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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 1-13173
BOCA RESORTS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 65-0676005
(State of Incorporation) (I.R.S. Employer Identification No.)
501 E. CAMINO REAL 33432
BOCA RATON, FLORIDA (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (561) 447-5300
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Class A Common Stock, par value $.01 per
share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 19, 2000, the registrant had 40,606,072 shares of Class A
common stock, $ .01 par value (the "Class A Common Stock"), outstanding and, at
such date, the aggregate market value of the shares of Class A Common Stock held
by non-affiliates of the registrant was approximately $369.8 million. As of
September 19, 2000 the registrant had 255,000 shares of Class B common stock
$.01 par value (the "Class B Common Stock"), outstanding, none of which was held
by a non-affiliate of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of the Registrant's Proxy Statement relating to the 2000
Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration statements.
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INDEX
TO FORM 10-K
PAGE
NUMBER
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Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 23
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 46
Item 10. Directors and Executive Officers of the Registrant.......... 46
Item 11. Executive Compensation...................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 46
Item 13. Certain Relationships and Related Transactions.............. 46
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 46
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Boca Resorts, Inc. (the "Company") is a leading owner and operator of
leisure and recreation and entertainment/sports businesses. The leisure and
recreation segment primarily consists of the ownership and operation of six
luxury resorts with hotels, conference facilities, golf courses, spas, marinas
and private clubs. The entertainment and sports segment primarily includes the
ownership and management of the Florida Panthers Hockey Club (the "Panthers")
and management of the National Car Rental Center (the "NCRC"), a multi-purpose
entertainment complex where the Panthers play their home games. Management
believes that each of the Company's businesses operate premier assets, which due
to their market positions, attract a large base of loyal customers with high
disposable income, thereby allowing it to maximize revenue and cash flow.
The leisure and recreation operations include the ownership of six
well-known, luxury resorts with a combined 2,970 rooms. The Company's resorts
include: the Boca Raton Resort and Club (Boca Raton, Florida), the Arizona
Biltmore Resort and Spa (Phoenix, Arizona), the Registry Resort at Pelican Bay
(Naples, Florida), the Edgewater Beach Hotel (Naples, Florida), the Hyatt
Regency Pier 66 Hotel and Marina (Fort Lauderdale, Florida), and the Radisson
Bahia Mar Resort and Yachting Center (Fort Lauderdale, Florida). The Company
also owns and operates Grande Oaks Golf Club (Davie, Florida) and Naples Grande
Golf Club (Naples, Florida) which serve as additional amenities to the Company's
resorts as well as components of the Company's exclusive social club, known as
the Premier Club. See further discussion of Premier Club below.
Each of the resorts possesses numerous competitive and operational
strengths. The resorts are unique, irreplaceable assets with high recognition
and strong positioning in their target markets. The resorts' facilities and
amenities provide multiple and diverse revenue streams and attract upscale
business and leisure customers. In addition, through the development of
additional guestrooms and/or resort amenities, the resorts have opportunities to
significantly increase revenue and cash flow.
The entertainment and sports operations primarily consist of ownership and
management of the Panthers, a National Hockey League ("NHL") franchise, and
management of the NCRC. The Panthers generate revenue through the sale of
tickets to Panthers' home games, the licensing of local market television, cable
network, and radio rights, from distributions under revenue-sharing arrangements
with the NHL covering national broadcasting contracts, as well as other
ancillary sources including expansion franchise fees. In addition, the Company
generates revenue through its participation in the net operating income of the
NCRC, where the Panthers began playing their home games with the opening of the
1998-1999 NHL season.
BUSINESS STRATEGY
While management continuously evaluates ownership, acquisition and
divestiture alternatives relating to its two business segments with the
intention of maximizing value, the Company's current business strategy is to
focus on expanding the leisure and recreation businesses. The Company's
objective is to maximize the cash flow from and the value of the Company's
leisure and recreation businesses by:
- Continuing internal growth through capital improvements at the
resorts. Management believes that the Company's resorts have the
opportunity for continued internal growth. In addition to normal
recurring capital expenditures over the past five years, approximately
$190.5 million has been invested in the resorts on capital projects
including the Boca Raton Resort and Club conference center, golf course,
tennis and fitness center, parking garage and accelerated guestroom
renovation, the Arizona Biltmore property-wide renovation and 120
guestroom addition, the construction of Grande Oaks Golf Club and Naples
Grande Golf Club, as well as various other property renovations at the
Hyatt Regency Pier 66 Hotel and Marina and the Radisson Bahia Mar Resort
and Yachting Center.
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Management believes that these capital expenditures have resulted in, and
will continue to produce, increases to the average daily room rates at its
resorts. Also, management believes that the high quality of the Company's
resorts will continue to attract higher spending corporate groups, which
in turn will increase total revenue per available room. For the year ended
June 30, 2000, the average daily room rate was $209.42, room revenue per
available room was $145.73 and total revenue per available room was
$336.25. For the year ended June 30, 1999, the average daily room rate was
$200.70, room revenue per available room was $138.23 and total revenue per
available room was $315.50.
The Company expects to make additional capital improvements at its resorts
with the expectation that new improvements will generate attractive returns on
investment. Capital improvements planned for the next two fiscal years include:
- At the Boca Raton Resort and Club, adding a new 8-story marina wing
complex consisting of 112 water-view luxury guestrooms, a 40,000 square
foot spa complex, golf clubhouse, Tuscan style restaurant and marina
slips;
- At the Registry Resort at Pelican Bay, adding conference space, making
beach facility and boardwalk enhancements and adding a new pool complex;
and
- At the Bahia Mar Resort and Yachting Center, undertaking a rooms
renovation.
- Continued focus on upscale business and leisure customers. Management
believes that its focus on corporate group customers and upscale business
and leisure customers allows the Company to maximize total revenue per
available room. It has been management's experience that these customers
are more likely to use the additional amenities and facilities available
at the resorts, thereby increasing revenue. Additionally, group customers
tend to book reservations 12 to 36 months in advance of their stay, thus
enabling management to better estimate future revenue streams and manage
corresponding expenses. Group business has also been used by the Company
to fill off peak leisure periods. Management believes that by targeting
upscale customers the Company is well positioned to take advantage of
demographic trends (which include an aging "baby-boom" population with
increasing disposable income) that are creating increased demand for
luxury resorts and related amenities. Management also believes the
resorts will be able to capitalize on these trends given their
properties' unique nature and locations. The Company's ability to
capitalize on these trends will be enhanced by the high barriers of entry
into the luxury resort industry.
- Seeking cross-marketing opportunities. Management believes the current
portfolio of luxury resorts provides the Company with a variety of
cross-marketing opportunities. For example, corporate and other group
customers that hold conferences on a regular basis often rotate their
conference locations. By offering a significant number of affiliated
luxury resort alternatives to corporate and group customers, management
believes that the Company will be able to encourage them to use the
resorts on a regular basis. Management has been particularly successful
in rotating corporate groups among the Boca Raton Resort and Club, the
Arizona Biltmore Resort and Spa and the Registry Resort at Pelican Bay.
- Continuing to capitalize on integration opportunities. Management
believes the integration of certain aspects of the resort operations will
allow the Company to realize significant operating efficiencies.
Management is focusing on integrating the operations of all of the
resorts, including reservations, purchasing, training, information
systems, insurance and marketing, in order to achieve greater operating
efficiencies and improved profit margins. In addition, managing all of
the resorts by a single management team with established practices and
systems will improve the efficiency of the resort operations.
- Expanding Premier Club concept. The Company continues to expand and
develop its Premier Club concept, which was first introduced in 1991 at
the Boca Raton Resort and Club. Membership in the Boca Raton Resort
Premier Club allows Premier Club members access to the Boca Raton Resort
and Club grounds, restaurants, recreational facilities and other private
social functions, which are otherwise restricted to resort guests. The
Company opened the Grande Oaks Golf Club in June 1999 and Naples
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Grande Golf Club in February 2000. In addition to attracting new club
members who provide an additional revenue stream, the Company is able to
offer guests of the Company's Fort Lauderdale and Naples resorts play at
these new 18-hole championship facilities as well as offer reciprocal
amenities to the Boca Raton Resort and Club Premier Club members. With
its Premier Clubs, the Company generates substantial incremental revenue
from its existing facilities and services. Management anticipates that
the Premier Club will continue to be successful in marketing resort
properties, restaurants, pools, and where available, tennis, golf, spas
and other leisure and recreational amenities to residents in local
communities in a country club/social club setting.
The Company has engaged Allen & Company, a New York City-based investment
banking company, to review the prospects and economics of a potential sale of
the Company's entertainment and sports businesses including the Panthers. The
Company has advised Allen & Company that under the terms of any potential sale,
the Panthers will remain in South Florida and will continue to play at the NCRC
under the terms of its thirty-year lease with Broward County. Management
believes the NCRC, which was completed in October 1998, has significantly
increased the Company's ability to market the Panthers. Notwithstanding a
possible sale, management will continue to maximize its opportunities within the
entertainment and sports segment. Because the Company also participates in the
revenue generated by non-hockey events held at the NCRC, cash flow from the
entertainment and sports operations has increased over pre-1998 levels. The
Company participates in all of the revenue from the NCRC, including revenue from
the sale of Panthers tickets, the leasing of luxury suites and premium club
seats, arena advertising and sponsorships, food and beverage concessions and
parking.
LEISURE AND RECREATION BUSINESS
The following table sets forth a summary of the key physical attributes of
each of the Company's resorts:
NO. OF CONFERENCE NO. OF NO. OF NO. OF FOOD NO. OF
ROOMS/ SPACE NO. OF GOLF TENNIS SWIMMING BOAT & BEVERAGE RETAIL
ACRES SUITES SQ. FT. COURSES COURTS POOLS SLIPS SITES SHOPS
----- ------ ---------- ----------- ------ -------- ----- ----------- ------
Boca Raton Resort and Club......... 298 963(1) 140,000 4(2) 30 5 25 15 14
Arizona Biltmore Resort............ 39 730 60,000 2(3) 8 7 -- 5 6
Registry Resort at Pelican Bay..... 15 474 38,000 4(4) 15 3 -- 7 7
Edgewater Beach Hotel.............. 2 126 3,600 4(4) 15(5) 1 -- 2 1
Hyatt Regency Pier 66 Hotel and
Marina........................... 23 380 22,000 1(6) 2 3 142 6 3
Radisson Bahia Mar Resort and
Yachting Center.................. 40 297 20,000 1(6) 4 1 350 2 5
--- ----- ------- -- -- -- --- -- --
417 2,970 283,600 11 59 20 517 37 36
=== ===== ======= == == == === == ==
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(1) Excludes 112 rooms in a new marina wing currently under construction.
(2) Boca Raton Resort and Club maintains two 18-hole golf courses on premises.
In addition, the resort has access to two 18-hole golf courses through use
agreements.
(3) Arizona Biltmore Resort has access to two 18-hole golf courses adjacent to
the property through a recorded easement. From time to time, the resort
establishes additional use agreements with other golf courses in the Phoenix
area.
(4) The Registry Resort at Pelican Bay and the Edgewater Beach Hotel have access
to three 18-hole golf courses through use agreements. Guests also have
access to the new 18-hole Naples Grande Golf Club, which is owned by the
Company.
(5) Edgewater Beach Hotel guests have access to use the tennis courts at the
Registry Resort at Pelican Bay.
(6) Hyatt Regency Pier 66 Hotel and Marina and Radisson Bahia Mar Resort and
Yachting Center have access to the Grande Oaks Golf Club, which is owned by
the Company.
Amenities and services at the resorts include conference facilities, golf
courses, tennis facilities, spas, fitness centers, marinas, restaurants, retail
outlets, swimming pools, and other activities and services. The diversity and
number of amenities and services at the facilities provides the Company with
substantial non-room revenue. For the year ended June 30, 2000, approximately
57% of revenue from the leisure and
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recreation operations was generated from non-room sources. In addition, these
luxury amenities and services allow the Company to maintain premium pricing for
its rooms.
The resorts' conference facilities and other amenities make them attractive
locations for group functions. The conference facilities include over 283,000
square feet of combined conference space. In addition, the Company is adding
approximately 6,000 square feet of flexible meeting space at the Registry Resort
at Pelican Bay and has site plan approval to add conference space at the Arizona
Biltmore Resort and Spa. The Company maintains its own in-house planning and
logistics capabilities and management believes the geographic diversity of the
Company's resorts in eastern and western Florida and Arizona will allow its
sales people to market multiple resort locations to corporate and association
groups that prefer to rotate conference locations from year to year.
The Company continues to expand and develop the Premier Club concept, which
was first introduced in 1991 at the Boca Raton Resort and Club. Membership in
the Boca Raton Resort Premier Club allows Premier Club members access to the
Boca Raton Resort and Club grounds, restaurants, recreational facilities and
other private social functions, which are otherwise restricted to resort guests.
The Boca Raton Resort Premier Club currently requires an initial membership fee
of $45,000 and annual social dues starting at $2,730. Additional dues are
required for members who wish to use the resort's golf and tennis facilities. In
addition, Premier Club members generate additional revenue through the use of
existing resort facilities and services, which are available on a fee-for-use
basis. The Company opened Grande Oaks Golf Club in June 1999 and Naples Grande
Golf Club in February 2000 offering members and guests of the Company's Fort
Lauderdale and Naples resorts play at these championship golf facilities as well
as reciprocal amenities to the Boca Resort Premier Club member. The Company
currently charges $32,500 and $22,500 for membership initiation fees at Grande
Oaks Golf Club and Naples Grande Golf Club, respectively.
Additional information relating to the Company's resorts, including
renovations and distinctions, is set forth below.
BOCA RATON RESORT AND CLUB
- Renovations/Expansion. In January 1998, Boca Raton Resort and Club
completed a $46.5 million expansion and renovation project which
included: (1) a new 140,000 square foot conference facility; (2) a
state-of-the-art tennis and fitness center complex; and (3) a new
Bates-designed 18-hole golf course, replacing one of its previous 18-hole
golf courses. The completion of the conference center allows the Boca
Raton Resort and Club to accommodate more than one large group at a time,
resulting in better utilization of its luxury guestrooms. In 1999, the
Company completed a parking facility, a chiller plant and commenced
activity on a three-year accelerated room renovation which is expected to
encompass most of the 963 luxury guestrooms and to be completed in
December 2001. In 2000, the Company moved forward with plans for
construction of a new Marina Wing. The 8-story complex is expected to
consist of 112 water-view suites and additional meeting rooms. Other
waterfront development includes a Tuscan-style restaurant, retail space
and new marina slips. The restaurant will be operated by renowned
restaurateur Drew Nieporent of the Myriad Restaurant Group. Ground
breaking is also planned this year on a new state-of-the-art 40,000
square foot spa and a new golf clubhouse and casual restaurant.
- Distinctions. Boca Raton Resort and Club has consistently been awarded
the Readers' Award as one of the "Top 25 Hotels in North America" by
Travel & Leisure magazine and was named to Conde Nast Traveler's Gold
List in 1999 and recognized in Executive Travel Magazine as one of the
Top 3 Hotels of the Americas in 1998.
ARIZONA BILTMORE RESORT
- Renovations/Expansion. Arizona Biltmore Resort completed a $47.6 million
property-wide renovation and expansion program in 1996 which included
renovation of guestrooms, construction of villa units, additional
restaurants, a new state-of-the-art kitchen, the Paradise Pool complex
featuring a 92-foot-long water slide and 23 cabanas, a 16,000 square foot
Pavilion conference space and an 18-hole
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championship putting course. In late 1997 a spa complex was added and in
September 1999 a $12.7 million expansion project was completed which
included 120 additional luxury guestrooms, two meeting rooms and a
swimming pool.
- Distinctions. The property was featured in Architectural Digest in 1996,
was awarded the 1997 and 1998 Heritage Award of Excellence by the Urban
Land Institute, was featured in Historic Traveler Magazine in 1998, was
named to Travel and Leisure's 1999 World's Top 100 Hotels and to Conde
Nast Traveler's Gold List in 2000.
REGISTRY RESORT AT PELICAN BAY
- Renovations/Expansion. The Company expects to add 6,000 square feet of
flexible meeting space at the Registry Resort providing it with the
largest meeting venue in the Naples market. In addition, a new pool
complex, featuring a free-form pool situated in a tropical setting, a
separate Olympic-sized pool, private cabana rentals and beach
improvements are currently under construction.
- Distinctions. Registry Resort has consistently received the Mobil Travel
Guide's Four Star Award, as well as the AAA's Four Diamond Award; was
cited in 1998 by Conde Nast Traveler magazine as one of the Top 50 U.S.
Mainland Resorts and received Meetings and Conventions Gold Key Award in
1999. The Registry Resort was also awarded Tennis magazine's 50 Greatest
U.S. Tennis Resorts for 1998.
EDGEWATER BEACH HOTEL
- Renovations/Expansion. In 1997, Edgewater Beach Hotel completed a $2.2
million renovation of some of its luxury suites, along with improvements
to its amenities.
- Distinctions. In 1998, Edgewater Beach Hotel was featured in Resorts and
Great Hotels and received Wine Spectator magazine's Award of Excellence.
In 1995, the resort was named to Conde Nast Traveler's Best Places to
Stay in the World and has consistently received the Mobil Travel Guide's
Four Star Award and the AAA's Four Diamond Award.
HYATT REGENCY PIER 66 HOTEL AND MARINA
- Renovations/Expansion. Hyatt Regency Pier 66 completed an $8.4 million
renovation of its guestrooms in November 1998.
- Distinctions. Hyatt Regency Pier 66 has consistently received the Mobil
Travel Guide's Four Star Award, the AAA's Four Diamond Award, Successful
Meetings Magazine's Pinnacle Award in 1999 and Meetings and Conventions
Gold Key Award in 1999.
- Franchise Agreement. Upon the acquisition of Hyatt Regency Pier 66, the
Company assumed the rights under a 20-year franchise agreement with Hyatt
Franchise Corporation. The Hyatt franchise agreement terminates in
November 2014. The Hyatt franchise agreement provides for the payment of
monthly royalty fees equal to 5% of gross room revenue. The Hyatt
franchise agreement also provides for the payment to Hyatt of certain
Hyatt "allocable chain expenses" relating to sales and marketing costs
based on the total number of guestrooms at Hyatt Regency Pier 66 compared
to the average number of guestrooms in all Hyatt hotels in the United
States. A fee for the use of the Hyatt reservation system is also charged
to Hyatt Regency Pier 66. The Hyatt franchise agreement also requires
that a reserve, equal to 4% of gross room revenue, be maintained by Hyatt
Regency Pier 66 for replacement of furniture, fixtures and equipment and
for those repairs and maintenance costs that are capitalizable under
generally accepted accounting principles. The franchise agreement
requires significant renovations of guestrooms, corridors and other
public areas every five to six years. The replacement of other furniture,
fixtures and equipment, as defined in the agreement, is to occur every 10
to 12 years.
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RADISSON BAHIA MAR RESORT AND YACHTING CENTER
- Renovations/Expansion. Radisson Bahia Mar completed an extensive $8.1
million capital project in 1995 relating primarily to its guestrooms and
the relocation of its meeting space and restaurants and has undertaken
additional room renovations in 2000.
- Distinctions. Radisson Bahia Mar has consistently received the Mobil
Travel Guide's Three Star Award and the AAA's Three Diamond Award;
received the 1995 Radisson President's Award and the 1998 Anchor Award
presented by Marine Industries Association of South Florida. The Radisson
Bahia Mar marina is host to the International Boat Show, an annual
six-day boating and marine event, which is believed to be the world's
largest in-water boat show.
- License Agreement. Upon the acquisition of Radisson Bahia Mar, the
Company assumed the rights under the Radisson license agreement with
Radisson Hotels International, Inc., which expires in July 2004. The
terms of the Radisson license agreement allow the Company to operate the
hotel using Radisson's proprietary hotel management system. Annual fees
payable to Radisson pursuant to the Radisson license agreement are 5% of
gross room sales.
- Leases. The site of the resort is subject to a land lease that expires
in 2062.
In addition to the resort properties discussed above, the Company also owns
Grande Oaks Golf Club and Naples Grande Golf Club. The Grande Oaks Golf Club was
formerly known as Rolling Hills Golf Club, site of the hit comedy "Caddy Shack".
The property now features a redesigned 18-hole championship golf course, several
par three practice holes, a 35 acre, newly designed practice facility and a
state-of-the-art clubhouse. Naples Grande Golf Club was designed by renowned
golf architect Rees Jones. He created an optimum environment for golfers,
relying on the natural surroundings and existing foliage.
ENTERTAINMENT AND SPORTS BUSINESS
Hockey Operations
The hockey operations primarily consist of the ownership and operation of
the Panthers. The Panthers began play during the 1993-1994 NHL season and have
been a highly successful franchise developing a strong fan base in South
Florida. The Panthers have reached the playoffs in three out of the last five
seasons and competed in the 1996 Stanley Cup Championship.
The Company derives its hockey revenue principally from the sale of tickets
to the Panthers' home games and national and local broadcasting of Panthers
games and corporate sponsorship, advertising and promotion. Receipts from
tickets, broadcasting, advertising and promotions associated with the Panthers
are recorded as revenue on a per game basis over the NHL regular season. The
Panthers receive all revenue from the sale of tickets to the 41 regular season
home games and no revenue from the sale of tickets to the 41 regular season away
games. During the exhibition season the Company retains all the revenue from
Panthers' home games and shares in the revenue from certain exhibition games
played at neutral sites. If the Panthers make the playoffs, the team receives
revenue from the sale of tickets to home playoff games, with a portion of such
ticket revenue used for league operating costs and shared with the opposing
team.
The Panthers share equally with the other member clubs in expansion
franchise fees as well as in the NHL broadcasting contracts with ABC, ESPN, Inc.
and Molson Breweries of Canada Limited. From the Panthers' inception through the
end of the 1997-1998 season, the Panthers played all of their home games at the
14,700 seat Miami Arena. The size of the Miami Arena limited the Panthers'
ability to generate revenue from additional ticket sales, concessions and
merchandise sales, and unfavorable lease terms precluded the Panthers from
sharing in suite, building advertising and parking revenue. The Panthers'
operating results have improved significantly with their move to the NCRC. The
NCRC provides a variety of revenue streams to the Company, including suite and
premium club seat sales, building advertising, parking, concessions, and net
revenue generated from other entertainment events held at the arena. Many of
these revenue streams are committed to on a multi-year basis.
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The National Hockey League Governance. The NHL is generally responsible
for regulating the conduct of its members. The NHL establishes the regular
season and playoff schedules of the teams. It also negotiates, on behalf of its
members, the league's national over-the-air and cable television contracts and
the collective bargaining agreement with the NHL Players' Association. Each
member of the NHL is, in general, jointly and severally liable for the league's
liabilities and obligations and shares in its profits. Under the terms of the
NHL constitution and bylaws, league approval is required under certain
circumstances, including the sale or relocation of a member.
The NHL and the NHL Players' Association entered into the NHL Collective
Bargaining Agreement on August 11, 1995, which took retroactive effect as of
September 16, 1993. The NHL Collective Bargaining Agreement, as amended, expires
in September 2004. The Panthers will be required to provide the NHL with
appropriate security by September 1, 2001 to ensure a $10.0 million payment to
the NHL's collective bargaining fund by April 15, 2003. The purpose of the fund
is to strengthen the NHL's bargaining position, if necessary, upon the
expiration of its current Collective Bargaining Agreement in September 2004. The
Panthers' contribution will be returned upon the execution of a new collective
bargaining agreement. Management believes the Panthers can obtain sufficient
financial resources to fund the $10.0 million by April 15, 2003.
Restrictions on Ownership. The NHL constitution and bylaws contain
provisions, which may in some circumstances operate to prohibit a person from
acquiring the Company's Class A Common Stock. In general, any acquisition of
shares of Class A Common Stock which will result in a person or a group of
persons holding a 5.0% or more interest in the Company, and each acquisition of
shares of Class A Common Stock which will result in a person or a group of
persons holding any multiple of a 5.0% interest, will require the prior approval
of the NHL, which may be granted or withheld in the sole discretion of the NHL.
In addition, no person who directly or indirectly owns any interest in a
privately-held NHL team, or a 5.0% or more interest in any other publicly-held
NHL team, may own, directly or indirectly, a 5.0% or more interest in the
Company, without the prior approval of the NHL. Furthermore, the Panthers may
not grant a security interest in any of its assets, nor may any stockholder who
owns 5.0% or more of the Panthers' equity securities pledge such securities,
without the prior approval of the NHL, which may be withheld in the sole
discretion of the NHL. In connection with any such grant or pledge the NHL will
require a consent agreement satisfactory to the NHL.
Control Requirement. Unless otherwise permitted by the NHL, H. Wayne
Huizenga, the Company's Chairman, is required to maintain voting control of the
Company at all times. The Company issued to Mr. Huizenga shares of Class B
Common Stock to satisfy the control requirement of the NHL. On each matter
submitted for stockholder approval, each share of Class B Common Stock is
entitled to 10,000 votes while each share of Class A Common Stock is entitled to
one vote. Should the Panthers be sold, there is no requirement in the Company's
bylaws or articles of incorporation to modify the voting control of the Class B
Common Stock.
Arena Operations
National Car Rental Center ("NCRC"). In June 1996, the Company entered
into a 30-year license agreement and co-terminus operating agreement with
Broward County pursuant to which it has the right to manage and operate the
NCRC. The NCRC is a state-of-the-art, multi-purpose entertainment complex
strategically located in the center of South Florida's tri-county area, which
encompasses a population of approximately 4.5 million. The NCRC has a seating
capacity of 19,500 for hockey games, over 30% more than the Miami Arena,
including 72 luxury suites and 2,400 premium club seats. In its second year of
operations, the NCRC has booked over 115 annual non-hockey related events. Past
performances have included such name acts as Tina Turner, Cher, Bruce
Springsteen, 'N Sync, Rod Stewart, Billy Joel, Backstreet Boys, Faith Hill and
Tim McGraw.
The Company's 30-year operating agreement with Broward County entitles the
Company to retain (1) 95% of all revenue derived from the sale of general
seating tickets to the Panthers' home games and 100% of certain other
hockey-related advertising and merchandising revenue and (2) the first $14.0
million of net
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operating income generated by the NCRC, on an annual basis, and 80% of all net
operating income in excess of $14.0 million generated by the NCRC, with Broward
County receiving the remaining 20%. "Net operating income" is defined as revenue
from building naming rights fees, food and beverage concessions, parking, non-
hockey-related advertising and all other revenue generated from
non-hockey-related events offset by certain arena operating and financing costs
and reserves. Until June 30, 2000, the Company operated the Miami Arena, located
in downtown Miami and the former home of the Panthers. The agreement to operate
the Miami arena was terminated following a breach of contract by the City of
Miami's contracting party, the Miami Sports and Exhibition Authority. See Item
3, "Legal Proceedings".
Incredible Ice Rink. As part of the strategy to capitalize on the
popularity of hockey, the Company currently operates the Incredible Ice Arena,
which is open to the general public and derives revenue from, among other
things, fees charged to the public for use of the facilities for various hockey
and skating programs, open skating sessions, food and beverage sales and retail
merchandise sales.
CUSTOMERS AND MARKETING
Leisure and Recreation Business. The core customer base for the leisure
and recreation business consists of corporate and other group customers,
affluent local residents, individual business travelers and upscale leisure
travelers. The Company's marketing efforts focus on increasing business with
customers as well as increasing its base of upscale clientele. The Company's
marketing efforts involve (1) use of a sales force to develop national corporate
and other group business for the resort facilities by focusing on identifying,
obtaining and maintaining corporate and other group accounts whose employees
conduct business nationwide and (2) the use of advertisements that target
individual business travelers and upscale leisure travelers in magazines such as
Conde Nast Traveler, Travel and Leisure, Travel Weekly and Meetings and
Conventions as well as newspapers such as The New York Times. The Company's
franchised resorts also benefit from the strong distribution resulting from the
national reservation systems of the franchisors of the Hyatt and Radisson
brands.
Entertainment and Sports Business. The Company markets the Panthers to
their local fan base in South Florida as well as to corporate sponsors.
Management continues to capitalize on the increasing popularity of hockey by
advertising and marketing the Panthers and offering enhanced service and
entertainment at games. Management also develops and enhances the relationships
with corporate sponsors through the sale of ticket and suite packages,
advertising space and additional corporate sponsorship programs. In addition,
the Company continues to promote and book a variety of additional sports and
entertainment events at the NCRC.
COMPETITION
Leisure and Recreation Business. The resort and hotel industry is highly
competitive. Competitive factors within the resort and hotel industry include
room rates, quality of accommodations, service levels, convenience of location,
reputation, reservation systems, name recognition, and availability of
alternative resort and hotel operations in local markets. The Company faces
competition from a variety of resort and hotel operations, as well as country
and other social clubs, many of which have greater financial and other resources
than the Company. An increase in the number of the competitors' resorts could
have a material adverse effect on the levels of occupancy and average room rates
of the resorts. Further, there can be no assurance that new or existing
competitors will not significantly reduce their rates or offer greater
convenience, services or amenities or significantly expand, improve or develop
facilities in the markets in which the resort facilities compete, thereby
adversely affecting the Company's resort and hotel operations.
Entertainment and Sports Business. The Panthers compete for entertainment
and sports dollars with other major league sports, college athletics and
sports-related entertainment. During portions of its season, the Panthers
experience local competition from professional basketball (the Miami Heat),
professional football (the Miami Dolphins) and professional baseball (the
Florida Marlins). The Company's Chairman currently owns the Miami Dolphins. In
addition, minor league sports franchises (including minor league hockey),
colleges and universities, as well as public and private secondary schools in
South Florida, offer a full schedule
8
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of athletic events throughout the year. The Panthers also compete for attendance
and advertising revenue with a wide range of other entertainment and
recreational activities available in South Florida. Additionally, subject to the
terms of the NHL Collective Bargaining Agreement and other agreements between
the NHL and other entities, the Panthers compete with other NHL and non-NHL
teams, professional and otherwise, for available players.
INSURANCE
The Company maintains comprehensive insurance on the resorts, including
liability, business interruption, fire and extended coverage including windstorm
and flood, in the types and amounts management believes are customary to the
resort and hotel industry. Management uses its discretion in determining
amounts, coverage limits and deductibility provisions of insurance, with a view
to obtaining appropriate insurance on the resorts at a reasonable cost and on
suitable terms. This may result in insurance coverage that, in the event of
loss, might not be sufficient to pay the full current market value of the
resorts. In addition, in the event of such loss the insurance proceeds received
by the Company might not be adequate to restore the economic position with
respect to the resorts.
The Panthers maintain disability insurance for certain highly compensated
players, which insurance provides for up to 80% salary reimbursement after the
player misses 30 consecutive regular season games due to injury. In the event an
injured player is not insured or disability insurance does not cover the entire
amount of the injured player's salary, the Company may be obligated to pay all
or a portion of the injured player's salary. The Company maintains comprehensive
insurance on the Incredible Ice facility, including liability, fire and extended
coverage, in the types and amounts management believes are customary to the ice
rink industry. The NCRC is owned by Broward County and comprehensive insurance
coverage is arranged for by the Company in its capacity as operator of the
facility.
ENVIRONMENTAL MATTERS
Under various federal, state, and local environmental laws and regulations,
an owner or operator of real property may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such real property, as
well as for the costs of complying with environmental laws regulating on-going
operations. In connection with the ownership and operation of the properties,
the Company may be potentially liable for any such costs. The Company has
obtained Phase I environmental site assessments for the real property on which
each of the resorts is located. In addition, Phase II environmental assessments
have been conducted at several properties. Phase I assessments are intended to
identify existing, potential and suspected environmental contamination and
regulatory compliance concerns, and generally include historical reviews of the
property, reviews of certain public records, preliminary visual investigations
of the site and surrounding properties and the preparation and issuance of
written reports. Phase II assessments involve the sampling of environmental
media, such as subsurface soil and groundwater, to confirm whether contamination
is present at areas of concern identified during the course of a Phase I
assessment.
The Phase I and Phase II assessments have not revealed any environmental
liability or compliance concerns that management believes would have a material
adverse effect on the business, nor is management aware of any such material
liability or concern. Phase I and Phase II assessments cannot provide full and
complete knowledge of environmental conditions and compliance matters.
Therefore, management cannot assure you that: (1) material environmental
liabilities or compliance concerns do not exist; (2) an identified matter that
does not appear reasonably likely to be material will not result in
significantly greater expenditures than is currently anticipated; or (3) there
are no material environmental liabilities or compliance concerns of which
management is unaware.
EMPLOYEES
At June 30, 2000, the Company employed approximately 4,161 full-time and
approximately 575 part-time employees in connection with its leisure and
recreation business. The Company employs approximately 83 full-time employees
and 78 part-time employees in connection with its entertainment and sports
business.
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In addition, the Company employs 15 corporate administrative personnel.
Employees of the independent contractor that manages the NCRC are excluded from
these figures. None of the employees, other than the Panthers hockey players,
are subject to any collective bargaining agreement and the Company believes that
its relationship with its employees is good.
SEASONALITY
The Company's revenue and income are seasonal in nature and are directly
affected by the strength and seasonality of the tourism and leisure industry.
Tourism is dependent upon weather and the traditional seasons for travel. In
addition, the Company's entertainment and sports businesses are seasonal. The
NHL regular season begins during the fall and ends in late spring. As a result,
the Company realizes a majority of its hockey revenue and hockey expense during
that period. Because of this variability in demand, the Company's quarterly
revenue may fluctuate, and revenue for the first quarter of each year can be
expected to be lower than the remaining quarters. Although the historical trend
in quarterly revenue for the second, third and fourth quarters of each year is
generally higher than the first quarter, there can be no assurance that this
will occur in future periods. Accordingly, quarterly or other interim results
should not be considered indicative of results to be expected for any quarter or
for the full year.
TRADEMARKS
The Company has registered trademarks and service marks, some of which,
including several relating to the Boca Resort and Arizona Biltmore names and
"Panthers" related marks, are of material importance to the Company's business.
The Company's other related marks, while valuable, are not material to its
business. Trademarks are valid as long as they are in use and/or their
registrations are properly maintained and they have not been found to be
generic. The Company presently uses two national trade names for two of its
resorts pursuant to licensing arrangements with national franchisors. The
duration for use pursuant to the licensing arrangements is disclosed under
"Franchise Agreement" and "License Agreement."
RISK FACTORS
The business, financial condition, results of operations and future
prospects of the Company, and the prevailing market price and performance of the
Company's Class A Common Stock, may be adversely affected by a number of
factors, including the matters discussed below. Such factors, among other items,
include:
The Company's financing agreements limit operating flexibility. Certain of
the Company's loan agreements restrict, among other things, the ability to
borrow money; pay dividends on stock or make certain other restricted payments;
use assets as security in other transactions; make investments; enter into
certain transactions with the affiliates; and sell certain assets or merge with
other companies. These debt instruments also require the Company to maintain
specified consolidated financial ratios and satisfy certain consolidated
financial tests. Although management is confident that the Company will satisfy
all of these requirements, the Company's ability to meet those financial ratios
and financial tests may be affected by events beyond its control, and management
cannot assure you that the Company will meet those tests. If the Company fails
to meet those tests or breaches any of the covenants, the lenders under these
debt instruments could declare all amounts outstanding thereunder, together with
accrued interest, to be immediately due and payable. If the Company is unable to
repay those amounts, the lenders could proceed against the collateral granted to
them to secure that indebtedness. Even with the Company's ratio of assets to
debt at June 30, 2000 being 2.2 to 1, management cannot assure you that the
assets would be sufficient to repay in full such indebtedness or any other
indebtedness.
The Company may need additional financing. Management believes that the
cash flow from operations, together with borrowings available under the existing
credit facilities, will be sufficient to finance the business operations, meet
the debt obligations and fund the short-term growth strategy. At June 30, 2000,
$127.9 million was available to borrow under the Company's existing revolving
credit facility. However, management cannot assure you that the business will
generate the level of cash flow from operations that it expects or that
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future borrowings under the credit facilities will be available to the Company.
If the plans or assumptions change or if the Company experiences unanticipated
costs or competitive pressures, it may need to seek additional capital.
Management believes the Company can obtain additional capital by selling debt
(provided certain incurrence tests are met pursuant to existing debt agreements)
or equity securities and/or by borrowing money, although no assurances can be
provided that it will be able to do so. If additional capital is not obtained
when it is needed, this may have a material adverse effect on the Company.
The Company may need to make significant capital expenditures to further
develop the resorts and these expenditures may involve risks. The Company's
growth strategy contemplates expanding the infrastructure at certain of the
resorts or expanding within the respective geographic markets of certain of the
resorts. The resorts may also need renovations or other capital improvements.
Unexpected excessive costs of any expansion or needed renovation or capital
improvements could have a material adverse effect on the Company's financial
condition or results of operations. Also, any capital expenditure for expansion,
renovation or improvement of the resorts may not generate the financial returns
expected. Such capital expenditures could involve certain risks, including: the
possibility of environmental problems; the possibility that cash to fund
renovations will not be available or that financing for renovations will not be
available on favorable terms; uncertainties as to market demand or deterioration
in market demand after commencement of renovations; the emergence of
unanticipated zoning and regulatory requirements; and competition from other
resorts, hotels and alternative lodging facilities.
The Company may not be able to successfully integrate the operations of
resorts that it has acquired. In order to take full economic advantage of the
resort acquisitions, the Company needs to effectively integrate the
administrative, financial and marketing organizations of each resort. The
Company also needs to effectively implement appropriate operational, financial
and management systems. This process may require a disproportionate amount of
time and attention of management and financial and other resources. Although
management believes the Company has the opportunity for synergies and cost
savings as a result of the resort acquisitions, the timing or amount of
synergies or cost savings that may ultimately be attained is uncertain. Some of
the anticipated economic advantages from the resort acquisitions may not be
achieved if the operations are not successfully integrated or if the appropriate
systems are not implemented in a timely manner. The difficulties of that
integration and implementation may initially be increased by the necessity of
coordinating and integrating personnel with different business backgrounds,
corporate cultures and by geographic distances between the Company's various
markets. Management cannot assure you that it will be able to successfully
integrate the operations of the resorts or implement the appropriate systems. As
a result, the business strategy might not be effective and management may not be
able to achieve its goals.
The Company faces a variety of risks from operating resorts. The Company
may encounter risks common to the operations of resorts, including over-building
(which may lower room rates), increases in operating costs due to inflation or
other factors, dependence on tourism and weather conditions and increases in
travel costs and poor economic conditions. In addition, the Company may face
risks relating to the concentration of the resorts in South Florida. Any of
these risks could have a material adverse effect on the Company's financial
condition or results of operations.
Control by H. Wayne Huizenga. The Company has two classes of common stock,
Class A Common Stock and Class B Common Stock. On each matter submitted for
stockholder approval each share of Class A Common Stock is entitled to one vote,
and each share of Class B Common Stock is entitled to 10,000 votes. The Company
has issued all of the shares of Class B Common Stock to Mr. Huizenga, assuring
that he will have voting control of the Company, in order to satisfy certain NHL
control requirements. Should the Panthers be sold, there is no requirement in
the Company's bylaws or articles of incorporation to modify the voting control
of the Class B Common Stock. As of June 30, 2000, Mr. Huizenga beneficially
owned voting stock of the Company with the power to vote approximately 98.8% of
the total votes entitled to be cast on any matter submitted to a vote of
stockholders. Mr. Huizenga may not sell his controlling interest in the Company
unless the NHL approves the sale. As the sole owner of Class B Common Stock, Mr.
Huizenga has the ability to indirectly control the management and policies as
well as the outcome of substantially all non-extraordinary matters submitted to
the stockholders for approval, including the election of directors.
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Nothing in the charter or bylaws restricts the transfer of Class B Common
Stock. As a result, Mr. Huizenga may sell his controlling interest, subject to
the NHL approval, without the approval of the holders of Class A Common Stock.
However, if Mr. Huizenga were to sell his controlling interest, then certain
change-of-control provisions of certain debt agreements may apply. Also, Mr.
Huizenga may receive a substantial premium price for selling his controlling
interest in the Company.
The Company depends on key personnel. For the foreseeable future, the
Company will be materially dependent on the services of Mr. Huizenga. The loss
of Mr. Huizenga's services could have a material adverse effect on the business.
The Company does not carry key man life insurance on Mr. Huizenga or on any of
the officers or directors.
The Company's resort business is seasonal. The resort operations are
generally seasonal. The resorts historically experience greater revenue, costs
and profits in the second and third quarters of the fiscal year ended June 30
due to increased occupancy and room rates during the winter months.
The Company may need to make substantial capital expenditures in order to
comply with the Americans with Disabilities Act. The resorts and other
properties are subject to the requirements of the Americans with Disabilities
Act (the "ADA"), which generally requires that public accommodations be made
accessible to disabled persons. Management believes that the resorts and other
properties are in substantial compliance with the ADA and that the Company will
not be required to make substantial capital expenditures to address the
requirements of the ADA. However, compliance with the ADA could require removal
of access barriers and noncompliance could result in the imposition of fines by
the federal government or the award of damages to private litigants. If the
Company were required to make substantial alterations in one or more of the
resorts or the other properties in order to comply with the ADA, it's financial
condition and results of operations could be adversely affected.
The Company may become subject to liabilities under environmental
laws. Operating costs may be affected by the obligation to pay for the cost of
complying with existing environmental laws, ordinances and regulations,
including the cleanup of contamination, as well as the cost of complying with
future legislation. In connection with the acquisition of the resorts and other
properties, Phase I, and in some instances Phase II, environmental site
assessments were obtained in order to evaluate potential environmental
liabilities at these properties. Although these assessments have identified
certain matters that will require the Company to incur costs to remedy, based on
current information, none of these matters appears likely to have a material
adverse effect on the business, assets, results of operations or liquidity.
However, because these assessments cannot give full and complete knowledge of
environmental liability and compliance matters, management cannot assure you
that the costs of complying with environmental laws and of defending against
claims of liability arising under environmental laws will not have a material
adverse effect on the financial condition and results of operations.
The Company may face a variety of risks if it enters into business
acquisitions, joint ventures and/or divestitures in the future. The Company has
achieved much of its growth through acquisitions. The growth strategy may lead
the Company to pursue additional acquisitions of resort-related, sports-related
or other types of businesses. In addition, the Company may pursue joint ventures
and/or divestitures in the future. The Company's success will depend upon the
ability to identify and finance attractive alternative business acquisitions,
ventures and/or divestitures. The risks related to acquisitions, joint ventures
and/or divestitures include: potential diversion of management; unanticipated
liabilities or contingencies from acquired businesses or ventures; environmental
and other regulatory costs; suitability of a joint venture partner; reduced
earnings due to increased goodwill amortization, increased interest costs and
costs related to integration of acquisitions; integrating the businesses that
the Company acquires; need to manage growth of acquired businesses or joint
ventures; and potential corporate reorganization and reallocation of resources
due to divestitures.
The Company has restrictions on ownership as a result of the National
Hockey League membership and the Panthers face potential liabilities. The
Panthers are generally jointly and severally liable with the other members of
the NHL for the debts and obligations of the National Hockey League. If another
member of the NHL does not pay its pro rata share of any NHL debt or obligation,
the Panthers would be obligated to pay a
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pro rata share of such debt or obligation, after all other individual team
remedies are exhausted, including the sale of a member team.
The NHL constitution and bylaws require a person or a group of persons
holding a 5.0% or more interest in the Company to obtain the prior approval of
the NHL. The NHL may withhold its approval in its sole discretion.
ITEM 2. PROPERTIES
Management believes that all of its property facilities are sufficient for
its needs. The Company's corporate headquarters are located at the Boca Raton
Resort and Club. The Company considers its resorts to be leading establishments
with respect to desirability of location, size of facilities, physical
condition, quality and variety of services offered in the areas in which they
are located. See further description of properties under "Leisure and Recreation
Business".
The Panthers, along with certain operating and management personnel,
utilize the NCRC, pursuant to a license agreement between the Company and
Broward County. The Company owns and operates the Incredible Ice Arena.
Certain property of the Company and its subsidiaries is subject to liens
securing payment of portions of the Company's and its subsidiaries'
indebtedness.
ITEM 3. LEGAL PROCEEDINGS
Decoma Miami Associates, Ltd. ("Decoma"), a Florida limited partnership in
which the Company has a 78% interest, had a contract (the "MAC") with the Miami
Sports and Exhibition Authority ("MSEA"), an agency of the City of Miami, to
operate the Miami Arena through July 8, 2020. In a complaint filed in the
Eleventh Judicial Circuit in and for Dade County, Florida on June 17, 1996,
subsequently amended on December 5, 1997, Decoma sought, among other relief, a
declaration that the MAC had been breached by MSEA's improper transfer to the
City of Miami of certain tax revenue that MSEA had pledged under the MAC for the
benefit of the Miami Arena and other limited applications. The MAC and Decoma's
obligation to operate the Miami Arena was terminated June 30, 2000 pursuant to a
settlement agreement between MSEA and Decoma whereby Decoma was paid a
termination fee of $10.5 million. By contract, portions of this termination fee
have been allocated to certain vendors and minority partners of Decoma.
The Company is not involved in any material legal proceedings. However, the
Company may from time to time become a party to legal proceedings arising in the
ordinary course of business, which are incidental to the business. While the
results of proceedings which arose in the normal course of business cannot be
predicted with certainty, management believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, consolidated cash
flows or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Class A Common Stock began trading on The Nasdaq National Market on
November 13, 1996 under the symbol "PUCK." On July 11, 1997, the Class A Common
Stock began trading on the New York Stock Exchange ("NYSE") under the symbol
"PAW." On September 29, 1999, the Class A Common Stock began trading on the NYSE
under the symbol "RST". The following table sets forth, for the periods
indicated, the range of the high and low sales prices per share for the Class A
Common Stock.
PRICE RANGE OF
CLASS A
COMMON STOCK
--------------
HIGH LOW
----- ----
FISCAL YEAR ENDED JUNE 30, 2000:
First Quarter............................................. $11 1/8 $ 8 11/16
Second Quarter............................................ 10 3/4 8 1/2
Third Quarter............................................. 9 7/8 7 5/8
Fourth Quarter............................................ 9 7/8 8 1/4
FISCAL YEAR ENDED JUNE 30, 1999:
First Quarter............................................. $19 5/16 $10 3/4
Second Quarter............................................ 12 1/16 7 7/8
Third Quarter............................................. 10 7/8 7 3/4
Fourth Quarter............................................ 11 3/16 7 7/16
On September 19, 2000, the last reported sales price of the Class A Common
Stock on the New York Stock Exchange was $12 1/16. As of the same date, there
were approximately 9,100 holders of record of the Class A Common Stock.
Since its inception, the Company has not paid any cash dividends on the
Class A Common Stock or the Class B Common Stock. The Company does not intend to
pay any cash dividends with respect to its common stock in the foreseeable
future. Certain of the Company's credit facilities restrict the ability of the
Company to pay dividends. In addition, the NHL Constitution and Bylaws prohibit
the Company from paying cash dividends, unless paying such cash dividends will
not impair the Company's ability to (1) meet its projected expenses for the
ensuing annual period without the use of borrowed funds, other than short-term
borrowings and (2) maintain adequate reserves to fund the future payment of all
deferred player compensation and other deferred obligations for past services.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth below should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto contained in Part
II, Item 8 of this Annual Report on Form 10-K. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
YEAR ENDED JUNE 30,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Revenue:
Leisure and recreation............ $361,360 $327,001 $252,603 $ 17,567 $ --
Entertainment and sports.......... 60,187 62,608 40,642 36,695 34,087
-------- -------- -------- -------- --------
Total revenue............. 421,547 389,609 293,245 54,262 34,087
Operating expenses:
Cost of leisure and recreation
services....................... 156,620 141,456 110,084 6,658 --
Cost of entertainment and sports
services....................... 56,866 51,619 45,919 35,135 35,958
Selling, general and
administrative expenses........ 109,271 105,179 91,579 15,150 8,371
Amortization and depreciation..... 36,334 31,176 23,155 5,698 9,815
-------- -------- -------- -------- --------
Operating income (loss)........... 62,456 60,179 22,508 (8,379) (20,057)
Interest and other income......... 8,709 6,097 5,251 1,923 122
Interest and other expense........ (57,524) (56,249) (24,673) (3,364) (5,030)
Minority interest................. (155) (339) (1,813) (440) (174)
-------- -------- -------- -------- --------
Income (loss) before extraordinary
item........................... 13,486 9,688 1,273 (10,260) (25,139)
Extraordinary item -- early
extinguishment of debt......... -- (4,287) -- -- --
-------- -------- -------- -------- --------
Net income (loss)......... $ 13,486 $ 5,401 $ 1,273 $(10,260) $(25,139)
======== ======== ======== ======== ========
Net income (loss) per
share -- diluted.................. $ 0.33 $ 0.15 $ 0.04 $ (0.74) $ (4.76)
======== ======== ======== ======== ========
Shares used to compute diluted
income (loss) per share........... 40,868 37,146 34,888 13,829 5,276
======== ======== ======== ======== ========
OTHER DATA:
Net cash flow from operating,
investing and financing
activities........................ $ 9,173 $(27,006) $ 23,519 $ 13,244 $ (772)
EBITDA:
Leisure and recreation............ 116,487 101,013 72,478 5,512 --
Entertainment and sports.......... (472) 4,563 (12,092) (6,040) (10,120)
Corporate......................... (9,551) (8,124) (9,472) (230) --
-------- -------- -------- -------- --------
Total EBITDA(1)........... 106,464 97,452 50,914 (758) (10,120)
Membership fees deferred during the
period(2)......................... 12,532 8,198 5,814 -- --
-------- -------- -------- -------- --------
Adjusted EBITDA(3).................. 118,996 105,650 56,728 (758) (10,120)
EBITDA margin(4).................... 25% 25% 17% (1)% (30)%
Adjusted EBITDA margin(5)........... 27% 27% 19% (1)% (30)%
Capital expenditures................ $ 63,445 $ 99,912 $ 51,206 $ 1,494 $ 140
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AT JUNE 30,
---------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- -------- -------
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 19,395 $ 10,222 $ 37,228 $ 13,709 $ 465
Restricted cash.......................... 24,775 44,830 29,296 30,110 --
Total current assets..................... 92,684 96,491 111,182 70,590 3,756
Total assets............................. 1,298,523 1,284,904 1,128,207 600,392 47,760
Total current liabilities................ 159,114 116,224 403,096 46,375 67,786
Total debt............................... 583,195 584,105 540,626 186,056 85,172
Non-current obligations.................. 637,215 676,576 292,708 251,003 28,277
Shareholders' equity (deficit)........... 502,194 490,280 430,511 301,153 (48,303)
- ---------------
(1) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization, minority interest and extraordinary items.
EBITDA and Adjusted EBITDA (see below) are used by management and certain
investors as indicators of the Company's historical ability to service debt,
to sustain potential future increases in debt and to satisfy capital
requirements. However, neither EBITDA nor Adjusted EBITDA is intended to
represent cash flows for the period. In addition, they have not been
presented as alternatives to either (a) operating income (as determined by
GAAP) as an indicator of operating performance or (b) cash flows from
operating, investing and financing activities (as determined by GAAP) and
are thus susceptible to varying calculations. EBITDA as presented may not be
comparable to other similarly titled measures of other companies.
(2) Represents the annual change in deferred revenue from the Company's Premier
Clubs. The Premier Clubs currently require a non-refundable initial
membership fee. Initial membership fees are recorded as revenue over the
estimated life of the membership. Unrecognized portions of the initial
membership fees are included in deferred revenue in the accompanying
Consolidated Balance Sheets.
(3) Adjusted EBITDA represents EBITDA plus the amount of the Company's Premier
Club net membership fees deferred during the period.
(4) EBITDA margin is defined as EBITDA divided by revenue.
(5) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by the sum of
revenue plus the Company's Premier Club net membership fees deferred during
the period.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of the Company, which are
included elsewhere herein.
BUSINESS SEGMENT INFORMATION
The accompanying table outlines business segment operating data (in 000's).
2000 1999 1998
-------- -------- --------
Revenue:
Leisure and recreation.................................... $361,360 $327,001 $252,603
Entertainment and sports.................................. 60,187 62,608 40,642
-------- -------- --------
Total revenue..................................... 421,547 389,609 293,245
Operating expenses:
Cost of services:
Cost of leisure and recreation services................ 156,620 141,456 110,084
Cost of entertainment and sports services.............. 56,866 51,619 45,919
Selling, general and administrative expenses:
Leisure and recreation................................. 89,271 86,301 71,800
Entertainment and sports............................... 9,938 9,697 10,002
Corporate.............................................. 10,062 9,181 9,777
Amortization and depreciation:
Leisure and recreation................................. 34,265 28,225 17,950
Entertainment and sports............................... 1,898 2,833 5,168
Corporate.............................................. 171 118 37
-------- -------- --------
Total operating expenses.......................... 359,091 329,430 270,737
-------- -------- --------
Operating income (loss):
Leisure and recreation................................. 81,204 71,019 52,769
Entertainment and sports............................... (8,515) (1,541) (20,447)
Corporate.............................................. (10,233) (9,299) (9,814)
-------- -------- --------
Total operating income............................ 62,456 60,179 22,508
Interest and other income................................... 8,709 6,097 5,251
Interest and other expense.................................. (57,524) (56,249) (24,673)
Minority interest........................................... (155) (339) (1,813)
-------- -------- --------
Income before extraordinary item............................ 13,486 9,688 1,273
Extraordinary item -- early extinguishment of debt.......... -- (4,287) --
-------- -------- --------
Net income.................................................. $ 13,486 $ 5,401 $ 1,273
======== ======== ========
EBITDA:
Leisure and recreation.................................... $116,487 $101,013 $ 72,478
Entertainment and sports.................................. (472) 4,563 (12,092)
Corporate................................................. (9,551) (8,124) (9,472)
-------- -------- --------
Total............................................. $106,464 $ 97,452 $ 50,914
======== ======== ========
Adjusted EBITDA:
Leisure and recreation.................................... $129,019 $109,211 $ 78,292
Entertainment and sports.................................. (472) 4,563 (12,092)
Corporate................................................. (9,551) (8,124) (9,472)
-------- -------- --------
Total............................................. $118,996 $105,650 $ 56,728
======== ======== ========
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SEASONALITY
The Company has historically experienced, and expects to continue to
experience, seasonal fluctuations in its gross revenue and net earnings. Peak
season at the resorts extends from January through April while the regular
hockey season for the Panthers commences in October and ends in April.
IMPACT OF INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenue and results of operations. Based on the current economic
climate, the Company does not expect that inflation and changing prices will
have a material impact on the Company's revenue or earnings during fiscal 2001.
Many of the costs of operating the resorts can be fixed for certain periods of
time, reducing the short-term effects of changes in the rate of inflation. Room
rates, which are set on a daily basis, can be rapidly changed to meet changes in
inflation rates (as well as other changing market conditions). The Company has
less flexibility in changing group rates since guest reservations are typically
made 12 to 18 months in advance of the stay. To the extent inflationary trends
affect short-term interest rates, a portion of the Company's debt service costs
may be adversely affected. See Note 8 to the Consolidated Financial Statements.
BUSINESS PHILOSOPHY
The Company's current business strategy is to focus on expanding the
leisure and recreation businesses. However, management continuously evaluates
ownership, acquisition and divestiture alternatives relating to its two business
segments with the intention of maximizing value.
CONSOLIDATED RESULTS OF OPERATIONS
Net income totaled $13.5 million, $5.4 million and $1.3 million for the
years ended June 30, 2000, 1999 and 1998, respectively. The improvement in
operating results from June 30, 1999 to June 30, 2000 was primarily due to
substantially better performance by the leisure and recreation business,
partially offset by decreased operating results from the entertainment and
sports business. The improvement in operating results from June 30, 1998 to June
30, 1999 was due to better performance from each of the Company's business
segments, partially offset by higher interest expense on greater average
outstanding indebtedness. Additional information relating to the operating
results for each business segment is set forth below.
LEISURE AND RECREATION
Select operating data for the Company's leisure and recreation business for
the years indicated is set forth below (in 000's except operating statistics):
2000 % CHANGE 1999 % CHANGE 1998
---------- -------- ---------- -------- --------
Revenue:
Room revenue............................ $ 156,607 9% $ 143,264 30% $110,146
Non-room related revenue................ 204,753 11 183,737 29 142,457
---------- ---------- --------
Total leisure and recreation
revenue....................... $ 361,360 11 $ 327,001 29 $252,603
Operating Statistics:
Available room nights................... 1,074,672 4 1,036,453 24 834,574
ADR..................................... $ 209.42 4 $ 200.70 7 $ 188.04
Occupancy............................... 69.6% 1 68.9% (2) 70.2%
Room revenue per available room......... $ 145.73 5 $ 138.23 5 $ 131.98
Total leisure and recreation revenue per
available room....................... $ 336.25 7 $ 315.50 4 $ 302.67
Revenue
The leisure and recreation business generates a diversified stream of
revenue which totaled $361.4 million, $327.0 million and $252.6 million for the
years ended June 30, 2000, 1999 and 1998, respectively.
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21
Over 56% of leisure and recreation revenue for each period presented was derived
from non-room sources such as food and beverage sales, yachting and marina
revenue, golf, club memberships, retail and other resort amenities. In addition,
over 60% of the increase in leisure and recreation revenue during the year ended
June 30, 2000 compared to the year ended June 30, 1999 was the result of an
increase in non-room related revenue. The resort portfolio also yielded
increases in the average daily room rate ("ADR"), occupancy, along with total
available rooms (due to the completion of a 120 guestroom addition at the
Arizona Biltmore Resort and Spa in September 1999). The increase in revenue
during the year ended June 30, 1999 compared to 1998 was the result of a full
year of operations for the Arizona Biltmore Resort and Spa and the Edgewater
Beach Hotel, which were purchased in March 1998 and April 1998, respectively. In
addition, non-room related revenue and ADR for the Company's resort portfolio
increased for the year ended June 30, 1999 compared to the year ended June 30,
1998 which were partially offset by a decrease in the average occupancy rate.
Operating Expenses
Cost of leisure and recreation services totaled $156.6 million or 43% of
revenue for the year ended June 30, 2000, $141.5 million or 43% of revenue for
the year ended June 30, 1999 and $110.1 million or 44% of revenue for the year
ended June 30, 1998. Cost of leisure and recreation services primarily consisted
of direct costs to service rooms, marinas, food and beverage operations, retail
establishments and other amenities at the resorts.
Selling, general and administrative expenses ("S,G&A") of the leisure and
recreation business totaled $89.3 million or 25% of revenue during the year
ended June 30, 2000, $86.3 million or 26% of revenue for year ended June 30,
1999 and $71.8 million or 28% of revenue for the year ended June 30, 1998. S,G&A
as a percent of revenue declined during the three year period primarily because
of certain cost efficiencies from business integration such as consolidated
marketing efforts and reduced overhead for such items as professional fees,
insurance and outside management company fees. S,G&A of the leisure and
recreation business primarily consisted of utility and property costs, real
estate taxes, insurance, franchise agreement fees and administrative salaries
and expenses.
Amortization and depreciation expense for the leisure and recreation
business was $34.3 million, $28.2 million and $18.0 million for the years ended
June 30, 2000, 1999 and 1998, respectively. The increase in amortization and
depreciation expense during the year ended June 30, 2000 compared to the year
ended June 30, 1999 was primarily due to the completion of several capital
projects including the redesign and construction at Grande Oaks Golf Club,
development of Naples Grande Golf Club and a 120 guestroom addition at the
Arizona Biltmore Resort and Spa. The increase in amortization and depreciation
expense during the year ended June 30, 1999 compared to the year ended June 30,
1998 was primarily because the Company owned the Arizona Biltmore Resort and Spa
and the Edgewater Beach Hotel for the entire year during fiscal 1999.
Operating Income
Operating income for the leisure and recreation business totaled $81.2
million, $71.0 million and $52.8 million for the years ended June 30, 2000, 1999
and 1998, respectively. The primary factors contributing to the improvement from
1998 to 2000 were (1) an increase in non-room revenue (2) an increase in ADR (3)
an increase in rooms available for occupancy due to the construction of
additional rooms and a full year of operations from the Arizona Biltmore Resort
and Spa and the Edgewater Beach Hotel and (4) higher profit margins as a result
of cost efficiencies from business integration.
ENTERTAINMENT AND SPORTS
The primary component of the entertainment and sports business is the
Panthers and related NCRC operations. Revenue and direct expenses associated
with the team are recorded over the regular hockey season. Revenue and expenses
associated with the Panthers participation in the Stanley Cup playoffs is
recorded during the three-months ended June 30. Operating losses were $8.5
million, $1.5 million, $20.4
19
22
million for the years ended June 30, 2000, 1999 and 1998, respectively. The
decrease in operating results from June 30, 1999 to June 30, 2000 was
substantially the result of a decrease in entertainment and sports revenue
resulting primarily from lower ticket revenue during the 1999-2000 regular
hockey season and higher Panthers players' salary costs resulting in part from
the buyout of certain players' contracts. The Panthers regular season loss was
partially offset by the teams' participation in the first round of Stanley Cup
playoffs as well as improved operating results relating to non-hockey events
held at the NCRC. Improvements in operating results from June 30, 1998 to June
30, 1999 were primarily attributable to the Panthers move from the Miami Arena
to the NCRC where the Panthers serve as primary tenants and share in all revenue
streams.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
Corporate general and administrative expenses totaled $10.1 million, $9.2
million and $9.8 million for the years ended June 30, 2000, 1999, and 1998,
respectively. The increase in corporate general and administrative expenses from
June 30, 1999 to June 30, 2000 was primarily due to an increase in certain
non-recurring legal fees and an increase in management fee expense that varies
with the Company's total revenue. The decrease in corporate general and
administrative expenses from June 30, 1998 to June 30, 1999 was because certain
non-recurring professional fees were incurred during fiscal 1998.
INTEREST AND OTHER INCOME
Interest and other income totaled $8.7 million, $6.1 million and $5.3
million for the years ended June 30, 2000, 1999 and 1998, respectively, and
include expansion fee revenue and interest earned on cash and cash equivalents.
Expansion fee revenue represents the Panthers' share of the franchise fees paid
by new clubs being admitted into the NHL. The increase in interest and other
income from June 30, 1999 to June 30, 2000 was primarily because $6.3 million
was received in expansion fee revenue relating to two new teams during the year
ended June 30, 2000 compared to $2.9 million received for one team added during
the year ended June 30, 1999. The increase in interest and other income from
June 30, 1998 to June 30, 1999 was because the Company recognized more interest
income from increased cash on hand.
INTEREST AND OTHER EXPENSE
Interest and other expense totaled $57.5 million, $56.2 million and $24.7
million for the years ended June 30, 2000, 1999 and 1998, respectively. The
Company's average cost of borrowing was 10.0%, 10.7% and 8.2% for the years
ended June 30, 2000, 1999 and 1998, respectively. The Company's average
outstanding indebtedness was $565 million, $525 million and $301 million for the
years ended June 30, 2000, 1999 and 1998, respectively. The increase in the
average outstanding indebtedness from June 30, 1999 to June 30, 2000 was
primarily because the Company financed certain capital expenditures associated
with resort expansion. The increase in the average outstanding indebtedness from
June 30, 1998 to June 30, 1999 was primarily because the Company financed
certain resort acquisitions.
MINORITY INTEREST
Minority interest totaled $155,000, $339,000 and $1.8 million for the years
ended June 30, 2000, 1999 and 1998, respectively. The decrease in minority
interest from June 30, 1999 to June 30, 2000 was because Decoma Miami Associates
Ltd. generated lower earnings primarily because the Miami Heat moved its home
from the Miami Arena. See Note 12 -- "Litigation" to the Consolidated Financial
Statements. The decrease in minority interest from June 30, 1998 to June 30,
1999 was because the Company acquired the minority share in the Registry Resort
at Pelican Bay during 1999.
EXTRAORDINARY LOSS
In April 1999, the Company issued $340.0 million aggregate principal amount
of 9.875% senior subordinated notes due April 15, 2009 in a private placement
offering. The net proceeds of the offering were approximately $328.3 million and
were used to retire short-term and long-term indebtedness. In connection
20
23
with the retirement of such debt, the Company charged to operations debt
issuance costs related to certain extinguished debt and recognized a $4.3
million extraordinary loss during the year ended June 30, 1999.
EBITDA
EBITDA totaled $106.5 million, $97.5 million and $50.9 million for the
years ended June 30, 2000, 1999 and 1998, respectively. The improvement in
EBITDA was substantially the result of improvements in operating results
(including stronger profit margins) for the leisure and recreation business.
ADJUSTED EBITDA
Adjusted EBITDA totaled $119.0 million, $105.7 million and $56.7 million
for the years ended June 30, 2000, 1999 and 1998, respectively. The improvement
in Adjusted EBITDA was attributable to better operating results (including
stronger profit margins) for the leisure and recreation business combined with
higher Premier Club sales due to the addition of Grande Oaks Golf Club and
Naples Grande Golf Club.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $19.4 million at June 30, 2000, from
$10.2 million at June 30, 1999. The major components of the change are discussed
below.
Net Cash Provided by Operating Activities
Net cash provided by operating activities totaled $49.3 million, $68.8
million and $37.7 million for the years ended June 30, 2000, 1999 and 1998,
respectively. The decrease in cash flow from operations from June 30, 1999 to
June 30, 2000 was due to a combination of factors including receiving less cash
flow from the entertainment and sports business, having an increase in accounts
receivable for the leisure and recreation business due to the timing of
collection on certain group contracts and incurring an increase in cash paid for
certain corporate professional fees (a significant portion of such professional
fees were accrued but unpaid as of June 30, 1999). The increase in cash flow
from operations from June 30, 1998 to June 30, 1999 was the result of receiving
more operating cash flow from each business segment.
Net Cash Used in Investing Activities
Net cash used in investing activities amounted to $36.9 million, $115.4
million and $293.4 million for the years ended June 30, 2000, 1999 and 1998,
respectively.
There were no significant businesses acquired during the year ended June
30, 2000 and 1999. During the year ended June 30, 1998, cash used in business
acquisitions amounted to $260.8 million. During 1998, the Company (1) acquired
the Registry Resort at Pelican Bay, of which $106.1 million of the purchase
price was paid in cash, (2) acquired the Rolling Hills Golf Club for $8.0
million (which was redesigned and reopened as Grande Oaks Golf Club), (3)
acquired the Arizona Biltmore Resort and Spa, of which $126.0 million of the
purchase price was paid in cash and (5) acquired the Edgewater Beach Hotel, of
which $20.7 million of the purchase price was paid in cash. In connection with
the 1998 acquisitions, the Company also originated seller notes payable in the
principal amount of $120.8 million (which have been subsequently paid), issued
918,174 shares of Class A Common Stock, issued warrants to purchase 825,000
shares of Class A Common Stock and agreed to pay up to an additional $50 million
in cash, contingent upon the satisfactory execution of certain development plans
which were subsequently delivered to the Company.
The Company received a $10.5 million termination fee during the year ended
June 30, 2000 pursuant to the termination of the Miami Arena Contract, a portion
of which will be paid to vendors and outside minority interest holders. See Note
12 -- "Litigation" to the Consolidated Financial Statements.
Capital expenditures totaled $63.4 million, $99.9 million and $51.2 million
for the years ended June 30, 2000, 1999 and 1998, respectively. The Company
spent approximately $36.2 million at the Boca Raton Resort and Club relating to
normal recurring capital expenditures, a new parking garage, the commencement of
a luxury guestroom renovation as well as plans for the construction of a
restaurant and retail pavilion and new
21
24
marina wing. Additionally, the Company spent $11.2 million on golf related
improvements to Naples Grande Golf Club and $3.3 million on the acquisition of
commercial property located near the Company's Fort Lauderdale resorts during
the year ended June 30, 2000. Other capital spending during the year ended June
30, 2000 related primarily to recurring furniture, fixture and equipment
improvements at the Company's resorts.
During the year ended June 30, 1999, the Company spent $28.6 million on the
acquisition of land in Naples and Plantation, Florida. Other capital spending
during the year ended June 30, 1999 related to continued development and
construction at Grande Oaks Golf Club, continued construction of the 120
guestroom addition at the Arizona Biltmore Resort and Spa and other recurring
furniture, fixture and equipment improvements at the resorts.
The capital expenditures for the year ended June 30, 1998 were primarily
associated with the Boca Raton Resort and Club's expansion program. The
expansion included an 18 court tennis club (which added to the existing 12
courts located in a separate complex), a new Bates-designed championship golf
course and a new 140,000 square foot conference center.
Restricted cash decreased by $20.1 million during the year ended June 30,
2000 compared to an increase of $15.5 million during the year ended June 30,
1999. The significant decrease in restricted cash during the year ended June 30,
2000 was primarily attributable to the use of funds for facility development at
the Boca Raton Resort and Club. Beginning in February 2000, funds previously
restricted became available for distribution on a monthly basis pursuant to
terms of an amended loan and security agreement for the Boca Raton Resort and
Club. Under covenants to a loan agreement for the Boca Raton Resort and Club and
the Arizona Biltmore Resort and Spa, the Company is required to deposit certain
amounts into reserve accounts which are accumulated and restricted to support
future debt service, furniture, fixture and equipment replacement and real
estate tax payments. These reserve funds are classified as restricted cash on
the accompanying Consolidated Balance Sheets. The entertainment and sports
business also maintains restricted cash relating primarily to the operation of
the NCRC which after maintaining the required operating reserves, could be
released to the Company on a quarterly basis.
Cash Provided By (Used In) Financing Activities
Net cash provided by (used in) financing activities amounted to $(3.2)
million, $19.6 million and $279.2 million for the years ended June 30, 2000,
1999 and 1998, respectively. Cash flows associated with financing activities for
the year ended June 30, 2000 primarily represent borrowings under credit
facilities which were substantially used to repay other higher interest rate
indebtedness.
During the year ended June 30, 1999, the Company raised approximately $40.0
million in net proceeds from the private placement sale of 4,022,561 shares of
Class A Common Stock. The Company also raised approximately $15.7 million in net
proceeds from a rights offering covering 1,575,621 shares of Class A Common
Stock. However, the Company made $35.7 million in repayments, net of borrowings,
under credit facilities during the year ended June 30, 1999.
During the year ended June 30, 1998, the Company received $108.5 million of
net proceeds from the sale of Class A Common Stock and $170.7 million in
borrowings, net of repayments, under debt facilities.
Capital Resources
The Company's capital resources are provided from both internal and
external sources. The primary capital resources from internal operations include
revenue from (1) room rentals, food and beverage sales, retail sales and golf,
tennis, marina and conference services at the resorts, (2) Premier Club
memberships and (3) ticket, broadcasting, sponsorship, arena operations and
other revenue derived from ownership of the Panthers. The primary external
sources of liquidity have been the issuance of equity and debt securities and
borrowing under term loans and credit lines. See discussion of restrictions with
respect to the incurrence of additional indebtedness in Note 9 to the
Consolidated Financial Statements.
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During the fourth quarter of the prior fiscal year, management refinanced
all of the Company's short-term indebtedness. In April 1999, the Company issued
$340.0 million aggregate principal amount of 9.875% senior subordinated notes
due April 15, 2009 in a private placement offering. In addition, the Company
obtained a new three-year, secured credit facility in the amount of $146.0
million. As of June 30, 2000, the Company had aggregate availability of $127.9
million under its credit line. As a result of this availability and expected
cash from operations, management believes the Company has sufficient funds to
continue its planned development capital expenditures and support on-going
operations, including meeting debt service obligations as they come due.
Working Capital
Current liabilities exceeded current assets by $66.4 million and $19.7
million at June 30, 2000 and June 30, 1999, respectively. The change from June
30, 1999 to June 30, 2000 is primarily the result of an increase in certain
short-term debt obligations coming due over the next operating cycle ($34.7
million of which was repaid in July 2000 with proceeds from the Company's long
term credit line). Nonetheless, the Company has liquidity to settle current
obligations as it maintains a long-term revolving credit line that represents an
additional and immediate potential source of liquidity. See "Capital Resources".
FORWARD LOOKING STATEMENTS
Some of the information in this report may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may", "will", "expect", "anticipate", "estimate",
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this report. The risk factors include certain known and unknown
risks and uncertainties, and could cause the Company's actual results to differ
materially from those contained in any forward looking statement.
These risk factors have been previously described and include, among
others, the Company's ability to obtain financing on acceptable terms to meet
operating expenses and finance its growth, competition in the Company's
principal businesses, the Company's ability to integrate and successfully
operate acquired businesses and the risks associated with these businesses, the
Company's ability to develop and implement operational and financial systems to
manage rapidly growing operations, the Company's limited history of operations
in the leisure and recreation business, the Company's dependence on key
personnel and the Company's ability to properly assess and capitalize on future
business opportunities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
23
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants.......... 25
Consolidated Balance Sheets as of June 30, 2000 and 1999.... 26
Consolidated Statements of Operations for the Years Ended
June 30, 2000, 1999 and 1998.............................. 27
Consolidated Statements of Shareholders' Equity for the
Years Ended June 30, 2000, 1999 and 1998.................. 28
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2000, 1999 and 1998.............................. 29
Notes to Consolidated Financial Statements.................. 30
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of Boca Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Boca
Resorts, Inc. (a Delaware corporation) and subsidiaries as of June 30, 2000 and
1999, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boca Resorts, Inc. and
subsidiaries as of June 30, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2000, in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
August 4, 2000.
25
28
BOCA RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
(IN THOUSANDS, EXCEPT SHARE DATA)
2000 1999
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 19,395 $ 10,222
Restricted cash........................................... 24,775 44,830
Accounts receivable, net.................................. 30,290 24,349
Inventory................................................. 8,312 7,295
Current portion of Premier Club notes receivable.......... 4,001 3,427
Other current assets...................................... 5,911 6,368
---------- ----------
Total current assets.............................. 92,684 96,491
Property and equipment, net................................. 1,062,642 1,032,497
Intangible assets, net...................................... 109,516 116,427
Long-term portion of Premier Club notes receivable, net..... 7,487 7,073
Other assets................................................ 26,194 32,416
---------- ----------
Total assets...................................... $1,298,523 $1,284,904
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 56,959 $ 57,178
Current portion of deferred revenue....................... 26,233 27,581
Current portion of credit lines and notes payable......... 71,049 26,500
Other current liabilities................................. 4,873 4,965
---------- ----------
Total current liabilities......................... 159,114 116,224
Credit lines and notes payable.............................. 172,146 217,605
Premier Club refundable membership fees..................... 60,374 62,903
Deferred revenue, net of current portion.................... 28,074 14,890
Other non-current liabilities............................... 978 2,321
Deferred income taxes payable............................... 35,643 38,857
Senior subordinated notes payable........................... 340,000 340,000
Minority interest........................................... -- 1,824
Commitments and contingencies (Note 12)
Shareholders' equity:
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized and 40,606,072 and 40,551,370 shares issued
and outstanding at June 30, 2000 and 1999,
respectively........................................... 406 406
Class B Common Stock, $.01 par value, 10,000,000 shares
authorized and 255,000 shares issued and outstanding at
June 30, 2000 and 1999................................. 3 3
Contributed capital....................................... 484,849 486,421
Retained earnings......................................... 16,936 3,450
---------- ----------
Total shareholders' equity........................ 502,194 490,280
---------- ----------
Total liabilities and shareholders' equity........ $1,298,523 $1,284,904
========== ==========
See accompanying notes to consolidated financial statements.
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BOCA RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998
-------- -------- --------
Revenue:
Leisure and recreation.................................... $361,360 $327,001 $252,603
Entertainment and sports.................................. 60,187 62,608 40,642
-------- -------- --------
Total revenue..................................... 421,547 389,609 293,245
Operating expenses:
Cost of leisure and recreation services................... 156,620 141,456 110,084
Cost of entertainment and sports services................. 56,866 51,619 45,919
Selling, general and administrative expenses.............. 109,271 105,179 91,579
Amortization and depreciation............................. 36,334 31,176 23,155
-------- -------- --------
Total operating expenses.......................... 359,091 329,430 270,737
-------- -------- --------
Operating income............................................ 62,456 60,179 22,508
Interest and other income................................... 8,709 6,097 5,251
Interest and other expense.................................. (57,524) (56,249) (24,673)
Minority interest........................................... (155) (339) (1,813)
-------- -------- --------
Income before extraordinary item............................ 13,486 9,688 1,273
Extraordinary item -- early extinguishment of debt.......... -- (4,287) --
-------- -------- --------
Net income........................................ $ 13,486 $ 5,401 $ 1,273
======== ======== ========
Basic and diluted net income per share:
Income before extraordinary item.......................... $ 0.33 $ 0.26 $ 0.04
Extraordinary item -- early extinguishment of debt........ -- (0.11) --
-------- -------- --------
Net income per share...................................... $ 0.33 $ 0.15 $ 0.04
======== ======== ========
Shares used in computing net income per share -- basic...... 40,861 36,993 34,334
======== ======== ========
Shares used in computing net income per share -- diluted.... 40,868 37,146 34,888
======== ======== ========
See accompanying notes to consolidated financial statements.
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BOCA RESORTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
CLASS A CLASS B
COMMON STOCK COMMON STOCK RETAINED
------------------ ------------------ EARNINGS/ TOTAL
NUMBER NUMBER CONTRIBUTED (ACCUMULATED SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT) EQUITY
--------- ------ --------- ------ ----------- ------------ -------------
Balance, June 30, 1997......... 27,930 $279 255 $3 $304,095 $(3,224) $301,153
Sales of common stock........ 6,000 60 -- -- 108,456 -- 108,516
Net income................... -- -- -- -- -- 1,273 1,273
Stock issued in
acquisitions............... 918 9 -- -- 16,778 -- 16,787
Warrants issued in
acquisition................ -- -- -- -- 2,375 -- 2,375
Exercise of stock options.... 40 1 -- -- 406 -- 407
------ ---- --- -- -------- ------- --------
Balance, June 30, 1998......... 34,888 349 255 3 432,110 (1,951) 430,511
Sales of common stock........ 5,598 56 -- -- 55,672 -- 55,728
Net income................... -- -- -- -- -- 5,401 5,401
Stock issued in
acquisitions............... 63 1 -- -- 549 -- 550
Tax effect of stock issuance
to acquire an asset........ -- -- -- -- (1,930) -- (1,930)
Exercise of stock options.... 2 -- -- -- 20 -- 20
------ ---- --- -- -------- ------- --------
Balance, June 30, 1999......... 40,551 406 255 3 486,421 3,450 490,280
Net income................... -- -- -- -- -- 13,486 13,486
Warrant activity............. -- -- -- -- (1,080) -- (1,080)
Stock issued in
acquisitions............... 50 -- -- -- 539 -- 539
Tax effect of stock issuance
to acquire an asset........ -- -- -- -- (1,078) -- (1,078)
Exercise of stock options.... 5 -- -- -- 47 -- 47
------ ---- --- -- -------- ------- --------
Balance, June 30, 2000......... 40,606 $406 255 $3 $484,849 $16,936 $502,194
====== ==== === == ======== ======= ========
See accompanying notes to consolidated financial statements.
28
31
BOCA RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
(IN THOUSANDS)
2000 1999 1998
------- --------- ---------
Operating activities:
Net income................................................ $13,486 $ 5,401 $ 1,273
Extraordinary loss on early extinguishment of debt........ -- 4,287 --
Adjustments to reconcile income before extraordinary item
to net cash provided by operating activities:
Amortization and depreciation.......................... 36,334 31,176 23,155
Imputed interest on indebtedness with no stated rate... 1,868 1,283 --
Income applicable to minority interest................. 155 339 1,813
Gain on termination of Miami Arena Contract............ (797) -- --
Changes in operating assets and liabilities (excluding the
effects of business acquisitions):
Accounts receivable.................................... (5,941) 4,225 (489)
Other assets........................................... 4,816 7,449 (4,059)
Accounts payable and accrued expenses.................. (4,189) 15,852 (20,091)
Deferred revenue and other liabilities................. 3,590 (1,192) 36,086
------- --------- ---------
Net cash provided by operating activities......... 49,322 68,820 37,688
------- --------- ---------
Investing activities:
Cash acquired in business acquisitions.................... -- -- 16,548
Cash used in business acquisitions........................ (4,016) -- (260,832)
Proceeds from termination of Miami Arena Contract......... 10,500 -- --
Capital expenditures...................................... (63,445) (99,912) (51,206)
Change in restricted cash................................. 20,055 (15,534) 2,100
------- --------- ---------
Net cash used in investing activities............. (36,906) (115,446) (293,390)
------- --------- ---------
Financing activities:
Net proceeds from the sale of common stock................ -- 55,728 108,516
Borrowings under credit facilities........................ 43,754 518,135 251,200
Payments under long-term debt and credit facilities....... (46,929) (553,837) (80,509)
Proceeds from exercise of stock options................... 47 20 407
Distribution to minority interests -- Decoma Entities..... (115) (426) (393)
------- --------- ---------
Net cash provided by (used in) financing
activities...................................... (3,243) 19,620 279,221
------- --------- ---------
Increase (decrease) in cash and cash
equivalents..................................... 9,173 (27,006) 23,519
Cash and cash equivalents, at beginning of period........... 10,222 37,228 13,709
------- --------- ---------
Cash and cash equivalents, at end of period................. $19,395 $ 10,222 $ 37,228
======= ========= =========
See accompanying notes to consolidated financial statements.
29
32
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. NATURE OF OPERATIONS
Boca Resorts, Inc. (the "Company") is an owner and operator of leisure and
recreation businesses and entertainment/sports businesses. The leisure and
recreation business primarily consists of the ownership and operation of six
luxury resorts with hotels, conference facilities, golf courses, spas, marinas
and private clubs. The entertainment and sports segment primarily includes the
ownership and management of the Florida Panthers Hockey Club (the "Panthers")
and management of the National Car Rental Center (the "NCRC"), a multi-purpose
entertainment complex where the Panthers play their home games.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of
the Company and all majority-owned subsidiaries after the elimination of
significant intercompany accounts and transactions. Minority interest represents
minority shareholders' proportionate share of the equity in Decoma Miami
Associates Ltd. ("Decoma"), the entity that managed the operations of the Miami
Arena through June 30, 2000, and during the year ended June 30, 1998 the
minority interest in Registry Resort at Pelican Bay. The Company acquired all
remaining minority interest in the Registry Resort at Pelican Bay by July 1998.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the Consolidated Financial
Statements and accompanying Notes. Actual results may differ from those
estimates.
Cash and Cash Equivalents/Restricted Cash
Cash and cash equivalents consist primarily of cash in banks and highly
liquid investments with original maturities of 90 days or less. Restricted cash
consists principally of escrow accounts maintained in accordance with the terms
of mortgage-note agreements and cash collected by the entertainment and sports
segment primarily associated with the Company in its capacity as operator of the
NCRC. See Note 12. Concentration of credit risk and market risk associated with
cash, cash equivalents and restricted cash are considered low due to the credit
quality of the issuers of the financial instruments held by the Company and due
to their short-term nature.
Accounts Receivable
Accounts receivable are primarily from major credit card companies and
other large corporations. The Company performs ongoing credit evaluations of its
significant customers and generally does not require collateral or a significant
allowance for uncollectible balances.
Inventory
Inventory is stated at the lower of cost or market value and primarily
consists of food, beverages, marina fuel, retail merchandise and operating
supplies. Cost is determined using the first-in, first-out method.
Premier Club Notes Receivable
Premier Club notes receivable are carried at cost. The accrual of interest
income is suspended on all notes receivable when principal or interest payments
are more than three months contractually past due and is not
30
33
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
resumed until such loans become contractually current. The Company performs
credit evaluations of customers who finance their Premier Club membership and
generally does not require collateral or a significant allowance for
uncollectible balances.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. Expenditures for maintenance, repairs and renewals of relatively
minor items are charged to expense as incurred. Significant additions, along
with interest incurred during the construction period for expansion at the
Company's resorts, are capitalized. Interest has been capitalized using the
average borrowing rate of the Company. Interest capitalized for the years ended
June 30, 2000, 1999 and 1998 totaled $2.8 million, $5.2 million and $1.3
million, respectively. Depreciation and amortization has been computed using the
straight-line method over the following estimated useful lives:
YEARS
-----
Building and improvements................................... 40
Land improvements........................................... 15
Leasehold improvements...................................... 5-20
Furniture, fixtures and equipment........................... 3-7
Debt Issuance Costs
Costs associated with obtaining financing have been capitalized and are
amortized on a straight-line basis (which approximates the effective interest
method) over the terms of the related debt. Debt issuance costs are included in
other assets in the accompanying Consolidated Balance Sheets.
Intangible Assets
The components of unamortized intangible assets as of June 30 were as
follows (in 000's):
2000 1999
-------- --------
Franchise fee -- Panthers................................... $ 20,057 $ 20,665
Investment in Miami Arena Contract.......................... -- 7,805
Goodwill.................................................... 89,459 87,957
-------- --------
$109,516 $116,427
======== ========
The Panthers paid a $50.0 million franchise fee to the NHL when joining the
league, of which approximately $25.7 million was allocated to the contracts of
players selected in the 1993 expansion draft. The allocation was based upon an
independent appraisal of the fair value of the player contracts and has been
fully amortized. The remaining portion of the Panthers' franchise fee is being
amortized on a straight-line basis over 40 years. Accumulated amortization at
June 30, 2000 totaled $29.9 million.
Decoma had a contract (the "MAC") with the Miami Sports and Exhibition
Authority ("MSEA"), an agency of the City of Miami, to operate the Miami Arena
through July 8, 2020. The MAC was terminated June 30, 2000 pursuant to a
settlement agreement between MSEA and Decoma whereby Decoma was paid a
termination fee of $10.5 million. A portion of such proceeds will be allocated
to outside minority interest holders. The gain on settlement of approximately
$797,000 is included in interest and other income in the accompanying
Consolidated Statements of Operations.
Goodwill represents the excess of the cost over the fair value of net
assets of the acquired business. Goodwill is stated at amortized cost and is
amortized on a straight-line basis over 40 years. Accumulated amortization at
June 30, 2000 totaled $5.1 million.
31
34
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Impairment of Long-Lived Assets
The carrying value of long-lived assets, including intangible assets, is
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that long-lived assets will not be recoverable based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the carrying value of the long-lived assets will be reduced by the
amount by which the carrying value exceeds fair value. Fair value is determined
using management's best estimate of the discounted net operating cash flows over
the remaining life of the assets.
Financial Instruments and Hedging Activities
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
about Fair Value of Financial Instruments" requires disclosure of the fair value
of financial instruments held by the Company. The carrying amounts of cash and
cash equivalents, restricted cash, accounts receivable, accounts payable and
short-term debt approximates fair value due to their short-term nature. The
carrying amounts of Premier Club notes receivable and long-term debt
approximates fair value based on discounted future cash flows. The carrying
amount of the Company's senior subordinated notes payable is $340.0 million,
compared to an estimated fair value of $318.1 million which is based on the
quoted market price as of June 30, 2000 in the over-the-counter bond market. The
fair value of Premier Club refundable membership fees can not be reasonably
estimated based on the uncertainty of the maturity. The Company has an interest
rate swap contract to hedge the effects of changes in interest rates on its
indebtedness secured by the Boca Raton Resort and Club. See Note 8. The carrying
amount of the Company's interest rate swap contract approximates fair value.
Revenue Recognition
Revenue associated with room rentals, food and beverage sales and other
recreational amenity use at the Company's resort properties is recognized when
services are rendered. Deferred revenue arises as a normal part of business for
advance payments for resort accommodations, club membership dues and club
initiation fees. Annual membership dues from the Company's Premier Clubs are
recognized ratably over the membership year. Initiation fees associated with
Premier Club memberships originating after December 31, 1997 are non-refundable
and are deferred and recognized as revenue over the estimated life of the
membership. Initiation fees relating to club memberships originating prior to
December 31, 1997 are fully refundable and, accordingly, are reflected as a
liability captioned Premier Club refundable membership fees in the accompanying
Consolidated Balance Sheets. See Note 10.
Receipts from tickets, broadcasting, advertising and promotions associated
with the Panthers are recorded as revenue on a per game basis over the NHL
regular season. Deferred revenue arises as a normal part of business from
advance payments for Panthers' season tickets, suite accommodations and
advertising.
Player Contract Costs
Player salaries are recorded on a per day basis during the regular season.
Player signing bonuses are amortized over the life of the player contract.
Employment contracts with certain players require future compensation under
certain circumstances. These contracts are generally performance in nature and,
accordingly, related payments are charged to operations over the contract
playing seasons.
The Company has obtained disability insurance policies for several of its
players under multi-year contracts. Benefits become payable to the Company after
thirty consecutive games are missed by the insured player. The policies provide
for payment of a portion of the player's salary for the remaining term of the
contract or until the player can resume playing.
32
35
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Expense
The Company expenses advertising costs the first time the advertising takes
place. Advertising expense was $8.1 million, $7.2 million and $5.3 million for
the years ended June 30, 2000, 1999 and 1998, respectively. Prepaid advertising
for each of the periods presented was not material.
Costs of Start-Up Activities
Pre-operating, pre-opening, research and development and organization costs
are expensed as incurred.
Income Taxes
The Company accounts for income taxes under the asset and liability method
in accordance with SFAS No. 109, "Accounting for Income Taxes". See Note 17.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company has elected to account for stock option grants in accordance
with APB No. 25 "Accounting for Stock Issued to Employees" and, accordingly,
recognizes no compensation expense in connection with stock option grants made
to employees. See Note 11.
Earnings Per Common Share
The Company adopted SFAS No. 128, "Earnings Per Share" during fiscal 1998
and has presented a dual presentation of basic and diluted earnings per share.
Basic earnings per share equals net income divided by the number of weighted
average common shares outstanding. Diluted earnings per share includes the
effects of common stock equivalents to the extent they are dilutive. Warrants
totaling 325,000, 1,259,905 and 1,694,810 for the years ended June 30, 2000,
1999 and 1998, respectively, were antidilutive and have been excluded. Options
totaling 5,240,374, 4,357,476 and 2,743,291 for the years ended June 30, 2000,
1999 and 1998, respectively, were antidilutive and have been excluded. The
following table sets forth weighted average shares used to compute basic and
diluted earnings per share (in 000's):
2000 1999 1998
------ ------ ------
Basic weighted average shares outstanding................... 40,861 36,993 34,334
Stock options............................................... 7 153 554
------ ------ ------
Diluted weighted average shares outstanding................. 40,868 37,146 34,888
====== ====== ======
Shareholders' Equity
In connection with the acquisition of the Boca Raton Resort and Club, the
Company issued rights to acquire 4,242,586 shares of Class A Common Stock for no
additional consideration. As of June 30, 2000, 1.8 million shares of Class A
Common Stock have been reserved for issuance in connection with the exchange
rights. Such shares have been reflected as issued in the accompanying
Consolidated Balance Sheets. Upon issuance of the shares, the tax effect of the
book-tax bases difference resulting from the exchange is reflected as an
adjustment to contributed capital in the accompanying Consolidated Statements of
Shareholders' Equity.
Comprehensive Income
Comprehensive income was the same as net income for the years ended June
30, 2000, 1999 and 1998.
33
36
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impact of Recently Issued Accounting Standards
In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," which amends SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 was previously amended by SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133," which deferred the effective date of
SFAS No. 133 to fiscal years commencing after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, and for hedging activities be recorded in the balance sheet as either
an asset or liability measured at its fair value. The Company believes the
adoption of SFAS No. 133, as amended by SFAS No. 138 will not have a material
impact on the financial position or results of operations and will adopt such
standards on July 1, 2000, as required.
In June 2000, the FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation", ("FIN 44") an interpretation
of APB Opinion No. 25. This interpretation is effective July 1, 2000, but
certain conclusions in this interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. The Company adopted FIN 44
in fiscal 2000. The adoption of FIN 44 did not have a material effect on the
Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The adoption of SAB 101 did not have a material effect on the Company's
operations or financial position.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid totaled $53.1 million, $51.1 million and $22.3 million during
the years ended June 30, 2000, 1999 and 1998, respectively. Income taxes paid
during the years ended June 30, 2000 and 1999 totaled $54,000 and $380,000,
respectively. No income taxes were paid during the year ended June 30, 1998.
The Company issued shares of Class A Common Stock and warrants and exchange
rights to acquire shares of Class A Common Stock totaling 50,000, 62,830 and
1,743,174 in connection with business acquisitions during the years ended June
30, 2000, 1999 and 1998, respectively. The value of the shares issued or
issuable during the years ended June 30, 2000, 1999 and 1998 was $539,000,
$549,000 and $19.2 million, respectively.
4. ACQUISITIONS
Acquisitions of resort businesses discussed below have been accounted for
under the purchase method of accounting and are included in the historical
financial statements from the date of acquisition. No significant business
acquisitions were made during the years ended June 30, 2000 and 1999.
In April 1998, the Company acquired the Edgewater Beach Hotel for $41.2
million, $20.7 million of which was paid in cash at closing and $20.5 million of
which was paid in cash in September 1998.
In March 1998, the Company acquired the Arizona Biltmore Resort and Spa in
exchange for (1) payment of $126.0 million in cash at closing, (2) payment of
$99.8 million in cash in December 1998, (3) payment of $500,000 in cash in
August 1999, (4) warrants to purchase 500,000 shares of Class A
34
37
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common (which were repurchased during the year ended June 30, 2000) and (5) the
assumption of $63.1 million of debt. The Company also agreed to pay up to $50.0
million to the sellers conditioned upon their satisfactory execution of certain
developmental plans. The plans were delivered to the Company in acceptable form
in December 1998. The obligation was recorded as an increase to intangible
assets and notes payable. The $50.0 million was payable in three equal annual
cash installments, the last of which is due in April 2001.
In November 1997, the Company acquired certain assets associated with
Grande Oaks Golf Club (formerly known as Rolling Hills Golf Club) in exchange
for $8.0 million in cash. The assets acquired consist of an 18-hole golf course
and a separate 9-hole golf course, a parking lot and 86 acres of undeveloped
land adjacent to the golf course. Since its acquisition, the Company has
redesigned the golf course and constructed a new clubhouse that was reopened in
June 1999.
In August 1997, the Company acquired the Registry Resort at Pelican Bay for
(1) 918,174 shares of Class A Common Stock, (2) warrants to purchase 325,000
shares of Class A Common Stock (300,000 of which are exercisable at $25.85 per
share and 25,000 of which are exercisable at $23.50 per share) and (3) $106.1
million in cash. The warrants vested on a quarterly basis and became fully
exercisable on December 31, 1999. The warrants expire in October 2003.
5. PREMIER CLUB NOTES RECEIVABLE
The Company offers internal financing to qualified purchasers of Premier
Club memberships. Based on the terms of the agreements, the membership notes
will be collected as follows (in 000's):
2001........................................................ $ 4,001
2002........................................................ 2,804
2003........................................................ 2,243
2004........................................................ 1,517
2005........................................................ 737
Thereafter.................................................. 186
-------
$11,488
=======
6. PROPERTY AND EQUIPMENT, NET
A summary of property and equipment at June 30 is as follows (in 000's):
2000 1999
---------- ----------
Land and land improvements.................................. $ 336,681 $ 324,114
Buildings and improvements.................................. 701,367 665,108
Furniture, fixtures and equipment........................... 87,487 70,986
Construction in progress.................................... 13,960 19,477
---------- ----------
1,139,495 1,079,685
Less: accumulated depreciation and amortization............. (76,853) (47,188)
---------- ----------
$1,062,642 $1,032,497
========== ==========
Depreciation and amortization expense on property and equipment included in
the Consolidated Statements of Operations was approximately $32.8 million, $28.3
million and $19.0 million for the years ended June 30, 2000, 1999 and 1998,
respectively.
35
38
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of June 30 consists of the
following (in 000's):
2000 1999
------- -------
Accounts payable............................................ $17,450 $14,043
Other accrued liabilities................................... 15,692 23,600
Accrued interest payable.................................... 7,260 6,530
Accrued payroll and related costs........................... 6,464 6,815
Accrued property taxes...................................... 5,865 6,190
Income taxes payable........................................ 4,228 --
------- -------
$56,959 $57,178
======= =======
8. CREDIT LINES AND NOTES PAYABLE
Credit lines and notes payable at June 30 is as follows (in 000's):
2000 1999
-------- --------
Revolving line-of-credit collateralized by all assets of
Pier 66, Bahia Mar, Registry Resort and Edgewater Beach
Hotel, variable interest rate (9.68% at June 30, 2000) due
April 20, 2002............................................ $ 18,070 $ 41,820
Note payable to seller, no stated interest rate, 8.8%
imputed interest rate, due on April 1, 2001............... 15,942 29,903
Mortgage note payable, collateralized by substantially all
Arizona Biltmore property and equipment, fixed interest
rate of 8.25%, due July 1, 2016........................... 60,040 61,446
Senior note payable to bank, secured by a first mortgage and
lien on all Boca Resort assets, fixed interest rate of
9.0% under swap agreement, due on August 22, 2001......... 102,000 107,000
Construction loan with bank, secured by certain land, fixed
interest rate of 7.6%, due on January 29, 2001............ 11,700 3,436
Capital lease on operating equipment, fixed interest rate of
8.0%, due on November 15, 2003............................ 743 --
Revolving credit facility with bank, collateralized by all
assets of the Panthers, variable interest rate (9.18% at
June 30, 2000), paid on July 31, 2000..................... 34,700 --
Note payable to seller, fixed interest rate of 2.5%......... -- 500
-------- --------
Total outstanding including current portion....... $243,195 $244,105
======== ========
Under the indebtedness secured by the Boca Raton Resort and Club, the
Company is charged a variable interest rate equal to the London Interbank
Offered Rate ("LIBOR") plus 2.25%. The Company has entered into an interest rate
swap agreement to hedge the effects of changes in interest rates on such
indebtedness. The Company does not use derivative financial instruments for
trading purposes. The swap involves the exchange of the variable interest rate
(LIBOR or 6.684% at June 30, 2000) with a fixed interest rate (6.7775%) without
exchanging the notional principal amount. This interest rate swap agreement is
denominated in dollars, has a notional principal amount of $102.0 million and
matures in August 2001. The fair value of the interest rate swap agreement was
nominal at June 30, 2000 and represented the spread between the interest rate
the Company pays and the interest rate the Company will receive over the
remaining life of the agreement. The counter-party to the interest swap
agreement is a major financial institution.
36
39
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's loan agreements require the maintenance of customary capital
expenditure reserves for the replacement of assets and restrict the Company's
ability to pay dividends in certain circumstances. In addition, the Company is
required to comply with certain covenants under certain of its debt agreements
discussed above, including without limitation, requirements to maintain a
minimum net worth and maintain certain leverage ratios. The Company was in
compliance with these covenants at June 30, 2000. The Company's availability
under its revolving line-of-credit at June 30, 2000 was $127.9 million. Minimum
principal payments required on the Company's credit lines and notes payable for
each of the five fiscal years subsequent to fiscal 2000 and thereafter are as
follows (in 000's):
2001........................................................ $ 71,049
2002........................................................ 114,924
2003........................................................ 2,013
2004........................................................ 2,060
2005........................................................ 2,107
Thereafter.................................................. 51,042
--------
$243,195
========
9. SENIOR SUBORDINATED NOTES PAYABLE
On April 21, 1999, the Company issued $340.0 million aggregate principal
amount of 9.875% senior subordinated notes due April 15, 2009 (the "Notes") in a
private placement offering (the "Offering"). The Notes were subsequently
registered with the Securities and Exchange Commission. Interest on the Notes is
payable semiannually on April 15 and October 15 of each year, commencing October
15, 1999. The Notes are redeemable at the option of the Company, in whole or in
part, in cash, on or after April 15, 2004, together with accrued and unpaid
interest, if any, to the date of redemption. The optional redemption prices for
the twelve month periods beginning April 15 are: 2004 -- 104.9375%;
2005 -- 103.2910%; 2006 -- 101.6450% and 2007 and thereafter -- 100.00%.
In addition, prior to April 15, 2002, the Company may redeem up to 35% of
the aggregate principal amount of the Notes with the proceeds of one or more
public equity offerings, at a redemption price equal to 109.875% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption, provided that at least 65% of the Notes remains outstanding after
any such redemption. The Notes are senior obligations of the Company and rank
pari passu in right of payment with all existing and future senior indebtedness
of the Company and rank senior in right of payment to all existing and future
subordinated obligations of the Company. None of the assets of the Company
secure its obligations under the Notes, and the Notes are effectively
subordinated to secured indebtedness of the Company to any third party to the
extent of assets serving as security.
The Notes are unconditionally guaranteed, jointly and severally, by each of
the Company's existing and future domestic subsidiaries (the "Subsidiary
Guarantors"). The Note guarantees are senior obligations of the Subsidiary
Guarantors and rank pari passu in right of payment with all existing and future
senior indebtedness of such Subsidiary Guarantors and senior in right of payment
to all existing and future subordinated indebtedness of such Subsidiary
Guarantors.
The Notes contain certain covenants limiting the Company's ability to incur
additional indebtedness, pay dividends and make investments and other restricted
payments, enter into transactions with 5% stockholders or affiliates, create
liens, and sell assets. The Company was in compliance with these covenants at
June 30, 2000. Additionally, certain asset sales or specific kinds of change of
control may require the Company to offer to repurchase the Notes. In connection
with the Offering, the Company charged to operations debt issuance costs
relating to certain extinguished debt and recognized a $4.3 million
extraordinary loss during the year ended June 30, 1999.
37
40
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. PREMIER CLUB REFUNDABLE MEMBERSHIP FEES
Fully paid initiation fees associated with Premier Club memberships at the
Boca Raton Resort and Club executed prior to December 31, 1997 are refundable
upon the death of a member or a member's spouse and upon the expiration of the
30-year membership term (subject to renewal at the member's option). The fee is
also refundable upon a member's resignation from the Premier Club, but only out
of the proceeds of subsequent new members to join the Premier Club following
refund of all previously resigned members' fees. If any member paying over time
suspends payment, amounts paid to date are forfeited and recognized as income.
Amounts forfeited to date have not been material. Premier Club refundable
membership fees of approximately $60.4 million and $62.9 million at June 30,
2000 and 1999, respectively, have been reflected as a non-current liability in
the Company's Consolidated Balance Sheets.
11. STOCK OPTIONS
The Company has a stock option plan under which options to purchase shares
of common stock may be granted to key employees and directors of the Company.
Options granted under the plan are non-qualified and are granted at a price
equal to the fair market value of the common stock at the date of grant.
Generally, options granted will have a term of ten years from the date of grant,
and will vest in increments of 25% per year over a four-year period on the
annual anniversary of the date of grant. A summary of stock option transactions
for the three years ended June 30, 2000 is as follows:
NUMBER OF NUMBER OF NUMBER OF
SHARES OPTIONS RANGE IN OPTIONS
RESERVED OUTSTANDING OPTION PRICES EXERCISABLE
---------- ----------- --------------- -----------
Balance at June 30, 1997............. 571,858 2,028,142 $10.00 - $27.30 --
Additional shares reserved under
plan............................... 2,400,000 -- --
Granted.............................. (1,402,414) 1,402,414 $17.25 - $23.25
Exercised............................ -- (40,614) $10.00
Forfeited............................ 93,748 (93,748) $10.00 - $26.38
---------- ---------
Balance at June 30, 1998............. 1,663,192 3,296,194 $10.00 - $27.30 466,422
Granted.............................. (1,293,433) 1,293,433 $ 9.31 - $10.38
Exercised............................ -- (2,000) $10.00
Forfeited............................ 132,743 (132,743) $10.00 - $26.38
---------- ---------
Balance at June 30, 1999............. 502,502 4,454,884 $ 9.31 - $27.30 1,247,273
Additional shares reserved under
plan............................... 2,500,000 -- --
Granted.............................. (855,000) 855,000 $ 9.50 - $ 9.75
Exercised............................ -- (4,702) $10.00
Forfeited............................ 162,538 (162,538) $ 9.75 - $27.30
---------- ---------
Balance at June 30, 2000............. 2,310,040 5,142,644 $ 9.31 - $26.38 2,269,633
========== =========
38
41
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average exercise price and weighted average remaining
contractual life of the Company's outstanding options at June 30, 2000 is set
forth below.
WEIGHTED (VESTED ONLY)
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE AVERAGE
OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------ ----------- ----------- -------- ----------- -------------
$ 9.38 - $10.38.................. 2,895,903 8.2 years $ 9.67 902,901 $ 9.79
$16.63 - $19.19.................. 1,284,904 7.5 years 17.39 646,952 17.39
$21.13 - $27.30.................. 961,837 6.9 years 25.53 719,780 25.54
--------- ---------
5,142,644 2,269,633
========= =========
The weighted average exercise price of all options at June 30, 2000, 1999
and 1998 was $14.56, $15.53 and $17.93, respectively. Pro forma information
relating to net income and earnings per share is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions for the year ended June 30:
2000 1999 1998
---------- ----------- -----------
Pro forma net income (loss)(a)................... $8,390,000 $(2,210,000) $(4,924,000)
Pro forma net income (loss) per share............ $ 0.21 $ (0.06) $ (0.14)
Pro forma weighted average fair value of options
granted........................................ $ 6.99 $ 7.83 $ 8.91
Risk free interest rate.......................... 6.00% 6.35% 6.35%
Expected lives................................... 6 years 6 years 6 years
Expected volatility.............................. 30% 42% 42%
- ---------------
(a) Substantially all compensation expense included in the pro forma income
(loss) for the year ended June 30, 2000 and 1999 relates to options with
exercise prices higher than the current market price of the Class A Common
Stock.
12. COMMITMENTS AND CONTINGENCIES
Capital Expenditures
At June 30, 2000, the Company had commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $7.3 million
primarily associated with expansion projects at the Boca Raton Resort and Club
and Registry Resort at Pelican Bay.
Leases
The Company leases the Bahia Mar resort site from the City of Fort
Lauderdale under an operating lease, which has a term through August 31, 2062.
Under the lease agreement, the Company is required to pay annual rent equal to
the greater of a percentage (4.0% through September 30, 2012 and 4.25%
thereafter) of annual gross operating revenue, as defined, or a $300,000 minimum
annual rent (escalating after September 2037). Rent expense under this lease
totaled $850,000, $785,000 and $775,000 for the years ended June 30, 2000, 1999
and 1998, respectively. The lease agreement also requires the Company to set
aside 3% of Bahia Mar's revenue annually, as defined in the lease agreement, for
the purchase, replacement and upgrade of furniture, fixtures and equipment. All
such restricted funds have been spent on their required purpose through June 30,
2000.
39
42
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease obligations under various noncancellable operating
leases with initial terms in excess of one year at June 30, 2000 (including the
lease described in the preceding paragraph) are as follows (in 000's):
2001........................................................ $ 2,696
2002........................................................ 2,099
2003........................................................ 1,216
2004........................................................ 451
2005........................................................ 302
Thereafter.................................................. 17,102
-------
$23,866
=======
As of June 30, 2000, the Company has two letters of credit, which secure
two operating leases. The letters of credit are collateralized by certificates
of deposit totaling $500,000, which matured in July 2000 (and were rolled-over)
and are included in restricted cash.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements primarily with various
player and non-player employees that expire at various dates through June of
2002. The terms of these employment agreements require future payments,
excluding bonuses, at June 30, 2000 as follows (in 000's):
2001........................................................ $36,995
2002........................................................ 26,428
2003........................................................ 15,233
2004........................................................ 10,000
-------
$88,656
=======
Certain minor league player contracts contain provisions for players to be
paid a higher salary should they be called up to the NHL. The contractual
obligations presented above reflect only the minor league obligations for these
players.
National Car Rental Center ("NCRC")
In June 1996, the Company entered into a 30-year license agreement (the
"Broward License Agreement") for the use of the NCRC. In connection therewith,
the NCRC generates revenue from its operations. The Company believes that the
revenue generated from the operations of the NCRC will be sufficient to cover
its contracted share of the county's annual debt service obligation (the "County
Preferred Revenue Allocation"). The Company has provided Broward County a
guaranty pursuant to which the Company will be obligated to pay the County
Preferred Revenue Allocation. The Broward License Agreement may be extended for
additional five-year periods, subject to certain conditions.
The NCRC provides a variety of revenue streams to the Company, including
suite and premium club seat sales, building advertising, parking, concessions,
and net revenue generated from other entertainment events held at the arena.
Many of these revenue streams are committed to on a multi-year basis. The
Company is entitled to retain (1) 95% of all revenue derived from the sale of
general seating tickets to the Panthers' home games and 100% of certain other
hockey-related advertising and merchandising revenue and (2) the first $14.0
million of net operating income generated by the NCRC, on an annual basis, and
80% of all net operating income in excess of $14.0 million generated by the
NCRC, with Broward County receiving the remaining 20%. "Net operating income" is
defined as revenue from building naming rights fees, food and beverage
concessions, parking, non-hockey-related advertising and all other revenue
generated from non-hockey-related
40
43
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
events offset by certain arena operating and financing costs including the
County Preferred Revenue Allocation.
The Company is obligated to pay rent in the amount of approximately $7,500
per home game played by the Panthers at the NCRC and to pay certain utility and
event staffing expenses, but the combined amounts payable by the Panthers under
the Broward License Agreement will not exceed 5% of the gross receipts from the
sale of general seating tickets to Panthers' home games.
Litigation
Decoma entered into a contract with MSEA to operate the Miami Arena through
July 8, 2020. In a complaint filed in the Eleventh Judicial Circuit in and for
Dade County, Florida on June 17, 1996, subsequently amended on December 5, 1997,
Decoma sought, among other relief, a declaration that the contract had been
breached by MSEA's improper transfer to the City of Miami of certain tax revenue
that MSEA had pledged under the contract for the benefit of the Miami Arena and
other limited applications. The MAC and Decoma's obligation to operate the Miami
Arena was terminated June 30, 2000 pursuant to a settlement agreement between
MSEA and Decoma whereby Decoma was paid a termination fee of $10.5 million. By
contract, portions of this termination fee have been allocated to certain
vendors and minority partners of Decoma.
The Company is not involved in any material legal proceedings. However, the
Company may from time to time become a party to legal proceedings arising in the
ordinary course of business, which are incidental to the business. While the
results of proceedings which arose in the normal course of business cannot be
predicted with certainty, management believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, consolidated cash
flows or consolidated financial position.
Environmental Matters
Under various federal, state, and local environmental laws and regulations,
an owner or operator of real property may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such real property, as
well as for the costs of complying with environmental laws regulating on-going
operations. The Company may be potentially liable for any such costs in
connection with the ownership and operation of its properties. The Company has
obtained Phase I environmental site assessments for the real property on which
each of the resorts is located. In addition, Phase II environmental assessments
have been conducted at several properties. Phase I assessments are intended to
identify existing, potential and suspected environmental contamination and
regulatory compliance concerns, and generally include historical reviews of the
property, reviews of certain public records, preliminary visual investigations
of the site and surrounding properties and the preparation and issuance of
written reports. Phase II assessments involve the sampling of environmental
media, such as subsurface soil and groundwater, to confirm whether contamination
is present at areas of concern identified during the course of a Phase I
assessment.
The Phase I and Phase II assessments have not revealed any environmental
liability or compliance concerns that the Company believes would have a material
adverse effect on its business, nor is the Company aware of any such material
liability or concern. Phase I and Phase II assessments cannot provide full and
complete knowledge of environmental conditions and compliance matters.
Therefore, there can be no assurances that: (1) material environmental
liabilities or compliance concerns do not exist; (2) an identified matter that
does not appear reasonably likely to be material will not result in
significantly greater expenditures than is currently anticipated; or (3) there
are no material environmental liabilities or compliance concerns of which the
Company is unaware.
41
44
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NHL Collective Bargaining Agreement
The NHL and the NHL Players' Association entered into the NHL Collective
Bargaining Agreement on August 11, 1995, which took retroactive effect as of
September 16, 1993. The NHL Collective Bargaining Agreement, as amended, expires
in September 2004. The Panthers will be required to provide appropriate security
by September 1, 2001 to ensure a $10.0 million payment to the NHL's collective
bargaining fund by April 15, 2003. The purpose of the fund is to strengthen the
NHL's bargaining position, if necessary, upon the expiration of its current
Collective Bargaining Agreement in September 2004. The Panthers' contribution
will be returned upon the execution of a new collective bargaining agreement.
Management believes the Panthers can obtain sufficient financial resources to
fund the $10.0 million by April 15, 2003.
13. LICENSE AND FRANCHISE AGREEMENTS
Upon the acquisition of the Hyatt Regency Pier 66 Hotel and Marina, the
Company assumed the rights of the franchise agreement with Hyatt Franchise
Corporation. The franchise agreement expires in November 2014 with various early
termination provisions and liquidated damages for early termination. The
franchise agreement provides for payments of monthly royalty fees equal to 5.0%
of gross room revenue. The franchise agreement also provides for the payment of
certain Hyatt "allocable chain expenses" primarily relating to sales and
marketing. Aggregate Hyatt fees and expenses amounted to $1.4 million, $1.4
million and $1.3 million for the years ended June 30, 2000, 1999 and 1998,
respectively. The franchise agreement also requires maintenance of a customary
reserve for replacement of furniture, fixtures and equipment equal to 4.0% of
gross room revenue. All such cash has been utilized for its required purpose
through June 30, 2000.
Upon the acquisition of Radisson Bahia Mar Resort and Yachting Center, the
Company assumed the rights of a ten-year license agreement with Radisson Hotels
International, Inc. ("Radisson"). The terms of the agreement allow the Company
to operate the resort using the Radisson system. Annual fees payable to Radisson
pursuant to the agreement equal 5.0% of gross room sales. Fees paid to Radisson
pursuant to the license agreement totaled $469,000, $436,000 and $422,000 for
the years ended June 30, 2000, 1999 and 1998, respectively.
14. RELATED PARTY TRANSACTIONS
It is the Company's policy to enter into transactions with related parties
on terms that, on the whole, are no less favorable than those terms that would
be available from unaffiliated parties.
The Company pays a management fee to Huizenga Holdings, Inc., a corporation
whose sole shareholder is the Company's Chief Executive Officer and Chairman, H.
Wayne Huizenga, equal to 1% of total revenue, excluding all NHL national
television revenue, enterprise rights and expansion fees. Pursuant to the
agreement, Huizenga Holdings, Inc. provides certain accounting, administrative,
financing, tax and legal services to the Company. Such fees totaled
approximately $4.1 million, $3.9 million and $2.9 million for the years ended
June 30, 2000, 1999 and 1998, respectively, and are reflected in corporate
overhead as a component of selling, general and administrative expenses in the
accompanying Consolidated Statements of Operations.
The Company paid Callaghan & Partners, Ltd. $501,000 and $1.0 million for
construction and development services during the years ended June 30, 2000 and
1999, respectively. The Company is obligated to pay Callaghan & Partners, Ltd.
1.5% of the budgeted construction and development cost of certain approved
projects. As of June 30, 2000, unpaid amounts associated with such approved
projects totaled $774,000. Dennis Callaghan, a director of the Company, is
President of Callaghan & Partners, Ltd., an entity founded by Mr. Callaghan to
acquire, develop, finance, renovate and manage resorts, hotels and residential
and commercial properties in the United States and abroad.
42
45
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mr. Huizenga owned a 50% interest in Leisure Management International,
Inc., ("LMI") which managed the Miami Arena under a management agreement with
Decoma. See Note 12 -- "Litigation". LMI was sold to an unrelated party in March
2000. Under the management agreement, LMI received from Decoma management fees
of approximately $142,000, $150,000 and $137,000 for the years ended June 30,
2000, 1999 and 1998, respectively. The Company also entered into an agreement
with LMI to manage the NCRC and incurred management fees of approximately
$205,000 and $200,000 for the years ended June 30, 2000 and 1999, respectively.
The Panthers have a contract with SportsChannel Florida, a Florida limited
partnership, 70% of which was owned by Mr. Huizenga until January 2000, when
such entity was sold. Under the terms of the existing contract, the Panthers
granted local television broadcast and pay television rights, exclusively to
SportsChannel Florida. Aggregate payments by SportsChannel Florida totaled $5.5
million ($2.5 million of which was paid before SportsChannel Florida was sold to
the unrelated party), $3.1 million and $2.8 million for the years ended June 30,
2000, 1999 and 1998, respectively.
15. OPERATIONS BY BUSINESS SEGMENT
The Company has two reportable business segments. These business segments
have separate management teams and infrastructures that offer different products
and services. The leisure and recreation business primarily consists of the
ownership and operation of six luxury resorts with hotels, conference
facilities, golf courses, spas, marinas and private clubs. The entertainment and
sports business includes the operations of the Panthers and the NCRC. The
Company evaluates performance and allocates resources based on operating income
(loss). Operating income is defined as operating profit (loss) prior to interest
income, interest expense, other income, income taxes and minority interest. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies. The following table presents
financial information relating to the Company's business segments as of and for
the years ended June 30 (in 000's):
2000 1999 1998
---------- ---------- ----------
Revenue:
Leisure and recreation........................... $ 361,360 $ 327,001 $ 252,603
Entertainment and sports......................... 60,187 62,608 40,642
---------- ---------- ----------
$ 421,547 $ 389,609 $ 293,245
========== ========== ==========
Amortization and depreciation:
Leisure and recreation........................... $ 34,265 $ 28,225 $ 17,950
Entertainment and sports......................... 1,898 2,833 5,168
Corporate........................................ 171 118 37
---------- ---------- ----------
$ 36,334 $ 31,176 $ 23,155
========== ========== ==========
Operating income (loss):
Leisure and recreation........................... $ 81,204 $ 71,017 $ 52,769
Entertainment and sports......................... (8,515) (1,541) (20,447)
Corporate........................................ (10,233) (9,297) (9,814)
---------- ---------- ----------
$ 62,456 $ 60,179 $ 22,508
========== ========== ==========
Capital expenditures:
Leisure and recreation........................... $ 63,048 $ 98,413 $ 50,292
Entertainment and sports......................... 362 1,397 530
Corporate........................................ 35 102 384
---------- ---------- ----------
$ 63,445 $ 99,912 $ 51,206
========== ========== ==========
43
46
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 1999 1998
---------- ---------- ----------
Assets:
Leisure and recreation........................... $1,210,052 $1,188,606 $1,046,074
Entertainment and sports......................... 73,673 76,757 76,441
Corporate........................................ 14,798 19,541 5,692
---------- ---------- ----------
$1,298,523 $1,284,904 $1,128,207
========== ========== ==========
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- ------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Revenue................................ 2000 $ 54,098 $114,637 $154,477 $98,335 $421,547
1999 $ 52,459 $105,700 $143,518 $87,932 $389,609
1998 $ 32,949 $ 76,580 $105,752 $77,964 $293,245
Operating income (loss)................ 2000 $(17,803) $ 16,708 $ 48,757 $14,794 $ 62,456
1999 $ (9,585) $ 20,452 $ 43,255 $ 6,057 $ 60,179
1998 $ (9,246) $ 4,451 $ 22,306 $ 4,997 $ 22,508
Net income (loss)...................... 2000 $(31,034) $ 3,532 $ 33,161 $ 7,827 $ 13,486
1999 $(20,046) $ 8,986 $ 26,028 $(9,567) $ 5,401
1998 $(12,157) $ 1,161 $ 13,919 $(1,650) $ 1,273
Basic and diluted net income (loss) per
share................................ 2000 $ (0.76) $ 0.09 $ 0.81 $ 0.19 $ 0.33
1999 $ (0.57) $ 0.26 $ 0.70 $ (0.23) $ 0.15
1998 $ (0.38) $ 0.03 $ 0.39 $ (0.05) $ 0.04
The Company's revenue and income are seasonal in nature and are directly
affected by the strength and seasonality of the tourism and leisure industry.
Tourism is dependent upon weather and the traditional seasons for travel. In
addition, the Company's entertainment and sports businesses are seasonal.
Because of this variability in demand, the Company's quarterly revenue may
fluctuate, and revenue for the first quarter of each year can be expected to be
lower than the remaining quarters. Although the historical trend in quarterly
revenue for the second, third and fourth quarters of each year is generally
higher than the first quarter, there can be no assurance that this will occur in
future periods. Accordingly, quarterly or other interim results should not be
considered indicative of results to be expected for any quarter or for the full
year.
44
47
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. INCOME TAXES
There is no net current or deferred tax expense for the years ended June
30, 1999 and 1998. The Company reduced its valuation allowance relating to net
operating loss carryforwards to offset income in 2000, 1999 and 1998.
Realization of the future tax benefits related to deferred tax assets is
dependent on many factors, including the Company's ability to generate future
taxable income. Management has considered these factors in reaching its
conclusion as to the need for a valuation allowance for financial reporting
purposes. The income tax effect of temporary differences comprising the deferred
tax assets and deferred tax liabilities in the accompanying Consolidated Balance
Sheets is set forth below (in 000's):
2000 1999
-------- --------
Deferred tax assets:
Federal and state tax operating loss and general tax
credit carryforwards................................... $ 1,635 $ 4,597
Deferred revenue and other................................ 11,408 6,177
Deferred tax liabilities:
Book basis in property over tax basis..................... (45,939) (42,233)
Valuation allowance....................................... (2,747) (7,398)
-------- --------
Net deferred tax (liabilities) assets..................... $(35,643) $(38,857)
======== ========
The components of the provision for income taxes for the year ended June
30, 2000 is set forth below (in 000's).
Current:
Federal................................................... $ 5,889
State..................................................... 672
Federal and state deferred benefit.......................... (1,910)
Change in valuation allowance............................... (4,651)
-------
Provision for income taxes.................................. $ --
=======
A reconciliation between the statutory federal income tax expense and the
income tax expense at the Company's effective rate for the period ended June 30,
2000, 1999 and 1998 is set forth below (in 000's).
2000 1999 1998
------- ------- -----
Computed expected income tax expense based on statutory
federal income tax rate................................... $ 4,720 $ 1,836 $ 433
State income taxes, net of federal benefit.................. 539 484 114
Non-deductible amortization................................. 782 286 507
Non-deductible expenses..................................... 384 -- --
Credit for employer taxes................................... (703) -- --
Decrease in valuation allowance............................. (4,651) (3,010) (816)
Other, net.................................................. (1,071) 404 (238)
------- ------- -----
Provision for income taxes.................................. $ -- $ -- $ --
======= ======= =====
The Company has no available net operating loss carryforwards to offset
future taxable income.
18. EMPLOYEE BENEFITS
Certain of the Company's employees are participants in a qualified 401(k)
Savings and Retirement Plan (the "401(k)"), a defined contribution plan. The
401(k) is available to employees over the age of 21 with at least one year of
service who work a minimum of 1,000 hours per year. The Company may match a
45
48
BOCA RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discretionary percentage of the amount contributed by the participant up to a
limit of 6% of annual compensation. Employees may contribute up to 10% of their
annual compensation. Participants are automatically vested in compensation
deferrals. Vesting in Company matching contributions is at the rate of 20% each
year, after one year of plan participation, reaching 100% after five years. The
Company did not make any matching contributions during the years ended June 30,
2000, 1999 or 1998.
The Boca Raton Resort and Club has in place a non-qualified 401(a) Plan
(the "Boca Plan") for which substantially all of its employees are eligible to
participate. The Boca Plan allows participants to contribute up to 16% of their
total compensation. The Company is required to contribute 50% of the first 6% of
the employee's earnings.
The Club's NHL hockey players are covered under the NHL Club Pension Plan
and Trust (the "Pension Plan") which is administered by the NHL and represents a
multi-employer defined contribution plan. The Club's contributions to the
Pension Plan totaled $165,000, $172,000 and $148,000 for the years ended June
30, 2000, 1999 and 1998, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10, 11, 12 and 13 of Part III of Form
10-K will be set forth in the Proxy Statement of the Company relating to the
Company's 2000 Annual Meeting of Stockholders and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements of the Company are set forth in Part II, Item
8.
(2) All Financial Statement Schedules are omitted because they are not
applicable, are not present in amounts sufficient to require submission of
the schedules or the required information is presented in the Consolidated
Financial Statements or related notes.
(3) Exhibits -- (See Index to Exhibits included elsewhere herein.)
(b) Reports on Form 8-K
None.
46
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
BOCA RESORTS, INC.
By: /s/ WILLIAM M. PIERCE
------------------------------------
William M. Pierce
Senior Vice President, Treasurer and
Chief Financial Officer
September 28, 2000
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William M. Pierce and Richard L. Handley as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ H. WAYNE HUIZENGA Chairman of the Board September 28, 2000
- ----------------------------------------------------- (Principal Executive
H. Wayne Huizenga Officer)
/s/ RICHARD C. ROCHON Vice Chairman and President September 28, 2000
- -----------------------------------------------------
Richard C. Rochon
/s/ WILLIAM M. PIERCE Chief Financial Officer, September 28, 2000
- ----------------------------------------------------- Treasurer and Senior Vice
William M. Pierce President
(Principal Financial
Officer)
/s/ STEVEN M. DAURIA Vice President and Corporate September 28, 2000
- ----------------------------------------------------- Controller (Principal
Steven M. Dauria Accounting Officer)
/s/ STEVEN R. BERRARD Director September 28, 2000
- -----------------------------------------------------
Steven R. Berrard
/s/ DENNIS J. CALLAGHAN Director September 28, 2000
- -----------------------------------------------------
Dennis J. Callaghan
47
50
SIGNATURE TITLE DATE
--------- ----- ----
/s/ EZZAT COUTRY Director September 28, 2000
- -----------------------------------------------------
Ezzat Coutry
/s/ MICHAEL S. EGAN Director September 28, 2000
- -----------------------------------------------------
Michael S. Egan
/s/ HARRIS W. HUDSON Director September 28, 2000
- -----------------------------------------------------
Harris W. Hudson
/s/ GEORGE D. JOHNSON, JR. Director September 28, 2000
- -----------------------------------------------------
George D. Johnson, Jr.
/s/ HENRY LATIMER Director September 28, 2000
- -----------------------------------------------------
Henry Latimer
48
51
EXHIBIT INDEX
EXHIBITS DESCRIPTION OF EXHIBIT
- -------- ----------------------
2.1 -- Exchange Agreement dated October 25, 1996 by and between the
Company and H. Wayne Huizenga.(1)
2.3 -- Partnership Exchange Agreement dated October 25, 1996 by and
between Florida Panthers Hockey Club, Ltd. and H. Wayne
Huizenga.(1)
2.9 -- Amended and Restated Contribution and Exchange Agreement,
dated as of March 20, 1997, by and among Florida Panthers
Holdings, Inc., Panthers BRHC Limited, Boca Raton Hotel and
Club Limited Partnership, BRMC, L.P. and BRMC
Corporation.(3)
2.10 -- Merger Agreement, dated July 8, 1997, by and among the
Company, FPH/RHI Merger Corp., Inc., ResortHill, Inc. and
Gary V. Chensoff.(4)
2.11 -- Agreement and Plan of Merger dated as of November 17, 1997
by Boca Resorts, Inc. (formerly Florida Panthers Holdings,
Inc.), a Delaware corporation.(3)
2.12 -- Contribution and Exchange Agreement dated as of December 19,
1997, by and among Boca Resorts, Inc. (formerly Florida
Panthers Holdings, Inc.), Wright-Bilt Corp., Biltmore Hotel
Partners, AZB Limited Partnership, W&S Realty Investment
Group, L.L.C., Samuel Grossman, Charles Carlisle, W. Matthew
Crow, AZ Biltmore Hotel Limited Partnership, Southwest
Associates, El Camino Associates and the Crow Irrevocable
Trust.(5)
4.1 -- Amended and Restated Loan Agreement, dated June 25, 1997,
among Panthers BRHC Limited, the banks listed on the
signature page thereto and the Bank of Nova Scotia.(4)
10.1 -- Broward County Arena License Agreement, dated as of June 4,
1996, by and between Florida Panthers Hockey Club, Ltd.,
Arena Operating Company, Ltd., and Broward County, Florida.
(1)
10.2 -- Broward County Arena Operating Agreement, dated as of June
4, 1996, by and between Arena Operating Company, Ltd. and
Broward County, Florida.(1)
10.3 -- Amendment and Clarification to Operating Agreement and
License Agreement, dated as of June 4, 1996, by and between
Florida Panthers Hockey Club, Ltd., Arena Operating Company,
Ltd. and Broward County, Florida.(1)
10.4 -- Broward County Arena Development Agreement, dated as of June
4, 1996, by and between Arena Development Company, Ltd. and
Broward County, Florida.(1)
10.5 -- Employment Agreement by and between William A. Torrey and
the Company.(1)
10.6 -- Management Agreement by and between the Company and Huizenga
Holdings, Inc.(1)
10.10 -- Second Amended and Restated 1996 Stock Option Plan.(9)
10.11 -- Concession Agreement, dated as of April 4, 1995, as amended,
by and between City of Coral Springs, Florida and Can Am
Investment Group, Inc.(2)
10.12 -- Assignment of Concession Agreement, dated as of January 31,
1997, by and between Coral Springs Ice, Ltd. and Florida
Panthers Holdings, Inc.(2)
10.15 -- Indenture dated April 21, 1999 between Boca Resorts, Inc.
(formerly Florida Panthers Holdings, Inc.), The Guarantors
and The Bank of New York as Trustee.(7)
10.16 -- Credit Agreement dated April 21, 1999 between Florida
Panthers Hotel Corporation, the Initial Lenders named
therein, Bear, Stearns & Co. Inc. as Syndication Agent and
Bankers Trust Company as Administrative Agent.(7)
21.1 -- Subsidiaries of the Company.(8)
23.1 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney (included as part of the signature page
of this Annual Report on Form 10-K.
27.1 -- 2000 Financial Data Schedule. (for SEC use only)
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(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 -- SEC File No. 333-12191.
49
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(2) Incorporated by reference to the Company's Current Report on Form 8-K filed
on February 18, 1997 -- SEC File No. 0-21435.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-4 -- SEC File 333-28951.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-1 -- SEC File No. 333-30925.
(5) Incorporated by reference to the Company's Current Report on Form 8-K Filed
on March 5, 1998, as amended by the Company's Current Report on Form 8-K/A
filed on May 15, 1998 -- SEC File No. 1-13173.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 -- SEC File No. 1-13173.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-4 -- SEC File No. 333-77945.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K For
the Fiscal Year Ended June 30, 1998 -- SEC File No. 1-13173.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-8 -- SEC File No. 333-92227.
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