-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LikiKrIfN6TJQePjZos4x18RBL8IbpI5zKhQphV4BDGuhTdXg6hkIrJDsjWJ0MIC CpOQbpknsVsSp23i3vtSMg== 0000012779-98-000005.txt : 19980807 0000012779-98-000005.hdr.sgml : 19980807 ACCESSION NUMBER: 0000012779-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980629 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUE RIDGE REAL ESTATE CO CENTRAL INDEX KEY: 0000012779 STANDARD INDUSTRIAL CLASSIFICATION: 7990 IRS NUMBER: 240854342 STATE OF INCORPORATION: PA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-02844 FILM NUMBER: 98656487 BUSINESS ADDRESS: STREET 1: PO BOX 707 CITY: BLAKESLEE STATE: PA ZIP: 18610 BUSINESS PHONE: 7174438433 MAIL ADDRESS: STREET 1: PO BOX 707 CITY: BLAKESLEE STATE: PA ZIP: 18610 10-K 1 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 MARCH 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transtion 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: 717 - 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___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of common stock, without par value, stated value $.30 per combined share, held by non-affiliates at June 16, 1998, was $22,159,799. The market value per share is based upon the per share cost of shares as indicated by NASDAQ on March 31, 1998. 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 June 16, 1998 Common Stock, without par value 1,991,892 Shares stated value $.30 per combined share DOCUMENTS INCORPORATED BY REFERENCE Specified portions of the Companies' 1998 Annual Report to Shareholders are incorporated by reference into Part II hereof. Specified portions of the Companies' definitive Proxy Statement for the 1998 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. 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 18,845 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 215-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, and 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. 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 33 full-time employees. Jack Frost Mountain Company, which operates the Jack Frost Mountain Ski Area, has 37 full-time employees and during the skiing season there are approximately 500 additional employees. Northeast Land Company has 21 full-time employees. ITEM 1. BUSINESS - (continued) 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 Blue Heron Grille. 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, to provide certain services to other facilities, such as the Blue Heron, Midlake and Laurelwoods resort communities, and operate the recreational facilities as they are located within the Big Boulder Lake tract. The Blue Heron Grille is currently being leased to a restaurant operator. 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 22 full-time employees. During the skiing season, there are approximately 525 additional employees. INDUSTRY SEGMENT INFORMATION Information with respect to industry segments is presented in Note 12 to the Registrants' financial statements included in Item 8. The quarterly results of operations for 1998, 1997 and 1996 reflect the cyclical nature of the Companies' business since (a) the Companies' two ski facilities operate principally during the months of December through March and (b) land dispositions occur sporadically and do not follow any pattern during the fiscal year. Costs and expenses, net of revenues received in advance attributable to the ski facilities for the months of April through November, are deferred and recognized as revenue and operating expenses, ratably, over the operating period. ITEM 2. PROPERTIES A. BLUE RIDGE REAL ESTATE COMPANY The physical properties of Blue Ridge consist of approximately 18,948 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, 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 10,800 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 $19,379,516, 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 March 31, 1998 the out- standing debt on the Jack Frost Mountain Ski Area was $1,078,493. 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 March 31, 1998. 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, 2014. At March 31, 1998, a mortgage totaling $1,416,265 was outstanding on this property. The Dreshertown Plaza Shopping Center, Dresher, Montgomery County, Pennsylvania, was acquired in July, 1986 for consideration of $4,592,579. The center consists of approximately 101,233 square feet located on approximately 15 acres of land. On March 31, 1998, the center was 96% occupied under leases expiring on various dates from April 30, 1998 to October 31, 2011. The total capital investment in the shopping center is $5,414,170. At March 31, 1998, a mortgage totaling $5,331,999 was out- standing on this property. The Fern Ridge Campground is located at the intersection of Route 115 and Interstate 80 in Monroe County, Pennsylvania. This campground is built on 85 acres and consists of 215 campsites, 75 with water and electric, 15 with rustic cabins and the remaining 125 are wilderness sites. Its operating period is from April 1 through September 30. At March 31, 1998, the Company's investment in this facility was $475,350. ITEM 2. PROPERTIES - (Continued) Blue Ridge owns 18,845 acres of land which are predominately located in the Pocono Mountains. The majority of this property is leased to various hunting clubs. Blue Ridge also owns several cottages in the area that are leased to private individuals. Blue Ridge owns and leases to Jack Frost Mountain Company a sewage treatment facility to serve the resort housing at Jack Frost Mountain. The total investment in this facility at March 31, 1998 was $1,224,623 with outstanding debt of $172,127. Blue Ridge also owns The Sports Complex at Jack Frost Mountain which consists of a swimming pool, fitness trail, tennis courts,In-line skate Park, 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. For the fiscal year ended March 31, 1998, revenues from operations of Blue Ridge and its subsidiaries amounted to $10,914,914. Approximately 55% of this revenue or $6,043,977 was derived from the Jack Frost Mountain Ski Area which operated 96 days during the fiscal year. B. BIG BOULDER CORPORATION The physical properties owned by Big Boulder consist of approximately 929 acres, the Big Boulder Ski Area, a sewage treatment facility, a 200 foot communications tower, and the Blue Heron Grille. 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 slope, snowtubing hill, five double chair- lifts, 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 $12,992,006. At March 31, 1998, the outstanding debt on the Big Boulder Ski Area was $839,816. 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 March 31, 1998, was $1,700,719 with an outstanding debt of $452,209 at that date. Big Boulder Corporation constructed the Blue Heron Grille 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 with a nightclub. The capital investment in the facility at March 31, 1998 was $1,563,626. Big Boulder owns 929 acres of land which are located in the Pocono Mountains. The Big Boulder Lake Club includes a 175 acre lake, swimming pool, tennis courts, boat docks and accompanying buildings. For the fiscal year ended March 31, 1998, revenues from operations of Big Boulder amounted to $7,741,081. Approximately 81% of this revenue of $6,254,916 was derived from the Big Boulder Ski Area which operated 112 days during that 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 Michael J. Flynn 63 1991 Chairman of the Board Gary A. Smith 55 1992 President Melanie Murphy 38 1996 Vice President-Operations 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. Michael J. Flynn was elected Chairman of the Board of the Registrants on July 11, 1991. He is Vice Chairman of the Board of Kimco Realty Corporation since January 1996. Mr. Flynn serves as a Director of Kimco Realty Corporation. Mr. Flynn was formerly Chairman of the Board and President of Slattery Associates, Inc. and Director of Slattery Group, Inc. From 1987 to December 1995. Gary A. Smith was appointed President in July, 1992. He has been employed by the Registrants on a full-time basis since September 1982; he was appointed Vice President and Treasurer in July 1983 and Senior Vice President in September 1987. Melanie Murphy was appointed Vice President-Operations in June, 1996. She has been employed by the Registrants on a full-time basis since July, 1984. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND _______RELATED STOCKHOLDER MATTERS__________ Information required with respect to Registrants' common stock and related shareholder matters is incorporated herein by reference to the caption entitled "Price Range of Common Shares and Dividend Information" on Page 13 of the Fiscal 1998 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 14 of the Fiscal 1998 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ________CONDITION AND RESULTS OF OPERATIONS______ Information required with respect to Registrants' financial condition, changes in financial condition and results of operations is incorporated herein by reference to Pages 14 through 15 of the Fiscal 1998 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The required financial statements are incorporated herein by reference to Pages 2 through 12 of the Fiscal 1998 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 1998 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___ Carl V. Kerstetter, Director of Marketing 47 1991 Eldon D. Dietterick, Secretary of Corporation 52 1996 Carl V. Kerstetter and Eldon D. Dietterick have been employed by the Registrants on a full-time basis for more than five years. ITEM 11. EXECUTIVE COMPENSATION The information concerning Executive Compensation required by Item 11 of Form 10-K is set forth under the caption "Remuneration of Executive Officers and Directors" in the registrant's definitive Proxy Statement for the 1998 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 1998 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ________AND REPORTS ON FORM 8-K________ A. (1) Financial statements included in Registrants' Fiscal 1997 Annual Report to Shareholders on Pages 2 through 12 are incorporated by reference. The Report of Independent Accountants for the combined financial statements appears on Page 14 of this Form 10-K. A. (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 Accountants for the financial statement schedule appears on Page 28 of this Form 10-K. All other schedules omitted herein are so omitted because either (1) they are not applicable, (2) the required information is shown in the financial statements, or (3) conditions are present which permit their omission, as set forth in the instructions pertaining to the content of financial statements: Schedules: III. Real Estate and Accumulated Depreciation A. (3) Exhibits, Including Those Incorporated by Reference The following is a list of Exhibits filed as part of this Annual Report on Form 10-K. Where so indicated by footnote, Exhibits that were previously filed are incorporated by reference. For Exhibits incorporated by reference, the location of the Exhibit in the previous filing is indicated in parentheses. Legend for Documents Incorporated Page Articles of Incorporation and By-Laws By Reference Number 3( 1).1 Articles of Incorporation (1) 3( 1).4 Articles of Amendment (2) 3(ii).1 By-Laws of Blue Ridge Real Estate Company as amended through July 25, 1990 (8) 3(ii).2 By-Laws of Big Boulder Corporation as amended through July 25, 1990 (8) Instruments Defining the Rights of Security ________Holders including Indentures_____ 4.1 Specimen Certificate for Shares of (1) Common Stock 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, CoreStates Bank, NA, Dreshertown Plaza Shopping Center, Montgomery County Acquisition of Properties 10.2.1 Acquisition of Dreshertown Plaza Shopping Center (6) 10.2.2 Acquisition of Building leased to Wal-Mart (8) Lease 10.3.1 Building leased to Wal-Mart (10) Agreement with Executive Officers and Director 10.4.1 Stock Option - Michael J. Flynn (9) Stock Option Agreement - Michael J. Flynn Subsidiaries of the Registrants 21.1 List of the Subsidiaries of the Registrants (6) (1) Filed September 23, 1966 as an Exhibit to Form 10 and incorporated herein by reference (2) Filed August 22, 1973 as an Exhibit to Form 10-K and incorporated herein by reference (3) Filed August 27, 1975 as an Exhibit to Form 10-K and incorporated herein by reference ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, _______AND REPORTS ON FORM 8-K__________ - (Continued) (4) Filed February 7, 1975 as an Exhibit to Form 8-K and incorporated herein by reference (5) Northeast Land Company - Incorporated in Commonwealth of Pennsylvania Jack Frost Mountain Company - Incorporated in Commonwealth of Pennsylvania Lake Mountain Company - Incorporated in Commonwealth of Pennsylvania Big Boulder Lodge, Inc. - Incorporated in Commonwealth of Pennsylvania BRRE Holdings, Inc. - Incorporated in State of Delaware BBC Holdings, Inc. - Incorporated in State of Delaware (6) Filed August 28, 1987 as an Exhibit to Form 10-K and incorporated herein by reference (7) Filed August 28, 1990 as an Exhibit to Form 10-K and incorporated herein by reference (8) Filed August 26, 1991 as an Exhibit to Form 10-K and incorporated herein by reference (9) Filed August 26, 1994 as an Exhibit to Form 10-K and incorporated herein by reference (10) Filed August 29, 1995 as an Exhibit to Form 10-K and incorporated herein by reference. Copies of Exhibits are available to Shareholders by contacting Eldon D. Dietterick, Secretary, Blakeslee, PA 18610. A charge of $.25 per page to cover the Registrants' expenses will be made. B Reports on Form 8-K None 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:___________________________ Gary A. Smith Cynthia A. Barron President Chief Accounting Officer Dated:________________________ Dated:________________________ 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 Gary A. Smith, 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___ _______________________ ___________ Michael J. Flynn Chairman of the Board Principal Executive Officer _______________________ ___________ Gary A. Smith President Chief Operating Officer Principal Financial Officer ______________________ ___________ Kieran E. Burke Director ______________________ ___________ Milton Cooper Director ______________________ ___________ Allen J. Model Director ______________________ Wolfgang Traber Director ___________ REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of Blue Ridge Real Estate Company and Big Boulder Corporation Our report on the combined financial statements of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries has been incorporated by reference in this Form 10-K from page 13 of the 1998 Annual Report to Shareholders of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedule included on pages 15 to 16 inclusive of this Form 10-K. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania June 5, 1998 COMBINED SCHEDULE III. REAL ESTATE AND ACCUMULATED DEPRECIATION March 31, 1998
Column A Column B Column C Column D Initial Cost Cost Capitalized to Company Subsequent To Acquisition Buildings & Description Encumbrances Land Improvements Improvements Land located in N E PA including various improvements 1,867,766 49,915 3,655,166 Corporate Building 282,918 158,154 Buildings Leased to Others Eastern PA Exchanged Asset- Shopping Center 5,700,000 780,700 4,554,235 79,235 Other 0 0 0 2,308,869 Laurens,SC 1,600,000 276,000 1,914,470 0 TOTAL 7,300,000 2,924,466 6,801,538 6,201,423 Column E Column F Gross Amount at which Carried at Close of Period (1)(2) Land located in N E PA including Building Accumulated Various improvements Land Improvements Total Depreciation 1,867,738 3,705,080 5,572,818 2,139,587 Corporate Building 441,072 441,072 220,277 Buildings Leased to Others Eastern PA Exchanged Asset- Shopping Center 780,700 4,633,470 5,414,170 2,424,437 Other 0 2,308,869 2,308,869 1,114,162 Laurens, SC 276,000 1,914,470 2,190,470 467,980 TOTAL 2,924,438 13,002,961 15,927,399 6,366,443
Column G Column H Column I Life on which Depreciation Date of Date in latest income Contstruction 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 TOTAL (1) Activity for the fiscal years ended March 31, 1998, March 31, 1997 & May 31, 1996 is as follows: 1998 1997 1996 Balance at beginning of year 17,477,744 16,878,154 16,875,710 Additions during year: Improvements 181,369 599,590 181,260 (reclassify) (1,731,686) 0 (178,816) 15,927,427 17,477,744 16,878,154 Deductions during year: Cost of real estate sold 28 0 0 Balance at end of year 15,927,399 17,477,744 16,878,154 (2) The aggregate cost for Federal Income Tax purposes at March 31, 1998 is $14,490,158 (3) Activity for the fiscal years ended March 31, 1998, March 31, 1997 & May 31, 1996 is as follows: 1998 1997 1996 Balance at beginning of year 7,029,213 6,602,457 5,996,856 Additions during year: (Reclassification) (920,651) 0 0 Current year depreciation 257,881 426,756 605,601 Less retirements 0 0 0 Balance at end of year 6,366,443 7,029,213 6,602,457
BLUE RIDGE REAL ESTATE COMPANY BIG BOULDER CORPORATION To The Shareholders, The Companies experienced another good year. This can be attributed to having snow conditions superior to our competition, a growth in summer activities and increased marketing efforts. In 1997, to better reflect business cycles between our ski and non-ski season, the Companies changed the fiscal year-end to March 31st, resulting in a 10-month fiscal year. Fiscal 1998 represents the first twelve-month period since this adjustment. Net income for the Companies in 1998 was $394,593 or $.20 per combined share compared to $486,806 or $.24 per combined share for 10 months ending March 31, 1997. Although our pretax income of $737,590 is on par with last year, we have improved on our performance because the two additional months in Fiscal 1998 are historically non-revenue producing months. Cold temperatures early in November provided us with the opportunity to open Big Boulder for skiing on November 22, 1997, the earliest in the ski area's 51-year history. Jack Frost opened Saturday, December 13th. By Christmas, Big Boulder was 100% open and Jack Frost had 18 of 21 slopes available. Snow Tubing was opened the same days as skiing at both resorts. The investment made in additional air capacity two years ago allowed us to make snow during December's marginal temperatures. This and the decision to make snow in early November put us a giant step ahead of our competition. We introduced Snow Tubing to the Pocono region in 1994. Today, basically all Pocono Ski Areas have tubing. During mid-January other ski areas had to restore snow on their ski slopes and treated the tubing areas as secondary. Unlike our competition, we consider tubing a primary activity for our customers and worked diligently to maintain optimum conditions. Capital improvements expanded our tubing complex to 9 lifts and 24 chutes making this the largest in the world. The response to the family tube was so great at Big Boulder last year; we added a family tubing area at Jack Frost Mountain. The ski areas experienced a profitable winter season with 385,000 visitors. Skiers' and Snowboarders' combined visits totaled 293,000, while Snow Tubers' added another 92,000. The popularity of Snowboarding continues. Surveys show that 41% of our downhillers are snowboarders. As part of our dedication to grow the sport, we purchased a special groomer called a Pipe Dragon to improve our half-pipe terrain. Weekly snowboard competitions were hosted at Big Boulder and continue to attract competitors from outside the local area. We have expanded our marketing to include expenditures in the New York area. These include television, billboards and group leader contacts. We have also taken advantage of matching funds from a state marketing initiative. A special winter event popular with skiing and non-skiing customers was our "Saturday Night Lightning" series at Big Boulder. National tribute bands, fireworks and torchlight parades were held every Saturday night for ten weeks from December through February. Our efforts to generate revenue during non-ski season months over the past six years have proven very successful. Our nationally acclaimed Blues Festival, now going into its 7th year, attracted over 12,000 people. The Gathering on the Mountain festival is also ensuring our reputation to provide excellence in the entertainment industry. Splatter paintball games, played year-round, Wheels, an in-line skate park, and Ride, an all terrain vehicle park, continue to generate revenue at Jack Frost Mountain. A new center for mountain bikes called The Hub is being introduced this year. Fern Ridge Campground is in its fourth year of operation under company management and is continually expanding. Currently the campground encompasses 215 sites including 15 wilderness cabins. Our summer events, together with other local events, continue to support the occupancy of this facility. Major potential for the Companies lies in the future development opportunities of its large land holdings. Recent progress in local municipal sewer facilities is making future development possible. We continue to explore possible real estate ventures and periodically test the market in order to be prepared to move forward should an upturn occur. Municipal approval for some 800 home sites adjacent to our Ski Areas and permits to construct a golf course at Jack Frost Mountain are in place. Your Companies are regarded as leaders in the ski industry and are effectively generating revenues and profits during the non-ski season months. I would like to thank the employees for their hard work and dedication to customer satisfaction, which enhances the image and profitability of the Companies. Gary A. Smith President Blakeslee, Pennsylvania June 16, 1998
COMBINED BALANCE SHEETS March 31, 1998 and 1997 ASSETS 1998 1997 Current Assets: Cash and cash equivalents (all funds are Interest bearing) $2,799,777 $2,084,101 Marketable securities 0 303,096 Accounts receivable 230,482 430,628 Refundable income taxes 8,614 23,146 Inventories 221,210 249,590 Prepaid expenses and other current assets 485,513 623,561 Total current assets 3,745,596 3,714,122 Other non-current assets 36,797 36,797 Properties: Land, principally unimproved (19,877 and 19,884, respectively, acres per land ledger) 1,867,738 1,867,766 Land improvements, buildings and equipment 48,907,191 47,146,625 50,774,929 49,014,391 Less accumulated depreciation & amortization 30,977,716 28,962,573 19,797,213 20,051,818 $23,579,606 $23,802,737 LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997 Current liabilities: Current installments of long-term debt $457,503 $ 532,513 Accounts and other payables 436,941 430,814 Accrued claims 78,423 158,905 Accrued income taxes 267,885 138,566 Accrued liabilities 559,575 801,849 Deferred revenue 236,598 192,556 Total current liabilities 2,036,925 2,255,203 Long-term debt, less current installments 8,833,406 9,245,918 Deferred income taxes 2,295,417 2,201,348 Commitments and contingencies Combined shareholders' equity: Capital stock, without par value, stated value $.30 per combined share, Blue Ridge and Big Boulder each authorized 3,000,000 shares, each issued 2,198,148 shares 659,444 659,444 Capital in excess of stated value 1,461,748 1,461,748 Earnings retained in the business 9,629,902 9,235,309 11,751,094 11,356,501 Less cost of 206,134 and 194,134 shares of capital stock in treasury as of March 31, 1998 and 1997, respectively 1,337,236 1,256,233 10,413,858 10,100,268 $23,579,606 $23,802,737 The accompanying notes are an integral part of the combined financial statements. COMBINED STATEMENTS OF OPERATIONS AND EARNINGS RETAINED IN THE BUSINESS for the year ended March 31, 1998, the 10 months ended March 31, 1997, & the year ended May 31,1996 1998 1997 1996 Revenues: Ski operations $12,298,893 $11,251,882 $10,618,961 Real estate management 4,610,779 3,367,627 2,928,213 Rental income 1,746,323 1,418,491 1,761,812 18,655,995 16,038,000 15,308,986 Costs and expenses: Ski operations 11,395,132 9,778,443 9,741,679 Real estate management 3,941,009 3,164,328 3,062,437 Rental income 826,504 768,565 827,229 General and administration 1,068,163 893,485 941,001 17,230,808 14,604,821 14,572,346 Income from operations 1,425,187 1,433,179 736,640 Other income (expense): Interest and other income 131,397 57,067 88,060 Interest expense (818,994) (748,531) (866,262) (687,597) (691,464) (778,202) Income (loss)before income taxes 737,590 741,715 (41,562) Provision(credit)for income taxes: Current 248,927 234,528 58,731 Deferred 94,070 20,381 (143,556) 342,997 254,909 (84,825) Net income 394,593 486,806 43,263 Earnings retained in business: Beginning of year 9,235,309 8,748,503 8,705,240 End of year $9,629,902 $9,235,309 $8,748,503 Net income per weighted average combined share: Basic $0.20 $0.24 $0.02 Diluted $0.20 $0.24 $0.02 The accompanying notes are an integral part of the combined financial statements. COMBINED STATEMENTS OF CASH FLOWS For the year ended March 31, 1998, the 10 months ended March 31, 1997 and the year ended May 31,1996
1998 1997 1996 Cash Flows From Operating Activities Net income $394,593 $486,806 43,263 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization 2,059,274 1,928,651 2,132,581 Deferred income taxes 94,070 20,381 (143,556) Write-off of project development costs 0 0 178,818 Deferred revenue 44,042 (100,539) (119,129) Gain on sale of assets (33,746) 0 0 Changes in operating assets and liabilities: Accounts receivable 200,146 (85,561) (132,331) Refundable income taxes 14,532 (23,146) 10,000 Prepaid expenses & other current assets 166,428 17,027 (318,527) Accounts payable & accrued liabilities (316,628) (477) 251,340 Accrued income taxes 129,319 79,468 59,098 Net cash provided by operating activities 2,752,028 2,322,610 1,961,557 Cash Flows From (used in) Investing Activities: Marketable securities 303,096 (9,508) (293,588) Collection of mortgage receivable 2,479 11,189 Other non-current assets 34,500 (34,500) Proceeds from disposition of assets 33,773 4,200 0 Additions to properties (1,804,696) (2,313,407) (1,225,983) Cash(used in)investing activities (1,467,827) (2,281,736) (1,542,882) Cash Flows From (used in) Financing Activities: Additions to long-term debt 5,331,999 649,985 0 Borrowings under short-term financing 2,000,000 1,500,000 900,000 Payment of short-term financing (2,000,000) (1,500,000) (900,000) Payment of long-term debt (5,819,521) (565,721) (544,999) Purchase of treasury stock (81,003) 0 0 Net cash provided by (used in) financing activities (568,525) 84,264 (544,999) Net increase (decrease) in cash & cash equivalents 715,676 125,138 (126,324) Cash & cash equivalents, beginning of year 2,084,101 1,958,963 2,085,287 Cash & cash equivalents, end of year $2,799,777 $2,084,101 $1,958,963 Supplemental disclosures of cash flow information: Cash paid during year for: Interest $826,330 $726,430 $863,438 Income taxes $141,898 $207,300 $25,091
The accompanying notes are an integral part of the combined financial statements. NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF COMBINATION: The combined financial statements include the accounts of Blue Ridge Real Estate Company (Blue Ridge) and its wholly-owned subsidiaries, Northeast Land Company, Jack Frost Mountain Company, and BRRE Holdings, Inc.; and Big Boulder Corporation (Big Boulder) and its wholly-owned subsidiaries, Lake Mountain Company and BBC Holdings, Inc. Under a Security Combination Agreement between Blue Ridge and Big Boulder and under the Bylaws of both Companies, shares of the Companies are combined in unit certificates, each certificate representing concurrent ownership of the same number of shares of each company; shares of each company may be transferred only together with an equal number of shares of the other company. All significant intercompany accounts and transactions are eliminated. 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 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 periodically review their property and equipment to determine if its carrying cost will be recovered from future operating cash flows. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) In cases when the Companies do not expect to recover their carrying cost, the Companies recognize an impairment loss. No such losses were recognized in the three periods ended March 31, 1998. 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. PENSIONS: The Companies are parties to a non-contributory defined benefit pension plan covering all permanent employees who meet certain requirements as to age and length of employment. Pension benefits vest after five years of vesting service and are based on the participant's earnings in the 60 consecutive months during the last ten years of employment in which earnings are highest. Plan assets consist primarily of U.S. Government Notes, common stocks and short-term investments. Pension expense is computed under the projected unit credit method which spreads past service costs over the average future service lives of covered employees. The Companies' policy is to fund pension contributions in accordance with statutory requirements. INVESTMENTS: The Companies have an investment in Commercial Paper which is liquid on a daily basis, and is classified as a cash equivalent. DEFERRED REVENUE: Deferred revenues include revenues billed in advance for services and dues which are not yet earned. INCOME TAXES: The Companies account for income taxes utilizing the asset and liability method of recognizing the tax consequence of transactions that have been recognized for financial reporting or income tax purposes. Among other things, this method requires current recognition of the effect of changes in statutory tax rates on previously provided deferred taxes. Valuation allowances are established, when necessary, to reduce tax assets to the amount expected to be realized. Blue Ridge, including its 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. 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. FAIR VALUE: The Companies have estimated the fair value of their financial instruments at March 31, 1998 as follows: The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair values. The carrying values of variable and fixed rate debt are reasonable estimates of their fair values based on their discounted cash flows at discount rates currently available to the Companies for debt with similar terms and remaining maturities. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) EARNINGS PER SHARE: In 1997, the Companies adopted the Financial Accounting Standard No.128 "Earnings Per Share". This Statement establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. This statement requires restatement of all prior-period EPS data presented. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS: In June 1997 and February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ('SFAS') No.130 "Reporting Comprehensive Income", No.131 "Disclosures about Segments of an Enterprise and Related Information" and No.132 "Employers' Disclosures about Pensions and Other Postretirement Benefits". These statements are effective for financial statements issued for periods ending after December 15, 1997. Adoption of SFAS Nos. 130, 131 and 132 should not have a material impact on the Companies' financial statements. 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. 2. CHANGE IN FISCAL REPORTING PERIOD At the July 24, 1996 Board of Directors meetings, a change in the fiscal year-end was approved from May 31 to March 31. This change is effective for each of the Companies' 1997 Fiscal years. The purpose is to have the fiscal reporting period coincide with the operating periods of the Companies. The results of operations from the comparable 10 month periods are as follows: (UNAUDITED) (UNAUDITED) 3/31/98 3/31/97 3/31/96 Revenues 17,686,316 16,038,000 14,341,324 Operating Income 1,437,240 1,433,179 1,034,527 Income Taxes 396,947 254,909 127,662 Net Income 475,518 486,806 247,814 3. SALE OF LAND: The Companies sold land in Fiscal 1998 for cash consideration of $23,778. 4. CONDENSED FINANCIAL INFORMATION: Condensed financial information of the constituent Companies, Blue Ridge and its subsidiaries and Big Boulder and its subsidiaries, at March 31, 1998, and 1997 and May 31, 1996 and for each of the periods then ended is as follows: Blue Ridge and Subsidiaries Big Boulder and Subsidiaries
12 Mos 10 Mos 12 Mos Ended Ended Ended 3/31/98 3/31/97 5/31/96 FINANCIAL POSITION: Current assets $1,538,567 $1,894,928 $2,882,803 Total assets 15,532,118 16,066,800 15,654,413 Current liabilities 1,499,881 1,723,363 1,427,707 Shareholders'equity 4,699,630 4,796,387 4,764,634 OPERATIONS: Revenues 10,914,914 8,880,248 9,407,238 Income(loss)before income taxes 94,741 66,225 20,797 Provision(credit)for income taxes 110,495 34,472 (87,373) Net income (loss) (15,754) 31,753 108,170 Blue Ridge and Subsidiaries Big Boulder and Subsidiaries 12 mos 10 mos 12 mos Ended Ended Ended 3/31/98 3/31/97 5/31/96 FINANCIAL POSITION: Current assets $2,207,029 $1,819,194 $604,993 Total assets 8,047,488 7,735,937 7,555,277 Current liabilities 537,044 531,840 821,212 Shareholders'equity 5,714,228 5,303,881 4,848,828 OPERATIONS: Revenues 7,741,081 7,157,752 5,901,748 Income(loss)before income taxes 642,849 675,490) (62,359) Provision(credit)for income taxes 232,502 220,437 2,548 Net income (loss) 410,347 455,053 (64,907)
5.SHORT-TERM FINANCING: At March 31, 1998, Blue Ridge had an unused line of credit aggregating $2,000,000 available for short-term financing, expiring August 31, 1998, which management expects to be renewed. The line of credit bears interest at .25% less than the prime rate. 6. LONG-TERM DEBT: Long-term debt as of March 31, 1998 and 1997 consists of the following: 1998 1997 Mortgage note payable to insurance company, interest fixed at 9% payable in monthly installments of $47,834 including interest through November 1997. This loan was refinanced September 1997 0 $5,363,074 Mortgage note payable to bank, interest is LIBOR plus 145 basis points, payable August 31, 1999. Interest is payable in monthly install- ments through August 1999. $5,331,999 0 Mortgage note payable to bank, interest at 80% of the bank's prime rate (6.6% at March 31, 1998) payable in monthly installments of $24,187 through Fiscal 2005 2,152,660 2,442,906 Mortgage note payable to insurance company, interest fixed at 10.5% payable in monthly installments of $15,351 including interest through Fiscal 2014 1,416,265 1,452,466 Mortgage note payable to bank, interest at 7% payable monthly with principle reduction at $32,500 per month December to March through 2001 389,985 519,985 9,290,909 9,778,431 Less current installments 457,503 532,513 $8,833,406 $9,245,918 Properties at net book value, which have been pledged as collateral for long-term debt, include the following at March 31, 1998: Investment properties leased to others 7,604,936 Ski facilities 24,012,479 The aggregate amount of long-term debt maturing in each of the years ending subsequent to March 31, 1998, is as follows: 1999-$457,503; 2000-$5,793,608; 2001-$466,152; 2002-$341,228; 2003-$346,847
7. INCOME TAXES: The provision (credit) for income taxes is as follows: 1998 1997 1996 Currently payable: Federal $246,896 $234,528 $58,731 State 2,031 0 0 248,927 234,528 58,731 Deferred: Federal 94,070 20,381 (142,441) State 0 0 (1,115) 94,070 20,381 (143,556) $342,997 $254,909 $(84,825) A reconciliation between the amount computed using the statutory federal income tax rate and the provision (credit) for income taxes is as follows: 1998 1997 1996 Computed at statutory rate $248,272 $253,060 $(14,131) State net operating losses subject to valuation allowance 27,311 0 0 State income taxes, net of federal income tax 1,341 0 (7,153) Change in state tax rate 0 0 6,417 Other 0 1,849 (7,124) Change in valuation allowance 0 0 (62,834) AMT utilization 66,073 0 0 Provision(credit)for income taxes $342,997 $254,909 $(84,825) The components of the deferred tax assets and liabilities as of March 31, 1998 and 1997 are as follows: 1998 1997 Gross deferred tax asset: Accrued expenses $73,124 $75,979 Net operating loss and AMT credit carryforward 464,467 627,181 Contribution carryforward 0 1,316 537,591 704,476 Less valuation allowance (78,620) (105,961) 458,971 598,515 Gross deferred tax liability: Depreciation (2,754,388) 2,799,863 (2,754,388) 2,799,863 Net deferred tax liability $(2,295,417) 2,201,348
At March 31, 1998, the Companies have $385,847 of Alternative Minimum Tax (AMT) credit carryforward available to reduce future federal income taxes. The AMT credit has no expiration date. For state income tax purposes, the Companies have available state net operating loss carryforwards of $1,192,400 which expire in Fiscal 1999. The valuation allowance decreased by $27,341 during Fiscal 1998 due to the expiration of state net operating losses. 8. PENSION PLAN: Pension expense for 1998, 1997, and 1996 includes the following components:
1998 1997 1996 Service costs, benefits earned during the period $177,661 $124,044 $148,042 Interest cost on projected benefit obligation 170,907 137,314 161,992 Actual return on plan assets (581,064) (222,439) (377,221) Net amortization and deferral 383,153 67,433 231,468 Pension expense $150,657 $106,352 $164,281 Net amortization and deferral consists of the deferral of differences between actual and estimated return on assets and amortization of the net unrecognized transition obligation on a straight-line basis over 26 years. The funded status of the pension plan and the amounts recognized in the Companies' combined balance sheets at March 31, 1998 and 1997 were as follows: 1998 1997 Actuarial present value of benefit obligations: Accumulated benefit obligation (including vested benefits of $1,880,645 and $1,571,300, respectively) $(1,960,477) $(1,638,000) Effect of future increase in compensation (747,925) (624,900) Projected benefit obligation (2,708,402) (2,262,900) Plan assets at fair value 3,070,947 2,633,321 Plan assets in excess of benefit obligation 362,545 370,421 Unrecognized net gain (663,593) (529,903) Unrecognized net transition obligation 128,612 137,092 Unrecognized prior service costs 11,103 11,714 Accrued pension expense $(161,333) $(10,676)
Significant assumptions used in determining the actuarial present value of the projected benefit obligations at fiscal year end and pension expense for the following fiscal years are as follows:
1998 1997 1996 Discount rate 7.00% 7.50% 7.50% Rate of compensation increase 5.00% 5.00% 5.00% Expected long-term rate of return 7.50% 7.50% 7.50% 9. PROPERTIES: Properties consist of the following at March 31, 1998 and 1997: 1998 1997 Land, principally unimproved $1,867,738 $1,867,766 Land improvements 3,705,080 7,246,611 Corporate buildings 441,072 434,512 Buildings leased to others 9,913,509 7,928,855 Ski facilities: Land 4,552 4,552 Land improvements 6,879,932 5,136,418 Buildings 7,054,009 7,093,100 Machinery & equipment 18,820,426 18,272,223 Equipment & furnishings 2,088,611 1,030,354 50,774,929 49,014,391 Less accumulated depreciation 30,977,716 28,962,573 $19,797,213 $20,051,818 Buildings leased to others include land of $1,056,700 at March 31, 1998 and 1997 and May 31, 1996. 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 4.11 years with options for renewal. A store has been net leased until January 2014. Information concerning rental properties and minimum future rentals under current leases (excluding renewal options) as of March 31, 1998, is as follows: Properties Subject To Lease Accumulated Cost Depreciation Investment properties leased to others $7,829,640 $2,943,390 Land and land improvements 3,956,161 1,063,189 Minimum future rentals: Fiscal years ending March 31: 1998 1,217,385 1999 958,477 2000 845,498 2001 951,368 2002 837,841 Thereafter 8,691,718* $13,502,287
*Includes $1,554,000 under a land lease expiring in 2072 and $2,597,130 under a net lease for a store expiring in 2014. There were no contingent rentals included in income for Fiscal 1998, 1997 or 1996. 11. QUARTERLY FINANCIAL INFORMATION (Unaudited) The results of operations for each of the quarters in the last two years are presented below. The fiscal quarters for 1998 and 1997 differ in that first quarter 1998 represents April through June; first quarter 1997, June to August. Subsequent quarters in each fiscal year are likewise different.
Earnings (Loss) Income(loss) Per Weighted Operating from Net Avg. Combined Quarter Revenues Operations Income(Loss) Share 1998 1st $1,502,232 $ (2,143) $(131,615) (0.07) 2nd 2,171,126 401,752 144,160 0.07 3rd 3,895,877 (342,831) (297,388) (0.15) 4th 11,086,760 1,368,409 679,436 0.35 $18,655,995 $1,425,187 $394,593 $0.20 1997 1st $2,184,620 $304,384 $71,993 0.04 2nd 1,115,056 (62,398) (169,013) (0.08) 3rd 11,295,423 1,694,076 922,988 0.46 1mo 1,442,901 (502,883) (339,162) (0.18) $16,038,000 $1,433,179 $486,806 $0.24
The quarterly results of operations for 1998 and 1997 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. Costs and expenses, net of revenues received in advance attributable to the ski facilities for the months of June through November, are deferred and recognized as revenue and operating expenses, ratably, over the operating period. 12. INDUSTRY SEGMENT INFORMATION: The Companies and the subsidiaries operate in two industry segments consisting of the following: SKI OPERATIONS: Two ski areas located in the Pocono Mountains of Northeastern Pennsylvania. REAL ESTATE MANAGEMENT/RENTAL OPERATIONS: Investment properties leased to others located in Eastern Pennsylvania and South Carolina, fees from managing investor-owned properties, principally resort homes, recreational club activities and services to the trusts that operate resort communities, sales of land held for resale and investment purposes, and rental of land and land improvements. Income or loss for each segment represents total revenue less operating expenses. General and administrative expenses, other income, and interest expense are not specifically attributable to any one industry segment. 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.
12 Months 10 Months 12 Months Ended Ended Ended 3/31/98 03/31/97 05/31/96 Revenues: Ski operations $12,298,893 $11,251,882 $10,618,961 Real estate management/ Rental operations 6,357,102 4,786,118 4,690,025 $18,655,995 $16,038,000 $15,308,986 Income: Ski operations $ 903,761 $1,473,439 $877,282 Real estate management/ Rental operations 1,589,589 853,225 800,359 $2,493,350 $2,326,664 $1,677,641 General & administrative expenses (1,068,163) $(893,485) $941,001 Interest and other income 131,397 57,067 88,060 Interest expense (818,994) (748,531) (866,262) Income(loss) before income taxes $737,590 $741,715 $(41,562) In Fiscal 1998, 1997 and 1996, no one customer represented 10% or more of total revenues. Identifiable assets, net of accumulated depreciation at March 31, 1998 and 1997 and May 31,1996 and depreciation expense and capital expenditures for the years then ended by industry segment are as follows: Identifiable Depreciation Capital Assets Expense Expenditure 1998 Ski Operations $11,973,455 $1,417,719 $1,382,580 Real Estate Management/Rental Operations 9,628,467 449,728 181,369 Other Corporate 1,977,684 191,825 240,747 Total $23,579,606 $2,059,272 $1,804,696 1997 Ski Operations $10,364,590 $1,304,906 $2,091,557 Real Estate Management/Rental Operations $10,937,749 357,691 187,431 Other Corporate 2,500,398 266,054 34,419 Total $23,802,737 $1,928,651 $2,313,407 1996 Ski Operations $ 9,186,757 $1,451,159 $1,066,507 Real Estate Management/Rental Operations 10,540,000 415,449 121,757 Other Corporate 3,482,933 265,973 37,719 Total $23,209,690 $2,132,581 $1,225,983
13 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. At March 31, 1998, the letter of credit of $75,000 is no longer required to guarantee the ski facilities' aggregate liability insurance deductible. 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 $1,300,000 at March 31, 1998. 14. STOCK OPTIONS AND CAPITAL STOCK: The Board of Directors has authorized the repurchase of the Companies' common stock in the open market from time to time. As of March 31, 1998, 206,134 shares have been repurchased. Twelve thousand shares were repurchased in Fiscal 1998. No shares were repurchased in Fiscal 1997 or 1996. The Chairman of the Board of the Companies was granted options for 35,000 shares of the Companies' common stock at $6.75 per share. Ten thousand options were granted in 1993 and 25,000 in July 1997. The options expire July 1, 2003. The option price of $6.75 was equal to the market value on the dates of the grant. The Companies apply Accounting Principles Board Opinion 25 and the related interpretations in accounting for the options. Accordingly, no compensation cost has been recognized in the financial statements relative to these options. Had compensation cost for the Companies' options been determined consistent with Financial Accounting Standards Board Statement No. 123, the Companies' net income and earnings per share would have been reduced to the proforma amounts indicated below, based on the following assumptions: The fair value of the 1998 option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1998: dividend yield of 0%; expected volatility of 37.8%, risk free interest rate of 6.4%, and expected life of 6 years. 1998 Net Income: As reported $394,593 Pro Forma $340,879 Basic earnings per share: As reported $0.20 Pro Forma $0.17 Diluted earnings per share: As reported $0.20 Pro Forma $0.17 Option activity during the periods ended March 31, 1998 and 1997 is as follows:
1998 1997 Exercise Exercise Shares Price Shares Price Outstanding at beginning of year: 10,000 $6.75 10,000 $6.75 Granted 25,000 $6.75 - - Exercised - - - - Canceled - - - - Outstanding at end of year 35,000 $6.75 10,000 $6.75 Options exercisable at year-end 35,000 $6.75 10,000 $6.75 Option price range $6.75 $6.75 Weighted average fair value of options granted during year $3.26 $ - All 35,000 options outstanding are exercisable at $6.75 per share and have a remaining contractual life of 5.25 years. 15. PER SHARE DATA: Earnings per share amounts have been restated in accordance with Financial Accounting Standards No. 128 "Earning Per Share". The restatement did not result in any changes between diluted per share amounts and previously reported primary per common share amounts. Earnings per share and computed as follows: Year 10 Months Year Ended Ended Ended 3/31/98 3/31/97 5/31/96 Net Earnings $394,593 $486,806 $43,263 Weighted average combined shares of common stock out- standing used to compute basic earnings per combined common share 1,993,014 2,004,014 2,004,014 Additional combined common shares to be issued assuming exercise of stock options, net of combined shares assumed re- acquired 8,029 -- -- Combined shares used to compute dilutive effect of stock option 2,001,043 2,004,014 2,004,014 Basic earnings per combined common share $0.20 $0.24 $0.02 Diluted earnings per combined common share $0.02 $0.24 $0.02
REPORT OF INDEPENDENT ACCOUNTANTS 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 as of March 31, 1998 and 1997, and related combined statements of operations and earnings retained in the business and cash flows for the year ended March 31, 1998, the ten months ended March 31, 1997 and the year ended May 31, 1996. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 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 March 31, 1998 and 1997, and the combined results of their operations and their cash flows for the year ended March 31, 1998, the ten months ended March 31, 1997 and the year ended May 31, 1996 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania June 5, 1998 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 price quotations as reported on the monthly statistical reports of the National Association of Securities Dealers, Inc. for Fiscal Years 1998 and 1997. No dividends were paid on common stock in either Fiscal Year.
FISCAL YEAR HIGH LOW 1998 ASKED BID First Quarter 7.000 6.625 Second Quarter 18.000 11.000 Third Quarter 13.500 11.250 Fourth Quarter 11.750 11.250 FISCAL YEAR HIGH LOW 1997 ASKED BID First Quarter 7.000 6.250 Second Quarter 6.750 6.250 Third Quarter 7.000 6.500 Fourth Quarter (March '97) 7.000 6.625 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 March 31, 1998 was 687. BLUE RIDGE REAL ESTATE COMPANY AND SUBSIDIARIES AND BIG BOULDER CORPORATION AND SUBSIDIARIES COMBINED SUMMARY OF SELECTED FINANCIAL DATA 1998 1997 1996 Revenues $18,655,995 $16,038,000 $15,308,986 Net income(loss) 394,593 486,806 43,263 Net income(loss)per combined share $0.20 $0.24 $0.02 Cash dividends per combined share 0 0 0 Weighted average number of combined shares outstanding 1,993,014 2,004,014 2,004,014 Total assets 23,579,606 23,802,737 23,209,690 Long-term debt 9,290,909 9,778,431 9,694,167 Shareholders' equity 10,413,858 10,100,268 9,613,462 1995 1994 Revenues $12,244,490 $13,423,910 Net income(loss) (435,738) (163,884) Net income(loss)per combined share $(.21) $(.08) Cash dividends per combined share 0 0 Weighted average number of combined shares outstanding 2,029,630 2,109,246 Total assets 23,663,671 25,232,780 Long-term debt 10,239,166 10,750,393 Shareholders' equity 9,570,199 10,615,830
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Results of Operations FISCAL 1998 VERSUS FISCAL 1997 (Fiscal 1998 is twelve months and Fiscal 1997 is ten months) For Fiscal Year ended March 31, 1998, the Companies reported net income of $394,593 or $.20 per combined share as compared with a net income of $486,806 or $.24 per combined share for Fiscal 1997. Combined revenue of $18,655,995 represents an increase of $2,617,995 or 14% when compared to Fiscal 1997. Ski Operations increased $1,047,011 or 9%, and Real Estate Management Operations increased $1,570,984 or 25% when compared to Fiscal 1997. Both Fiscal 1998 and 1997 include a full ski season. The Ski Operations had approximately 293,000 skiers visit our slopes compared to 277,000 skier visits last season. The increase of 16,000 skier visits represents a 5% increase. Revenue per skier was $28 compared to $27 last season for an increase of $1.00 or 2%. Tubing operations had approximately 92,000 tuber visits compared to 97,000 tuber visits last season. The decrease of 5,000 tuber visits represents a 5% decrease. Revenue per tuber was $13.27 compared to $11.32 last season for an increase of $1.95 or 17%. The ski areas operated for a combined total of 208 days compared to 213 days last season. The food and beverage operation at the ski area contributed revenue of $7.13 per skier visit. The retail shop operation at the ski area contributed revenue of $1.83 per skier visit compared to $2.02 the previous season. The Real Estate Management Operations increase is attributed to fewer vacancies in investment properties, festival revenues, leasing commissions in resort communities, fees for services provided to the Trust of the resort communities, and fishing and hunting leases. The increases were offset by a decrease in commissions for resale of homes in our resort communities. Disposition of properties occur sporadically and do not follow any pattern during the fiscal year. No major land sales occurred in Fiscal 1998 or Fiscal 1997. Operating costs associated with Ski Operations increased by $1,616,689 when compared to Fiscal 1997. This increase is attributed to increased advertising costs, and associated personnel costs. Operating costs associated with Real Estate Management Operations increased by $834,620 when compared to Fiscal 1997. This increase is attributed to increased advertising costs, associated personnel costs, and an additional two months of operations. General and Administration expenses increased by $174,678 when compared to Fiscal 1997. The increase is attributable to an increase in supplies and services and an additional two months of operations. Interest and Other Income increased by $74,330 compared to Fiscal 1997. This increase is attributable to an additional two months of operations. Interest expense increased by $70,463 compared to Fiscal 1997. This increase is attributable to an additional two months of operations. The effective Tax Rate for Fiscal 1998 and 1997 was 46.5% and 34.4% respectively. This increase in effective rate was due primarily to utilization of AMT credits and state income tax benefits which were subject to a valuation allowance. FISCAL 1997 VERSUS FISCAL 1996 (Fiscal 1997 is ten months and Fiscal 1996 is twelve months) For Fiscal Year ended March 31, 1997, the Companies reported net income of $486,806 or $.24 per combined share as compared with a net income of $43,263 or $.02 per combined share for Fiscal 1996. Combined revenue of $16,038,000 represents an increase of $729,014 or 5% when compared to Fiscal 1996. Ski Operations increased $632,921 or 6%, and Real Estate Management Operations increased $96,093 or 2% when compared to Fiscal 1996. The Ski Operations had approximately 277,000 skiers visit our slopes compared to 267,000 skier visits last season. The increase of 10,000 skier visits represents a 4% increase. Revenue per skier was $27 compared to $26 last season for an increase of $1.00 or 4%. Tubing operations had approximately 97,000 tuber visits compared to 64,000 tuber visits last season. The increase of 33,000 tuber visits represents a 52% increase. Revenue per tuber was $11.32 compared to $9.63 last season for an increase of $1.69 or 17%. The ski areas operated for a combined total of 213 days compared to 212 days last season. The food and beverage operations at the ski areas contributed revenue of $7.03 per skier visit. The retail shop operations at the ski areas contributed revenue of $2.02 per skier visit compared to $2.16 the previous season. The Real Estate Management Operations increase is attributed to fewer vacancies in investment properties, festival revenues, leasing commissions in resort communities, fees for services provided to the Trust of the resort communities, and fishing and hunting leases. The increases were offset by a decrease in commissions for resale of homes in our resort communities. Disposition of properties occur sporadically and do not follow any pattern during the fiscal year. No major land sales occurred in Fiscal 1997 or Fiscal 1996. Operating costs associated with Ski Operations increased by $36,764 when compared to Fiscal 1996. This increase is attributed to more operating days, advertising costs, and associated personnel costs. Operating costs associated with Real Estate Management Operations increased by $43,227 when compared to Fiscal 1996. This increase is attributed to increased advertising costs, and associated personnel costs. General and Administration expenses decreased by $47,516 when compared to Fiscal 1996. The decrease is attributable to a reduction in supplies and services and two months less of operations. Interest and Other Income decreased by $30,993 compared to Fiscal 1996. This decrease is attributable to a Mortgage Receivable Payoff and two months less of operations. Interest expense decreased by $117,731 compared to Fiscal 1996. This decrease is attributable to reduction of debt obligation and two months less of operations. The effective Tax Rate for Fiscal 1997 and 1996 was 34.4%. RISKS AND UNCERTAINITIES The Companies have taken steps to make its products, systems and infrastructure Year 2000 compliant, and have installed new hardware and financial software effective April 1, 1998. The Companies have also initiated the process of upgrading the ticketing system to a Year 2000 compliant product. Management has and will continue to obtain representation from its vendors that any new or existing systems are Year 2000 compliant. Management does not believe the cost for the balance of the year 2000 implementation will be material. LIQUIDITY AND CAPITAL RESOURCES The Combined Statement of Cash flows reflects net cash provided by operating activities of $2,752,028, $2,322,610, and $1,961,557 in Fiscal 1998, 1997 and 1996 respectively. The major capital investment made in Fiscal 1998 was the expansion of the Big Boulder Tubing Area. During Fiscal 1998, the Companies borrowed against their $2,000,000 line of credit for a period of five months in varying amounts with a maximum of $2,000,000. During Fiscal 1997, the Companies borrowed against their $2,000,000 line of credit for a period of three months in varying amounts with a maximum of $1,500,000. The Companies have a combined working capital of $1,708,671 at March 31, 1998 versus $1,458,919 at March 31, 1997. MOVING FORWARD The Companies continue to develop operation centers to generate profit during the non-ski season with expansion at Fern Ridge Campground and the introduction in Fiscal 1998 of an All Terrain Vehicle Park. Fiscal 1999 plans include a Mountain Bike Center and new and innovative competitive events are proposed to promote a year-round range of activities. BOARD OF DIRECTORS Kieran E. Burke Chairman, Chief Executive Officer and Director Premier Parks, Inc. Milton Cooper Chairman, Kimco Realty Corporation; Director, Getty Petroleum Corp.; Director, Kimco Realty Corporation Michael J. Flynn Chairman of the Board of the Companies; Vice Chairman and Director, Kimco Realty Corporation Allen J. Model Private Investor, Model Entities Wolfgang Traber Chairman of the Board, Hanseatic Corporation & Co.-N.Y. The above Directors serve both Companies. OFFICERS Michael J. Flynn Chairman of the Board Gary A. Smith President Melanie A. Murphy Vice President of Operations Eldon D. Dietterick Secretary Christine Liebold Assistant Secretary Cynthia A. Barron Controller The above Officers serve both Companies. TRANSFER AGENT Summit Bank, Hackensack, New Jersey INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P., Philadelphia, Pennsylvania 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 July. FORM 10-K AVAILABLE The Companies will furnish to any shareholder, without charge, a copy of their Fiscal Year 1998 Annual Report as filed with the Securities and Exchange Commission on Form 10-K. Written requests 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 Blue Heron Grille, Lake Harmony, Pennsylvania Land Holdings Blue Ridge 18,845 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) Wheels, In-Line Skate and Board Park Ride, ATV Park EX-27 2
5 12-MOS MAR-31-1998 MAR-31-1998 2,799,777 0 230,482 0 221,210 3,745,596 50,774,929 30,977,716 23,579,606 2,036,925 0 0 0 1,992,014 0 23,579,606 18,655,995 18,655,995 0 17,230,808 0 0 818,994 737,590 342,997 0 0 0 0 394,593 .20 .20
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