation Land located in NE PA including various improvements 1,867,353 5,501,314 7,368,667 3,190,650 Corporate Building 470,907 470,907 293,054 Building Leased to Others Eastern Pa Exchanged Asset - Shopping Center 780,700 4,727,166 5,507,866 2,980,584 Other 0 2,437,508 2,437,508 1,429,049 Laurens, SC 276,000 1,914,470 2,190,470 760,469 Total 2,924,053 15,051,365 17,975,418 8,653,806 23 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 fiscal years ended October 31, 2002, October 31, 2001 and March 31, 2001 is as follows: 10/31/02 10/31/01 3/31/01 Balance at beginning of year 17,890,456 17,961,131 17,012,095 Additions during year: 29,320 Improvements 56,795 90,637 426,502 (reclassify) 0 (161,312) 523,738 17,976,571 17,890,456 17,962,335 Deductions during year: Cost of Real Estate Sold 1,153 0 1,204 Balance at end of year 17,975,418 17,890,456 17,961,131 (2) The aggregate cost for Federal Income Tax purposes at October 31, 2002 is $16,674,098. (3) Activity for the fiscal years ended October 31, 2002, October 31, 2002 and March 31, 2001 is as follows: 10/31/02 10/31/01 3/31/01 Balance at beginning of year 8,191,729 7,922,283 7,472,074 Additions during year: (Reclassification) Current year depreciation 462,077 269,446 450,209 Less retirements 0 0 0 Balance at end of year 8,653,806 8,191,729 7,922,283 24 BLUE RIDGE REAL ESTATE COMPANY BIG BOULDER CORPORATION To Our Shareholders: Operating results have shown a significant improvement. For the fiscal year ending October 31, 2002 the Companies report a net income of $686,758 or $.36 per combined share compared to a net loss of ($804,422) or ($.42) per combined share for the 7-month fiscal year ending October 31, 2001. We aggressively promoted our website JFBB.com for internet sales in an effort to draw volume. The Ticket Express and Rental Express reservation system created for customer convenience the previous year proved very successful and continues to contribute to the profitability of online sales. We have seen an increase over the past year in internet purchases by our customers. We actively pursued the New York and Philadelphia markets with radio and network television to promote winter sports. An additional $185,000 was received through a Regional Marketing Initiative with the State of Pennsylvania to increase our reach and frequency. We also initiated a public relations program. Numerous sponsorships, including Pepsi and Subaru, provide the company with monetary contributions. These marketing partnerships provide us additional advertising exposure. Future development opportunities and real estate ventures for the companies' large landholdings continue to be studied. Subdivision of land within our core area will provide a variety of opportunities for housing, industry and commerce. Management will continue to keep a close eye on the local real estate market as they develop strategies for moving forward. This past year the company invested in significant capital improvements at both ski areas that include increased snow making capacity at Big Boulder, construction of new Dual Double lift at Jack Frost Mountain, new equipment and improvements to the terrain parks at both areas. The Blue Ridge Companies is fortunate to have a talented team of employees with many collective years of experience in resort management and operations. These people are resourceful and forward-thinking individuals with a vision to keep the company profitable and a valuable interest to our shareholders. I want to thank them for their contributions to the companies' performance this year and I look forward to working with them in the upcoming New Year. Patrick M. Flynn President Blakeslee, Pennsylvania January 17, 2003 1 BLUE RIDGE REAL ESTATE COMPANY AND SUBSIDIARIES AND BIG BOULDER CORPORATION AND SUBSIDIARIES
COMBINED BALANCE SHEETS OCTOBER 31, 2002 AND 2001 ASSETS 10/31/02 10/31/01 CURRENT ASSETS: CASH AND CASH EQUIVALENTS (ALL FUNDS ARE INTEREST BEARING) $261,311 $263,178 ACCOUNTS RECEIVABLE 388,292 376,838 INVENTORIES 247,460 231,771 PREPAID EXPENSES AND OTHER CURRENT ASSETS 918,210 730,382 DEFERRED OPERATING COSTS 2,275,784 2,106,478 --------- --------- TOTAL CURRENT ASSETS 4,091,057 3,708,647 --------- --------- CASH HELD IN ESCROW 107,909 0 ------- - PROPERTIES: LAND, PRINCIPALLY UNIMPROVED (19,714 AND 19,741 RESPECTIVELY, ACRES PER LAND LEDGER) 1,867,352 1,868,505 LAND IMPROVEMENTS, BUILDINGS AND EQUIPMENT 56,190,649 53,985,296 ---------- ---------- 58,058,001 55,853,801 LESS ACCUMULATED DEPRECIATION AND AMORTIZATION 37,611,139 36,636,005 ---------- ---------- 20,446,862 19,217,796 ---------- ---------- $24,645,828 $22,926,443 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY 10/31/02 10/31/01 CURRENT LIABILITIES: NOTES PAYABLE - LINE OF CREDIT $600,000 $648,195 CURRENT INSTALLMENTS OF LONG-TERM DEBT 5,266,548 720,435 ACCOUNTS AND OTHER PAYABLES 913,825 544,734 ACCRUED CLAIMS 208,642 134,770 DEFERRED INCOME TAXES 796,000 625,292 ACCRUED PENSION EXPENSE 890,493 732,580 ACCRUED LIABILITIES 631,913 999,527 DEFERRED REVENUE 698,242 638,875 ------- ------- TOTAL CURRENT LIABILITIES 10,005,663 5,044,408 ---------- --------- LONG-TERM DEBT, LESS CURRENT INSTALLMENTS 2,783,257 6,949,805 --------- --------- DEFERRED INCOME TAXES 1,110,000 842,117 --------- ------- OTHER NON-CURRENT LIABILITIES 28,756 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 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 10,166,211 9,479,453 ---------- --------- 12,287,403 11,600,645 LESS COST OF 281,968 AND 280,968 SHARES OF CAPITAL STOCK IN TREASURY AS OF OCTOBER 31, 2002 AND 2001, RESPECTIVELY 2,084,882 2,074,382 --- ---- ----- --------- --------- 10,202,521 9,526,263 ---------- --------- $24,645,828 $22,926,443 =========== ===========
The accompanying notes are an integral part of the combined financial statements. 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 YEAR ENDED OCTOBER 31, 2002, THE SEVEN MONTHS ENDED OCTOBER 31, 2001 AND THE YEAR ENDED MARCH 31, 2001 10/31/02 10/31/01 03/31/01 REVENUES: SKI OPERATIONS $10,015,075 $0 $11,267,371 REAL ESTATE MANAGEMENT 3,029,396 1,562,649 3,109,799 SUMMER RECREATION OPERATIONS 2,439,963 2,099,387 2,651,591 LAND RESOURCE MANAGEMENT 1,280,021 RENTAL INCOME 1,871,456 1,100,031 1,867,690 --------- --------- --------- 18,635,911 4,762,067 18,896,451 ========== ========= ========== COSTS AND EXPENSES: SKI OPERATIONS 10,108,567 1,100,477 11,246,003 REAL ESTATE MANAGEMENT 2,585,552 1,419,318 2,676,191 SUMMER RECREATION OPERATIONS 2,250,002 1,935,710 2,292,473 LAND RESOURCE MANAGEMENT 523,542 RENTAL INCOME 968,084 576,287 950,258 GENERAL AND ADMINISTRATION 703,976 650,425 1,768,375 ------- ------- --------- 17,139,723 5,682,217 18,933,300 ---------- --------- ---------- INCOME (LOSS) FROM OPERATIONS 1,496,188 (920,150) (36,849) --------- -------- ------- OTHER INCOME (EXPENSE): INTEREST AND OTHER INCOME 18,066 55,642 866,127 INTEREST EXPENSE (374,905) (296,041) (736,865) -------- -------- -------- (356,839) (240,399) 129,262 -------- -------- ------- INCOME (LOSS) BEFORE INCOME TAXES 1,139,349 (1,160,549) 92,413 --------- ---------- ------ PROVISION (CREDIT) FOR INCOME TAXES: CURRENT 14,000 (46,453) 259,417 DEFERRED 438,591 (309,674) (419,536) ------- -------- -------- 452,591 (356,127) (160,119) ------- -------- -------- NET INCOME (LOSS) 686,758 (804,422) 252,532 EARNINGS RETAINED IN BUSINESS: BEGINNING OF YEAR 9,479,453 10,283,875 10,031,343 --------- ---------- ---------- END OF YEAR $10,166,211 $9,479,453 $10,283,875 =========== ========== =========== BASIC AND DILUTED EARNINGS (LOSS) PER WEIGHTED AVERAGE COMBINED SHARE $0.36 ($0.42) $0.13
The accompanying notes are an integral part of the combined financial statements. 3 BLUE RIDGE REAL ESTATE COMPANY AND SUBSIDIARIES AND BIG BOULDER CORPORATION AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED OCTOBER 31, 2002, THE SEVEN MONTHS ENDED OCTOBER 31, 2001 AND THE YEAR ENDED MARCH 31, 2001 10/31/02 10/31/01 03/31/01 CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: NET INCOME (LOSS) $686,758 ($804,422) $252,532 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY(USED IN) OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 1,897,753 352,468 1,969,154 DEFERRED INCOME TAXES 438,591 (309,674) (372,862) (GAIN)LOSS ON SALE OF ASSETS 5,490 2,438 (528,242) CHANGES IN OPERATING ASSETS AND LIABILITIES: ACCOUNTS RECEIVABLE (11,454) 52,815 19,185 PREPAID EXPENSES & OTHER CURRENT ASSETS (203,517) (417,229) 288,575 DEFERRED OPERATING COSTS (170,745) (1,310,033) 0 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 213,799 (89,664) 866,096 ACCRUED INCOME TAXES 0 (67,387) (225,726) DEFERRED REVENUE 59,367 322,122 171,584 ------ ------- ------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,916,042 (2,268,566) 2,440,296 --------- ---------- --------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: DEFERRED INCOME 0 0 13,198 PROCEEDS FROM DISPOSITION OF ASSETS 18,344 20,757 529,446 ADDITIONS TO PROPERTIES (3,149,214) (365,050) (1,874,588) CASH HELD IN ESCROW (107,909) -------- -------- --------- NET CASH USED IN INVESTING ACTIVITIES (3,238,779) (344,293) (1,331,944) ---------- -------- ---------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: BORROWINGS UNDER SHORT-TERM FINANCING 1,700,000 648,195 2,050,000 PAYMENT OF SHORT-TERM FINANCING (1,748,195) 0 (2,050,000) ADDITIONS TO LONG-TERM DEBT 1,100,000 0 0 PAYMENT OF LONG-TERM DEBT (720,435) (364,401) (784,153) PURCHASE OF TREASURY STOCK (10,500) (36,596) (248,870) ------- ------- -------- NET CASH FROM (USED IN) FINANCING ACTIVITIES 320,870 247,198 (1,033,023) ------- ------- ---------- NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (1,867) (2,365,661) 75,329 CASH & CASH EQUIVALENTS, BEGINNING OF YEAR 263,178 2,628,839 2,553,510 ------- --------- --------- CASH & CASH EQUIVALENTS, END OF YEAR $261,311 $263,178 $2,628,839 ======== ======== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE YEAR FOR: INTEREST $376,431 $302,209 $736,054 INCOME TAXES $116,233 $136,311 $427,516
The accompanying notes are an integral part of the combined financial statements. 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 by-laws 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, timbering and other recreational activities. Revenues are recognized as services are performed. The obligations entered into under a timber contract typically run over an 18 month period. The Companies obligations for performance are fulfilled at signing of the contract. Therefore, timber revenues are fully recognized when stumpage contracts are executed. 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 LAND 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 difference between the carrying value and the fair value of the asset. No such losses were recognized as of October 31, 2002. 5 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): 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 estate 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 revenue includes revenue 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 subsidiaries, 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. DEFERRED 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 fiscal year ended October 31, 2002. All other advertising costs are expensed when incurred. Advertising expense for Fiscal 2002, the seven months ended October 31, 2001 and Fiscal 2001 were $1,463,455, $216,559 and $1,538,647, 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 four business segments - Ski Operations, Real Estate Management/Rental Operations, Summer Recreation Operations and Land Resource Management. 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. RECENT ACCOUNTING PRONOUNCEMENT: 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 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. 6 RECENT ACCOUNTING PRONOUNCEMENT (CONTINUED): In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used, on reported results. The Statement is effective for the Companies' interim reporting period ending January 31, 2003. The Companies do not expect the adoption of SFAS No. 148 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 at 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. 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, 2002 and 2001 and March 31, 2001 and for each of the periods then ended is as follows:
BLUE RIDGE AND SUBSIDIARIES 7 MOS. ENDE 10/31/02 10/31/01 03/31/01 Financial Position: Current Assets $1,822,718 $1,520,615 $1,346,838 Total Assets 17,601,995 16,028,020 16,368,221 Current Liabilities 9,128,902 4,332,664 3,125,297 Shareholders' Equity 4,454,828 3,894,672 4,404,959 Operations: Revenues 12,731,076 3,782,404 12,367,702 Income (Loss) Before Taxes 951,294 (536,374) (75,807) Provision (Credit) for Income Taxes 380,639 (62,685) (284,176) Net Income (Loss) 570,655 (473,689) 208,369
BIG BOULDER AND SUBSIDIARIES 7 MOS. ENDED 10/31/02 10/31/01 03/31/01 Financial Position: Current Assets $2,268,339 $2,188,032 $2,602,388 Total Assets 7,043,833 6,898,423 7,605,859 Current Liabilities 876,761 711,744 361,244 Shareholders' Equity 5,747,693 5,631,591 5,962,322 Operations: Revenues 5,904,835 979,663 6,528,749 Income (Loss) Before Taxes 188,055 (624,175) 168,220 Provision (Credit) for Income Taxes 71,952 (293,442) 124,057 Net Income (Loss) 116,103 (330,733) 44,163
4. SHORT-TERM FINANCING: At October 31, 2002, Blue Ridge had utilized approximately $600,000 of a line of credit agreement with a bank, aggregating $2,000,000 available for short term financing, expiring March 31, 2003, which management expects to be renewed. The line of credit bears interest at .25% less than the prime rate (4.50% at October 31, 2002). The weighted average interest rate at October 31, 2002 was 4.54%. The agreement requires, among other things, that the Companies comply with minimum current and total liabilities to tangible net worth ratios and meet a fixed charge coverage ratio. The Companies have met or obtained waivers for each of these covenants at January 28, 2003. The line of credit agreement enables the Companies to issue letters of credit in amounts up to $100,000. At October 31, 2002, a $20,000 letter of credit was outstanding. Outstanding letters of credit reduce the amounts available under the line of credit. 5. LONG-TERM DEBT: Long-term debt as of October 31, 2002 and 2001 consists of the following:
10/31/02 10/31/01 Mortgage note payable to bank, interest is LIBOR plus 160 basis points (3.42% at October 31, 2002) payable monthly with principal reduction of $18,000 through maturity, August 2003 $4,599,000 $4,815,000 7 5. LONG-TERM DEBT (continued): Mortgage note payable to bank, interest at 80% of the bank's prime rate (3.80% at October 31, 2002) payable in monthly installments of $24,187 plus interest through Fiscal 2005 822,366 1,112,612 Mortgage note payable to insurance company, interest fixed at 10.5% payable in monthly installments of $15,351 including interest through Fiscal 2014 1,208,439 1,262,628 Mortgage note payable to bank, interest at 6.84% payable monthly with principal reduction at $40,000 per month December to March through 2004 320,000 480,000 Mortgage note payable to bank, interest at LIBOR plus 200 basis points, (fixed at a SWAP rate 3.61% at October 31, 2002), payable monthly with principal reduction of $39,286 per month January to April through 2009 (a), (b) 1,100,000 0 ---- --------- - Less current installments 8,049,805 7,670,240 5,266,548 720,435 --------- ------- $2,783,257 $6,949,805 ========== ==========
Properties at cost, which have been pledged as collateral for long-term debt, include the following at October 31, 2002:
Investment properties leased to others $7,698,336 Ski facilities $17,788,061
(a) The Companies have entered into an interest swap agreement, which is considered a derivative financial instrument, to hedge its variable interest rate payment obligations on its long-term debt. The derivative is not used for trading purposes and involves little complexity. The notional amount of the interest rate swap agreement is equivalent to the principal balance of the long-term debt and is used to measure the interest to be paid or received, and does not represent the amount of exposure to credit loss. Exposure to credit loss is limited to the receivable amount, if any, that may be generated as a result of this swap agreement. The fair value of the derivative financial instrument, which is the amount the Companies would receive or pay to terminate the agreement, is not significant. No carrying amounts were recorded in the accompanying combined balance sheet and no gains or losses were recognized in income during 2002. (b) During Fiscal 2002 the Companies entered into a $1,100,000 mortgage note payable with Manufacturers and Traders Trust Company. The agreement requires, among other things, that the Companies comply with consolidated debt to worth and consolidated debt service coverage ratios and meet a consolidated tangible net worth threshold. The Companies have met or obtained waivers for each of these covenants at January 28, 2003. The aggregate amount of long-term debt maturing in each of the five years ending subsequent to October 31, 2002, is as follows: 2003 - $5,266,548; 2004 - $674,243; 2005 - $473,171; 2006 - $239,466; 2007-$248,539; thereafter $1,147,838. 6. INCOME TAXES: The provision (credit) for income taxes is as follows:
10/31/02 10/31/01 03/31/01 Currently payable: Federal $14,000 ($46,453) $259,417 State 0 0 0 ------ ------- ------- 14,000 (46,453) 259,417 ------ ------- ------- Deferred: Federal 368,865 (537,361) (315,926) State 69,726 227,687 (103,610) ------ ------- -------- 438,591 (309,674) (419,536) ------- -------- -------- $452,591 ($356,127) ($160,119) ======== ========= =========
8 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:
10/31/02 10/31/01 03/31/01 Computed at statutory rate $387,379 ($394,587) $31,420 State income taxes, net of federal income tax 46,019 218,656 0 Prior year over accrual 0 (130,594) (107,367) Other 19,193 (3,149) 3,919 AMT (utilization) tax 0 (46,453) (88,091) -------- ------- ------- Provision (credit) for income taxes $452,591 ($356,127) ($160,119) ======== ========= =========
The components of the deferred tax liabilities as of October 31, 2002 and 2001 are as follows:
10/31/02 10/31/01 Current Deferred Tax Liability: Deferred Operating Costs (924,000) (855,092) Accrued Expenses 101,000 203,672 Deferred Revenues 27,000 26,128 ------ ------ Current Deferred Tax Liability (796,000) (625,292) -------- -------- Noncurrent Deferred Tax Liability: Depreciation (2,638,000) (2,533,090) Deferred Income, Sewer Line and Tower 221,000 227,557 Net Operating Losses and Amt Credit Carryforward 2,177,000 2,289,811 Valuation Allowance (870,000) (826,395) -------- -------- Noncurrent Deferred Tax Liability (1,110,000) (842,117) ---------- -------- Deferred Income Tax Liability, Net ($1,906,000) ($1,467,409) =========== ===========
At October 31, 2001, the Companies have $250,504 of Alternative Minimum Tax (AMT) credit carryforward. The Companies filed and received approval from the IRS to change their tax year-end. In connection with this filing, 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. At October 31, 2002, the Companies have available approximately $3,111,000 of federal net operating losses. The Companies also have state net operating loss carryforwards of approximately $8,703,000 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 10/31/02 10/31/01 03/31/01 Discount Rates Used to Determine Projected Benefit Obligations as of October 31, 2002 and 2001 and March 31, 2001 7.25% 7.25% 7.25% Expected Long-term Rates of Return On Assets 8.50% 8.50% 8.50% Rates of Increase in Compensation Levels 4.00% 4.00% 5.00%
9 7. PENSION BENEFITS (CONTINUED):
CHANGE IN BENEFIT OBLIGATION 10/31/02 10/31/01 Benefit Obligation At Beginning of Year $3,321,744 $3,422,856 Service Cost (Net of Expenses) 133,279 119,090 Interest Cost 219,313 129,820 Plan Amendments 0 0 Actuarial (Gain) Loss 15,706 (267,227) Benefit Payments (164,448) (82,795) -------- ------- Benefit Obligation At End of Year $3,525,594 $3,321,744 ========== ==========
CHANGE IN PLAN ASSETS 10/31/02 10/31/01 Fair Value of Plan Assets At Beginning of Year$ 2,755,894 $2,983,503 Actual Return On Plan Assets (333,915) (134,104) Employer Contributions 0 0 Benefits Paid (164,448) (82,795) Actual Expenses Paid During the Year (49,909) (10,710) ------- ------- Fair Value of Plan Assets At End of Year $2,207,622 $2,755,894 ========== ==========
RECONCILIATION OF FUNDED STATUS OF THE PLAN 10/31/02 10/31/01 Funded Status At End of Year ($1,317,972) ($565,850) Unrecognized Transition Obligation 89,745 98,225 Unrecognized Net Prior Service Cost 8,303 8,914 Unrecognized Net Actuarial Gain 329,431 (273,869) ------- -------- Net Amount Recognized At End of Year ($890,493) ($732,580) ========= =========
COMPONENTS OF NET PERIODIC BENEFIT COST 10/31/02 10/31/01 03/31/01 Service Cost $170,579 $130,757 $238,365 Interest Cost 219,313 129,820 220,819 Expected Return On Plan Assets 228,316 143,485 287,388
Net amortization and deferral: Amortization of transition obligation 8,480 4,947 8,480 Amortization of prior service cost 611 356 611 Amortization of accumulated gain (12,754) (16,857) (48,721) ------- ------- ------- Net amortization and deferral ($3,663) ($11,554) ($39,630) Total net periodic pension cost $157,913 $105,538 $132,166 ======== ======== ========
8. PROPERTIES: Properties consist of the following at October 31, 2002 and 2001.
10/31/2002 10/31/2001 Land, principally unimproved $1,867,352 $1,868,505 Land improvements 5,501,314 5,624,734 Corporate buildings 470,907 470,907 Buildings leased to others 10,177,175 10,120,371 Ski Facilities Land 4,552 4,552 Land improvements 8,194,370 7,908,064 Buildings 6,708,477 6,529,121 Machinery & equipment 19,565,698 20,109,752 Equipment & furnishings 5,568,156 3,217,795 --------- --------- 58,058,001 55,853,801 Less accumulated depreciation and amortization 37,611,139 36,636,005 ---------- ---------- $20,446,862 $19,217,796 =========== ===========
Buildings leased to others include land of $1,056,700 at October 31, 2002 and 2001. 10 9. ACCRUED LIABILITIES: Accrued liabilities consist of the following at October 31, 2002 and 2001.
10/31/2002 10/31/2001 Accrued Payroll $273,759 $537,300 Accrued Security & Other Deposits 186,558 162,266 Accrued Professional Fees 144,732 173,524 Accrued - Miscellaneous 26,864 126,437 ------ ------- $631,913 $999,527 ======== ========
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 5.55 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, 2002, is as follows:
PROPERTIES SUBJECT TO LEASE
ACCUMULATED COST DEPRECIATION Investment properties leased to others $8,010,967 $3,837,616 Land and land improvements 3,992,231 1,332,485 Minimum future rentals: Fiscal years ending October 31: 2003 $1,708,296 2004 1,486,196 2005 1,362,804 2006 1,304,034 2007 1,043,497 Thereafter 16,273,815* ---------- $23,178,642 ===========
* Includes $ 1,254,750 under a land lease expiring in 2072 and $ 6,299,020 under a net lease for a store expiring in 2039. There were no contingent rentals included in income for the fiscal year ended October 31, 2002 or the seven months ended October 31, 2001 or the fiscal year ended March 31, 2001. 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 OF FINANCIAL INSTRUMENTS The estimated fair values of the Companies' financial instruments are as follows at October 31, 2002 and 2001:
Carrying Fair Carrying Fair Amount Value Amount Value ASSETS: Cash and cash equivalents $261,311 $261,311 $263,178 $263,178 Accounts receivable 388,292 388,292 376,838 376,838 Cash held in escrow 107,909 107,919 LIABILITIES: Notes payable, line of credit 600,000 600,000 648,195 648,195 Accounts and other payables 913,825 913,825 544,734 544,734 Long-term debt 8,049,805 8,614,305 7,670,240 8,228,856
11 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED): Fair values were determined as follows: Cash and cash equivalents, accounts receivable, cash held in escrow, notes payable, line of credit and accounts and other payables: The carrying amounts approximate fair value because of the short-term maturity of these instruments. Long-term debt: The fair value of long-term debt is estimated using discounted cash flows based on current borrowing rates available to the Companies for similar types of borrowing arrangements. 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 YEAR ENDED 10/31/02 1ST $6,537,300 $217,442 $69,937 $0.04 2ND 7,149,862 1,718,168 1,204,185 0.63 3RD 2,490,727 182,121 9,376 0.01 4TH 2,458,022 (621,543) (596,740) (0.32) - --------- -------- -------- ----- $18,635,911 $1,496,188 $686,758 $0.36 =========== ========== ======== ===== 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) ========== ======== ======== ======
The quarterly results of operations for Fiscal 2002 and the seven months ended October 31, 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 two ski facilities have been recorded as deferred operating costs. 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 four 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 investment properties, and rental of land and land improvements. 12 13. BUSINESS SEGMENT INFORMATION: (CONTINUED) 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. LAND RESOURCE MANAGEMENT: A new business segment has been added for Fiscal 2002. This segment consists of land sales, purchases and timbering operations. Land sales revenue will be recognized in accordance with SFAS 66 when all conditions for full accrual recognition are met. The Companies endeavor to take advantage of the tax deferred treatment of like kind exchanges under IRS code section 1031. In a typical transaction, proceeds of a land sale are held in escrow by an intermediary, pending the identification of a property suitable for exchange. Timbering operations consist of selective timbering on the Companies' land holdings. Contracts are entered into for parcels which have had the timber selectively marked. Management is devising a long-term plan of managed timbering whereby, significant attention is given to protecting the environment and retaining the value of the land. 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.
10/31/02 10/31/01 03/31/01 Revenues: Ski operations $10,015,075 $0 $11,267,371 Real estate management/rental operations 4,900,852 2,662,680 4,977,489 Summer recreation operations 2,439,963 2,099,387 2,651,591 Land resource management 1,280,021 0 0 $18,635,911 $4,762,067 $18,896,451 Income (loss): Ski operations ($93,492)($1,100,477) $21,368 Real estate management/rental operations 1,347,216 667,075 1,351,040 Summer recreation operations 189,961 163,677 359,118 Land resource management 756,479 0 0 $2,200,164 ($269,725) $1,731,526 General and administrative expenses: Ski operations ($378,322) ($390,255)($1,061,025) Real estate management/rental operations (185,131) (169,110) (459,778) Summer recreation operations (92,170) (91,060) (247,572) Land resource management (48,353) 0 0 ($703,976) ($650,425)($1,768,375) Interest and other income: Ski operations $4,378 $1,436 $17,710 Real estate management/rental operations 13,688 54,206 848,417 Summer recreation operations 0 0 0 Land resource management 0 0 0 $18,066 $55,642 $866,127 Interest expense: Ski operations ($67,198) ($47,546) ($161,016) Real estate management/rental operations (307,707) (248,495) (575,849) Summer recreation operations 0 0 0 Land resource management 0 0 0 ($374,905) ($296,041) ($736,865) Income (loss) before income taxes $1,139,349($1,160,549) $92,413
For the fiscal year ended October 31, 2002, the seven months ended October 31, 2001 and the fiscal year ended March 31, 2001, no one customer represented more than 10 % of total revenues. 13 13. BUSINESS SEGMENT INFORMATION (CONTINUED): Identifiable assets, net of accumulated depreciation at October 31, 2002, 2001 and March 31, 2001 and depreciation expense and capital expenditures for the years then ended by business segment are as follows:
IDENTIFIABLE DEPRECIATION CAPITAL October 31, 2002 ASSETS EXPENSE EXPENDITURES Ski Operations $9,697,759 $1,291,229 $2,855,099 Real Estate Management/rental Operations 9,388,281 368,288 56,795 Summer Recreation Operations 1,995,857 161,531 150,517 Land Resource Management 63,253 5,986 58,463 Other Corporate 3,500,678 69,280 37,102 --------- ------ ------ TOTAL $24,645,828 $1,896,314 $3,157,976 =========== ========== ========== 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 Land Resource Management 0 0 0 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 Land Resource Management 0 0 0 Other corporate 1,750,699 132,495 38,503 --------- ------- ------ Total $23,974,080 $1,969,154 $1,874,587 =========== ========== ==========
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 $1,234,000 at October 31, 2002. Subsequent to year-end the Companies entered into an additional line of credit with a bank aggregating $1,000,000 available for short-term financing. The specific intent for this line of credit is for financing land transactions reported in our new business segment - Land Resource Management. In November 2002 the Companies entered into two capital lease agreements with a bank for two air compressors and two snow groomers. The total commitment is approximately $1,136,000. 15. RELATED PARTY TRANSACTIONS: The Companies have incurred the consulting services of Kimco Realty Corporation, the major shareholder. The services are focused on land acquisition and disposal, as well as timbering. The consulting fees are accrued monthly and consulting expense at October 31, 2002 amounted to $125,000. 16. 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 option price was $6.75 and will expire July 1, 2003. During Fiscal 2002 four additional corporate officers were granted stock options in varying amounts with a total of 11,000 shares. The option price was $10.50 and will expire December 10, 2006. 14 16. STOCK OPTIONS AND CAPITAL STOCK (CONTINUED): Option activity during the periods ended October 31, 2002 and 2001 and March 31, 2001 is as follows:
10/31/02 10/31/01 03/31/01 WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE 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 11,000 $10.50 - - - - Exercised - - - - - - Canceled - - - - - - ------ ----- ------ ----- ------ ----- Outstanding at end of year 46,000 $7.65 35,000 $6.75 35,000 $6.75 ====== ===== ====== ===== ====== ===== Options exercisable at year-end 46,000 $7.65 35,000 $6.75 35,000 $6.75 ====== ===== ====== ===== ====== ===== Option price range $6.75-$10.50 $6.75 $6.75 ===== ====== ===== ===== Weighted average fair value of options granted during year $2.71 =====
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. SFAS No. 123 requires the disclosure of pro forma net income and earnings per share as if the Companies had adopted the fair value method as of the beginning of fiscal 1998. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Companies' calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions in 2002: 5.6 years expected life; stock volatility of 4.1%; a risk-free interest rate of 2.5%; and no dividends during the expected term. Had compensation expense for the stock options been determined based on the fair value at the grant date for options granted in 2002, consistent with the provisions of SFAS No. 123, the Companies' net income and earnings per share would have been reduced to the pro forma amounts indicated below:
10/31/2002 Net income: As reported $686,758 ======== Pro forma $667,083 ======== Basic earnings per share: As reported $0.36 ===== Pro forma $0.35 ===== Diluted earnings per share: As reported $0.36 ===== Pro forma $0.35 =====
Treasury shares were purchased at fair value at October 31, 2002 and 2001 of 1,000 and 3,747, respectively. 15 17. PER SHARE DATA: Earnings per share for the year ended October 31, 2002 and the seven months ended October 31, 2001 and the year ended March 31, 2001 are computed as follows:
10/31/02 10/31/01 03/31/01 Net earnings $686,758 ($804,422) $252,532 ======== ========= ======== Weighted average combined shares of common stock outstanding used to compute basic earnings per combined common share 1,916,431 1,917,858 1,926,402 Additional combined common shares to be issued assuming exercise of stock options, net of combined shares assumed reacquired 13,899 12,470 10,195 ------ ------ ------ Combined shares used to compute dilutive effect of stock option 1,930,330 1,930,328 1,936,597 ========= ========= ========= Basic and diluted earnings per combined common share $0.36 ($0.42) $0.13 ===== ====== =====
INDEPENDENT AUDITORS' REPORT To Shareholders of Blue Ridge Real Estate Company and Big Boulder Corporation: We have audited the accompanying combined balance sheets of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries (the "Companies") as of October 31, 2002 and 2001, and the related combined statements of operations and earnings retained in the business and cash flows for the year ended October 31, 2002, the seven months ended October 31, 2001 and the year ended March 31, 2001. 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, 2002 and 2001, and the results of their operations and their cash flows for the year ended October 31, 2002, the seven months ended October 31, 2001 and the year ended March 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Parente Randolph, PC Wilkes-Barre, Pennsylvania January 17, 2003, except for Note 4 and Note 5 paragraph (b), as to which the date is January 28, 2003 16 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 Fiscal Year 2002 and for seven months ended October 31, 2001. No dividends were paid on common stock in either period.
FISCAL YEAR 2002 HIGH LOW ASKED BID FIRST QUARTER 12.000 9.500 SECOND QUARTER 12.000 9.550 THIRD QUARTER 12.000 11.000 FOURTH QUARTER 11.500 10.600 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
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, 2002 and 2001 were 579 and 597, respectively. BLUE RIDGE REAL ESTATE COMPANY AND SUBSIDIARIES AND BIG BOULDER CORPORATION AND SUBSIDIARIES COMBINED SUMMARY OF SELECTED FINANCIAL DATA
7 Mos. Ended 10/31/02 10/31/01 3/31/01 3/31/00 3/31/99 Revenues $18,635,911 $4,762,067 $18,896,451 $18,886,919 $17,787,480 Net income (loss) 686,758 (804,422) 252,532 480,640 (79,199) Net income (loss) per combined share $0.36 ($0.42) $0.13 $0.24 ($0.04) Cash dividends per combined share 0 0 0 0 0 Weighted average number of combined shares outstanding 1,916,431 1,917,858 1,926,402 0 1,980,706 Total assets 24,645,828 22,926,443 23,974,080 24,366,657 23,807,755 Long-term debt 8,049,805 7,670,240 8,034,641 8,818,794 8,799,905 Shareholders' equity 10,202,521 9,526,263 10,367,281 10,363,619 10,133,392
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL 2002 VERSUS THE SEVEN MONTHS ENDED OCTOBER 31, 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 represents the twelve-month period Fiscal 2002 compared to a seven month period 17 FISCAL 2002 VERSUS THE SEVEN MONTHS ENDED OCTOBER 31, 2001 (CONTINUED): ended October 31, 2001. Therefore, the major reason for increases in various operating revenues and expenses is the comparison to the short reporting period. The most sensitive estimates affecting the financial statements were management's estimate of net deferred tax assets and liabilities and deferred operating costs. Management's estimate of the deferred tax assets and liabilities is primarily based on the difference between the tax basis and financial reporting basis of depreciable assets, accrued severance payable, deferred operating costs and deferred revenues. Management's estimate of deferred operating costs is primarily based on deferring costs directly related to ski operations in order to match those costs to the period in which ski operating revenues are recognized. We have evaluated the key factors and assumptions used to develop these estimates in determining that they are reasonable in relation to the financial statements taken as a whole. For Fiscal Year ended October 31, 2002, the Companies reported net income of $686,758 or $.36 per combined share as compared with a net loss of ($804,422) or ($.42) per combined share for the seven months ended October 31, 2001. Combined revenue of $ 18,635,911 represents an increase of $ 13,873,844 or 74% when compared to the seven months ended October 31, 2001. Ski Operations increased $10,015,075 or 100%, and Real Estate Management Operations / Rental Operations increased $2,238,172 or 46% when compared to the seven months ended October 31, 2001. The Ski Operations had approximately 223,000 skier visits to our slopes compared to no skier visits for the seven months ended October 31, 2001. Revenue per skier was $32 compared to $0 for the seven months ended October 31, 2001 for an increase of $32 or 100 %. Tubing operations had approximately 63,000 tuber visits compared to no tuber visits for the seven months ended October 31, 2001. The increase of 63,000 tuber visits represents a 100% increase. Revenue per tuber was $16 compared to $0.00 last season for an increase of $16 or 100%. The ski areas operated for a combined total of 160 days compared to 0 days for the seven months ended October 31, 2001. The food and beverage operations at the ski areas contributed revenue of $6.94 per skier visit. The retail shop operations at the ski areas contributed revenue of $1.79 per skier visit compared to $0 for the seven months ended October 31, 2001. The Real Estate Management Operations increase is attributed to the short year comparison as noted above. Disposition of properties occur sporadically and do not follow any pattern during the fiscal year. In Fiscal 2002, the new business segment - Land Resource Management - generated $1,280,021 in revenue. 27 acres of land were sold generating revenue of $106,756 with a basis of $1,153. No land sales occurred in the seven months ended October 31, 2001. To date approximately 5% of the Companies' 19,714 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. In Fiscal 2002 timber sales have generated $1,173,265 of revenue. Operating costs associated with Ski Operations increased by $9,008,090 when compared to the seven months ended October 31, 2001. This increase is attributed to the short year comparison as noted above. Operating costs associated with Real Estate Management Operations increased by $1,558,031 when compared to the seven months ended October 31, 2001. The increase is due to the comparison to the short period. General and Administration expenses increased by $53,551 when compared to the seven months ended October 31, 2001. The increase is due to the comparison to the short period as noted above. Interest and Other Income decreased by $37,576 when compared to the seven months ended October 31, 2001. This decrease is attributable to the comparison to the short period as noted above. Interest expense decreased by $78,864 when compared to seven months ended October 31, 2001. This decrease is attributed to the comparison to the short period as noted above. The effective Tax Rate for Fiscal 2002 and the seven months ended October 31, 2001 was 40% and 34% respectively. 18 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 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. 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 in the seven month period ended October 31, 2001. 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. 19 SEVEN MONTHS ENDED OCTOBER 31, 2001 VERSUS FISCAL 2001 (CONTINUED): 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. LIQUIDITY AND CAPITAL RESOURCES: The Combined Statement of Cash Flows reflects net cash provided by operating activities of $2,916,042 for the year ended October 31, 2002 versus net cash used in operating activities of ($2,268,566) in the seven months ended October 31, 2001 and net cash provided by operating activities of $2,440,296 in Fiscal 2001 respectively. The major capital investments made in Fiscal 2002 were a new dual double chair lift at Jack Frost Mountain, the expansion of the terrain park at Big Boulder and the purchase of 2 snow carpets. The chair lift was financed through a $1,100,000 mortgage note payable disclosed in footnote No. 5-long- term debt. All other capital investments were financed from operating cash flow. During Fiscal 2002 a mortgage note payable with Wachovia Bank in the amount of $4,599,000 became a current obligation with a maturity date of August 31, 2003. This debt is on the Dreshertown Plaza Shopping Center, for which Management is currently reviewing a purchase proposal. This proposed selling price well exceeds our current obligation on Dreshertown Plaza Shopping Center. In the event management does not accept this proposal, it intends and has the capability to refinance the debt. During the year fiscal year ended October 31, 2002 the Companies borrowed against their $2,000,000 line of credit for a period of four months in varying amounts with a maximum of $1,500,000. 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. 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. 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 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. In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used, on reported results. The Statement is effective for the Companies' interim reporting period ending January 31, 2003. The Companies do not expect the adoption of SFAS No. 148 to have a material impact on its financial position or results of operations. MOVING FORWARD: For the Fiscal year ended October 31, 2002 the companies major capital expenditures were for a new dual double chair lift at Jack Frost Mountain, upgrading snow making at Big Boulder. These expenditures were made to remain competitive. We will continue to investigate opportunities that will enhance our profitability. During Fiscal 2002 the companies actively pursued land sales and purchases. In Fiscal 2003 management intends to continue selective sales and purchases of land. The companies' will offer financing to attract new land sale customers. The Companies will continue to generate timbering revenues from selective harvesting of timber. 20 MOVING FORWARD (CONTINUED): Management is organizing a subsidiary company - Boulder Creek Resort Company. This new company will be used as a marketing tool to consolidate and brand the Companies' holdings as one resort destination and to facilitate 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. A final price has not been determined. 21 BOARD OF DIRECTORS Milton Cooper Chairman, Kimco Realty Corporation; Director of Getty Realty Corporation; Director, Kimco Realty Corporation Michael J. Flynn Chairman of the Board of the Companies; Vice Chairman and Director, Kimco Realty Corporation Patrick M. Flynn President of the Companies Director or 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/Treasurer Richard T. 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 22 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 2002 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 Mountain's Edge, Lake Harmony, Pennsylvania LAND HOLDINGS Blue Ridge 18,682 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 23