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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
(CHECK ONE:)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE
ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13(A) OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998 COMMISSION FILE NUMBER: 1-14596
INTRAWEST CORPORATION
(Exact name of Registrant as specified in its charter)
BRITISH COLUMBIA
(Province or other jurisdiction of incorporation or organization)
SUITE 800, 200 BURRARD STREET
VANCOUVER, BRITISH COLUMBIA, CANADA V6C 3L6
TELEPHONE NUMBER: (604) 669-9777
(Address and telephone number of Registrant's principal executive offices)
PTSGE CORP.
5000 COLUMBIA SEAFIRST CENTER
701 FIFTH AVENUE
SEATTLE, WASHINGTON 98104
(206) 623-7580
(Name, address (including zip code) and telephone number
(including area code) of agent for service in the United States)
<TABLE>
<S> <C>
7011 N.A.
(Primary Standard Industrial (I.R.S. Employer Identification
Classification Code (if applicable)) Number (if applicable))
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
Common Shares New York Stock Exchange
</TABLE>
Securities registered or to be registered pursuant to Section 12(g) of the
Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act. None
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For annual reports, indicate by check mark the information filed with this Form:
[X] Annual information form [X] Audited annual financial statements
Indicate number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
38,359,786 common shares as at June 30, 1998
Indicate by check mark whether the Registrant by filing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
(the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to
the Registrant in connection with such Rule.
[ ]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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.
[X]
UNDERTAKING
The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to: the securities in relation to which the obligation to file an
annual report on Form 40-F arises; or transactions in the said securities.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant certifies
that it meets all of the requirements for filing on Form 40-F, and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereto duly authorized.
INTRAWEST CORPORATION
By: /s/ ROSS MEACHER
--------------------------------------
Name: Ross J. Meacher
Title: Corporate Secretary
Date: September 30, 1998
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[LOGO]
ANNUAL INFORMATION FORM
INTRAWEST CORPORATION
Suite 800
200 Burrard Street
Vancouver, B.C. V6C 3L6
September 14, 1998
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INTRAWEST CORPORATION
ANNUAL INFORMATION FORM
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Definitions and Statistical Information............. 2
The Company................................................. 3
The Mountain Resort Industry................................ 5
The Golf Industry........................................... 6
Resort Management and Development........................... 7
Resort Operations......................................... 7
Mountain Resort Properties............................. 7
Warm-Weather Destination Properties.................... 12
Sources of Resort Operations Revenue................... 12
Sponsorship and Special Events......................... 15
Information Technology................................. 15
Resort Marketing and Sales............................. 15
Resort Real Estate Development............................ 15
The Development Process................................ 16
Real Estate Properties................................. 18
Resort Club............................................ 23
Competition............................................... 24
Legal and Regulatory Matters.............................. 24
Non-Resort Assets........................................... 24
Employees................................................... 26
Selected Consolidated Financial Information................. 26
Management's Discussion and Analysis........................ 28
Market for Securities....................................... 36
Directors and Officers...................................... 36
Additional Information...................................... 38
Consolidated Financial Statements........................... F-1
</TABLE>
CERTAIN DEFINITIONS AND STATISTICAL INFORMATION
Unless the context otherwise requires, the "Company" or "Intrawest" refers
to Intrawest Corporation, either alone or together with its subsidiaries and
their respective interests in joint ventures and partnerships. Unless otherwise
specified, "fiscal" in connection with a year means, in the case of any year
prior to 1995, the 12 months ended September 30, in the case of 1995, the nine
months ended June 30 and, in the case of any year after 1995, the 12 months
ended June 30.
As used in this Annual Information Form "skier visit" means one guest
accessing a ski mountain on any one day and "unit" means one condominium-hotel
unit, one townhome unit, one single-family lot or 1,000 square feet of
commercial space.
Statistical information relating to the ski or golf industries included in
this Annual Information Form is derived by the Company from recognized industry
reports regularly published by industry associations and independent consulting
and data compilation organizations in these industries, including The National
Ski Areas Association, The Canadian Ski Council, the White Book of Ski Areas and
the National Golf Foundation.
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THE COMPANY
INCORPORATION
The Company was formed by an amalgamation on November 23, 1979 under, and
is governed by, the Company Act (British Columbia). The registered office of the
Company is located at 1300 - 777 Dunsmuir Street, Vancouver, British Columbia,
Canada V7Y 1K2, its executive office is located at Suite 800, 200 Burrard
Street, Vancouver, British Columbia, Canada V6C 3L6 and its telephone number is
(604) 669-9777. The Company maintains a web site at www.intrawest.com.
OVERVIEW
Intrawest is the leading developer and operator of mountain resorts across
North America. The Company's principal strength is its ability to combine
expertise in resort operations and real estate development. By combining high
quality resort services and amenities with innovative residential and commercial
real estate development, the Company has generated, and has implemented
strategies that it expects will continue to generate, increases in the number of
visitors, return on assets and average selling prices of real estate at its
resorts.
Intrawest's network of nine mountain resorts, which are geographically
diversified across North America's major ski regions, enables it to provide a
wide range of distinctive vacation experiences. The Company's resorts include
Whistler/Blackcomb and Panorama in British Columbia, Tremblant and Mont Ste.
Marie in Quebec, Stratton in Vermont, Snowshoe in West Virginia, Copper in
Colorado, Mountain Creek in New Jersey and Mammoth in California. During the
1997/98 ski season the Company's network of resorts generated approximately 5.5
million skier visits, which is more than the amount generated by any other North
American group of affiliated mountain resorts.
Intrawest is expanding into the development and operation of warm-weather
destination resorts with the recent acquisitions of Sandestin, the largest
resort and residential community in northwestern Florida, and of the assets of
Raven, including two resort-quality golf courses in Arizona. Intrawest also has
resort club facilities in Palm Desert, California and Hawaii. Intrawest has also
acquired a 16% equity interest in Compagnie des Alpes, a French public company
which is the world's largest ski operator in terms of skier visits.
Intrawest is North America's largest mountain resort real estate developer
with real estate sales revenue in fiscal 1998 of $226.4 million. The Company
owns, develops and manages residential and commercial resort real estate at each
of its resorts and is developing mountain resort villages at Keystone in
Colorado and Squaw Valley in California and has an exclusive right to purchase
sites for multi-family developments at Sun Peaks in British Columbia. Intrawest
owns or has rights to acquire land on which it expects to develop and sell
approximately 18,700 units over the next 12 to 15 years. The Company's resort
development formula links the staged expansion of ski, golf and other resort
operations with the planning, design and managed development of architecturally
distinct four-season resort villages. The Intrawest formula emphasizes quality
of service, comprehensive amenities, village ambience and other characteristics
which attract visitors and buyers of real estate. Intrawest has successfully
employed this formula at Blackcomb and Tremblant and, as a result, the villages
at these locations have become major attractions, drawing both skiers and
non-skiers. The Company is at various stages of applying its formula to the
extensive developable land holdings at its other resorts. The Company also
builds and operates resort club locations which are marketed as timeshare
vacation ownership resorts.
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CORPORATE STRUCTURE
The following is a list of the Company's principal subsidiaries and
partnerships accounted for as subsidiaries of the Company as at June 30, 1998,
indicating the place of incorporation/registration, and showing the percentage
of equity interest beneficially owned by the Company.
<TABLE>
<CAPTION>
PLACE OF PERCENTAGE
INCORPORATION/ EQUITY INTEREST
REGISTRATION HELD BY THE COMPANY
---------------- -------------------
<S> <C> <C>
Intrawest Resort Corporation............................... British Columbia 100
Blackcomb Skiing Enterprises Limited Partnership........... British Columbia 77
Mont Tremblant Resorts and Company, Limited Partnership.... Quebec 100
IW Resorts Limited Partnership............................. British Columbia 100
Intrawest Resort Ownership Corporation..................... British Columbia 100
Intrawest U.S.A., Inc...................................... Delaware 100
Intrawest U.S. Holdings Inc. .............................. Delaware 100
Intrawest Luxembourg S.A................................... Luxembourg 100
Mammoth Mountain Ski Area.................................. California 58.1
Snowshoe Resort, Inc....................................... West Virginia 100
Stratton Ski Corporation................................... Delaware 100
Copper Mountain, Inc....................................... Delaware 100
Whistler Mountain Resort Limited Partnership............... British Columbia 100(1)
Great Gorge Resort, Inc.................................... New Jersey 100
</TABLE>
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(1) In September 1998 Montreal Trust Company of Canada, as trustee of The Nippon
Cable Trust, and Montreal Trust Company of Canada, as trustee of The
Whistler Mountain Resort Trust, subscribed for limited partnership units
representing an aggregate 23% in Whistler Mountain Resort Limited
Partnership. The beneficiaries of these trusts are Nippon Cable Co., Ltd.
and certain of its subsidiaries.
GENERAL DEVELOPMENT OF THE BUSINESS
During the past five years, the Company has expanded its resort operations
and resort real estate development businesses. Key developments during this
period are set out below.
1994
- Effective April 1994 Intrawest sold substantially all of its industrial
and non-resort residential development properties in British Columbia and
Washington State.
- In October 1994 Intrawest acquired all of the shares of Stratton Ski
Corporation, the owner of Stratton Mountain in Vermont.
1995
- In November 1995 Intrawest purchased all of the assets of Snowshoe
Mountain in West Virginia.
- In December 1995 Intrawest acquired 33% of the shares of Mammoth
Mountain Ski Area, the owner of Mammoth Mountain in California.
1996
- In April 1996 Intrawest agreed to develop real estate property located
at the base of Mammoth Mountain in California.
- In November 1996 Intrawest entered into an option agreement with the
owner of Squaw Valley Ski Area to acquire approximately 13 acres of land
at the base of the Squaw Peak ski facilities.
1997
- In March 1997 Intrawest completed its acquisition of all of the
outstanding shares of Whistler Mountain Holdings Limited, the owner of
the ski and resort operations at Whistler Mountain in British Columbia
and certain developable real estate at the base of the mountain.
- In March 1997 Intrawest U.S. Resorts, Inc. (a wholly owned subsidiary of
the Company) completed its merger with Copper Mountain, Inc. (and its
principal shareholder, CMAT, Inc.), the owner of the ski and resort
operations at Copper Mountain in Colorado and certain developable real
estate at the base of the mountain.
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- In March 1997 Intrawest completed its acquisition of Mont Ste. Marie
(1984) Inc., the owner of the ski and resort operations at Mont Ste.
Marie in Quebec and certain developable real estate at the base of the
mountain.
- In March 1997 the Company effected a reorganization of its share capital
(the "Share Capital Reorganization") designed to separate the non-resort
assets of the Company (the "Non-Resort Assets") from the rest of the
Company's business. Under the Share Capital Reorganization, each existing
Common Share was exchanged for one new Common Share and one Non-Resort
Preferred Share ("NRP Share").
- In March 1997 the Company's Common Shares were listed for trading on the
New York Stock Exchange.
- In April 1997 the Company raised gross proceeds of $93 million from a
public offering of 4,000,000 Common Shares in Canada and the United
States.
1998
- In November 1997 the Company raised gross proceeds of $125 million from
a public offering of unsecured debentures in Canada and the United
States.
- In November 1997 Intrawest increased its percentage ownership in Mammoth
Mountain Ski Area from 33% to 51%.
- In January 1998 Intrawest's percentage ownership in Mammoth Mountain Ski
Area increased from 51% to 58%.
- In February 1998 Intrawest completed its acquisition of Mountain Creek
(formerly called Vernon Valley/Great Gorge), a ski area, summertime
waterpark and family entertainment centre in New Jersey.
- In June 1998 the Company raised gross proceeds of $110 million from a
public offering of 3,850,000 Common Shares in Canada and the United
States.
- In July 1998 Intrawest completed its acquisition of Sandestin, the owner
of a resort and residential community in northwestern Florida.
- In July 1998 Intrawest completed its acquisition of a 15.7% equity
interest in and alliance with Compagnie des Alpes, a French public
company which is the world's largest ski operator in terms of skier
visits.
- In July 1998 Intrawest completed its acquisition of Raven golf group,
owner of two golf courses in Arizona.
- In August 1998 the Company raised gross proceeds of US$125 million from
a public offering of unsecured notes in Canada and the United States.
- In September 1998 Intrawest completed its acquisition of Breeze, Inc.
("Breeze") and Max Snowboards, Inc. ("Max"), ski and snowboard equipment
rental companies.
THE MOUNTAIN RESORT INDUSTRY
There are approximately 800 ski resorts in North America of which 520 are
located in the United States and 280 are located in Canada. During the 1997/98
ski season, these resorts attracted approximately 69.4 million skier visits
(54.1 million to U.S. ski areas and 15.3 million to Canadian ski areas). The
geographic distribution of North American skier visits during the 1997/98 ski
season was as follows:
<TABLE>
<CAPTION>
PROPORTIONATE INTRAWEST RESORT
GEOGRAPHIC REGION SKIER VISITS SHARE LOCATED IN REGION
----------------- ------------ ------------- -----------------------------
(MILLIONS) (%)
<S> <C> <C> <C>
Western Canada.......................... 6.5 9.4 Whistler/Blackcomb, Panorama
Quebec.................................. 5.6 8.1 Tremblant, Mont Ste. Marie
Other Canada............................ 3.2 4.6 --
U.S. Rocky Mountains.................... 19.2 27.7 Copper
Northeast U.S........................... 12.7 18.3 Stratton, Mountain Creek
Pacific West U.S........................ 11.2 16.1 Mammoth
Midwest U.S............................. 6.7 9.7 --
Mid-Atlantic U.S........................ 4.3 6.1 Snowshoe
------- ---------
69.4 100.0
======= =========
</TABLE>
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North American ski resorts range from small regional ski areas which
primarily cater to day skiers to large amenity-filled resorts targeted to the
destination visitor. Day visitors tend to focus on lift ticket prices and
accessibility. Destination visitors stay for one or more nights, focus on the
number of amenities and activities offered as well as the perceived overall
quality of their vacation experience, are less price sensitive than day
visitors, spend more on non-lift ticket items and are less likely to change
their skiing plans because of changes in local conditions. As a result of these
differences, destination visitors generate significantly higher revenue per day
for resort owners than day visitors and provide balance to the resort's revenue
mix. The smaller day visitor ski areas predominate in terms of number of
resorts, but capture significantly less traffic than the large destination ski
areas. The National Ski Areas Association estimated that in the 1997/98 ski
season the largest 20% of ski areas accounted for approximately 80% of the total
skier visits in the United States.
Since 1985 the number of active skiers and annual skier visits in North
America has not changed significantly. During the same period, the mountain
resort industry has undergone a period of consolidation and attrition resulting
in a significant decline in the total number of ski areas in North America. The
number of North American ski resorts has declined from approximately 1,025 in
1985 to approximately 800 in 1998. The Company believes that technological
advances, most notably in the development of high-speed lifts, and rising
infrastructure costs were the driving forces behind this consolidation and will
continue to drive further consolidation as the majority of resorts lack the
capital and management ability to compete with the emerging industry leaders. In
addition, the mountain resort industry is characterized by significant barriers
to entry since the number of attractive sites is limited, the costs of resort
development are high and environmental regulations impose significant
restrictions on new development. The last new major ski facility in North
America was opened in 1981. Despite the recent consolidation trend among
destination resorts, ownership of the smaller regional resorts remains highly
fragmented. The Company believes that the continuing attrition of smaller
regional resorts will also provide growth opportunities for destination resorts
in this segment of the industry. The Company believes that trends in the
mountain resort industry will continue to provide attractive acquisition
opportunities which it will continue to evaluate. The Company may also consider
acquiring smaller regional resorts, which have a strong local following and can
provide a customer base for its other resorts, and businesses complementary to
its existing mountain resort operations.
The Company is positioned to benefit from certain recent trends and
developments which are favourably affecting the North American mountain resort
industry, including (i) demographic trends under which the large "baby boom"
generation is entering the 45 years and over age category, which is the age
group with the highest average individual skier visit frequency and the largest
number of buyers of vacation property, and the leading edge of the "echo boom"
generation has entered the teenage years, which is the prime entry age for
skiing, snowboarding and other "on-snow" sports, (ii) societal trends which
place a greater focus on leisure, fitness and outdoor activities, (iii) product
innovations such as parabolic skis which encourage broader participation,
facilitate learning and enhance performance and (iv) the rapid growth of
snowboarding, which is increasing youth and young adult participation in
mountain sports. The Company expects that the growth in snowboarding, in
particular, will continue to have a positive impact on the ski industry. In the
United States, skier visits attributable to snowboarders have increased an
average of 21% per year over the past three years and snowboarders are currently
estimated to represent 21% of all skier visits in the United States. The Company
believes that these trends and developments will continue to attract additional
destination guests and will result in growing demand from affluent families for
vacation homes in mountain resorts.
THE GOLF INDUSTRY
There are approximately 17,500 golf courses in North America -- 15,700 in
the United States and 1,800 in Canada. In 1996 there were 25 million active
golfers in the United States and 4.8 million in Canada, representing a 13%
participation rate. While participation has been relatively stable over the last
few years, consumer spending on golf has increased significantly, from US$7.8
billion in the United States in 1986 to US$15.1 billion in 1996. Revenue per
round has been driven up by increases in greens fees and higher spending on
equipment, lessons, cart rental and other services.
The same demographic trends that are impacting the mountain resort industry
are affecting golf. The aging of the "baby boom" generation is expected to
increase the number of rounds played and the average revenue per round. Today,
golfers over the age of 50 account for approximately 25% of total golfers but
they play almost 50% of the total rounds each year and they spend over 50% more
per player than younger golfers. In addition, the largest age
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group of beginners to golf is the 18-29-year old group and the leading edge of
the "echo boom" generation turned 18 in 1996. Equipment innovations, such as
over-sized golf club heads, are encouraging broader participation by
facilitating learning and enhancing performance.
The ownership of golf courses in North America is highly fragmented. In the
United States there are approximately 11,000 different golf course owners and
the top 15 course owners/managers have only 5.5% of the market in aggregate.
Similarly in Canada, less than 2% of golf courses are owned or operated by
multi-course operators. Consolidation of the golf industry has begun as many
independent owners lack the necessary capital to improve or maintain their
courses, there is a limited supply of experienced golf operating personnel, and
cost and marketing efficiencies are enhanced by the operation of multiple golf
courses. Intrawest expects to capitalize on this consolidation trend by
acquiring additional golf courses in the future.
RESORT MANAGEMENT AND DEVELOPMENT
RESORT OPERATIONS
MOUNTAIN RESORT PROPERTIES
The following table summarizes certain key statistics of each of the
Company's mountain resort locations.
<TABLE>
<CAPTION>
INTRAWEST AVERAGE SNOW- 1997/98
OWNERSHIP SKIABLE VERTICAL LIFTS ANNUAL MAKING SKIER
RESORT PERCENTAGE TERRAIN DROP TRAILS (HIGH-SPEED) SNOWFALL COVERAGE VISITS
------ ---------- ------- -------- ------ ------------ -------- -------- -------
(%) (ACRES) (FEET) (INCHES) (%) (000'S)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Blackcomb................. 77 3,414 5,280 119 17(7) 360 10 1,040
Whistler.................. 100(1) 3,657 5,020 104 15(6) 360 4 814
Mammoth................... 58.1(2) 4,000 3,100 185 38(7) 350 20 979
Copper.................... 100 2,433 2,699 118 20(5) 255 11 906
Tremblant................. 100 502 2,131 77 11(6) 140 75 615
Snowshoe.................. 100 200 1,598 56 11(2) 185 99 444
Stratton.................. 100 563 2,003 90 12(2) 180 75 427
Panorama.................. 100 2,000 4,047 80 8(1) 110 50 148
Mountain Creek............ 100 168 1,040 47 8(3) 90 100 82(3)
Mont Ste. Marie........... 100 108 1,250 24 3(2) 120 80 64
</TABLE>
- ---------------
(1) In September 1998 Montreal Trust Company of Canada, as trustee of The Nippon
Cable Trust, and Montreal Trust Company of Canada, as trustee of The
Whistler Mountain Resort Trust, subscribed for limited partnership units
representing an aggregate 23% in Whistler Mountain Resort Limited
Partnership. The beneficiaries of these trusts are Nippon Cable Co., Ltd.
and certain of its subsidiaries.
(2) Each of the shareholders of Mammoth (including the Company) has a pro rata
right of first refusal to purchase any shares of Mammoth to be sold by any
other shareholder to third parties.
(3) Mountain Creek was operated on a limited basis by its creditors through
bankruptcy proceedings during 1997/1998. Annual skier visits from 1991-1995
averaged 330,000.
WHISTLER/BLACKCOMB. Whistler/Blackcomb, located approximately 75 miles
northeast of Vancouver, British Columbia, has been rated as North America's
number one ski resort for the past seven years by Mountain Sports & Living
magazine (formerly called Snow Country magazine). The Resort Municipality of
Whistler ("Whistler Resort") is centred around the downhill ski facilities at
Whistler and Blackcomb which have been in operation since 1966 and 1980,
respectively. Whistler Resort is accessible year-round by car and railroad, as
well as by air via Vancouver's international airport. The recently completed
expansion of the Vancouver airport, combined with the "open skies policy"
between Canada and the United States, has increased direct flights from key
population centres, particularly in the United States.
Since Intrawest acquired Blackcomb in 1986, the Company has invested
approximately $130 million on capital improvements including high-speed lifts,
expanded trails, upgraded snowmaking capabilities, new restaurants and employee
housing. During this period, skier visits have increased from 278,000 to
1,040,000, a compound annual growth rate of 12%. Since 1988 Whistler has
upgraded and replaced many of its older lifts and has expanded its ancillary
facilities. Over this period, Whistler's capital expenditures have totalled
approximately $87 million, comprised of approximately $57 million spent on lifts
and the balance primarily on expanded restaurant and service
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facilities. The Company completed its acquisition of Whistler in March 1997 and
intends to make approximately $35 million in capital improvements to Whistler's
ski facilities over the next four years. These improvements are expected to
include new lifts and trails, additional snowmaking coverage and expanded
restaurant facilities.
The Company operates a 3,414-acre ski area facility at Blackcomb which has
elevations at its base of 2,214 feet and at its peak of 7,494 feet, resulting in
a vertical drop of 5,280 feet, the greatest of any North American ski resort.
Blackcomb, the only major North American mountain resort with two glaciers, is
able to offer skiing and snowboarding throughout the summer. As a result,
Blackcomb is a leading training site for ski and snowboard competitors. All of
the lifts and ski runs, and some of the buildings, are located on land leased to
Blackcomb by the Province of British Columbia under a ski area agreement which
expires in 2029. An annual lease payment currently equal to 2% of defined gross
revenue is payable by Blackcomb under this agreement.
Whistler has a 3,657-acre ski area facility which has elevations at its
base of 2,140 feet and at its peak of 7,160 feet, resulting in a vertical drop
of 5,020 feet, the second greatest of any North American ski resort. Whistler
has one glacier and seven high alpine bowls. Currently, less than two-thirds of
the skiable terrain is serviced by lifts. All of Whistler's lifts and ski runs,
and some of Whistler's buildings, are located on land leased to Whistler by the
Province of British Columbia under a ski area agreement which expires in 2032.
Pursuant to this agreement, Whistler pays an annual lease payment currently
equal to 2% of defined gross revenue.
The Company is the largest retailer in Whistler Resort with 28 retail and
equipment rental shops. The Company also has food and beverage operations at 13
restaurants and bars, having a total seating capacity of approximately 6,200.
Blackcomb's 600-person ski and snowboard school was honoured by the
Canadian Ski Council for offering the most beginner ski and snowboard lessons in
Canada during the 1996/97 ski season. The Blackcomb ski school was also rated as
Canada's number one snowboard school for the 1996/97 ski season by Snowboard
Canada magazine. Whistler's ski school offers classes for both adults and
children and employs over 400 instructors. A new 8,000-square foot children's
and youth's lodge was built in 1995 to accommodate the growing demand for this
service. The combined Whistler/Blackcomb ski school offers more Level IV
instructors than any other resort in North America.
Whistler Resort has undergone considerable development over the past
several years and now contains approximately 250 shops and restaurants, lodging
units for approximately 40,000 people and numerous galleries, recreation and
entertainment facilities. With three championship golf courses designed by
Arnold Palmer, Jack Nicklaus and Robert Trent Jones, respectively (none of which
is owned by the Company), lakes for swimming and boating, extensive mountain
biking trails and numerous festival activities, Whistler Resort draws visitors
from around the world and is a popular summer tourist attraction.
Since 1986 the Company has developed the majority of its land holdings at
the base of Blackcomb. The Company is developing, or has land available for the
development of, approximately 180 residential units at the base of Blackcomb and
approximately 1,000 residential units and 72,000 square feet of commercial space
at the base of Whistler.
COPPER. Copper is located approximately 75 miles west of Denver in Summit
County, the heart of Colorado's ski country. Copper is easily accessible by car
via Interstate 70 and by air through three airports at Denver, Colorado Springs
and Eagle.
Development of the village at Copper began in 1972. Since 1989 Copper has
invested approximately US$28 million in capital improvements, including
approximately US$8 million on its restaurant facilities and service buildings
and approximately US$16 million on lifts, vehicles and other equipment. The
Company completed its acquisition of Copper in March 1997 and intends to make
approximately US$70 million of capital improvements at Copper over the next four
years. These improvements are expected to include new lifts and trails and
expanded restaurant facilities.
Copper has a 2,433-acre ski area facility on three mountains, Copper, Union
Peak and Tucker Mountain. Copper's ski operations were established in 1972.
Copper has elevations at its base of 9,712 feet and at its peak of 12,411 feet.
The skiable terrain is serviced by 20 lifts, including five high-speed quad
chairlifts. Copper owns substantially all of the base area land and facilities.
A significant portion of Copper's lifts, ski trails and related assets
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are located on land leased to Copper by the United States Forest Service under a
special use permit which expires in 2037. Pursuant to this permit, Copper makes
monthly payments of between 1.5% and 6.75% of the annual gross revenue generated
from Copper's facilities physically located on the government land.
Copper has 118 interconnected trails located on the front and back of its
three mountains suited to a wide variety of skier ability levels. In addition to
1,366 acres of tree-lined ski trails, Copper offers four high alpine bowls which
provide skiers with 1,067 acres of above-timberline skiing.
Copper has 12 retail shops and three equipment rental shops, and food and
beverage operations at ten restaurants and bars, having a total seating capacity
of approximately 2,900.
The Copper area has four-season appeal. Summer activities include golf on
the highest altitude championship course in North America at the Pete
Dye-designed Copper Creek Golf Course (owned by the Company), tennis, fishing
and bike riding. Bike riders can access a paved bike path system which connects
all resorts located in Summit County. In addition, mountain bikers can access a
variety of trails, including the Colorado Trail which travels from Denver to the
southwestern Colorado town of Durango. Numerous festivals and special events
also support the Copper area as a major summer tourist attraction.
The Company is developing, or has land available for the development of,
approximately 1,100 residential units and 110,000 square feet of commercial
space at Copper. The Company expects that the development of these lands will
take place over a period of approximately ten years. The Company launched its
first project at Copper in March 1998 and pre-sold the entire 108 available
units during one weekend.
MAMMOTH. Intrawest acquired a 33% interest in Mammoth effective December
1995, increasing its percentage to 51% in November 1997 and to 58% in January
1998. Mammoth is located in central California in the eastern Sierra Nevada
mountain range 325 miles north of Los Angeles. It is the closest major mountain
resort to the heavily populated southern California market from which it draws
most of its visitors. Mammoth is also located approximately four miles from the
town of Mammoth Lakes which has a permanent population of approximately 5,000
people. Mammoth Lakes has over 50 restaurants and bars and 150 lodging
facilities.
Mammoth consists of two separate ski areas, Mammoth Mountain and June
Mountain, which are approximately 20 miles apart. Mammoth has a 3,500-acre ski
area facility which has elevations at its base of 7,953 feet and at its peak of
11,053 feet. Mammoth and June Mountain have 185 trails which are serviced by 38
lifts, including seven high-speed quad chairlifts. All of Mammoth's lifts, ski
trails and related assets are located on land leased to Mammoth by the United
States Forest Service under various special use permits which expire at various
times during the period from 2012 to 2024. Pursuant to these permits, Mammoth
makes annual payments based on a percentage of sales.
Mammoth owns and operates six sport shops, five hotel properties and food
and beverage operations at nine restaurants and bars, having a total seating
capacity of approximately 4,600.
Summer activities at Mammoth include 60 miles of mountain biking trails,
fishing, board-sailing and water skiing on nearby lakes, and hiking through the
Sierra Nevadas. There is a golf course in Mammoth Lakes and Intrawest is a
partner in a second golf course currently under construction at Mammoth.
Yosemite National Park, a two-hour drive from Mammoth, draws visitors to the
region from around the world.
The Company is developing, or has land available for the development of,
approximately 2,200 residential units and 131,000 square feet of commercial
space at Mammoth. The Company expects that the development of these lands will
take place over a period of approximately ten years. The Company launched its
first project at Mammoth in April 1998 and pre-sold 129 of 174 available units
during one weekend. The project commenced construction in the spring of 1998.
TREMBLANT. Tremblant is located in the Laurentians, 90 miles north of
Montreal, Quebec. The resort is accessible by car via a major four-lane highway
from Montreal and by air through major international airports located in
Montreal and Ottawa. Tremblant draws most of its visitors from Montreal, Ottawa,
Toronto and the northeastern United States.
Opened in 1939, Tremblant is the oldest operating ski area in Canada and
the second oldest in North America. Since acquiring Tremblant in 1991, Intrawest
has carried out a $60 million expansion of the ski facilities, including
9
<PAGE> 12
the addition of high-speed detachable quad chairlifts, a six-passenger gondola,
new trails, a 1,000-seat mountain-top restaurant, a state-of-the-art snowmaking
system and the Edge, Tremblant's first new peak since 1943.
The Company operates a 502-acre ski area facility at Tremblant which has
elevations at its base of 870 feet and at its peak of 3,001 feet, resulting in
the greatest vertical drop in eastern Canada. Tremblant has 77 trails which are
serviced by 11 lifts, including six high-speed quad chairlifts. Tremblant has
more high-speed lifts than any other resort in eastern North America. All of
Tremblant's lifts and ski runs, and some of its buildings, are located on land
leased to Tremblant by the Province of Quebec under a ski area agreement that
expires in 2051. Pursuant to this agreement, Tremblant pays an annual lease
payment equal to $5,000, adjusted for changes in the Consumer Price Index.
Tremblant has 17 sports shops and food and beverage operations at 11
restaurants, cafes and bars, having a total seating capacity of approximately
2,700.
Tremblant has been designed as a four-season resort which emphasizes a
unique French Canadian charm and is a text-book example of staged village
development. Its summer attractions include swimming and boating on nine-mile
long Lac Tremblant at the base of the mountain, golf at Le Geant, an 18-hole
championship golf course owned by the Company, tennis, hiking and mountain
biking. Le Geant, which was named one of Canada's best new golf courses in 1996
by Golf Digest, drew 28,000 golfers in its first full season. A second 18-hole
championship golf course, Le Diable, opened for play in the summer of 1998. The
Company is a partner in Chateau Mont Tremblant, a world-class hotel and
conference centre. The facility was completed in November 1996 and is managed by
Canadian Pacific. The 36,000-square foot convention centre, which can
accommodate 1,800 delegates, is expected to increase traffic at the resort year
round and particularly during the shoulder seasons. Tremblant demonstrated its
shoulder season potential by selling more than 20,000 panoramic lift rides
during the Festival of Colors weekend in October 1997.
The Company is developing, or has land available for the development of,
approximately 2,300 residential units and 61,000 square feet of commercial space
at Tremblant. The Company expects that the development of these lands will take
place over a period of 10 to 15 years.
STRATTON. Stratton is located in southern Vermont and draws most of its
visitors from the affluent markets of metropolitan New York, Connecticut, New
Jersey and Massachusetts. The northeast corridor of the United States represents
the largest concentration of skiers and skier visits in North America. Stratton,
established in 1961, is generally regarded as the birthplace of snowboarding.
Stratton formed the world's first snowboard school and has hosted snowboarding's
U.S. Open, a major snowboard competition, every year since 1985.
Since Intrawest acquired Stratton in 1994, the Company has invested
approximately US$31 million in capital improvements primarily comprising
upgrades to the snowmaking system, a six-passenger high-speed chairlift and
improvements to the base area facilities. The Company operates a 563-acre ski
area facility at Stratton which has elevations at its base of 1,933 feet and at
its peak of 3,936 feet, the highest ski peak in southern Vermont. Stratton has
90 trails which are serviced by 12 lifts, including one high-speed chairlift and
one high-speed gondola.
Stratton has 20 separate retail shops and food and beverage operations at
12 restaurants and bars, having a total seating capacity of approximately 2,300.
Stratton's summer amenities include a 27-hole championship golf course, a
22-acre golf school and a sports and tennis complex, all of which are owned and
operated by the Company. The town of Manchester, located approximately 22 miles
from Stratton, is one of Vermont's busiest summer tourist attractions with over
70 designer discount outlets, antique stores and art galleries.
The Company is developing, or has land available for the development of,
approximately 1,300 residential units and 30,000 square feet of commercial space
at Stratton. The Company expects that the development of these lands will take
place over a period of 10 to 15 years.
SNOWSHOE. Snowshoe, located in West Virginia, is the largest ski resort in
the mid-Atlantic region of the United States and has the greatest vertical drop,
most uphill capacity, most extensive snowmaking coverage and the largest on-site
bed base in the region. Approximately 95% of Snowshoe's annual visitors are
destination skiers who drive from a market that includes North Carolina, South
Carolina, Virginia and Georgia. Snowshoe, established in
10
<PAGE> 13
1973, consists of two separate ski areas, Snowshoe Mountain and Silver Creek
Mountain, which are one mile apart and connected by shuttle bus service.
Intrawest acquired Snowshoe in November 1995 and has invested approximately
US$15 million in new capital improvements, mainly consisting of lifts,
snowmaking and terrain expansion. The Company operates a 200-acre ski area
facility at Snowshoe which has elevations at its base of 3,250 feet and at its
peak of 4,848 feet. Snowshoe has 56 trails which are serviced by 11 lifts,
including two high-speed chairlifts. Snowshoe's elevation is one of the highest
among all ski resorts east of the U.S. Rockies, which enables Snowshoe to have a
longer season than its regional competitors. The Company owns all of the land on
which the ski facilities are located.
Snowshoe has ten retail shops, two of which are concessioned to third-party
operators. The resort also owns and operates 11 restaurants and ten bars, having
a total seating capacity of approximately 2,100. Snowshoe owns three lodges
having a total of 300 rooms and manages approximately 900 rental condominiums.
Snowshoe's summer amenities include an 18-hole championship golf course
owned by the Company and designed by Gary Player (rated by Golf Digest as the
second-best course in West Virginia in 1996), over 100 miles of marked mountain
biking trails and various tennis and swimming facilities. The resort also owns a
conference centre with over 10,000 square feet of meeting rooms and banquet
facilities which draw business travellers throughout the year.
The Company is developing, or has land available for the development of,
approximately 800 residential units and 32,000 square feet of commercial space
at Snowshoe. The Company expects that the development of these lands will take
place over a period of approximately ten years.
MOUNTAIN CREEK. Mountain Creek (formerly called Vernon Valley/Great
Gorge), located approximately 50 miles from New York City, is the closest major
skiing complex to the metropolitan New York area.
Intrawest acquired Mountain Creek in February 1998. The ski area includes
1,100 acres of land encompassing three peaks -- Vernon Valley, Great Gorge South
and Great Gorge North -- currently providing approximately 130 acres of skiable
terrain that can be readily expanded, and a vertical drop of 1,040 feet, the
greatest in the New York metropolitan area. The resort offers night skiing on
all of its skiable terrain, and the Company owns all the land on which the ski
facilities are located. Mountain Creek's summer amenities include a 280-acre
theme park, five mountain-top lakes and a 27-hole golf course (not owned by the
Company). Approvals are in place for an additional 27-hole golf course on the
Company's land at the top of the mountain. In the first half of the 1990s,
summer visits to the resort averaged 450,000, about one-third more than winter
skier visits.
The Company has land available for the development of approximately 900
residential units primarily located on the top of the mountain. The proximity of
the resort to New York City means that real estate can be marketed to both
primary and secondary home buyers.
PANORAMA. Panorama is located in the Purcell Range of the Canadian Rockies
approximately 12 miles from Invermere, British Columbia. The resort is a
3 1/2-hour drive from Calgary, Alberta from which Panorama draws many of its
visitors. Skiing and village development began at Panorama in 1968. Since
Intrawest acquired Panorama in 1993, the Company has added approximately 1,000
acres of skiable terrain designed to provide more variety for destination skiers
and installed a summit T-bar lift to increase Panorama's skiable vertical drop
to 4,047 feet, the second greatest in Canada surpassed only by
Whistler/Blackcomb.
The Company operates a 2,000-acre ski area facility at Panorama which has
elevations at its base of 3,736 feet and at its peak of 7,783 feet. Panorama has
80 trails which are serviced by eight lifts, including one high-speed quad
chairlift. All of the lifts and ski runs, and some of the buildings, are located
on land leased to Panorama by the Province of British Columbia under a ski area
agreement that expires in 2033. Pursuant to this agreement, Panorama pays an
annual lease payment currently equal to 2% of defined gross revenue.
Panorama offers access to some of the best heli-skiing in the world. All of
the commercial facilities at the resort, except for the heli-skiing operation,
are owned and operated by the Company. Panorama has four retail shops and food
and beverage operations at six restaurants and bars, having a total seating
capacity of approximately 850. The Company is completing construction of a
championship golf course at Panorama that will be available for play in May
1999. Other summer attractions in the area include whitewater rafting and
kayaking, horseback riding, tennis and hot springs at Radium and Fairmont.
11
<PAGE> 14
The Company is developing, or has land available for the development of,
approximately 1,400 residential units and 10,000 square feet of commercial space
at Panorama. The Company expects that the development of these lands will take
place over a period of approximately 10 years.
MONT STE. MARIE. Mont Ste. Marie is located in the Outaouais region 55
miles north of Ottawa. The resort has the highest elevation of any ski area in
the Outaouais between Toronto and Mont Tremblant.
Intrawest acquired Mont Ste. Marie in March 1997 and is in the process of
formulating its plans for the resort. The Company operates a 108-acre ski area
facility at Mont Ste. Marie which has a vertical drop of 1,250 feet. The Company
owns all of the land on which the ski facilities are located. Mont Ste. Marie's
summer amenities include an 18-hole championship golf course owned by the
Company. Mont Ste. Marie has food and beverage operations at two locations
having a total seating capacity of approximately 600.
WARM-WEATHER DESTINATION PROPERTIES
The Company has recently acquired Sandestin and Raven, two warm-weather
destination resorts.
SANDESTIN. Sandestin is located in Destin, in northwestern Florida, a
major tourist, second-home and retirement destination. The resort has a half
mile of frontage on the Gulf of Mexico and 6 1/2 miles of frontage on
Choctawhatchee Bay, which forms part of the Intracoastal waterway. Sandestin is
the only resort in northwestern Florida that offers both beach and bay access
directly from the property.
Sandestin has 63 holes of golf on three separate courses and land is
available for an additional nine holes. The resort also features 32,300 square
feet of conference facilities, a 37,000-square foot retail centre which
accommodates 31 shops, a 98-slip full-service marina suitable for craft up to
100 feet in length, management of approximately 700 residential rental units and
various restaurants, bars and other recreational amenities.
With the acquisition of Sandestin, the Company has land for the development
of approximately 2,200 residential units and 200,000 square feet of commercial
space as well as 256 units of substantially completed real estate inventory. The
Company expects that the development of these lands will take place over a
period of 10 to 12 years.
RAVEN. Raven owns and operates two highly rated daily fee golf courses,
The Raven at South Mountain in Phoenix and The Raven at Sabino Springs in
Tucson. In addition, Raven has a management contract for another course to be
constructed in Carlsbad, California.
The Raven concept is to create superior public golf facilities,
complemented by attention to maintenance and service quality. Recently, two of
the Raven courses were rated 5th and 7th for quality of service among 5,300 golf
courses across North America included in a 1998 survey of subscribers conducted
by Golf Digest magazine. In addition both of Raven's owned courses were rated in
the top ten public golf courses in Arizona in 1997 by Golf Digest.
SOURCES OF RESORT OPERATIONS REVENUE
Intrawest's resort operations revenue is derived from a wide variety of
sources including lift ticket sales, retail shops, food and beverage, lodging
and property management, ski schools, golf, tennis and other summer activities.
Sales of lift tickets represent the single largest source of resort operations
revenue (47% for fiscal 1998). While revenue from lift ticket sales has
increased each year during the past five years, the proportion of resort
operations revenue accounted for by sources other than lift ticket sales
increased from 43% in fiscal 1994 to 53% in fiscal 1998. This increase is the
result of a broadening of the sources of revenue at each resort as well as the
improved mix of revenue at recently acquired resorts. Management expects this
trend to continue in the future as a result of the ongoing expansion of the
range of services offered by the Company and the Company's planned expansion
into warm-weather destination resorts.
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<PAGE> 15
The following chart provides a breakdown of the sources of the Company's
ski and resort operations revenue during fiscal 1998.
<TABLE>
<CAPTION>
REVENUE PROPORTION
----------- ----------
(MILLIONS
OF DOLLARS) (%)
<S> <C> <C>
Lift tickets................................................ $ 172.8 47.0
Retail shops................................................ 54.4 14.8
Food and beverage........................................... 53.3 14.5
Lodging and property management............................. 34.6 9.4
Ski school.................................................. 25.9 7.0
Golf........................................................ 7.9 2.2
Other....................................................... 18.5 5.1
----------- ---------
$ 367.4 100.0
=========== =========
</TABLE>
LIFT TICKET SALES. The Company sells a wide variety of lift ticket
products at its resorts targeted to particular customer segments at different
times of the season. These products include season passes, frequent skier cards
and single- and multi-day tickets. Season pass purchasers are a very important
customer group because generally they are the most frequent visitors, have a
loyalty to the resort and are owners of real estate at the resort. The frequent
skier card was introduced at Blackcomb in fiscal 1994 and was also introduced at
Tremblant, Stratton, Mammoth, Whistler and Copper for the 1996/97 ski season. In
addition to their other features, frequent skier cards at Blackcomb and Stratton
offer direct lift access as the card is scanned at the lift line and a charge is
made against the cardholder's credit card. The Company uses its frequent skier
cards to increase skier visits at non-peak times by offering discounts against
the regular day ticket price or by tying in promotions at its retail stores or
food and beverage facilities. Single- and multi-day tickets constitute the
balance of the Company's line of lift ticket products. These lift tickets are
often sold to customers in packages including accommodations in order to fill
beds when occupancy is expected to be low. Revenue from lift ticket sales has
increased every year since 1986 when the Company acquired its interest in
Blackcomb. Since 1994 revenue from lift ticket sales has increased from $38.1
million to $172.8 million, primarily because of acquisitions and improvements in
ticket yields. The Company's goal is to manage its ticket yields to obtain
premium prices during peak periods and maximize aggregate lift ticket revenue
during non-peak periods.
RETAIL SHOPS. The retail and equipment rental operations contribute
significantly to overall resort profitability. Revenue from the Company's retail
division increased from $13.7 million in fiscal 1994 to $54.4 million in fiscal
1998. The increase is attributable primarily to acquisitions and to increased
retail sales and equipment rental revenue at Blackcomb, Tremblant and Panorama.
Retail revenue aids in stabilizing the Company's daily and weekly cash flows, as
the Company's shops tend to have the strongest sales on poor weather days.
Shopping is generally an important part of the guest vacation experience and
interesting shops are a vital ingredient in the total resort framework. Across
all of its mountain resorts the Company owns 118 retail and ski rental shops
containing approximately 202,000 square feet of sales/service area. The large
number of retail locations operated by the Company allows it to improve margins
through large quantity purchase agreements and sponsorship relationships. These
shops are located on the mountains and in the base areas. On-mountain shops
generally sell ski accessories such as goggles, sunglasses, hats and gloves
while base area shops sell these items as well as hard goods such as skis,
snowboards, boots and larger soft goods such as jackets and snowsuits. In
addition, all locations offer the Company's own logo-wear which generally
provides higher profit margins than other retail products. In the non-winter
seasons, most of the on-mountain shops are closed and the base area shops sell
mountain bikes, in-line skates, tennis equipment and warm-weather apparel.
The acquisition of Sandestin adds 31 retail shops containing approximately
37,000 square feet to the Company's retail portfolio. Sandestin operates two of
the retail shops and the other 29 are operated by third parties. The acquisition
of Breeze and Max adds 43 retail and rental shops containing approximately
77,000 square feet to the Company's network of shops. There are locations in
Utah, Colorado, Oregon, California, Wyoming, Idaho and Nevada. In addition, each
of the Raven-owned golf courses includes a clubhouse with approximately 1,000
square feet of retail space.
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<PAGE> 16
FOOD AND BEVERAGE SERVICE. Food and beverage service has become an
increasingly important component in providing a satisfying guest experience and
has been a significant source of revenue growth for the Company. The
introduction of high-speed lifts in the late 1980s has allowed skiers to ski
more runs in a shorter period, thereby providing more time for other activities,
such as dining in the restaurants.
Each of Intrawest's mountain resorts owns and operates all of its
on-mountain food and beverage facilities. These facilities include restaurants,
bars, cafes, warming huts, cafeterias and fine dining options such as
Christine's at Blackcomb and La Legende at Tremblant. Destination resorts, such
as Whistler/Blackcomb, which cater to visitors from all over the world, offer a
wide variety of ethnic foods in their on-mountain restaurants as well as
specialty menus for different family members. The resorts also own and operate
many of the base area restaurants and bars as well as many of the food service
outlets in their village centres. In total, the Company owns and operates 84
different food and beverage facilities at its mountain resorts with more than
23,000 seats. The Company's control of its on-mountain and base area food
services allows it to capture a larger proportion of guest spending as well as
to ensure product and service quality. Revenue from food and beverage services
increased from $10.3 million in fiscal 1994 to $53.3 million in fiscal 1998,
principally due to acquisitions and the expansion of facilities at Blackcomb and
Tremblant.
The acquisitions of Sandestin and Raven add ten food and beverage
facilities, containing approximately 600 seats, to the Company's resort assets.
In addition, a members-only beach club at Sandestin opened in the summer of
1998.
LODGING AND PROPERTY MANAGEMENT. The Company's lodging and property
management division manages its own properties as well as properties owned by
third parties. Currently the Company owns or manages approximately 4,100 lodging
units at its mountain resorts. The lodging division performs a full complement
of guest services including reservations, property management, housekeeping and
brokerage operations. Each resort has a welcome centre to which newly arriving
guests are directed. The centre allocates accommodations and provides guests
with information on all of the resort's activities and services. The Company's
property management operation seeks to maximize the synergies that exist between
lodging and lift ticket promotions. Revenue from lodging and property management
increased from $8.9 million in fiscal 1994 to $34.6 million in fiscal 1998,
principally due to acquisitions and the development of new rental accommodations
at Tremblant. With the acquisition of Sandestin the Company's rental management
operation increased by approximately 800 units.
The Company's real estate development program is designed to ensure the
continued growth of its lodging operation. Typically, newly constructed
condominiums and townhomes are sold to owners who put the units into a rental
pool managed by the Company. The resulting growth in occupancy increases skier
visits and provides an additional source of fee revenue for the Company.
SKI SCHOOL. The Company operates the ski school at each of its mountain
resorts, except at Panorama where this service is concessioned to a third party.
A variety of programs are offered to skiers, targeted to different ability
levels and age groups. Future growth is expected to result from growth in the
sport of snowboarding and technological advances currently taking place in
alpine skiing equipment, for which the ski schools at the Company's resorts have
qualified instructors. The Company's resorts offer packages designed to combine
the new technologies with instructor-led learning sessions.
The Company has approximately 2,000 instructors on its ski school staff
across all of its mountain resorts. Over the past several years, the Company has
initiated programs to increase its ski school business. Revenue from ski schools
increased from $3.9 million in fiscal 1994 to $25.9 million in fiscal 1998,
principally due to acquisitions and the expansion of ski school programs at
Whistler/Blackcomb and Tremblant.
GOLF. Intrawest entered the golf business with its acquisition of Stratton
in fiscal 1995 and, since that time, annual golf revenue has grown to
approximately $7.9 million. At its mountain resorts, the Company owns and
operates championship golf courses at Tremblant, Mont Ste. Marie, Copper,
Stratton and Snowshoe. Stratton also offers a golf school which attracts
students from throughout eastern North America. Golf courses are currently under
construction at Panorama, Mammoth and Eagles Nest. With the acquisitions of
Sandestin and Raven the Company owns an additional five golf courses at
warm-weather destination resorts. Golf is a primary attraction in the summer and
shoulder seasons, providing the Company with revenue from greens fees, cart
rentals and pro-shop sales. In addition, golf also drives a significant portion
of the food and beverage and lodging revenue during the
14
<PAGE> 17
summer. Golf courses are also a selling feature for real estate. The Company has
significant developable land parcels adjacent to golf courses at its resorts,
which generally command higher selling prices than other real estate. The
Company believes that its golf and other summer revenue will continue to be an
increasingly significant component of resort operations revenue in the future.
SPONSORSHIP AND SPECIAL EVENTS
An important part of the Company's business strategy is to increase
exposure of the Intrawest brand name and the brand names of the individual
Intrawest resorts by entering into sponsorship relationships with leading
companies and by hosting world-class events to gain international exposure. The
Company's geographically diversified mountain resorts are particularly appealing
to sponsors seeking exposure across North America. In addition, the Company's
leading industry position, coupled with the demographics of its customer base,
make it an attractive partner for prospective sponsors. The Company's business
sponsors include Coca Cola, Fuji Films, Great Brands of Europe -- Evian and
Starbucks.
The Company's resorts host a number of world-class sporting events
including annual freestyle World Cup competitions at Whistler/Blackcomb and
Tremblant and snowboarding's U.S. Open championship at Stratton. In fiscal 1996
Whistler signed an agreement continuing its participation as a World Cup
downhill site for ten years. Panorama and Mammoth have also been the sites of
several World Cup downhill and slalom races. In addition to these events, the
Company's resorts host numerous high profile music and arts events.
INFORMATION TECHNOLOGY
The Company's information technology systems improve communication with its
guests and enhance guest service and convenience. These systems are intended to
simplify a guest's purchase and use of the Company's services in order to build
guest loyalty and encourage repeat buying. Current information technology
initiatives which have been implemented at certain of the Company's resorts
include (i) direct lift access systems by which skiers can avoid the ticket
window by having their photo identification passes scanned at the lift line
resulting in a charge to their credit cards, (ii) digital imaging systems for
ski passes that prevent season passholders from having to be photographed
annually, (iii) resort-wide guest charging systems whereby an identification
card can be used to charge goods or services at any of the Company's facilities
across the resort, (iv) central reservation systems for use in connection with
the Company's property management business and (v) ski school reservation and
instructor scheduling systems that simplify the booking process for guests and
allow the Company to ensure better utilization of instructors.
RESORT MARKETING AND SALES
The primary objectives of the Company's marketing strategy include (i)
increasing the Company's market share of North American, European and Asian
visitors, (ii) building demand during both peak and non-peak periods, (iii)
increasing existing customers' use of the Company's network of resorts, (iv)
expanding the summer and shoulder season businesses of the Company's resorts and
(v) increasing the Company's total share of customer spending across each
resort. Using market research information from the Company's database and
employee feedback the Company builds marketing programs which are targeted at
particular customer and season segments. The Company's resort marketing expenses
for fiscal 1998 were approximately $23.4 million.
While traditional marketing mediums such as print media in ski industry and
lifestyle publications continue to play a role in the overall marketing mix, the
Company is placing increased emphasis on database marketing, strategic
partnering and sponsorship initiatives. The Company plans to exploit its
database to develop programs that identify and target new customers and increase
the visit frequency and spending of existing customers.
RESORT REAL ESTATE DEVELOPMENT
Intrawest is North America's largest developer of mountain resort real
estate. The Company has over 20 years of experience in the real estate industry,
initially in the development of urban residential and commercial properties in
the Pacific Northwest and, beginning in 1986 with its acquisition of Blackcomb,
the development of mountain resort properties. In the past ten fiscal years, the
Company has developed and sold over $1.1 billion of real estate, including
non-resort real estate. In 1994 the Company determined that it would no longer
develop urban real estate
15
<PAGE> 18
and that it would sell its non-resort assets in order to concentrate on its
resort operations and resort development activities. Intrawest's real estate
expertise is a key operating strength which differentiates the Company from its
mountain resort competitors. The Company has expertise in all aspects of real
estate development, including master planning, project design, construction,
sales and marketing, and property management.
The following table summarizes certain key statistics relating to each of
the Company's resort real estate holdings.
<TABLE>
<CAPTION>
AS AT JUNE 30, 1998
DATE --------------------------------------------------------------------------------
CONSTRUCTION RESIDENTIAL COMMERCIAL
COMMENCED/ RESIDENTIAL UNITS HELD COMMERCIAL COMMERCIAL SPACE HELD
IS EXPECTED RESIDENTIAL UNITS UNDER FOR FUTURE SPACE SPACE UNDER FOR FUTURE
RESORT TO COMMENCE UNITS SOLD DEVELOPMENT DEVELOPMENT COMPLETED DEVELOPMENT DEVELOPMENT
------ ------------ ----------- ----------- ----------- ---------- ----------- -----------
(SQ. FT.) (SQ. FT.) (SQ. FT.)
<S> <C> <C> <C> <C> <C> <C> <C>
Blackcomb(1)................ 1987 2,599 36 142 60,000 -- --
Tremblant................... 1992 1,019 464 1,790 109,000 14,000 47,000
Keystone(2)................. 1995 307 597 2,164 65,000 62,000 191,000
Sun Peaks................... 1995 57 77 142 6,000 -- --
Panorama.................... 1995 57 98 1,259 5,000 -- 10,000
Stratton.................... 1997 33 177 1,088 -- -- 30,000
Snowshoe.................... 1997 8 151 691 -- 9,000 23,000
Mammoth(3).................. 1998 -- 206 2,017 -- -- 131,000
Copper...................... 1998 -- 234 860 -- 8,000 102,000
Squaw Valley................ 1998 -- -- 640 -- -- 120,000
Whistler(4)................. 1998 37 11 963 -- -- 72,000
Eagles Nest(5).............. 1999 -- -- 462 -- -- --
Mountain Creek.............. 2001 -- -- 921 -- -- 50,000
----- ----- ------ ------- ------ -------
4,117 2,051 13,139 245,000 93,000 776,000
Sandestin(6)................ 1999 -- 256 2,202 -- -- 200,000
----- ----- ------ ------- ------ -------
4,117 2,307(7) 15,341(7) 245,000 93,000(7) 976,000(7)
===== ===== ====== ======= ====== =======
</TABLE>
- ---------------
(1) The Company has a 77% interest in Blackcomb Skiing Enterprises Limited
Partnership.
(2) The Company has a 50% interest in a joint venture that owns and is
developing the land at Keystone (certain projects are at 60%). The
information on Keystone in this table reflects 100% of the joint venture's
land holdings.
(3) At Mammoth, the Company owns land for the development of approximately 1,160
residential units and 120,000 square feet of commercial space and
participates in a partnership which owns land for the development of
approximately 1,065 residential units and 10,000 square feet of commercial
space. The Company's interest in this partnership is 75%.
(4) In September 1998 Montreal Trust Company of Canada, as trustee of The Nippon
Cable Trust, and Montreal Trust Company of Canada, as trustee of The
Whistler Mountain Resort Trust, subscribed for limited partnership units
representing an aggregate 23% in Whistler Mountain Resort Limited
Partnership. The beneficiaries of these trusts are Nippon Cable Co., Ltd.
and certain of its subsidiaries.
(5) The Company has a 50% interest in a joint venture that owns and is
developing the land at Eagles Nest. The information on Eagles Nest in this
table reflects 100% of the joint venture's land holdings.
(6) The Company completed the acquisition of Sandestin in July 1998, including
the associated real estate holdings.
(7) The Company's pipeline of real estate projects comprises residential units
and commercial space under development and held for future development which
aggregate 18,717 units, including Sandestin.
THE DEVELOPMENT PROCESS
Intrawest's approach to real estate development encompasses (i) land
acquisition, (ii) resort master planning, (iii) project development and
construction, (iv) marketing and sales and (v) commercial development and
leasing. The Company carefully manages the number and mix of new projects
brought to the market each year to maximize its returns and support real estate
values. In addition, control over all development activities allows the Company
to more closely align its real estate strategies with resort operations.
LAND ACQUISITION. The same factors which drive resort visits, such as
accessibility, four-season attractions and amenities and proximity to major
markets, also enhance real estate values. When Intrawest investigates potential
resort acquisitions, the potential for real estate development is one of the
primary considerations.
Intrawest believes that it has a conservative approach to the acquisition
of land. The Company typically acquires its land at low cost in conjunction with
the purchase of the resorts or through joint ventures or other
16
<PAGE> 19
arrangements which typically provide that land payments are due only when units
are sold. The extensive land holdings at Tremblant, Panorama, Stratton,
Snowshoe, Copper and Mountain Creek were acquired at low cost in conjunction
with the acquisition of these resorts. At Blackcomb, the Company has options
which it may exercise for specific project sites when permits are in place and
construction is set to commence. Intrawest secured its land holdings at Keystone
by forming a joint venture with the landowner under which land is only paid for
as completed units are sold. At Mammoth, Intrawest secured a portion of its land
holdings by forming a partnership with the landowner under which land is only
paid for as completed units are sold. At Whistler, the price of the acquired
land is deferred until certain real estate development rights are employed or
disposed of, subject to minimum annual payments of $1.5 million to $3.0 million.
At Squaw Valley, the land which Intrawest has the right to acquire is currently
used by the resort owner for visitor parking and, as consideration for the land,
the Company must provide replacement parking stalls for those displaced by the
development.
RESORT MASTER PLANNING. The starting point of the Company's development
program at a resort is the "envisioning process", under which consultants and
members of Intrawest's management plan future developments by envisioning how an
entire resort will appeal to visitors. The envisioning process considers issues
such as the historical significance and unique features of the site, the desired
architectural character of the resort, the ambience of the resort and the
amenities and features that will animate the resort. The end product of this
process is a vision statement which, throughout the build-out of a resort,
serves as a guide to the development of the resort. The highlights of the vision
statement are incorporated into a short multi-media presentation which employs
evocative photography, words and music to communicate the vision to large
audiences, including various levels of government, partners and associates, the
financial community, the media, environmental groups and the general public. The
envisioning process was used to create the French Canadian village theme for
Tremblant and the Colorado Rockies theme for Keystone.
After the envisioning process is complete, the next stage is to achieve the
necessary zoning to allow for the implementation of the master plan, involving
close liaison with municipal approval agencies and multiple public hearings.
PROJECT DEVELOPMENT AND CONSTRUCTION. After the overall master plan has
been designed and the zoning has been approved, the next stage in the
development program is to build the necessary infrastructure for the resort,
such as roads, water, and sewer and utility services, and to create individual
real estate projects. Each of the Company's real estate projects is assigned to
a development manager who is responsible for all aspects of the development
cycle from project conception to ultimate sell-out. The development managers are
based at the resort and report to a local vice president who is responsible for
all the real estate projects at the resort and who reports to a senior vice
president who oversees the development program at multiple resorts.
The development managers are supported by a team of design, construction,
finance and sales staff at the resort with the assistance of similar staff
members at head office and local consultants. The Company exploits its
successful track record through the transfer of "project templates" to new
developments, subject to modified designs to reflect the resort master plan and
any local market requirements. This practice helps to control costs and reduce
construction risk. The Company also concentrates on woodframe developments which
have a short construction timetable. In addition, the Company does not normally
construct its own projects but rather engages general contractors under
fixed-price contracts which transfer most of the risk of construction overruns
to the contractor. The Company arranges construction financing for both
infrastructure work and projects, generally to cover approximately 75% of total
costs, through a variety of Canadian and U.S. lenders.
MARKETING AND SALES. Market research is an important part of the Company's
development process. Projects are tailored to the needs of prospective customers
by price range, type (condominium-hotel, townhome and single-family residences)
and location (with ski-in, ski-out access, on the golf course or in the
woodlands). With a diversified product line, Intrawest is able to respond to
changing market conditions within an individual resort and to maximize the value
of each product type.
Each of the Company's resorts has its own marketing and sales department
under the supervision of a local marketing director. At some resorts the Company
employs its own sales personnel while at others it engages third party agents to
sell its projects on a commission basis. The resorts are supported by marketing
and sales personnel at Intrawest's head office and by external consultants.
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<PAGE> 20
The resort real estate development group spent approximately $9.7 million
in fiscal 1998 for real estate marketing and sales (including commissions). The
Company expects these costs to increase in the future as it initiates new
projects at its resorts. Marketing and sales costs for an individual project are
generally in the range of 4% to 7% of total project costs. Real estate marketing
also benefits resort operations since it exposes the resort to potential
visitors and skiers. This is particularly the case for the Company's timeshare
vacation business, which distributes thousands of mailouts every year.
Intrawest generally follows a policy of pre-selling a significant portion
of its real estate projects prior to and during construction in order to
mitigate its risk of unsold completed inventory. Since fiscal 1994 the Company
has pre-sold on average approximately 85% of its units prior to the completion
of construction. This practice led to the introduction of a new marketing
approach during 1996, whereby properties are marketed to the resort's most loyal
customers through a sophisticated database marketing strategy and the use of a
"national launch team" working across the Company's major markets. This approach
has been applied to large condominium-hotel projects such as One Whistler
Village at Blackcomb, Silver Mill at Keystone and Le Kandahar at Tremblant.
Between March 1996 and May 1997 the Company launched eight projects at four
different resorts in this fashion and pre-sold approximately 85% of the
aggregate sales value of approximately $230 million and in March and April 1998,
the Company pre-sold a further 376 units for $132 million.
COMMERCIAL DEVELOPMENT AND LEASING. Many of Intrawest's real estate
projects, particularly in its resort villages, comprise residential units
constructed on top of ground floor retail space. The Company occupies some of
the retail space for its own stores, restaurants and bars and it also leases
space to third party operators. The mix of tenants and the quality of their
finished stores are closely managed by the Company so as to maintain the
ambience of the resort. In order to attract top quality retail operators the
Company seeks to ensure that their stores and restaurants have access to
visitors throughout the year. By providing summer and shoulder season activities
and amenities such as summer outdoor recreational activities and cultural
programs, the Company is able to improve year-round utilization of facilities.
As at June 30, 1998, Intrawest had developed approximately 245,000 square
feet of commercial space at its resort real estate holdings. At Blackcomb and
Tremblant the Company manages or owns all commercial space that is occupied by
third party operators and receives rental revenue, which in fiscal 1998 amounted
to approximately $4.4 million.
The Company is a partner in Chateau Mont Tremblant, a world-class hotel and
conference centre. The facility was completed in November 1996 and is managed by
Canadian Pacific.
REAL ESTATE PROPERTIES
Set out below is a brief overview of the Company's land holdings followed
by a listing of projects recently completed or under active development.
BLACKCOMB. Since acquiring its interest in Blackcomb, Intrawest has
exercised options to acquire 118 developable acres of land adjacent to the base
of Blackcomb Mountain for residential, commercial and resort development.
TREMBLANT. Intrawest's construction of a French Canadian resort village at
Tremblant is substantially complete and Chateau Mont Tremblant is in operation.
The village core, Chateau Mont Tremblant, Le Geant and Le Diable golf courses
and on-mountain improvements are substantially constructed and the bulk of the
infrastructure is in place to support the development of the remaining real
estate at the resort. The Company has approximately 1,100 acres of land
available for future development at Tremblant.
KEYSTONE. In 1993 Intrawest entered into a joint venture to develop the
real estate at Keystone. The joint venture is developing River Run, a pedestrian
village at the base of the mountain and five additional residential
neighbourhoods. The Company has developed or plans to develop approximately
1,100 residential units and 180,000 square feet of commercial space in the new
River Run Village, 90 residential units around a planned golf course and 1,900
residential units and 130,000 square feet of commercial space in areas adjacent
to the existing real estate and new mountain village.
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<PAGE> 21
SUN PEAKS. The Company has an exclusive right to purchase sites for
multi-family developments from the owner of Sun Peaks near Kamloops, British
Columbia. This right expires on the earlier of June 21, 2002 and the date when
Intrawest has purchased eight sites and all buildings on the sites have been
substantially completed. To date the Company has purchased and developed two
sites totalling 98 residential units and is currently developing an additional
site.
PANORAMA. Intrawest owns approximately 400 acres of developable land at
Panorama in the resort village and adjacent to the golf course which is
currently under construction. The Greywolf neighbourhood surrounding the golf
course is planned to include approximately 400 townhomes and single-family
homes. The Company expects to build approximately 1,000 residential units and
15,000 square feet of commercial space in and around the Ski Tip village
neighbourhood.
STRATTON. The approval process is under way for the development of
approximately 1,300 residential units at the resort. The bulk of the development
comprising 750 units and 30,000 square feet of commercial space will expand the
existing village at the base of Stratton Mountain. Construction of the first
project, containing 36 luxury townhomes, was completed in April 1998.
SNOWSHOE. With its acquisition of Snowshoe, the Company acquired
approximately 200 acres of land which may be developed to support the existing
village. The planning and envisioning process has begun and construction of the
first project was completed in December 1997.
MAMMOTH. The planning and approval process is in progress and construction
commenced on the first project, which is approximately 80% pre-sold, in the
spring of 1998. The new North Village at the base of Mammoth Mountain is planned
to consist of approximately 800 units and 120,000 square feet of commercial
space. Plans for the other lands in the area include over 300 ski-in, ski-out
units, an 18-hole golf course and over 1,000 single-family, multi-family and
hotel units fronting onto the golf course. The Sierra Star golf course, in which
the Company has a 35% interest, is under construction with scheduled opening in
spring 1999.
COPPER. The Company owns three major parcels of land at Copper. The
Village Center parcel is located at the main access point to Copper and is
expected to contain approximately 900 additional residential units and 102,000
square feet of additional commercial space when developed. The remaining parcels
are zoned for a total of 219 single and multi-family units and either have
ski-in, ski-out access or are adjacent to the Copper Creek Golf Course. The
first project, which is fully pre-sold, commenced construction in the summer of
1998.
SQUAW VALLEY. In November 1996 the Company entered into an option
agreement with the owner of the Squaw Valley Ski Area to acquire approximately
13 acres of land at the base of the Squaw Peak ski facilities on which the
Company plans to develop a four-season resort. The land is divided into four
development parcels on which the Company expects to develop approximately 600
residential units and 120,000 square feet of commercial space over the next
eight years.
WHISTLER. The Company owns a 44-acre site at the Creekside base of
Whistler Mountain, zoned for a mixture of commercial and tourist accommodation.
The Company has submitted a master plan for development approval of the
Creekside base encompassing 352 residential units and 72,000 square feet of
commercial space, as well as approximately 400 units located at other sites. The
Company owns an additional 70-acre site above the Creekside base for the
development of single- and multi-family housing. The Company also has an option
to acquire a 40-acre site, approximately six miles south of Whistler Village.
EAGLES NEST. In 1997 the Company purchased 230 acres of developable land
and an 18-hole golf course in Silverthorne, Colorado. The real estate will be
developed through a joint venture with approximately 500 units planned.
MOUNTAIN CREEK. With its acquisition of Mountain Creek, the Company
acquired approximately 390 acres. The planning and envisioning process has begun
and approximately 900 units are planned.
SANDESTIN. With its acquisition of Sandestin, the Company acquired 256
units of substantially completed inventory comprising single-family lots,
townhomes and condominiums, and land for the future development of approximately
2,200 residential units and 200,000 square feet of commercial space.
MONT STE. MARIE. With its acquisition of Mont Ste. Marie, the Company
acquired approximately 900 acres of developable land. The feasibility of the
development is currently being reviewed.
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<PAGE> 22
PROJECTS RECENTLY COMPLETED OR UNDER ACTIVE DEVELOPMENT
<TABLE>
<CAPTION>
OWNERSHIP TOTAL PROJECT DESCRIPTION AND
PROJECT NAME INTEREST UNITS STATUS AT AUGUST 31, 1998
------------ --------- ----------- -------------------------
<S> <C> <C> <C>
BLACKCOMB
Lost Lake Lodge 77% 100 Condominium-hotel units for
sale; construction completed
June 1998; 96 units sold.
Pinnacle Heights 77% 8 Exclusive townhomes for sale;
construction started February
1998 with scheduled completion
August 1999; 5 units pre-sold.
Forest Creek 77% 12 Townhomes for sale;
construction started May 1998
with scheduled completion
January 1999; 3 units
pre-sold.
TREMBLANT
Le Saint Andrew's 100% 14 Single-family lots for sale;
construction of infrastructure
completed August 1994; 9 lots
sold.
Les Pignons 100% 15 Detached townhomes for sale;
construction of Phase I (5
units) completed May 1996;
fully sold. Construction of
Phase II (10 units) completed
December 1997; 6 units sold.
Le Lodge de la Montagne 100% 139 Condominium-hotel units for
sale; construction started
September 1997 with scheduled
completion October 1998; fully
pre-sold.
Refuge des Cerfs 100% 66 Single-family lots for sale;
construction started November
1997 with scheduled completion
December 1999; 16 lots
pre-sold.
Le Plateau 100% 98 Townhomes for sale;
construction started May 1998
with scheduled completion June
2000; 8 units pre-sold.
La Tour des Voyageurs 100% 163 Condominium-hotel units for
sale with commercial space;
construction started May 1998
with scheduled completion June
1999; 99 units pre-sold.
Plaza Commerciale 100% approx. Commercial space; construction
5,000 started June 1998 with
sq. ft. scheduled completion October
1998; fully pre-leased.
</TABLE>
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<PAGE> 23
PROJECTS RECENTLY COMPLETED OR UNDER ACTIVE DEVELOPMENT (CONTINUED)
<TABLE>
<CAPTION>
OWNERSHIP TOTAL PROJECT DESCRIPTION AND
PROJECT NAME INTEREST UNITS STATUS AT AUGUST 31, 1998
------------ --------- ----------- -------------------------
<S> <C> <C> <C>
KEYSTONE
Ski Tip Ranch 50% 46 Townhomes for sale; Phase I
(28 units) fully sold.
Construction of Phase II (18
units) completed May 1998; 16
units sold.
Silver Mill 50% 130 Condominium-hotel units for
sale with retail and
restaurant space; construction
completed December 1997; 123
units sold.
Buffalo Lodge & The 55% 157 Condominium-hotel units for
Dakota sale; construction started May
1997 with scheduled completion
September 1998; 126 units
pre-sold.
Expedition Station 60% 92 Condominium-hotel units for
sale; construction started May
1998 with scheduled completion
June 1999; 57 units pre-sold.
Elk Run 50% 81 Single-family lots for sale;
construction started May 1998
with scheduled completion
November 1998; 52 units
pre-sold.
Red Hawk Lodge and 60% 140 Condominium-hotel units and
Townhomes townhomes for sale;
construction to begin spring
1999 with scheduled completion
spring 2000.
Trading Post 60% 116 Condominium-hotel units for
sale; construction to begin
spring 1999 with scheduled
completion summer 2000.
SUN PEAKS
Fireside Lodge 100% 72 Condominium-hotel units for
sale; construction completed
April 1998; 31 units sold.
Forest Trails 100% 36 Townhomes for sale;
construction of Phase I (20
units) started April 1998 with
scheduled completion January
1999; 11 units pre-sold.
Construction of Phase II (16
units) to begin spring 1999
with scheduled completion
summer 2000.
PANORAMA
Ski Tip Lodge 100% 31 Condominium-hotel units for
sale and Daylodge with retail
and restaurant space;
construction completed January
1998; 26 units sold.
Tamarack Lodge 100% 46 Condominium-hotel units for
sale; construction completed
June 1998; 30 units sold.
Greywolf Lots 100% 42 Single-family lots for sale;
construction of Phase I (25
units) infrastructure
completed October 1997; 19
units pre-sold. Construction
of Phase II (17 units) started
July 1998 with scheduled
completion July 1999.
The Hearth Stone 100% 28 Townhomes for sale;
construction started May 1998
with scheduled completion
February 1999; 25 units
pre-sold.
</TABLE>
21
<PAGE> 24
PROJECTS RECENTLY COMPLETED OR UNDER ACTIVE DEVELOPMENT (CONTINUED)
<TABLE>
<CAPTION>
OWNERSHIP TOTAL PROJECT DESCRIPTION AND
PROJECT NAME INTEREST UNITS STATUS AT AUGUST 31, 1998
------------ --------- ----------- -------------------------
<S> <C> <C> <C>
STRATTON
Long Trail House 100% 142 Condominium-hotel units for
sale; construction started
April 1998 with scheduled
completion June 2000; 49 units
pre-sold.
Stratton Springs 100% 32 Townhomes for sale;
construction to begin fall
1998 with scheduled completion
fall 1999; 4 units pre-sold.
SNOWSHOE
Camp 4 100% 89 Townhomes for sale;
construction of Phase I (17
units) completed December
1997; 8 units sold. Future
units to be developed over two
to three year period.
Rimfire 100% 142 Condominium-hotel units for
sale; construction started May
1998 with scheduled completion
April 2000; 55 units pre-sold.
MAMMOTH
Juniper Springs 100% 174 Condominium-hotel units for
sale; construction started May
1998 with scheduled completion
October 1999; 144 units
pre-sold.
The Timbers 100% 32 Townhomes for sale;
construction to begin fall
1998 with scheduled completion
winter 1999.
COPPER
Copper Springs 100% 108 Condominium-hotel units for
sale; construction started
April 1998 with scheduled
completion September 1999;
fully pre-sold.
The Crossroads 100% 126 Condominium-hotel units for
sale; construction to begin
spring 1999 with scheduled
completion fall 2000.
WHISTLER
The Ridge at Taluswood 88% 26 Townhomes for sale;
construction of Phase I (15
units) completed January 1998;
fully sold. Construction of
Phase II (11 units) started
April 1998 with scheduled
completion November 1998; 4
units pre-sold.
SANDESTIN
Acquired Inventory and 50% 202 Condominium units, townhomes
Property Under and single-family lots for
Development sale; 31 units/lots sold.
Acquired Inventory 95% 54 Condominium units, townhomes
and single-family lots for
sale; 14 units/lots sold.
</TABLE>
22
<PAGE> 25
RESORT CLUB
In 1993 Intrawest entered the vacation ownership business through its
wholly owned subsidiary, Intrawest Resort Ownership Corporation ("IROC").
Vacation ownership is a segment of timeshare, a fast-growing sector of the
leisure industry. IROC differs from traditional timeshare companies in that it
offers equity ownership in a club through an innovative point-based membership
system. This system provides members of the club with the flexibility to
vacation in various club locations or at more than 1,600 international resorts
which are part of an exchange program with Interval International, Inc.
("Interval International"). The flexibility of the point-based system, combined
with a focus on a quality resort experience, was designed to meet the changing
vacation needs of the rapidly growing baby boomer and mature markets. According
to information compiled by the American Resort Development Association, the
prime market for timeshare is customers in the 40 to 55 year age range who are
reaching the peak of their earning power and are rapidly gaining more leisure
time and the median age of a timeshare buyer at the time of purchase is 46. The
Company believes it is well positioned to take advantage of these demographic
trends because of the quality of its resorts and locations, the flexibility of
its point-based system, and its program to allow buyers through the Company's
exchange agreements to exchange intervals with Interval International and Disney
Vacation Club as well as at its own locations.
The number of timeshare resorts throughout the world increased from 631 in
1981 to 4,350 at the end of 1995. From 1987 timeshare sales grew by
approximately 15% per year, reaching approximately US$5 billion in total
worldwide sales in 1995. A significant part of this success is attributable to
the growth of timeshare exchanges which have increased owner flexibility.
Exchange companies, such as Interval International, allow timeshare owners to
turn the fixed asset of a particular week in a particular location into a
tradeable commodity. Of the 4,350 worldwide timeshare resorts, approximately 95%
are affiliated with an exchange company, with such companies arranging
approximately 80% of the timeshare vacations taken worldwide each year. The
Company believes that one of the most significant factors contributing to the
current success of the timeshare industry is the entry into the market of some
of the world's major lodging, hospitality and entertainment companies, such as
Marriott Ownership Resorts, The Walt Disney Company, Hyatt Corporation, Four
Seasons Hotels & Resorts and Inter-Continental Hotels and Resorts.
After constructing a club location, IROC transfers ownership of the
vacation units, free and clear of all encumbrances, to a trustee for Club
Intrawest ("Resort Club"), a non-profit, non-stock corporation. In return, IROC
receives the right to sell points (vacation time) to the general public in the
Resort Club accommodation. Each individual purchasing points becomes a member in
the Resort Club with the entitlement to stay at any Resort Club location or at
international resorts through an affiliation with one of the major exchange
agencies. In addition, the Company has a direct exchange agreement with Disney
Vacation Club which allows members of that club and the Resort Club to enjoy
exchange privileges. Each accommodation type at each Resort Club location is
assigned a point value for each day of the year. The point value assigned to
each day depends on the day of the week and season, with higher demand times
carrying a higher point value. The selling price per point is exclusively
controlled by IROC depending upon market conditions.
A member of the Resort Club receives an annual allotment of points in
perpetuity. The points can be utilized in different denominations to vary the
time of year, length of stay, location of vacation and the type of accommodation
used, all subject to availability. Except in the first year of ownership, unused
points may be carried forward (banked) for one year or points may be borrowed
from the next year to complete a vacation reservation. Points may be sold,
transferred or bequeathed, subject to IROC's right of first refusal to purchase
such points.
To date, the first two phases of the resort club locations at Blackcomb and
Tremblant, comprising 85 and 34 units, respectively, have been completed. The
quality of the resort club locations at Blackcomb and Tremblant has placed both
locations in Interval International's highest-rated group of worldwide
destination resorts. These two locations will entitle IROC to sell approximately
one million points in Phases I and II and 2.2 million points in all phases when
they are fully built. In December 1997 IROC acquired 4 units available for its
members in Kauai, Hawaii. IROC is also a 50% partner in a resort club location
under construction within a 36-hole municipally owned golf course community in
Palm Desert, California. The Company believes that Sandestin will provide an
attractive location for its resort club business. Further resort club locations
are currently in the pre-development stage at Mammoth, Keystone and warm-weather
locations. Through June 30, 1998, approximately 622,000 points have been sold to
over 4,300 members for approximately $73.4 million.
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<PAGE> 26
Valuable synergies exist between the Resort Club and other Intrawest
operations. Vacation ownership facilities typically have the highest occupancy
rates of any type of resort accommodation which translates into increases in
other revenue sources for Intrawest resorts including lift tickets, food and
beverage, retail and golf. Significant cross-marketing opportunities also exist,
primarily through the sharing of database marketing systems.
COMPETITION
The industries in which the Company operates are highly competitive. The
Company competes with mountain resort areas in the United States, Canada and
Europe for destination visitors and with numerous mountain resorts in each of
the areas in which it operates for day visitors. The Company also competes with
other worldwide recreation resorts, including warm-weather resorts, for vacation
guests. The Company's major North American competitors include the major
Colorado and Utah ski areas, the Lake Tahoe mountain resorts in California and
Nevada, the Quebec and New England mountain resorts and the major ski areas in
the Canadian Rockies. In addition, while the Company's skier visits have
increased over the past several years, the numbers of active skiers and annual
skier visits in North America have not changed significantly since 1985. The
competitive position of the Company's resorts is dependent upon many diverse
factors such as proximity to population centres, availability and cost of
transportation to the resorts, including direct flight availability by major
airlines, pricing, snowmaking capabilities, type and quality of skiing offered,
duration of the ski season, prevailing weather conditions, quality of golf
facilities, the number, quality and price of related services and lodging
facilities, and the reputation of the resorts.
LEGAL AND REGULATORY MATTERS
The Company currently and from time to time is involved in litigation in
the ordinary course of its business. The Company does not believe that it is
involved in any litigation that will, individually or in the aggregate, have a
material adverse effect on its financial condition or results of operations or
cash flows.
Many of the Company's resorts are subject to suits with respect to personal
injury claims related principally to skiing activities at each resort. The
Company maintains liability insurance that it considers adequate to insure
claims related to usual and customary risks associated with the operation of a
ski resort.
There are no financially material environmental protection requirements in
connection with Intrawest's resort operations.
NON-RESORT ASSETS
OVERVIEW
In 1994 the Company determined that it would concentrate its business on
its resort ownership and resort real estate development activities and would
dispose of the Non-Resort Assets. Since that time, the Company has disposed of
the majority of its Non-Resort Assets. At a meeting of shareholders of the
Company held in March 1997, the shareholders approved the Share Capital
Reorganization, effective March 14, 1997, designed to separate the Non-Resort
Assets from the rest of the Company's business. Under the Share Capital
Reorganization, each existing Common Share was exchanged, on March 14, 1997, for
one new Common Share and one NRP Share. The new Common Shares have the same
attributes as the Common Shares which existed prior to the Share Capital
Reorganization and the NRP Shares represent the net equity of the Non-Resort
Assets (that is, the value of these assets less the liabilities of the
non-resort related business operations of the Company). The book value of the
net equity of the Non-Resort Assets as at December 31, 1996 was $88.5 million or
$3.82 per NRP Share.
The Company expects that the remaining Non-Resort Assets will be disposed
of in an orderly manner, and the net cash flow from the Non-Resort Assets will
be distributed to the holders of the NRP Shares, primarily by way of redemption,
over the next two to three years. Any gains or losses generated by the
disposition of the Non-Resort Assets will be for the account of the NRP Shares
only and will not affect the computation of earnings per Common Share.
On September 30, 1997, the Company redeemed 2,360,000 of the NRP Shares
pursuant to the provisions attaching to the NRP Shares at a redemption amount of
$3.82 per NRP Share. The number of NRP Shares redeemed represented approximately
10% of the outstanding NRP Shares. The Company has announced that
24
<PAGE> 27
it plans to redeem on September 30, 1998 5,460,000 of the NRP Shares at a
redemption amount of $3.82 per NRP Share. The number of NRP Shares to be
redeemed on such date represents approximately 25% of the outstanding NRP
Shares.
NON-RESORT PROPERTIES
Set out below is a brief description of each of the Company's remaining
non-resort properties.
AIRCARE, GREATER VANCOUVER, BRITISH COLUMBIA. In 1991 the Company entered
into a partnership in connection with the construction of the British Columbia
Government AirCare centres. A total of 12 vehicle emission testing stations were
constructed throughout 10 Vancouver Lower Mainland municipalities in 1992 and
1993. The Company holds a 50% interest in the partnership which owns the testing
stations and leases them to the operator for an initial term which expires in
1999.
WHITEMUD CROSSING, EDMONTON, ALBERTA. This non-enclosed 95,000-square foot
shopping centre, located at a major intersection in south Edmonton, was
constructed by the Company in 1987. Approximately 96% of the centre is leased
with approximately one-third occupied by Cineplex Odeon.
GATEWAY, SURREY, BRITISH COLUMBIA. This property comprises 4.5 acres of
vacant land adjacent to the SkyTrain rapid transit line. A SkyTrain station is
located on the site. The land, which is zoned for commercial purposes, can
accommodate approximately 975,000 square feet of office development. A building
permit for Riverpark Place, a planned 88,000-square foot office building, has
been approved and pre-leasing is under way. The Company has a 50% interest in
the property.
COACH HILL, CALGARY, ALBERTA. This 7.5-acre site is located in the Coach
Hill area of southwest Calgary. Construction of the first phase of townhomes
commenced in May 1997. At full build-out, the site is expected to contain 134
townhomes and an amenity building.
NON-RESORT RECEIVABLES
Effective April 1, 1994, Intrawest sold to two partnerships (the
"Partnerships") substantially all of the direct and indirect interests of the
Company in its non-resort residential and industrial development properties in
British Columbia and Washington State. Part of the consideration received by the
Company for the bulk sale of non-resort properties to the Partnerships was a
note receivable for $31.7 million. The Company has also provided the
Partnerships with various credit facilities, including a $7.0 million revolving
line of credit and a non-revolving loan for $1.8 million to fund costs in
connection with a specific property. These loans earn interest at prime plus 2%
per annum. To June 30, 1998, the partnerships had repaid $15.7 million of
principal payments on the note receivable and the repayment of the balance, with
interest at 10% per annum, is expected to be as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS
OF DOLLARS)
-------------
<S> <C>
September 30, 1998.......................................... $ 3,500
March 31, 1999.............................................. 3,500
September 30, 1999.......................................... 3,500
March 31, 2000.............................................. 5,540
-------
$16,040
=======
</TABLE>
In addition to the amounts receivable described above, there were $4.9
million of other non-resort receivables as at June 30, 1998, comprising vendor
take-backs on the sale of properties and miscellaneous mortgages, loans and
notes. The Company expects to collect the majority of these receivables by 1999.
For the year ended June 30, 1998, interest income from non-resort receivables
totalled $3.0 million.
OTHER NON-RESORT ASSETS
At June 30, 1998, there were $4.9 million of other Non-Resort Assets.
25
<PAGE> 28
EMPLOYEES
The Company has approximately 3,700 year-round employees and 8,600
additional peak-season employees. Approximately 100 of Tremblant's year-round
employees and all of its additional peak-season employees are members of the
union Le Syndicat Des Travailleurs(euses) de La Station du Mont Tremblant. The
current contract with the union expires on October 31, 2000. Approximately 60 of
Mont Ste. Marie's additional peak-season employees are members of the union
Confederation des Syndicats Nationaux. The contract with the unionized employees
expired on December 6, 1997. The union is currently operating under the terms of
the expired contract and the Company expects to negotiate a new contract during
the fall of 1998. None of the employees in Intrawest's other resorts are members
of a union. The Company believes that its employee relations are good.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information presented below should be
read in conjunction with "Management's Discussion and Analysis" and the
consolidated financial statements and notes thereto included elsewhere in this
Annual Information Form.
FIVE YEAR SUMMARY
(in millions of dollars except per share amounts)
<TABLE>
<CAPTION>
As at Fiscal Period End(1)
----------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Total assets.......................... $1,466.6 $1,098.0 $753.7 $658.6 $629.0
Bank and other indebtedness........... 612.8 489.8 379.8 315.6 300.6
Shareholders' equity.................. 653.5 498.1 290.3 276.4 265.5
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended(1)
------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
REVENUE AND EARNINGS
Total revenue............................ $601.7 $389.0 $283.3 $152.9 $110.6
Cash flow................................ 96.3 57.5 35.8 22.9 15.7
Income from continuing operations........ 43.0 28.3 19.7 9.8 4.6
Results of discontinued operations....... (2.0) (1.2) (2.1) 1.9 10.5
Net income............................... 41.0 27.1 17.6 11.7 15.1
PER COMMON SHARE
Cash flow................................ $ 2.60 $ 1.87 $ 1.34 $ 0.80 $ 0.62
Income from continuing operations........ 1.25 1.02 0.85 0.43 0.21
Net income............................... 1.25 1.05 0.76 0.51 0.70
Dividends................................ 0.16 0.16 0.16 0.16 0.16
</TABLE>
- ------------
(1) June 30 for 1998, 1997, 1996 and 1995 and September 30 for 1994. The Company
changed its year end from September 30 to June 30, effective in 1995.
QUARTERLY SUMMARY
(in millions of dollars except per share amounts)
<TABLE>
<CAPTION>
1998 1997
------------------------------------ ----------------------------------
QUARTERS QUARTERS
------------------------------------ ----------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
------ ------- ------- ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue................. $46.0 $167.9 $278.9 $108.9 $39.4 $72.7 $209.2 $ 67.7
Cash flow..................... (2.0) 13.5 66.0 18.8 0.3 3.1 51.2 2.9
Income from continuing
operations.................. (3.9) 4.2 42.6 0.1 (1.9) (1.2) 30.7 0.8
Results of discontinued
operations.................. (0.4) (0.4) 0.4 (1.6) 0.7 0.1 (1.5) (0.5)
Net income.................... (4.3) 3.7 43.1 (1.5) (1.2) (1.1) 29.2 0.2
Per common share
Cash flow................... (0.02) 0.29 1.78 0.55 0.01 0.12 1.54 0.08
Income from continuing
operations............... (0.11) 0.12 1.24 0.0 (0.08) (0.05) 1.19 0.03
Net income.................. (0.11) 0.12 1.24 0.0 (0.05) (0.05) 1.14 0.01
</TABLE>
26
<PAGE> 29
SEGMENTED INFORMATION
(in thousands of dollars)
YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
INDUSTRY SEGMENTS
Revenue
Ski and resort operations................................. $ 370,307 $ 265,492
Real estate operations.................................... 231,434 123,483
---------- ----------
Consolidated.............................................. $ 601,741 $ 388,975
========== ==========
Operating profit after deducting depreciation and
amortization
Ski and resort operations................................. $ 52,116 $ 46,437
Real estate operations.................................... 41,780 22,682
---------- ----------
93,896 69,119
Less: unallocated corporate expenses
Interest.......................................... (22,881) (20,914)
General and administrative........................ (10,360) (8,916)
---------- ----------
Consolidated.............................................. $ 60,655 $ 39,289
========== ==========
Identifiable assets
Ski and resort operations................................. $ 805,197 $ 576,991
Real estate operations.................................... 562,855 400,449
Discontinued operations................................... 98,521 120,511
---------- ----------
Consolidated.............................................. $1,466,573 $1,097,951
========== ==========
Capital acquisitions
Ski and resort operations................................. $ 127,487 $ 51,693
========== ==========
Depreciation and amortization
Ski and resort operations................................. $ 33,960 $ 23,204
Real estate operations.................................... 2,162 1,740
Unallocated corporate..................................... 1,921 1,022
---------- ----------
Consolidated.............................................. $ 38,043 $ 25,966
========== ==========
GEOGRAPHIC SEGMENTS
Revenue
Canada.................................................... $ 321,518 $ 255,016
United States............................................. 280,223 133,959
---------- ----------
Consolidated.............................................. $ 601,741 $ 388,975
========== ==========
Operating profit after deducting depreciation and
amortization
Canada.................................................... $ 37,927 $ 33,143
United States............................................. 22,728 6,146
---------- ----------
Consolidated.............................................. $ 60,655 $ 39,289
========== ==========
Identifiable assets
Canada.................................................... $ 621,903 $ 593,134
United States............................................. 746,149 384,306
Discontinued operations................................... 98,521 120,511
---------- ----------
Consolidated.............................................. $1,466,573 $1,097,951
========== ==========
</TABLE>
DIVIDEND POLICY
Since 1991 the Company has paid regular, semi-annual dividends of $0.08 per
Common Share to its shareholders. Future dividends will be paid at the
discretion of the Company's board of directors and will be subject to the
Company's earnings, financial condition, capital requirements and such other
factors as are deemed relevant by the Company's board of directors.
27
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of the operating results and financial position of
Intrawest should be read in conjunction with the consolidated financial
statements and related notes included in this Annual Information Form commencing
on page F-1.
OPERATING HIGHLIGHTS
1998 saw considerable growth in Intrawest's revenue and earnings as the
Company has started to benefit from extending its resort operations/resort
development formula to its more recent acquisitions. The Company produced and
sold almost double the number of real estate units in 1998 compared with 1997,
as more resorts contributed to the sales mix. The increased accommodation base
provided by these new units, combined with new attractions and amenities, drew
larger numbers of visitors, particularly higher-spending destination visitors,
to the resorts in 1998. At the same time the Company continued to broaden its
revenue-generating attractions thereby increasing revenue per visit.
These developments produced the following financial results:
- - A 55% increase in total revenue from $389 million to $601.7 million, with ski
and resort revenue increasing 40% and real estate sales revenue increasing
92%.
- - A 52% increase in income from continuing operations to $43 million and a 23%
increase in income per share from continuing operations to $1.25. The public
offering and shares issued in partial consideration for the acquisitions of
Whistler and Copper during the second half of 1997 increased the weighted
average number of shares outstanding during 1998 by 24%.
- - A 23% increase in operating profit from ski and resort operations and a 92%
increase in operating profit from real estate sales.
- - A 46% increase in total company EBITDA from $88.6 million to $129.6 million.
Total company EBITDA is computed as income before interest (including
previously capitalized interest in real estate cost of sales), taxes,
depreciation and amortization. It is not a term that has an established
meaning under generally accepted accounting principles, however management
believes it is an important measure of operating performance and it is
generally used by investors to evaluate companies in the resort industry.
REVIEW OF SKI AND RESORT OPERATIONS
During 1998 the Company increased its ownership of Mammoth from 33% to 58%
and as a result Mammoth's operations have been proportionately consolidated from
the beginning of the year. By contrast, in 1997 Mammoth was accounted for as an
equity investment and the Company's share of Mammoth's net income was disclosed
as income from equity accounted investment in the consolidated statement of
operations. The Company acquired Mountain Creek in February 1998 and the
redevelopment and repositioning of the resort is currently under way. All net
costs incurred at the resort have therefore been capitalized.
Revenue from ski and resort operations was $367.4 million in 1998, an
increase of $104.2 from 1997. The proportionate consolidation of Mammoth added
$49.7 million to ski and resort operations revenue and a full 12 months of
operations for the resorts acquired midway through fiscal 1997 (Whistler, Copper
and Mont Ste. Marie) increased revenue a further $12.8 million. Same-resort
revenue growth amounted to $41.7 million, representing a 16% increase over 1997.
Since 1993 same-resort revenue has grown at an average annual compound rate of
20.7%. The 16% increase in same-resort revenue from 1997 to 1998 was derived
from a 4% increase in skier visits, an 8% increase in revenue per skier visit
and a 4% increase in non-winter revenue. Skier visits were higher at all resorts
in 1998, except for Copper where they declined 4% due mainly to a reduction in
some heavily discounted ticket programs. Whistler/Blackcomb and Snowshoe
experienced record skier visits in 1998, with increases from 1997 of 6% and 24%
respectively. The significant improvement at Snowshoe was partly a return to
average historical visits after a below-average year in 1997 and partly a
response to the extensive capital additions made in the summer of 1997.
The 8% increase in same-resort revenue per skier visit in 1998, ranging
from 2% at Snowshoe to 20% at Tremblant, was due to improvements at every
resort. Revenue per skier visit is a function of ticket prices, ticket yields
and revenue from non-ticket sources such as ski school, food services, and
retail and rental shops. Ticket yields reflect the mix of ticket types (e.g.
adult, child, season pass and group) and the amount of discounting of
28
<PAGE> 31
full-price tickets. The Company actively manages its ticket yields in order to
optimize the volume, timing, pricing and mix of visits thereby maximizing its
ticket revenues. The Company also seeks to capture a high proportion of visitor
spending by expanding and enhancing its range of non-ticket services and
activities.
Although skier visits at Tremblant were essentially the same in 1998 as in
1997 (mainly as a consequence of the loss of visits because of the ice storms),
there was a 5% shift from local to destination visits that resulted in increased
spending per visit, particularly from retail shops and lodging.
Whistler/Blackcomb also experienced an increase in destination visits which
raised revenue per visit by 4%, with ski school and retail shops showing the
greatest improvement. Revenue per visit at Copper, which prior to Intrawest's
acquisition was significantly below other Intrawest resorts, increased 11% from
1997 mainly due to a 13% increase in average ticket yields. At Stratton revenue
per visit increased 8% principally due to higher ticket yields and additional
retail and rental business. The 2% increase in revenue per visit at Snowshoe
reflects the fact that skier visits increased 24% as the Company's focus in 1998
was to attract new visitors to the resort.
Same-resort non-winter ski and resort operations revenue was $34.8 million
in 1998 compared with $25.6 million in 1997. Over the past few years, the
Company has set out to expand its revenue base through four seasons and
non-winter revenue increased to 11% of annual ski and resort revenue in 1998
from 9% in 1997. The largest increase was at Tremblant, which experienced record
visitors during the summer and fall period, driving significantly higher golf,
lodging and retail business.
The following table shows the composition of ski and resort operations
revenue for 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
REVENUE PROPORTION REVENUE PROPORTION
---------- ---------- ---------- ----------
(MILLIONS) (%) (MILLIONS) (%)
<S> <C> <C> <C> <C>
Lifts................................................. $172.8 47.0 $129.8 49.3
Retail shops.......................................... 54.4 14.8 39.5 15.0
Food and beverage..................................... 53.3 14.5 38.5 14.6
Lodging and property management....................... 34.6 9.4 22.2 8.4
Ski school............................................ 25.9 7.0 18.1 6.9
Golf.................................................. 7.9 2.2 7.2 2.7
Other................................................. 18.5 5.1 7.9 3.1
------ ----- ------ -----
$367.4 100.0 $263.2 100.0
====== ===== ====== =====
</TABLE>
The decline in the relative proportion of lift revenue in 1998 was mainly
due to the inclusion of summer and shoulder season revenues at Whistler and
Copper for the first year. Golf revenue in 1998 increased by 10% over 1997. The
relative significance of golf will increase in future years as a result of the
opening of new courses under construction at Panorama and Mammoth, and
acquisitions subsequent to year end (see Recent Developments).
Operating profit from ski and resort operations increased 23% to $83.2
million in 1998 from $67.4 million in 1997. Operating profit as reported in 1997
was higher than normal because seasonal losses during the July to December
period occurred prior to the acquisition dates of Whistler and Copper. On a
pro-forma, same-resort basis (i.e. excluding Mammoth and normalizing the 1997
results for Whistler and Copper for 12 months) operating profit increased by
$10.7 million or 19%. Pro-forma operating profit was higher at all resorts in
1998 except for Copper, Panorama and Mont Ste. Marie which experienced small
declines. Pro-forma operating profit increased 16% at Whistler/Blackcomb as a
result of revenue enhancements, synergies from the merged operation and the
realization of certain economies of scale. Operating profit increased
significantly at Tremblant, Snowshoe and Stratton primarily as a result of the
improvements in revenue noted above set against a relatively fixed cost
structure.
The Company's ski and resort operations margin, as reported, was 22.6% in
1998 compared with 25.6% in 1997. As mentioned above, operating profit in 1997,
and therefore the margin, was higher because of the timing of the acquisitions
of Whistler and Copper. On a pro-forma, same-resort basis the margin improved to
21.1% in 1998 from 20.5% in 1997. The pro-forma margin was modestly lower in
lodging and higher in all other operating departments with ski school and retail
shops showing the most significant increases. The improvements in ski school
were mainly due to higher destination visits at Whistler/Blackcomb and
Tremblant, the introduction of new programs (e.g. semi-private lessons), and
organizational changes in the ski school management structure. Increased
higher-margin rental business combined with economies of scale in retail
purchasing increased the margin on retail.
29
<PAGE> 32
REVIEW OF RESORT REAL ESTATE OPERATIONS
Revenue from the sale of resort real estate increased 92% to $226.4 million
from $118.2 million in 1997. The increase was due to increases in sales prices
and to the production and delivery of significantly more units in 1998, as some
of the recently acquired resorts began to generate sales. The average sales
price of townhomes increased 12% in 1998 compared with 1997 and the average
sales price of condo-hotel units increased 16%.
In total, excluding the Resort Club, Intrawest closed 763 sales
transactions in 1998 compared with 465 transactions in 1997. The majority of the
sales at Whistler/Blackcomb were generated by two condo-hotel projects, One
Whistler Village and Lost Lake Lodge, and two townhome projects, Mountain Star
and the Ridge at Taluswood. At Tremblant the Company sold out the Algonquin, the
balance of units in Kandahar, and a number of smaller townhome projects.
Approximately two-thirds of the sales closings at Keystone were provided by
Silver Mill, the fourth building in River Run Village, and the Company also sold
out the second phase of the Ski Tip and Trappers Crossing projects. The first
sales were recorded at Stratton in 1998 from the Snow Bridge townhomes, and at
Copper most of the sales related to lots and land leases.
The Company's pre-sale strategy not only mitigates risk, but also increases
the predictability of earnings. As of August 31, 1998, the Company had pre-sold
672 units for approximately $173 million which it expects to close in fiscal
1999 and a further $109 million of pre-sales due to close in fiscal 2000. A
significant portion of these pre-sales relates to new village developments at
Copper, Mammoth, Snowshoe and Stratton. In all cases initial selling prices were
considerably higher than the prevailing market.
The Resort Club contributed $21.9 million in sales revenue in 1998,
marginally higher than 1997. In 1997 the Company operated two off-site sales
offices in Vancouver and Ottawa as well as its club locations at Blackcomb and
Tremblant, but these off-site locations were closed in the spring of 1997
because the revenue they generated did not support the costs to maintain them.
Excluding the off-site locations, Resort Club sales at Blackcomb and Tremblant
increased 9% in 1998 compared with 1997. This was due to a 4% increase in the
number of points sold and a 5% increase in revenue per point. Add-on point sales
(i.e. additional points purchased by existing club members) and member referral
point sales accounted for most of the increase in resort club revenue, and
attest to the high degree of member satisfaction with the Club. In addition,
these programs produce higher margin sales since they incur minimal marketing
expenses.
Operating profit on resort real estate sales increased 92% (the same
percentage as the increase in real estate revenues) from $22.3 million in 1997
to $42.8 million in 1998. Increasingly the Company has transferred successful
"project templates" to new developments and this practice has helped to control
costs by reducing design and engineering fees and reducing construction
uncertainties. The Company has also continued to enhance its project reporting
systems so that potential cost overruns are detected at an early stage and
remedial action taken. The margin on real estate sales in 1998 was 18.9%,
exactly the same as in 1997, and well above industry averages for home builders.
The majority of the condo-hotel projects which the Company develops contain
ground-level retail space, which is either leased to third party operators or
used by the Company for its own sports shops. Rental revenue derived from third
party operators increased from $3.1 million in 1997 to $4.4 million in 1998
chiefly as a result of new condo-hotel properties at Tremblant and Keystone.
REVIEW OF CORPORATE OPERATIONS
INTEREST AND OTHER INCOME
Interest and other income increased to $3.6 million in 1998 from $3.2
million in 1997. Interest income on cash balances and receivables increased by
$1.2 million to $3.3 million, mainly due to the investment of net proceeds from
the debenture and equity offerings in 1998. Other income, which mainly comprises
fee income and miscellaneous gains and losses, was $0.3 million in 1998 compared
with $1.1 million in 1997.
INTEREST COSTS
The Company incurred total interest costs of $42 million in 1998 compared
with $35.5 million in 1997. The proportionate consolidation of Mammoth increased
interest by $1.1 million and a full year's interest at Whistler and Copper
compared with seven months in 1997 added a further $2.1 million. The Company's
$125 million debenture offering, which closed in November 1997, increased
interest by $3.1 million, net of reduced interest on debt repaid
30
<PAGE> 33
from a portion of the debenture proceeds. The balance of the change in interest
costs was due to interest on new debt to fund capital improvements and real
estate development activity at the resorts, partially offset by reduced interest
on non-resort debt.
Incurred interest is either capitalized to properties and resort assets
under development or charged to income. During 1998 $31 million of interest
incurred during the year was charged to income -- $22.9 million as interest
expense, $4.8 million as a component of real estate costs, and $3.3 million in
discontinued operations. By comparison, in 1997 $26.4 million of interest
incurred was charged to income. In addition, real estate costs include interest
incurred and capitalized to properties in prior years of $6.8 million in 1998
and $3.4 million in 1997.
Under its debenture covenants, Intrawest is required to maintain an EBITDA
to interest coverage of at least 1.5 times. EBITDA is measured as earnings
before interest (including previously capitalized interest in real estate cost
of sales), taxes, depreciation and amortization. The results of the discontinued
operations are included in the coverage calculation. For 1998 EBITDA to interest
coverage was 3.7 times compared with 3.1 times in 1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $26 million in 1997 to $38
million in 1998. The proportionate consolidation of Mammoth added $2.8 million
to depreciation in 1998 and 12 months of depreciation at Whistler and Copper
versus seven months in 1997 added a further $3.7 million. The balance of the
increase was attributable primarily to depreciation on new capital expenditures
at the resorts and amortization of deferred charges.
GENERAL AND ADMINISTRATIVE COSTS
All general and administrative costs incurred by the resorts are included
in ski and resort operation expenses. Similarly, general and administrative
costs related to the development of real estate are initially capitalized to
properties, and then expensed to real estate costs when the properties are sold.
Corporate general and administrative costs increased from $8.9 million in 1997
to $10.4 million in 1998. The increase was due mainly to higher insurance,
corporate capital tax and incentive-based compensation. As a percentage of
revenues, corporate general and administrative costs declined from 2.3% in 1997
to 1.7% in 1998. The Company continually reviews its overhead costs and has
instituted procedures to reduce or eliminate costs where appropriate.
INCOME TAXES
The Company provided for income taxes of $13.4 million in 1998 compared
with $7.1 million in 1997. This equates to an effective tax rate of 22% in 1998,
up from 18% in 1997. The increase in the effective tax rate was primarily due to
higher taxable income in the United States from Mammoth and from the increase in
US real estate sales. Additional information on income taxes is provided in Note
11 to the consolidated financial statements.
DISCONTINUED OPERATIONS
The consolidated financial statements disclose the results of the Company's
non-resort business as discontinued operations. The discontinued operations
incurred a loss of $2 million in 1998 compared with a loss of $1.2 million in
1997. During 1998 the Company sold $46.8 million of non-resort properties
including its interests in Park Highland, The Newmark, Arbor Place and Belltown
Court in metropolitan Seattle, and Signal Hill and the majority of the first
phase of Coach Hill in Calgary. In addition, the Company recovered its
investment in Station Tower as a result of the sale of that property.
The net income or loss and the net cash flow generated by the non-resort
assets accrue to the holders of the non-resort preferred shares and do not
impact earnings or cash flow available to the common shareholders.
REVIEW OF ASSETS
Total assets grew by 34% to $1,466.6 million during 1998, with an increase
in resort assets of $414.4 million being partially offset by a decline in
discontinued non-resort assets of $45.8 million. The discontinued non-resort
assets now constitute 7% of the Company's total assets compared with 11% at the
end of fiscal 1997.
The increase in resort assets during 1998 was substantially due to the
acquisitions of Mountain Creek and the Company's increased investment in
Mammoth, the extensive capital improvements made at the resorts during the year
and the ramp-up in the production of real estate projects at new resorts.
31
<PAGE> 34
CAPITAL STRUCTURE AND LIQUIDITY
Intrawest's debt to equity ratio was 0.94 : 1 at June 30, 1998 compared
with 0.98 : 1 at June 30, 1997. The reduction resulted from a 31% increase in
shareholders' equity, partially offset by a 25% increase in debt. The decline in
the value of the Canadian dollar against the US dollar during 1998 increased the
foreign currency translation adjustment, and therefore shareholders' equity, by
$19.5 million. This amount represents the Canadian dollar increase in the net
book value of the Company's US investments. Since year end the Company has
issued additional debt, primarily in connection with acquisitions, and its debt
to equity ratio has increased (see Recent Developments).
On June 24, 1998, the Company raised $103.4 million net in a public
offering of 3.85 million common shares in the United States and Canada. The
proceeds were used to retire a portion of existing debt and for general
corporate purposes. This offering, combined with proceeds from the exercise of
stock options in the normal course and net of the $9 million redemption of NRP
shares, increased capital stock by 26% from $382.3 million at the end of fiscal
1997 to $483 million at June 30, 1998. Subsequent to fiscal year end, the
Company issued an additional 1.125 million shares for net proceeds of $32.5
million in connection with acquisitions (see Recent Developments).
At June 30, 1998, total debt amounted to $612.8 million, an increase of
$123.0 million from June 30, 1997. On December 2, 1997, the Company issued $125
million of 6.85% senior unsecured debentures due 2002. The proceeds were
principally used to fund the acquisitions of Mountain Creek and the Company's
additional interest in Mammoth, and to repay a portion of the term debt at
Whistler/Blackcomb. Subsequent to June 30, 1998, the Company issued a further US
$125 million of senior unsecured notes (see Recent Developments). A portion of
the proceeds were used to repay term debt related to Stratton and Snowshoe. The
Company expects to continue to raise long-term, fixed-rate financing of this
type at the corporate level and to reduce its secured ski and resort operations
term debt at the subsidiary level.
At June 30, 1998, 45% of total debt bore interest at floating rates, down
significantly from 57% at June 30, 1997. Intrawest has developed a hedging
policy to manage its interest rate risk. Interim financing for real estate
construction is normally arranged on a floating rate basis. Since the Company is
engaged primarily in the development of projects with a short construction and
sell-out timetable, exposure to higher interest rates on construction financing
is not significant. Debt on defined income-stream properties (for example,
commercial rental properties) is normally arranged on a longer-term, fixed-rate
basis with the objective of matching the financing with the duration
characteristics of the property. It is also the Company's policy to fix the
interest on approximately 50% of its general corporate and ski and resort
operations debt, although a lower proportion may be hedged temporarily in
anticipation of a refinancing. At year end, 44% of such debt bore interest at
floating rates. A 1% change in the rate of interest on this debt would impact
annual earnings by approximately $1.9 million before income taxes.
The Company requires liquidity for debt service, capital expenditures and
acquisitions. Funds for these purposes are provided by a combination of cash
flow from operations, short- and long-term borrowings and, for larger
acquisitions, equity capital. In addition, the Company's resorts generally have
negative cash flows from May to November and revolving lines of credit are
needed to finance working capital requirements during this period. Cash flow
from operations was $96.3 million in 1998, 67% higher than in 1997. The reasons
for this increase are described in the review of operations above.
The Company estimates that it will make capital expenditures totalling
approximately $170 million in fiscal 1999, comprising approximately $24 million
of capital maintenance and $146 million of capital expansion. The majority of
the capital expansion is taking place at the Company's newer acquisitions --
Whistler, Copper and Mountain Creek. Historically, the Company's business
strategy has been to make significant on-mountain enhancements at its resorts
soon after they are acquired in order to attract increased destination visitors
and to broaden the revenue base. Cash on hand and the proceeds of recent
financings will finance the majority of the fiscal 1999 capital expenditures.
Over the past two years the Company has significantly increased its
production of real estate units and this trend will continue as projects are
developed at recently acquired resorts. Currently the Company has approximately
1,200 units under construction at nine different resorts. To fund the majority
of this development activity, the Company has arranged three revolving
construction lines of credit with major Canadian and US banks. This financing is
significantly more efficient and less expensive than traditional individual
project loans and provides the Company with added flexibility.
32
<PAGE> 35
The Company successfully retired or refinanced $90.7 million of debt which
matured in 1997. During 1999 $97.9 million of debt is scheduled to be repaid --
$51.9 million of general corporate and ski and resort operations debt, and $46
million of debt on properties. A portion of the general corporate and ski and
resort operations debt is expected to be refinanced and the balance of the debt
repayments will be funded from cash on hand and future cash flow from
operations. The Company expects to repay most of the debt on properties from
property sales after completion of construction.
Intrawest's target is to retain approximately $40 million of cash balances
and unused lines of credit at all times. At June 30, 1998, the Company held cash
and unused lines of $134.7 million, which was higher than normal because it
included the residual proceeds of the equity offering. A portion of these funds
was used for acquisitions (see Recent Developments) and capital improvements at
the resorts.
During 1998 the Company sold its four non-resort properties in Seattle and
repaid $28.3 million of discontinued operations debt, leaving $15.4 million of
remaining discontinued operations debt at June 30, 1998. The majority of this
debt is secured by two revenue-producing properties, which generate sufficient
rental income to satisfy debt servicing requirements. Intrawest plans to sell
its remaining non-resort properties and to collect its non-resort receivables
and other assets in an orderly manner over the next two to three years. The net
cash flow generated by these assets must be distributed to the holders of the
non-resort preferred shares to redeem their shares. The first redemption,
covering the net cash flow up to June 30, 1997, amounted to $9 million, and was
made on September 30, 1997. The net cash flow for the year ended June 30, 1998
will be used to redeem $20.9 million of the non-resort preferred shares on
September 30, 1998.
RISK AND RISK MANAGEMENT
Intrawest's resort operations and resort real estate businesses are managed
to deal with risks that are common to most companies, i.e. the risks of severe
economic downturn, competition and currency fluctuations, and the more
industry-specific risks of unfavourable weather patterns and construction
overruns.
ECONOMIC DOWNTURN
A severe economic downturn could reduce spending on resort vacations and
weaken sales of recreational real estate. Although skiing is a discretionary
recreational activity that one might expect to be impacted by a significant
economic slowdown, Intrawest's operating results have historically not shown
this to be the case. During 11 years of ownership of Blackcomb, cash flow
increased every year despite widely varying economic conditions. Blackcomb, as
well as Intrawest's other resorts, attracts customers who have incomes well
above the national average and are therefore less likely to have their vacation
plans impacted by an economic recession. In addition, Intrawest's resorts draw
their visitors from a wide variety of locations and this diversity shelters
these resorts somewhat from regional economic conditions.
Real estate developers face two major risks from an economic downturn: land
risk and completed inventory risk. Land risk arises when land is purchased with
debt and economic conditions deteriorate resulting in higher holding costs and
reduced profitability, or worse, loan defaults and foreclosure. Intrawest has
reduced its land risk at certain of its resorts by acquiring land at low cost
with the purchase of a resort or by securing land through options and joint
ventures. The extensive land holdings at Tremblant, Stratton, Snowshoe, Mountain
Creek and Panorama were all low cost acquisitions with the resort. At Blackcomb
and Squaw Valley, the Company secured its land holdings through options rather
than outright purchases. Options are exercised for specific project sites only
when permits are in place and construction is set to start. Similarly at
Whistler the land acquisition financing is repaid when building permits are
issued, subject to minimum annual repayments. Intrawest secured its land
holdings at Keystone by forming a joint venture with the land owner under which
land is only paid for as completed units are sold and construction financing is
repaid.
Completed inventory risk arises when completed units cannot be sold and
construction financing cannot be repaid. Intrawest has mitigated this risk by
pre-selling a significant portion of its units prior to commencement of, and
during, construction. At June 30, 1998, the Company had only 99 unsold units in
its resort real estate inventory and 75% of the approximately 1,200 resort units
currently under construction were pre-sold. Generally the Company has sufficient
pre-sales in place to cover its construction and other real estate debt by 1.5
to 2 times. In the event of a severe economic downturn in the real estate
business, the Company could complete construction of its pre-sold units,
transfer title to purchasers, and repay all of its real estate financing.
33
<PAGE> 36
COMPETITION
The mountain resort industry has significant barriers to entry that prevent
new resorts from being created. In fact, no new major resort has been created
since 1981. Competition therefore is essentially confined to existing resorts.
Intrawest's resorts compete for destination visitors with other mountain resorts
in Canada, the United States, Europe and Japan. They also compete for day skiers
with other ski areas within each resort's local market area. Skier visits in
North America have been relatively flat over the past 10 years which has
increased competition between resort owners. The Company's strategy is to
acquire resorts that have natural competitive advantages, for example in terms
of location, vertical drop and quality of terrain. The Company also enhances its
competitive position by investing in capital improvements such as snowmaking,
high-speed lifts and on-mountain restaurants, and by ensuring high quality of
service. The Company has invested approximately $230 million in resort capital
improvements over the last 18 months.
Intrawest also faces competition from other leisure industry companies such
as cruise ship lines and amusement parks. The Company's strategy is to build and
establish a network of resorts and promote brand recognition to strengthen its
competitive position vis-a-vis such competitors. The diversity of Intrawest's
resorts in terms of vacation experience, which provides guests with a variety of
vacation choices within the Intrawest network, also enhances the Company's
competitive position.
The Company owns substantially all of the supply of developable land at the
base of its resorts and hence competition in real estate is somewhat restricted.
Expertise in all aspects of the development process, including resort
master-planning, project design, construction, sales and marketing, and property
management also gives the Company a distinct competitive advantage. In the
resort club business, the Company has established a competitive position through
its ownership of the mountain facilities, and by offering a high standard of
accommodation and a flexible point-based system.
CURRENCY FLUCTUATIONS
Over the past several years the Company's Canadian resort operations have
benefited from the lower Canadian dollar relative to the US dollar, the Japanese
yen and European currencies. The price of a lift ticket at Intrawest's Canadian
resorts has been 70% or less of the price at comparable US resorts. Along with
accommodation and food and beverage costs, this has made vacationing in Canada
more affordable for destination visitors. A significant shift in the value of
the Canadian dollar, particularly against its US counterpart, could impact the
Company's earnings from its Canadian assets.
Intrawest finances its US dollar assets with US dollar debt and hence is
not exposed to foreign exchange risk with respect to its debt servicing. In
addition, cash flow generated by US operations is generally retained in the
United States and invested in expansion of US assets. Similarly cash flow
generated at the Canadian resorts is generally reinvested in Canada. Cross
border cash transactions and currency exchanges are kept to a minimum.
Since Intrawest has income from both Canadian and US sources, the Company
is exposed to foreign currency exchange risk in its reported earnings. Revenues
and expenses of the Company's US operations will be impacted by changes in
exchange rates when such operations are reported in Canadian dollars. The impact
of Canadian/US dollar exchange rate changes on the balance sheet are reflected
in the foreign currency translation amount included in shareholders' equity and
does not affect reported earnings.
UNFAVOURABLE WEATHER CONDITIONS
The Company's ability to attract visitors to its resorts is influenced by
weather conditions and the amount of snowfall during the ski season. Intrawest
manages its exposure to unfavourable weather in three ways: by being
geographically diversified, by seeking to build its visits as evenly as possible
through the seasons, and by investing in snowmaking.
Geographically diversified companies like Intrawest can reduce the risk
associated with a particular region's economic and weather patterns. During the
past three ski seasons, favourable and unfavourable weather conditions at
different times across North America offset one another, allowing the Company to
come within 1% of its budgeted skier visits on a same-resort basis. The more a
resort can attract its visitors evenly through the season the less vulnerable it
is to unfavourable weather at a particular time. Intrawest seeks to spread its
visits by marketing to destination visitors who book in advance, stay several
days and are less likely than day visitors to change their vacation plans, and
by attempting to increase traffic mid-week and at non-peak times. Investing in
snowmaking can
34
<PAGE> 37
also mitigate the impact of poor natural snow conditions. Snowmaking is
particularly important in eastern North America due to the more variable weather
conditions. Intrawest has invested heavily in snowmaking over the past few years
and currently has 99-100% snowmaking coverage at Snowshoe and Mountain Creek,
and 75% at each of Tremblant and Stratton.
CONSTRUCTION OVERRUNS
Intrawest is not in the construction business but rather engages general
contractors to construct its real estate projects. The Company's practice is to
structure its construction contracts on a fixed-price basis so that cost
overruns are at the contractor's risk. The Company does employ construction
experts who oversee the general contractors and ensure that problems are
properly and quickly resolved. The Company has also developed a comprehensive
and sophisticated project reporting system which helps to prevent potential cost
overruns from going undetected.
YEAR 2000 COMPLIANCE
Intrawest has implemented a disciplined process designed to ensure that its
computer systems are Year 2000 compliant. The process involves comprehensive
system reviews at all of the Company's resorts and real estate locations,
testing of hardware and software, and modification or replacement of
non-compliant systems. To date the system reviews have been substantially
completed and testing is under way. Although a final assessment has not been
completed, the Company estimates that the cost of the system reviews, testing
and modifications will be approximately $1.5 million. No assurances can be given
that this estimate is accurate or that actual results will not differ.
Furthermore, due to the interdependent nature of computer systems, the Company
may be adversely impacted in the Year 2000 depending upon whether its suppliers
and other unaffiliated entities address the issue successfully.
RECENT DEVELOPMENTS
On July 13, 1998, the Company purchased Sandestin resort in Florida for a
total purchase price of approximately US $140 million, including about US $50
million of real estate under construction, working capital and other
adjustments. The assets acquired comprise golf and other resort operations
amenities and developable real estate. The purchase price was satisfied by cash
and US $12.5 million of debt. Sandestin is the Company's first warm-weather
resort acquisition and since the majority of its revenues are earned in the
April to September period, it is expected to mitigate the traditional
seasonality of mountain resort operations.
On July 16, 1998, the Company acquired a 15.7% equity interest in Compagnie
des Alpes ("CDA"), a French public company which is the world's largest ski
operator with over 10 million skier visits. On the same date the Company
acquired a 49% interest in CDA's Italian subsidiary. The total purchase price of
these two acquisitions was approximately $35.3 million, paid for in cash. The
investment in CDA gives Intrawest a foothold in Europe at minimal risk and opens
up significant joint marketing and business opportunities. As part of these
transactions, CDA's majority shareholder acquired one million common shares of
the Company from treasury at a price of $29 per share.
On July 23, 1998, the Company acquired the assets of Raven, the owner and
operator of two resort-quality golf courses in Arizona, for approximately US
$30.8 million. The purchase price was satisfied by cash and US $5 million of
debt. The acquisition of Raven provides the Company with a vehicle to enhance
and expand its existing golf properties, to develop new golf properties, and to
build golf destination resorts. As part of the transaction, the former owner of
Raven acquired 125,000 common shares of the Company from treasury at a price of
US $19.375 per share.
On August 19, 1998, the Company issued US $125 million 9.75% senior
unsecured notes due 2008. The proceeds were used to repay operating lines and to
fund the Company's fiscal 1999 capital expenditure and real estate development
programs. As a result of these recent developments, the Company's debt to equity
ratio has increased to approximately 1.14 : 1 from 0.94 : 1 at year end.
OUTLOOK
SKI AND RESORT OPERATIONS
The recent acquisitions of Mountain Creek, Sandestin, Compagnie des Alpes
and Raven further diversify the Company's revenue base and help to mitigate the
traditional seasonality of the ski operations. The Company
35
<PAGE> 38
estimates that with these acquisitions its ski and resort operations revenue
generated during the summer months will double to approximately 18% of annual
ski and resort operations revenue.
The extensive capital expenditures that the Company has made this summer
are directed towards the following objectives: enhancing competitiveness by
increasing the length of the season (e.g. snowmaking improvements), responding
to capacity constraints resulting from growth (e.g. new lifts and restaurants),
extending the length of the guests' stay (e.g. new trails, golf courses and
attractions), and increasing the number of revenue-generating opportunities
(e.g. new retail and rental outlets). These expenditures are expected to
increase revenues in 1999 and to increase utilization of the resorts at all
times of the season.
In fiscal 1999 the Company expects to continue to gain synergies from the
merger of Whistler and Blackcomb, and economies of scale from its network of
resorts. In addition, the growth in real estate production across all of the
Company's resorts will provide accommodation for destination skiers and
therefore drive visits and revenue per visit higher. The recent decline in the
value of the Canadian dollar against the US dollar is also expected to increase
visits to the Company's Canadian resorts, particularly Whistler/Blackcomb and
Tremblant.
REAL ESTATE
The Company expects real estate revenues and operating profits to increase
significantly in 1999 due to higher production levels at Tremblant, Keystone,
Stratton and Snowshoe, and sales of the first projects at Mammoth, Copper and
Sandestin. At August 31, 1998, the Company already had pre-sales of
approximately $173 million that it expects to close during fiscal 1999. The
resort club improved its profitability in 1998 and the Company anticipates
further increases in 1999 as a result of fine-tuning marketing programs and the
opening of the third club location at Palm Desert, California slated for
November 1998.
MARKET FOR SECURITIES
The Common Shares of the Company are listed and traded on the New York
Stock Exchange, The Toronto Stock Exchange (the "TSE") and The Montreal Exchange
(the "ME"). The NRP Shares are listed and traded on the TSE and ME. The TSE is
the principal market for the Common Shares and the NRP Shares.
DIRECTORS AND OFFICERS
The names and municipalities of residence of the directors and officers of
the Company and their principal occupations are set forth below.
DIRECTORS
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ---------------------------------- -------------------- --------------
<S> <C> <C>
R. Thomas M. Allan(1)...................... Executive Vice-President, Corporate Investments 1990
London, Ontario of London Life Insurance Company
Joe S. Houssian............................ President and Chief Executive Officer of the 1976
West Vancouver, British Columbia Company
Daniel O. Jarvis........................... Executive Vice President and Chief Financial 1989
Vancouver, British Columbia Officer of the Company
David A. King(1)(2)........................ President of David King Corporation 1990
Islington, Ontario
Gordon H. MacDougall(2)(3)................. Partner, CC&L Financial Services Group 1990
West Vancouver, British Columbia
Paul M. Manheim(3)......................... Senior Vice President of HAL Real Estate 1992
Mercer Island, Washington Investments, Inc.
Paul A. Novelly(2)......................... Chairman, President and Chief Executive Officer 1997
St. Louis, Missouri of Apex Oil Company, Inc.
Bernard A. Roy(3).......................... Senior partner, Ogilvy Renault 1992
Verdun, Quebec
Khaled C. Sifri(1)......................... Vice President, Legal Affairs 1990(4)
Dubai, United Arab Emirates Majid Al Futtaim Investments LLC
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ---------------------------------- -------------------- --------------
<S> <C> <C>
Hugh R. Smythe............................. President, Resort Operations Group 1993
Whistler, British Columbia of the Company
Nicholas C.H. Villiers(2).................. Vice President and Director of 1990(4)
London, England RBC Dominion Securities Inc.
Charles E. Young(1)(3)..................... President of Marin Investments Limited 1997
Vancouver, British Columbia
</TABLE>
- ------------
(1) Member of the Audit Committee.
(2) Member of the Corporate Governance Committee.
(3) Member of the Human Resources Committee.
(4) Prior to the reorganization which took place in connection with the
Company's public offering of Common Shares in March 1990, both Messrs. Sifri
and Villiers were directors of Intrawest N.V., a former holding company of
the Company. Messrs. Sifri and Villiers were directors of Intrawest N.V.
from 1986 to 1990.
The Company does not have an Executive Committee and is required to have an
Audit Committee. Each director will serve as a director until the next annual
general meeting or until his successor is elected or appointed.
OFFICERS
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE PRINCIPAL OCCUPATION
- ---------------------------------- --------------------
<S> <C>
David C. Blaiklock............................. Corporate Controller
North Vancouver, British Columbia
Michael F. Coyle............................... Senior Vice President, Marketing
West Vancouver, British Columbia
John E. Currie................................. Senior Vice President, Financing and Taxation
North Vancouver, British Columbia
Michael W. Davis............................... Vice President, Marketing, Resort Operations
Vancouver, British Columbia Group
James J. Gibbons............................... President, Resort Club Group
West Vancouver, British Columbia
David S. Greenfield............................ Senior Vice President, Resort Development Group
Whistler, British Columbia
Joe S. Houssian................................ President and Chief Executive Officer
West Vancouver, British Columbia
Daniel O. Jarvis............................... Executive Vice President and Chief Financial
Vancouver, British Columbia Officer
Ross J. Meacher................................ Corporate Secretary
North Vancouver, British Columbia
Diane R. Rabbani............................... Vice President, People and Organizational
West Vancouver, British Columbia Development
Gary L. Raymond................................ President, Resort Development Group
Whistler, British Columbia
Hugh R. Smythe................................. President, Resort Operations Group
Whistler, British Columbia
</TABLE>
As at June 30, 1998, the directors and senior officers of the Company, as a
group, beneficially owned, directly or indirectly, or exercised control or
direction over 2.6% of the outstanding Common Shares of the Company (including
Common Shares beneficially owned by a company, the shares of which are owned by
companies of which a director and senior officer and his spouse are the
shareholders and in respect of which such director and senior officer disclaims
beneficial ownership and Common Shares over which a director shares voting power
and investment power and in respect of which such director disclaims beneficial
ownership).
During the past five years, each of the directors and officers of the
Company has been associated in various capacities with Intrawest or the company
or organization indicated opposite his or her name in the tables above or with
affiliates thereof, except for Mr. Sifri who, prior to May 1997, was president
of PolyMore Circuit Technologies, L.P. and Mr. Davis who, prior to September
1995, was president of M. Davis & Associates Consulting Ltd.
37
<PAGE> 40
ADDITIONAL INFORMATION
The Company shall provide to any person, upon request to the Corporate
Secretary of the Company:
(a) when the securities of the Company are in the course of a distribution
pursuant to a short form prospectus or a preliminary short form
prospectus has been filed in respect of a distribution of its
securities;
(i) one copy of this Annual Information Form, together with one copy
of any document, or the pertinent pages of any document,
incorporated by reference in this Annual Information Form;
(ii) one copy of the comparative consolidated financial statements of
the Company for its most recently completed financial year together
with the accompanying report of the auditor and one copy of any
unaudited consolidated financial statements of the Company
subsequent to the financial statements for the Company's most
recently completed financial year;
(iii) one copy of the Information Circular of the Company in respect of
its most recent annual meeting of shareholders that involved the
election of directors; and
(iv) one copy of any other documents that are incorporated by reference
into the preliminary short form prospectus or the short form
prospectus and are not required to be provided under (i) to (iii)
above; or
(b) at any other time, one copy of any of the documents referred to in
(a)(i), (ii) and (iii) above, provided that the Company may require the
payment of a reasonable charge if the request is made by a person who is
not a security holder of the Company.
Additional information, including directors' and officers' remuneration and
indebtedness, principal holders of the Company's securities, options to purchase
securities and interests of insiders in material transactions, where applicable,
is contained in the Company's Information Circular for its most recent annual
meeting of shareholders that involved the election of directors, and additional
financial information is provided in the Company's comparative financial
statements for its most recently completed financial year.
Copies of these documents may be obtained upon request from the Corporate
Secretary of the Company, Suite 800, 200 Burrard Street, Vancouver, British
Columbia V6C 3L6.
38
<PAGE> 41
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
INTRAWEST CORPORATION
YEARS ENDED JUNE 30, 1998 AND 1997
F-1
<PAGE> 42
AUDITORS' REPORT
TO THE SHAREHOLDERS OF INTRAWEST CORPORATION
We have audited the consolidated balance sheet of Intrawest Corporation as
at June 30, 1998 and the consolidated statements of operations, retained
earnings, cash flow from operations and changes in financial position for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at June 30, 1998
and the results of its operations and the changes in its financial position for
the year then ended in accordance with generally accepted accounting principles.
As required by the Company Act (British Columbia), we report that, in our
opinion, these principles have been applied on a basis consistent with that of
the preceding year.
Significant differences between Canadian and United States accounting
principles as they affect these consolidated financial statements are explained
and quantified in note 20.
The consolidated financial statements as at June 30, 1997 and for the year
then ended were audited by other auditors who expressed an opinion without
reservation on those statements in their report dated September 5, 1997.
Vancouver, Canada (signed) KPMG
September 10, 1998 Chartered Accountants
F-2
<PAGE> 43
INTRAWEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
REVENUE
Ski and resort operations................................... $367,395 $263,239
Real estate sales........................................... 226,380 118,190
Rental properties........................................... 4,354 3,143
Interest and other income................................... 3,612 3,213
Income from equity accounted investment (note 2(b))......... -- 1,190
-------- --------
601,741 388,975
-------- --------
EXPENSES
Ski and resort operations................................... 284,231 195,851
Real estate costs........................................... 183,567 95,858
Rental properties........................................... 2,004 2,181
Interest (note 14).......................................... 22,881 20,914
Depreciation and amortization............................... 38,043 25,966
General and administrative.................................. 10,360 8,916
-------- --------
541,086 349,686
-------- --------
Income before income taxes, non-controlling interest and
discontinued operations................................... 60,655 39,289
Provision for income taxes (note 11)........................ 13,431 7,067
-------- --------
Income before non-controlling interest and discontinued
operations................................................ 47,224 32,222
Non-controlling interest.................................... 4,236 3,927
-------- --------
Income from continuing operations........................... 42,988 28,295
Results of discontinued operations (note 3)................. (1,958) (1,202)
-------- --------
Net income for the year..................................... $ 41,030 $ 27,093
======== ========
Income per common share
Income from continuing operations......................... $ 1.25 $ 1.02
Net income *.............................................. $ 1.25 $ 1.05
======== ========
Weighted average number of common shares outstanding (in
thousands)................................................ 34,486 27,809
======== ========
</TABLE>
- ---------------
* Net income per common share for the year ended June 30, 1997 includes income
per common share from discontinued operations for the six months ended
December 31, 1996, amounting to $0.03. From January 1, 1997, the results of
discontinued operations accrue to the holders of the non-resort preferred
shares (note 10(a)).
F-3
<PAGE> 44
INTRAWEST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT JUNE 30,
--------------------------
1998 1997
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current assets
Cash and short-term deposits.............................. $ 117,037 $ 51,723
Other assets (note 7(a)).................................. 47,709 26,580
Amounts receivable (note 6)............................... 55,664 53,573
Properties (note 5)
Resort................................................. 177,296 115,062
Discontinued operations................................ 8,195 12,606
---------- ----------
405,901 259,544
Ski and resort operations (note 4).......................... 613,349 406,643
Goodwill.................................................... 79,160 79,275
Properties (note 5)
Resort.................................................... 258,543 207,478
Discontinued operations................................... 31,794 63,556
Amounts receivable (note 6)................................. 43,612 41,080
Other assets (note 7(b)).................................... 34,214 40,375
---------- ----------
$1,466,573 $1,097,951
========== ==========
LIABILITIES
Current liabilities
Amounts payable........................................... $ 125,536 $ 71,290
Deferred revenue.......................................... 17,577 4,191
Bank and other indebtedness, current portion (note 8)
Resort................................................. 96,047 88,565
Discontinued operations................................ 1,843 2,173
---------- ----------
241,003 166,219
Bank and other indebtedness (note 8)
Resort.................................................... 501,341 357,438
Discontinued operations................................... 13,592 41,580
Due to joint venture partners (note 12)..................... 22,250 14,963
Deferred revenue............................................ 13,602 5,793
Deferred income taxes....................................... 11,100 2,583
Non-controlling interest in subsidiaries.................... 10,151 11,307
---------- ----------
813,039 599,883
---------- ----------
SHAREHOLDERS' EQUITY
Capital stock (note 10)..................................... 483,030 382,270
Retained earnings........................................... 146,859 111,649
Foreign currency translation adjustment..................... 23,645 4,149
---------- ----------
653,534 498,068
---------- ----------
$1,466,573 $1,097,951
========== ==========
Contingencies and commitments (note 13)
Subsequent events (notes 1 and 19)
</TABLE>
Approved on behalf of the Board
<TABLE>
<S> <C>
(signed) JOE S. HOUSSIAN (signed) DAVID A. KING
Director Director
</TABLE>
F-4
<PAGE> 45
INTRAWEST CORPORATION
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Retained earnings -- beginning of year...................... $111,649 $ 89,148
Net income for the year..................................... 41,030 27,093
Dividends................................................... (5,820) (4,592)
-------- --------
Retained earnings -- end of year............................ $146,859 $111,649
======== ========
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOW FROM OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
--------------------------
1998 1997
---------- ----------
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Income before non-controlling interest and discontinued
operations................................................ $47,224 $32,222
Items not affecting cash
Depreciation and amortization............................. 38,043 25,966
Deferred income taxes..................................... 11,018 487
Income from equity accounted investment................... -- (1,190)
------- -------
Cash flow from continuing operations........................ $96,285 $57,485
======= =======
Cash flow per common share.................................. $ 2.60 $ 1.87
======= =======
</TABLE>
F-5
<PAGE> 46
INTRAWEST CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH PROVIDED BY (USED FOR)
Operating activities
Cash flow from operations................................... $ 96,285 $ 57,485
Recovery of costs through real estate sales................. 183,567 95,858
Increase in amounts receivable, net......................... (7,436) (13,567)
Acquisition and development of properties for sale.......... (261,886) (143,980)
Other changes in non-cash operating working capital......... 40,285 (21,236)
Cash provided by discontinued operations.................... 47,018 41,962
--------- ---------
97,833 16,522
--------- ---------
FINANCING ACTIVITIES
Bank and other borrowings, net.............................. 91,572 30,096
Issue of capital stock...................................... 107,274 184,394
Redemption of non-resort preferred shares................... (9,015) --
Dividends paid.............................................. (5,820) (4,592)
Distributions to non-controlling interests.................. (2,339) (2,579)
Extinguishment of warrants, options and conversion
privilege................................................. -- (303)
--------- ---------
181,672 207,016
--------- ---------
INVESTING ACTIVITIES
Proceeds from (expenditures on) revenue-producing
properties, net........................................... (13,853) 1,375
Expenditures on ski and resort operation assets............. (127,487) (51,693)
Acquisition of ski resort assets and investments............ (72,851) (150,258)
--------- ---------
(214,191) (200,576)
--------- ---------
Increase in cash and short-term deposits.................... 65,314 22,962
Cash and short-term deposits -- beginning of year........... 51,723 28,761
--------- ---------
Cash and short-term deposits -- end of year................. $ 117,037 $ 51,723
========= =========
</TABLE>
F-6
<PAGE> 47
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles in Canada as prescribed by The Canadian Institute
of Chartered Accountants ("CICA"). Information regarding United States generally
accepted accounting principles as it affects the Company's consolidated
financial statements is presented in note 20.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include:
(a) the accounts of the Company and its subsidiaries;
(b) the accounts of all incorporated and unincorporated joint ventures and
non-controlled partnerships, to the extent of the Company's interest in
their respective assets, liabilities, revenues and expenses.
The Company's principal subsidiaries, controlled partnerships and joint ventures
are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
INTEREST HELD
BY THE COMPANY
--------------
<S> <C>
Intrawest Resort Corporation................................ 100.00
Blackcomb Skiing Enterprises Limited Partnership............ 77.00
Whistler Mountain Resort Limited Partnership................ 100.00
Mont Tremblant Resorts and Company, Limited Partnership..... 100.00
IW Resorts Limited Partnership.............................. 100.00
Intrawest Resort Ownership Corporation...................... 100.00
Intrawest U.S.A., Inc....................................... 100.00
Intrawest U.S. Holdings Inc................................. 100.00
Stratton Ski Corporation.................................... 100.00
Snowshoe Resort, Inc........................................ 100.00
Copper Mountain, Inc........................................ 100.00
Great Gorge Resort, Inc. (note 2)........................... 100.00
Mammoth Mountain Ski Area (note 2).......................... 58.10
Keystone/Intrawest L.L.C.................................... 50.00
Intrawest Luxembourg S.A.................................... 100.00
</TABLE>
In connection with a covenant not to compete with Blackcomb Skiing Enterprises
Limited Partnership, the Company agreed to provide Nippon Cable Co., Ltd., its
minority partner in Blackcomb, with an option to acquire a 23% interest in
property and assets related to Whistler Mountain Resort Limited Partnership at a
price based on the terms of the Whistler acquisition (note 2(d)). The
transaction closed on September 10, 1998.
COMPARATIVE FIGURES
Certain comparative figures for 1997 have been reclassified to conform with the
presentation for 1998.
SKI AND RESORT OPERATIONS
The assets of the ski and resort operations are stated at cost less accumulated
depreciation. Costs of ski lifts, area improvements and buildings are
capitalized. Certain buildings, area improvements, and equipment are located on
leased or licensed land. Depreciation is provided over the estimated useful
lives of each asset category using the declining balance method as follows:
<TABLE>
<S> <C>
Buildings................................................... 3.3% - 5%
Ski lifts................................................... 5% - 8%
Golf........................................................ 2% - 3.3%
Area improvements........................................... 2% - 3.3%
Automotive, furniture and other equipment................... 10% - 50%
Leased vehicles............................................. 20% - 25%
</TABLE>
F-7
<PAGE> 48
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
Inventories are recorded at the lower of cost and net realizable value, and
consist primarily of retail goods, food and beverage products and mountain
operating supplies.
PROPERTIES
(a) Properties under development and held for sale
Properties under development and held for sale are recorded at the lower of
cost and net realizable value. Cost includes all expenditures incurred in
connection with the acquisition, development and construction of these
properties. These expenditures consist of all direct costs, interest on
general and specific debt and general and administrative expenses.
Incidental revenue related specifically to such properties is treated as a
reduction of costs.
Costs associated with the development and investigation of the vacation
ownership business, including research, consulting, legal and other costs
associated with the registration of the product and program, are
capitalized. These costs are amortized on a straight-line basis over ten
years.
Costs associated with the development of sales locations of the vacation
ownership business, including operating and general and administrative costs
incurred until a location is fully operational, are capitalized. Incidental
revenue related specifically to a location is treated as a reduction of
costs during the start-up period. These net costs are amortized on a
straight-line basis over seven years. The Company provides for write-downs
where the carrying value of a particular property exceeds its net realizable
value.
(b) Revenue-producing properties
Revenue-producing properties are stated at the lower of cost, net of
accumulated depreciation, and the net recoverable amount. Buildings are
depreciated using the declining balance method at annual rates of 3.3% to
5%. Leasehold improvements and other tenant inducements are amortized using
the straight-line method over the term of the lease, plus one renewal
period. Furniture and equipment are depreciated on a declining balance basis
at 20% per annum.
(c) Classification
Properties that are currently under development for sale and properties
available for sale are classified as current assets. Related bank and other
indebtedness is classified as a current liability.
REVENUE RECOGNITION
(a) Revenue from the sale of properties is recorded when title to the completed
unit is conveyed to the purchaser and the purchaser becomes entitled to
occupancy.
(b) Points revenue associated with membership in the vacation ownership business
of the Intrawest Resort Club (which revenue is included in real estate
sales) is recognized when the purchaser has paid the amount due on closing,
all contract documentation has been executed and all other significant
conditions of sale are met.
(c) Revenue from revenue-producing properties is recognized upon the earlier of
attaining break-even cash flow after debt servicing or the expiration of a
reasonable period of time following substantial completion. Prior to this
time, the properties are categorized as properties under development, and
incidental revenue related to such properties is applied to reduce
development costs.
ADMINISTRATIVE FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Administrative furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using the declining balance method at
annual rates of 20% and 30%.
Leasehold improvements are stated at cost less accumulated amortization.
Amortization is provided using the straight-line method over the term of the
lease, plus one renewal period.
DEFERRED FINANCING COSTS
Deferred financing costs consist of legal and other fees related to the
financing of the Company's ski and resort operations. These costs are amortized
over the term of the financing.
GOODWILL
Goodwill is amortized on the straight-line basis over a period of 40 years. In
determining whether there is a permanent impairment in value, recoverability is
based on estimated future cash flows.
F-8
<PAGE> 49
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
DEFERRED REVENUE
Deferred revenue mainly comprises season pass revenue and government grants.
Deferred revenue which relates to the sale of season passes is recognized
throughout the season based on the number of skier visits. Deferred revenue
which relates to government grants for ski and resort operation assets is
recognized on the same basis as the related assets are amortized. Deferred
revenue which relates to government grants for properties under development is
recognized as the properties are sold.
INCOME TAXES
Income taxes are provided at current rates for all items included in the
statements of operations which will ultimately be included in the calculation of
taxable income, regardless of the period when such items are reported for income
tax purposes. The difference in the timing of recognition for accounting and
income tax purposes is recorded as deferred income taxes. No adjustment is made
to deferred income tax accounts for subsequent changes in income tax rates. The
tax benefit of share issue costs has been recognized as a reduction of the
related share issue costs.
FOREIGN CURRENCY TRANSLATION
The Company's operations in the United States are of a self-sustaining nature.
Assets and liabilities are translated into Canadian dollars at the rate of
exchange in effect at the balance sheet date. Revenue and expenses are
translated at the weighted average rate for the year.
Cumulative unrealized gains or losses arising from the translation of the assets
and liabilities of these operations are recorded as a separate component of
shareholders' equity.
INTEREST ALLOCATED TO DISCONTINUED OPERATIONS
Interest allocated to discontinued operations is the total of interest on debt
directly attributable to the discontinued operations and an allocation of
interest on general corporate debt not directly attributable to continuing
operations.
PER SHARE CALCULATIONS
Income and cash flow per common share have been calculated using the weighted
average number of common shares outstanding during the year.
CASH FLOW FROM OPERATIONS
Cash flow from continuing operations is computed as income before
non-controlling interest and discontinued operations adjusted for deferred
income taxes, depreciation and amortization of capital items and other non-cash
items. Cash flow from continuing operations is different from cash flow from
operating activities since it excludes the cash provided by or used for non-cash
operating working capital accounts such as real estate inventory, amounts
receivable and amounts payable. Cash flow from continuing operations is
reconciled to cash flow from operating activities in the consolidated statements
of changes in financial position.
NOTE 2 ACQUISITIONS
(a) Effective February 18, 1998, the Company acquired property and assets
related to Great Gorge Resort, Inc., owner of Mountain Creek, in New Jersey,
U.S.A. The transaction was accounted for by the purchase method.
<TABLE>
<S> <C>
Net assets acquired at fair market value for cash
Ski and resort operations................................. $33,946
Properties under development.............................. 6,417
Net working capital....................................... (297)
-------
$40,066
=======
</TABLE>
F-9
<PAGE> 50
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
(b) During fiscal 1998, the Company increased its interest in Mammoth Mountain
Ski Area ("Mammoth") in California, U.S.A. from 33% to 58.1% through the
acquisition of additional shares and the repurchase by Mammoth of its own
common shares from other shareholders. Despite a 58.1% ownership interest,
the Company has only joint control over Mammoth due to the existence of
special voting rights of certain of Mammoth's minority shareholders.
Therefore, effective from July 1, 1997, the Company has proportionately
consolidated the results of Mammoth's operations with the operations of the
Company. Prior to this date, Mammoth was accounted for as an equity
investment.
<TABLE>
<S> <C>
Net assets acquired at fair market value
Ski and resort operations................................. $39,254
Properties under development.............................. 932
Net working capital....................................... 2,554
Assumption of debt........................................ (9,956)
-------
32,784
Cash...................................................... 5,916
-------
$38,700
=======
Financed by
Cash...................................................... $28,285
Bank and other indebtedness............................... 10,415
-------
$38,700
=======
</TABLE>
(c) Effective December 18, 1996, the Company acquired property and assets and
assumed debt related to Copper Mountain, Inc. in Colorado, U.S.A. The
transaction was accounted for by the purchase method.
<TABLE>
<S> <C>
Net assets acquired at fair market value
Ski and resort operations................................. $ 69,417
Properties under development and held for sale............ 41,789
Net working capital....................................... (7,702)
Assumption of debt........................................ (26,989)
--------
76,515
Cash...................................................... 1,067
--------
$ 77,582
========
Financed by
Cash...................................................... $ 19,704
Bank and other indebtedness............................... 18,003
Issue of 2,900,000 common shares.......................... 39,875
--------
$ 77,582
========
</TABLE>
(d) Effective December 18, 1996, the Company acquired property and assets and
assumed debt related to Whistler Mountain Holdings Limited in British
Columbia, Canada. The transaction was accounted for by the purchase method.
<TABLE>
<S> <C>
Net assets acquired at fair market value
Ski and resort operations................................. $ 49,926
Properties under development and held for sale............ 25,072
Goodwill.................................................. 56,009
Net working capital....................................... (7,499)
Assumption of debt........................................ (51,789)
--------
$ 71,719
========
Financed by
Cash...................................................... $ 1,031
Bank and other indebtedness............................... 16,100
Issue of 3,970,000 common shares.......................... 54,588
--------
$ 71,719
========
</TABLE>
F-10
<PAGE> 51
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
(e) Effective December 21, 1996, the Company acquired property and assets and
assumed debt related to Mont Ste. Marie (1984) Inc. in Quebec, Canada. The
transaction was accounted for by the purchase method.
<TABLE>
<S> <C>
Net assets acquired at fair market value for cash
Ski and resort operations................................. $ 2,685
Net working capital....................................... (300)
Assumption of debt........................................ (1,428)
-------
$ 957
=======
</TABLE>
NOTE 3 DISCONTINUED OPERATIONS
The Company plans to sell all of its remaining non-resort properties. For
reporting purposes, the results of operations and cash flow from operating
activities of this business have been disclosed separately from those of
continuing operations for the periods presented.
The results of discontinued operations, including an allocation of interest
expense, are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Revenue..................................................... $56,895 $51,095
======= =======
Loss before current income taxes............................ $(1,658) $ (872)
Provision for current income taxes.......................... 300 330
------- -------
Loss from discontinued operations........................... $(1,958) $(1,202)
======= =======
</TABLE>
The remaining assets and liabilities of discontinued operations are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Current assets
Properties................................................ $ 8,195 $12,606
Other current assets...................................... 13,490 13,877
Properties.................................................. 31,794 63,556
Other non-current assets.................................... 21,273 30,472
Current liabilities......................................... 6,087 6,121
Long-term debt and other liabilities........................ 15,932 41,361
</TABLE>
The cash flows from discontinued operations are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash provided by (used for)
Operating activities...................................... $ 47,018 $ 41,962
Financing activities...................................... (36,491) (10,269)
Investing activities...................................... (364) 888
-------- --------
Increase in cash and short-term deposits.................... $ 10,163 $ 32,581
======== ========
</TABLE>
The cash flow used for financing activities in 1998 includes a $9,015,000
redemption of non-resort preferred ("NRP") shares (note 10(a)). The holders of
the NRP shares are entitled to receive the net cash flow from the discontinued
operations from January 1, 1997 primarily by way of redemption of their NRP
shares. Annual distributions of such cash flows are payable on September 30 of
each year covering the period ended on the previous June 30. The cash available
to redeem NRP shares on September 30, 1998 was $20,857,000, which represents
5,460,000 NRP shares at $3.82 per share, computed as follows:
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Cash and short-term deposits, beginning of year............. $13,606 $ --
Increase in cash and short-term deposits during the year.... 10,163 32,581
Cash attributable to period before share capital
reorganization............................................ -- (18,975)
Reserve for working capital requirements at end of year..... (2,912) (4,591)
------- --------
$20,857 $ 9,015
======= ========
</TABLE>
F-11
<PAGE> 52
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
NOTE 4 SKI AND RESORT OPERATIONS
<TABLE>
<CAPTION>
1998
----------------------------------
ACCUMULATED
COST DEPRECIATION NET
-------- ------------ --------
<S> <C> <C> <C>
Ski operations
Land...................................................... $ 70,564 $ -- $ 70,564
Buildings................................................. 150,868 40,455 110,413
Ski lifts and area improvements........................... 342,242 82,877 259,365
Automotive, furniture and other equipment................. 111,099 58,996 52,103
Leased vehicles........................................... 16,158 8,979 7,179
-------- -------- --------
690,931 191,307 499,624
-------- -------- --------
Resort operations
Land...................................................... 11,431 -- 11,431
Buildings................................................. 64,298 7,738 56,560
Golf...................................................... 20,554 1,319 19,235
Area improvements......................................... 30,125 3,626 26,499
-------- -------- --------
126,408 12,683 113,725
-------- -------- --------
$817,339 $203,990 $613,349
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------
ACCUMULATED
COST DEPRECIATION NET
-------- ------------ --------
<S> <C> <C> <C>
Ski operations
Land...................................................... $ 39,478 $ -- $ 39,478
Buildings................................................. 100,292 17,821 82,471
Ski lifts and area improvements........................... 194,087 32,309 161,778
Automotive, furniture and other equipment................. 48,788 18,034 30,754
Leased vehicles........................................... 13,340 5,861 7,479
-------- -------- --------
395,985 74,025 321,960
-------- -------- --------
Resort operations
Land...................................................... 10,165 -- 10,165
Buildings................................................. 44,601 4,876 39,725
Golf...................................................... 19,215 493 18,722
Area improvements......................................... 18,426 2,355 16,071
-------- -------- --------
92,407 7,724 84,683
-------- -------- --------
$488,392 $ 81,749 $406,643
======== ======== ========
</TABLE>
The ski and resort operations have been pledged as security for certain of the
Company's bank and other indebtedness (note 8).
NOTE 5 PROPERTIES
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Properties under development and held for sale
Acquisition costs......................................... $199,650
Interest.................................................. 20,754
Development costs......................................... 179,130
Administrative expenses................................... 22,164
Net rental income......................................... --
--------
$421,698
========
</TABLE>
F-12
<PAGE> 53
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION NET
------- ------------ --------
<S> <C> <C> <C>
Revenue-producing properties
Land...................................................... $ 9,535 $-- 9,535
Buildings................................................. 50,497 7,836 42,661
Leasehold improvements and equipment...................... 3,555 1,621 1,934
------- ------ --------
$63,587 $9,457 54,130
======= ====== --------
$475,828
========
</TABLE>
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Properties under development and held for sale
Acquisition costs......................................... $140,652
Interest.................................................. 18,230
Development costs......................................... 157,174
Administrative expenses................................... 15,807
Net rental income......................................... (1,430)
--------
$330,433
========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION NET
------- ------------ --------
<S> <C> <C> <C>
Revenue-producing properties
Land...................................................... $ 9,664 $-- 9,664
Buildings................................................. 60,720 6,328 54,392
Leasehold improvements and equipment...................... 7,868 3,655 4,213
------- ------ --------
$78,252 $9,983 68,269
======= ====== --------
$398,702
========
</TABLE>
Properties are classified as follows for balance sheet purposes:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current assets
Resort.................................................... $177,296 $115,062
Discontinued operations................................... 8,195 12,606
Long-term assets
Resort.................................................... 258,543 207,478
Discontinued operations................................... 31,794 63,556
-------- --------
$475,828 $398,702
======== ========
</TABLE>
During the year ended June 30, 1998, $14,491,000 (1997 -- $10,412,000) of
interest (note 14) and $10,935,000 (1997 -- $8,941,000) of administrative
expenses were capitalized to properties.
Properties have been pledged as security for certain of the Company's bank and
other indebtedness (note 8).
F-13
<PAGE> 54
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
NOTE 6 AMOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Receivable from sales of real estate........................ $ 6,024 $15,132
Ski and resort operation receivables........................ 16,136 12,906
Loans, mortgages and notes receivable (note 18(a)).......... 55,093 53,053
Funded senior employee share purchase plan (note 10(e))..... 1,206 1,236
Other accounts receivable................................... 20,817 12,326
------- -------
99,276 94,653
Less: current portion....................................... 55,664 53,573
------- -------
$43,612 $41,080
======= =======
</TABLE>
Receivables are due approximately as follows:
<TABLE>
<C> <S> <C>
Year ending June 30, 1999........................................................ $55,664
2000........................................................ 18,139
2001........................................................ 1,405
2002........................................................ 2,011
2003........................................................ 4,201
Subsequent to 2003........................................................ 17,856
-------
$99,276
=======
</TABLE>
The loans, mortgages and notes receivable bear interest at both fixed and
floating rates which averaged 10.39% per annum as at June 30, 1998 (1997 --
8.51%). These amounts have been pledged as security for certain of the Company's
bank and other indebtedness (note 8).
NOTE 7 OTHER ASSETS
(a) Current
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Ski operation inventories................................... $17,036 $11,978
Restricted deposits......................................... 17,357 7,995
Prepaid expenses and other.................................. 13,316 6,607
------- -------
$47,709 $26,580
======= =======
</TABLE>
(b) Long-term
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Administrative furniture, equipment and leasehold
improvements, at cost less accumulated depreciation of
$4,202,000 (1997 -- $4,696,000)........................... $ 5,458 $ 5,169
Deferred financing and other costs.......................... 8,318 4,701
Investments, at cost........................................ 4,545 8,794
Deposit on planned acquisition (US$5,000,000 -- note
19(a)).................................................... 7,559 --
Other....................................................... 8,334 3,200
Investment in Mammoth Mountain Ski Area, at equity (note
2(b))..................................................... -- 18,511
------- -------
$34,214 $40,375
======= =======
</TABLE>
At June 30, 1997, investments included a limited partnership interest in the
amount of $7,500,000 acquired as partial consideration in connection with the
sale of a non-resort property. This interest was sold during fiscal 1998.
F-14
<PAGE> 55
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
NOTE 8 BANK AND OTHER INDEBTEDNESS
The Company has obtained financing for its operations from various financial
institutions by pledging individual assets as security for such financing.
Security for general corporate debt is provided by general security which
includes a floating charge on the Company's assets and undertakings, fixed
charges on real estate properties, and assignment of mortgages and notes
receivable. The following table summarizes the primary security provided by the
Company, where appropriate, and indicates the applicable type of financing,
maturity dates and the weighted average interest rate at June 30, 1998.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
MATURITY DATES INTEREST RATE 1998 1997
-------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Ski and resort operations
Mortgages and bank loans.................................. Demand-2017 6.67% $285,520 $279,732
Obligations under capital leases.......................... 1999-2002 8.29% 7,415 9,370
-------- --------
292,935 289,102
-------- --------
Properties
Interim financing on properties under development and held
for sale................................................ 1999-2011 7.68% 109,123 133,743
Mortgages on revenue-producing properties................. 1999-2034 7.68% 24,223 37,865
-------- --------
133,346 171,608
-------- --------
General corporate debt...................................... Demand-2002 7.02% 36,542 4,046
-------- --------
Unsecured debentures........................................ 2003 7.26% 150,000 25,000
-------- --------
7.07% 612,823 489,756
Less: current portion....................................... 97,890 90,738
-------- --------
$514,933 $399,018
======== ========
</TABLE>
Principal repayments and the components related to either floating or fixed
interest rates are as follows:
<TABLE>
<CAPTION>
INTEREST RATES REPAYMENTS
-------------------- ----------
FLOATING FIXED
-------- --------
<C> <S> <C> <C> <C>
Year ending June 30, 1999........................................................ $64,424 $ 33,466 $ 97,890
2000........................................................ 12,688 37,477 50,165
2001........................................................ 12,268 11,632 23,900
2002........................................................ 111,128 43,447 154,575
2003........................................................ 69,906 143,372 213,278
Subsequent to 2003........................................................ 8,238 64,777 73,015
-------- -------- --------
$278,652 $334,171 $612,823
======== ======== ========
</TABLE>
The Company has entered into a swap agreement to fix the interest rate on a
portion of its floating rate debt. The Company has $30,000,000 of bank loans
swapped against debt with a fixed interest rate of 8.5% per annum, including
applicable stamping fees, under an agreement expiring in 2001.
Bank and other indebtedness of $297,420,000 (1997 -- $194,447,000) is guaranteed
by the Company in addition to being secured by the specific property or asset.
Bank and other indebtedness includes indebtedness in the amount of $98,026,000
(1997 -- $207,800,000), which is repayable in United States dollars of
$66,784,000 (1997 -- $150,525,000).
F-15
<PAGE> 56
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
The Company is committed to capital lease obligations as follows:
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
Minimum lease payments...................................... $8,271 $10,526
Less: interest.............................................. 856 1,156
Lease principal obligation.................................. $7,415 $ 9,370
====== =======
</TABLE>
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
Year ending June 30, 1999... $ 4,425
2000... 1,692
2001... 780
2002... 434
2003... 84
-------
$ 7,415
=======
</TABLE>
NOTE 9 GOVERNMENT ASSISTANCE
The federal government and the Province of Quebec have granted financial
assistance to the Company in the form of interest-free loans and grants for the
construction of specified four-season tourist facilities at Mont Tremblant. The
loans, which are fully advanced, totalled $14,300,000 and are repayable over
seven years starting in 2000. The grants, which will total $22,315,000 when they
are fully advanced, amounted to $19,781,000 at June 30, 1998 (1997 --
$15,538,000). During the year ended June 30, 1998, grants received of $1,069,000
(1997 -- $4,741,000) were credited as follows: $302,000 (1997 -- $476,000) to
ski and resort operation assets, $339,000 (1997 -- $90,000) to properties and
$428,000 (1997 -- $4,175,000) to cost of real estate sales.
NOTE 10 CAPITAL STOCK
(a) Share Capital Reorganization
Effective March 14, 1997, the Company completed a reorganization of its
share capital designed to separate the remaining non-resort real estate
assets from the rest of the Company's business. Under the reorganization,
each existing common share was exchanged for one new common share and one
NRP share. The new common shares have the same attributes as the old common
shares.
The NRP shares were initially recorded at a value of $88,543,000 ($3.82 per
share) before deduction of issue costs of $329,000, equal to the book value
of the net equity of the non-resort assets at December 31, 1996, and the
book value of the common shares was reduced by the same amount. The Company
expects that the non-resort assets will be disposed of in an orderly manner
and the net cash flow from these assets distributed to the NRP shareholders,
primarily by way of redemption of their shares as described in note 3. The
amount ultimately realized will be subject to prevailing real estate market
conditions. As at June 30, 1998, the book value of the net equity of the
remaining non-resort assets was $76,502,000 (1997 -- $86,635,000).
All stock option information is stated to reflect the share capital
reorganization.
(b) Capital Stock
The Company's capital stock comprises the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Common shares............................................... $402,582 $293,649
NRP shares.................................................. 80,448 88,621
-------- --------
$483,030 $382,270
======== ========
</TABLE>
F-16
<PAGE> 57
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
(i) Common Shares
Authorized -- 50,000,000 without par value.
Issued --
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
NUMBER OF NUMBER OF
COMMON COMMON
SHARES AMOUNT SHARES AMOUNT
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at beginning of year................................ 34,281,536 $293,649 23,063,490 $198,179
Issued for cash, net of issue costs......................... 3,850,000 106,268 4,000,000 86,129
Issued for acquisitions (note 2)............................ -- -- 6,870,000 94,463
Funded senior employee share purchase and stock option
plans..................................................... 228,250 2,665 224,900 2,488
Issued on exercise of option................................ -- -- 123,146 1,236
Extinguishment of warrants, options and conversion
privilege................................................. -- -- -- (303)
Reorganization of shares.................................... -- -- -- (88,543)
---------- -------- ---------- --------
Balance at end of year...................................... 38,359,786 $402,582 34,281,536 $293,649
========== ======== ========== ========
</TABLE>
(ii) NRP Shares
Authorized -- 50,000,000 without par value, redeemable at $3.82 per share
except for the final redemption which shall be subject to a premium or
discount based on available cash flow relating to the non-resort assets.
Issued --
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
NUMBER OF NUMBER OF
NRP SHARES AMOUNT NRP SHARES AMOUNT
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Balance at beginning of year................................ 23,547,936 $88,621 -- $ --
Issued on reorganization of share capital, net of issue
costs..................................................... -- -- 23,198,190 88,214
Issued on exercise of option................................ -- -- 123,146 134
Stock option plan........................................... 623,975 842 226,600 273
Redemption.................................................. (2,360,000) (9,015) -- --
---------- ------- ---------- -------
Balance at end of year...................................... 21,811,911 $80,448 23,547,936 $88,621
========== ======= ========== =======
</TABLE>
(iii) Preferred Shares
Authorized -- 10,000,000 without par value.
Issued -- nil
(c) Stock Options
The Company has a stock option plan which provides for grants to officers
and employees of the Company and its subsidiaries of options to purchase
common shares and NRP shares of the Company. Options granted under the stock
option plan vest equally over a period of five years. At June 30, 1998,
stock options outstanding totalled 2,894,650 common shares, exercisable at
prices from $9.51 to $29.05, expiring up to 2008 and 1,157,925 NRP shares
exercisable at prices from $1.04 to $2.20, expiring up to 2001. During the
year ended June 30, 1998, options were exercised for 224,650 common shares
and 623,975 NRP shares.
The Company granted to a property lender (note 18(b)) the right to convert
its loan of $4,300,000 on August 31, 1999 into 318,519 common shares at a
conversion price of $12.18 per common share and 318,519 NRP shares at a
conversion price of $1.32 per NRP share. During the year ended June 30,
1998, the property was sold and the Company repaid the debt which
extinguished the conversion privilege.
In a prior year, the Company granted an option to purchase 123,146 common
shares at a price of $10.035 per common share and 123,146 NRP shares at a
price of $1.09 per NRP share in connection with a loan guarantee for the
financing of certain capital improvements. During the year ended June 30,
1997, this option was exercised.
(d) Employee Share Purchase Plan
The employee share purchase plan permits full-time employees of the Company
and its subsidiaries and limited partnerships to purchase common shares
through payroll deductions. The Company contributes $1 for every $3
contributed by an employee. To June 30, 1998, a total
F-17
<PAGE> 58
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
of 65,809 (1997 -- 65,809) common shares have been issued from treasury
under this plan. The Board of Directors has authorized and reserved a
further 100,000 common shares for issuance under this plan.
(e) Funded Senior Employee Share Purchase Plan
The Company has a funded senior employee share purchase plan which provides
for loans to be made to designated eligible employees to be used to
subscribe for common shares. At June 30, 1998, loans to employees under the
funded senior employee share purchase plan amounted to $1,206,000 with
respect to 134,750 common shares and 110,737 NRP shares (1997 -- $1,236,000
with respect to 136,850 common shares and 128,750 NRP shares). The loans are
interest-free, secured by a promissory note and a pledge of the shares and
mature by 2005. The Board of Directors has authorized and reserved a further
100,000 common shares for issuance under this plan.
NOTE 11 INCOME TAXES
(a) Provision for Income Taxes
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Current..................................................... $ 2,413 $6,580
Deferred.................................................... 11,018 487
------- ------
$13,431 $7,067
======= ======
</TABLE>
The reconciliation of income taxes calculated at the statutory rate to the
actual income tax provision is as follows:
<TABLE>
<S> <C> <C>
Statutory rate.............................................. 45.6% 45.6%
Income tax charge at statutory rate......................... $ 26,903 $17,510
Non-deductible depreciation and amortization................ 6,242 782
Large Corporations Tax...................................... 1,061 1,437
Taxes related to non-controlling interest share of
earnings.................................................. (1,931) (1,532)
Taxes related to equity accounted investment................ -- (542)
Foreign taxes different from statutory rate................. (5,755) (5,576)
Additional amounts deductible related to properties and ski
and resort operation assets (see (b) below)............... (13,674) (5,735)
Other....................................................... 885 1,053
-------- -------
13,731 7,397
Less: income taxes related to discontinued operations....... 300 330
-------- -------
Provision for income taxes.................................. $ 13,431 $ 7,067
======== =======
</TABLE>
(b) Certain properties and ski and resort operation assets were acquired having
a tax value in excess of their recorded value and certain subsidiaries of
the Company have losses available to carry forward for income tax purposes
for which the potential income tax benefits have not been recognized. At
June 30, 1998, approximately $24,131,000 of related benefits have not been
recognized for accounting purposes.
NOTE 12 JOINT VENTURES
The following amounts represent the Company's proportionate interest in joint
ventures and non-controlled partnerships including Mammoth and
Keystone/Intrawest L.L.C.:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Properties, current......................................... $ 37,853 $ 28,671
Other current assets........................................ 26,630 8,572
-------- --------
64,483 37,243
Current liabilities......................................... (38,627) (31,469)
-------- --------
Working capital............................................. 25,856 5,774
Ski and resort operations................................... 77,315 --
Properties, non-current..................................... 122,163 101,223
Long-term debt.............................................. (67,202) (59,434)
Other, net.................................................. (9,706) 379
-------- --------
$148,426 $ 47,942
======== ========
</TABLE>
F-18
<PAGE> 59
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
<TABLE>
<CAPTION>
1998 1997
--------- -------
<S> <C> <C>
Revenue..................................................... $ 89,934 $21,457
Expenses.................................................... 75,886 19,646
--------- -------
Income from continuing operations........................... 14,048 1,811
Results of discontinued operations.......................... (216) 996
--------- -------
$ 13,832 $ 2,807
========= =======
</TABLE>
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Cash provided by (used for)
Operating activities...................................... $(20,076) $14,256
Financing activities...................................... 29,410 6,324
Investing activities...................................... (6,797) (1,064)
-------- -------
Increase in cash and short-term deposits.................... $ 2,537 $19,516
======== =======
</TABLE>
The amount payable to the Company's joint venture partners in various
properties, net of amounts receivable, results from the use of the proportionate
consolidation method of accounting. Payments to the joint venture partners are
governed by the terms of the respective joint venture agreement.
NOTE 13 CONTINGENCIES AND COMMITMENTS
(a) The Company holds licences and land leases with respect to certain of its
ski operations. These leases expire at various times between 2032 and 2051
and provide for annual payments generally in the range of 2% of defined
gross revenues.
(b) The Company has estimated costs to complete ski and resort operation assets
and properties currently under construction and held for sale amounting to
$286,632,000 at June 30, 1998 (1997 -- $154,654,000). These costs are
substantially covered by existing financing commitments.
(c) The Company has entered into various operating lease commitments,
aggregating $17,749,000 (1997 -- $15,110,000), payable as follows:
<TABLE>
<C> <S> <C>
Year ending June 30, 1999........................................................ $ 4,040
2000........................................................ 3,798
2001........................................................ 3,472
2002........................................................ 2,382
2003........................................................ 1,745
Subsequent to 2003........................................................ 2,312
-------
$17,749
=======
</TABLE>
(d) The Company is contingently liable for indebtedness at June 30, 1998 of
$28,250,000 which relates to certain non-resort properties under development
sold during the year ended September 30, 1994 (note 18(a)). The purchasers
of these properties have provided guarantees to the Company in respect of
the indebtedness and have indemnified the Company for any potential losses
resulting from the contingent liability.
(e) The Company is contingently liable for the obligations of certain joint
ventures and limited partnerships. The assets of these joint ventures and
limited partnerships, which in all cases exceed the obligations, are
available to satisfy such obligations.
(f) The Company has received reassessments for the 1986 to 1989 taxation years
that significantly increase Blackcomb Skiing Enterprises Ltd.'s income for
tax purposes. The Company has filed notices of objection to the
reassessments. In addition, Blackcomb Skiing Enterprises Ltd. has filed
amendments to its 1982 to 1991 income tax returns to claim additional
capital cost allowance to reduce the proposed increase in income for tax
purposes. The potential tax liability is approximately $5,640,000, which is
composed of current taxes of $2,867,000, including interest, and deferred
income taxes of $2,773,000. In March 1994 the Company paid $1,585,000 to
Revenue Canada, Taxation as required by legislation when a notice of
objection is filed. This amount is included in non-current amounts
receivable as the outcome of these reassessments cannot be determined at
this time.
(g) The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Data-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business
F-19
<PAGE> 60
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
NOTE 14 INTEREST EXPENSE
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Total interest incurred........................................ $42,006 $35,535
Less: interest capitalized to ski and resort operation
assets....................................................... 1,479 771
interest capitalized to properties, net of capitalized
interest recorded in real estate cost of sales of $4,830,000
and in discontinued operations of $120,000 (1997 --
$1,271,000 and $784,000, respectively)....................... 9,541 8,357
------- -------
$30,986 $26,407
======= =======
Interest was charged to income as follows:
Real estate costs............................................ $ 4,830 $ 1,271
Interest expense............................................. 22,881 20,914
Discontinued operations...................................... 3,275 3,277
Ski operations -- employee housing........................... -- 945
------- -------
$30,986 $26,407
======= =======
</TABLE>
Real estate costs and discontinued operations also include $6,777,000 (1997 --
$3,430,000) and $2,455,000 (1997 -- $3,518,000), respectively, of interest
incurred in prior years.
NOTE 15 FINANCIAL INSTRUMENTS
(a) Fair Value
The Company has various financial instruments including cash and short-term
deposits, amounts receivable, loans, mortgages and notes receivables,
amounts payable and accrued liabilities. Due to their short-term maturity
or, in the case of loans, mortgages and notes receivable, their market
comparable interest rates, the instruments' book value approximates fair
value. Debt and interest swap agreements are also financial instruments. The
fair values at June 30, 1998 and 1997 were estimated by discounting future
cash flows at estimated market rates and are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt and interest swap agreements........................... $612,823 $605,153 $489,756 $475,063
======== ======== ======== ========
</TABLE>
(b) Interest Rate Risk
As described in note 8, certain of the Company's debt instruments bear
interest at floating rates. Fluctuations in these rates will impact the cost
of financing incurred in the future.
(c) Credit Risk
The Company's products and services are purchased by a wide range of
customers in different regions of North America and elsewhere. Due to the
nature of its operations, the Company has no concentrations of credit risk.
NOTE 16 PENSION PLANS
Effective January 1, 1995, the Company introduced two defined benefit pension
plans for certain of its senior executives. The value of the pension fund assets
at June 30, 1998 and the present value of the accrued pension benefits
attributed to services rendered up to June 30, 1998 are $2,134,000 and
$5,031,000, respectively (1997 -- $1,386,000 and $3,764,000, respectively).
F-20
<PAGE> 61
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
NOTE 17 SEGMENTED INFORMATION
Industry and geographical information related to the Company's continuing
operations is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(a) Industry Segments
Revenue
Ski and resort operations............................. $ 370,307 $ 265,492
Real estate operations................................ 231,434 123,483
---------- ----------
Consolidated.......................................... $ 601,741 $ 388,975
========== ==========
Operating profit after deducting depreciation and
amortization
Ski and resort operations............................. $ 52,116 $ 46,437
Real estate operations................................ 41,780 22,682
---------- ----------
93,896 69,119
Less: unallocated corporate expenses
Interest.............................................. (22,881) (20,914)
General and administrative............................ (10,360) (8,916)
---------- ----------
Consolidated.......................................... $ 60,655 $ 39,289
========== ==========
Identifiable assets
Ski and resort operations............................. $ 805,197 $ 576,991
Real estate operations................................ 562,855 400,449
Discontinued operations............................... 98,521 120,511
---------- ----------
Consolidated.......................................... $1,466,573 $1,097,951
========== ==========
Capital acquisitions
Ski and resort operations............................. $ 127,487 $ 51,693
========== ==========
Depreciation and amortization
Ski and resort operations............................. $ 33,960 $ 23,204
Real estate operations................................ 2,162 1,740
Unallocated corporate................................. 1,921 1,022
---------- ----------
Consolidated.......................................... $ 38,043 $ 25,966
========== ==========
(b) Geographic Segments
Revenue
Canada................................................ $ 321,518 $ 255,016
United States......................................... 280,223 133,959
---------- ----------
Consolidated.......................................... $ 601,741 $ 388,975
========== ==========
Operating profit after deducting depreciation and
amortization
Canada................................................ $ 37,927 $ 33,143
United States......................................... 22,728 6,146
---------- ----------
Consolidated.......................................... $ 60,655 $ 39,289
========== ==========
Identifiable assets
Canada................................................ $ 621,903 $ 593,134
United States......................................... 746,149 384,306
Discontinued operations............................... 98,521 120,511
---------- ----------
Consolidated.......................................... $1,466,573 $1,097,951
========== ==========
</TABLE>
NOTE 18 RELATED PARTY TRANSACTIONS
(a) Effective April 1, 1994, the Company sold substantially all of its
industrial and non-resort residential properties under development in
British Columbia and Washington State to two partnerships formed by a group
of investors. The managing general partners of the partnerships are
corporations controlled by an officer and director of the Company.
F-21
<PAGE> 62
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
The consideration for the sale included a vendor takeback note for
$31,700,000 which was originally scheduled to be fully repaid, with interest
at 10.75% per annum, in semi-annual instalments by September 30, 1997. To
June 30, 1998, the partnerships had repaid $15,660,000 (1997 -- $12,160,000)
and the repayment of the balance, with interest at 10% per annum, has been
renegotiated as follows:
<TABLE>
<S> <C>
September 30, 1998.......................................... $ 3,500
March 31, 1999.............................................. 3,500
September 30, 1999.......................................... 3,500
March 31, 2000.............................................. 5,540
-------
$16,040
=======
</TABLE>
Subject to full repayment by March 31, 2000 and a 1% extension fee, the
partnerships have the right to defer any principal payment for up to six
months so long as only one payment is deferred at any one time. The
partnerships paid $1,859,000 of interest on the note receivable during the
year ended June 30, 1998, and at June 30, 1998, $405,000 (1997 -- $523,000)
of interest was accrued and outstanding.
The Company has committed to provide the partnerships various credit
facilities to September 30, 1999, including a $7,000,000 revolving line of
credit and a non-revolving loan for $1,800,000, to fund costs in connection
with a specific project. These loans earn interest at prime plus 2%. At June
30, 1998, $8,771,000 (1997 -- $8,421,000) was advanced under these
facilities and accrued and unpaid interest amounted to $62,000. In addition,
the Company has agreed to provide financial assistance by way of continuing
liability under the assumed bank indebtedness and liability in respect of
certain letters of credit. The Company earns fees in consideration for this
financial assistance. The partnerships have guaranteed repayment of these
facilities and indemnified the Company for any losses under them.
The Company has engaged the partnerships to provide specified services in
connection with the development, property management, marketing and sale of
its remaining non-resort properties. For the year ended June 30, 1998, the
Company incurred net costs of $1,465,000 (1997 -- $2,353,000) in respect of
these services.
(b) Bank and other indebtedness at June 30, 1997 included the following amounts
due to significant corporate shareholders of the Company who were
represented on the Company's Board of Directors:
(i) a convertible loan of $4,300,000, bearing interest at 8% per annum,
collateralized by a second mortgage over a non-resort property and the
limited partnership interest (note 7);
(ii) a loan of US$1,284,000, bearing interest at prime plus 1.25% per annum,
collateralized by a property under development.
(c) All related party transactions described above have been recorded at the
amounts paid or received as established and agreed upon by the Company and
the related party.
NOTE 19 SUBSEQUENT EVENTS
(a) On July 13, 1998, the Company acquired 100% of the shares of Sandestin
Resorts, Inc., owner of Sandestin Resort in Florida, U.S.A. The purchase
price of the shares acquired is approximately US$140,000,000 which was
financed by a combination of bank and other indebtedness of US$12,500,000
and cash.
(b) On July 16, 1998, the Company acquired approximately 16% of the common
shares of Compagnie des Alpes, a French company which has ownership
interests in several resorts located in France and Italy. The purchase price
of the shares acquired is $35,277,000 for which the Company paid cash.
(c) On July 23, 1998, the Company acquired the assets and assumed certain
liabilities of the Raven Golf Group, including two golf courses in Arizona,
U.S.A. The purchase price of the net assets acquired is approximately
US$30,800,000 which was financed by a combination of bank and other
indebtedness of US$5,000,000 and cash.
(d) On August 19, 1998, the Company issued US$125,000,000 of 9.75% unsecured
senior notes due August 15, 2008 for net proceeds of US$120,551,000. The
debentures have been priced to yield 10%.
F-22
<PAGE> 63
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
NOTE 20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. The principles
adopted in these financial statements conform in all material respects to those
generally accepted in the United States and the rules and regulations
promulgated by the Securities and Exchange Commission ("SEC") except as
summarized below:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Income from continuing operations in accordance with
Canadian GAAP............................................. $ 42,988 $ 28,295
Effects of differences in accounting for:
Extinguishment of options and warrants (b)................ -- (303)
Investment income (c)..................................... -- (95)
Cost of sales pursuant to SFAS 109 (g).................... (1,234) (258)
Depreciation pursuant to SFAS 109 (g)..................... (831) (335)
Amortization of negative goodwill pursuant to SFAS 109
(g)..................................................... 5,920 1,457
Provision for deferred income taxes pursuant to SFAS 109
(g)..................................................... (9,942) (652)
-------- --------
Income from continuing operations in accordance with United
States GAAP............................................... 36,901 28,109
-------- --------
Results of discontinued operations in accordance with
Canadian GAAP............................................. (1,958) (1,202)
Effects of differences in accounting for:
Depreciation (a).......................................... (60) (760)
Financial instruments (f)................................. 272 118
Income tax effect of depreciation adjustment.............. 24 304
-------- --------
Results of discontinued operations in accordance with United
States GAAP............................................... (1,722) (1,540)
-------- --------
Net income in accordance with United States GAAP............ 35,179 26,569
Opening retained earnings in accordance with United States
GAAP (d).................................................. 100,781 78,804
Common share dividends...................................... (5,820) (4,592)
-------- --------
Closing retained earnings in accordance with United States
GAAP...................................................... $130,140 $100,781
======== ========
Weighted average number of shares outstanding and common
stock equivalents (in thousands).......................... 35,575 28,674
Income per common share (primary and fully diluted; in
dollars)
Income from continuing operations......................... $ 1.04 $ 0.98
Net income................................................ $ 1.04 $ 1.01
Capital stock in accordance with Canadian GAAP.............. 483,030 382,270
Effects of differences in accounting for:
Extinguishment of options and warrants (b)................ 2,153 2,153
Shareholder loans (e)..................................... (1,206) (1,236)
Financial instruments (f)................................. (1,627) (1,627)
-------- --------
Capital stock in accordance with United States GAAP......... 482,350 381,560
Closing retained earnings in accordance with United States
GAAP...................................................... 130,140 100,781
Foreign currency translation adjustment..................... 23,645 4,149
-------- --------
Shareholders' equity in accordance with United States
GAAP...................................................... $636,135 $486,490
======== ========
</TABLE>
- ---------------
(a) Depreciation
Certain of the Company's revenue-producing properties are depreciated using
the sinking fund method of depreciation. This method is not allowed under
United States GAAP, and accordingly depreciation has been recalculated over
the estimated useful life (25 - 40 years) of each property using the
straight-line method.
The net impact is a reduction of $938,000 at June 30, 1998 (1997 --
$938,000) in resort properties and a reduction of $2,821,000 at June 30,
1998 (1997 -- $2,761,000) in non-resort properties.
(b) Extinguishment of Options and Warrants
Payments made to extinguish options and warrants can be treated as capital
items under Canadian GAAP. These payments would be treated as income items
under United States GAAP.
(c) Investment Income
Earnings of equity accounted investees have not been fully tax effected for
Canadian GAAP. Under United States GAAP, these earnings must be tax
effected, normally using capital gains rates. Based on United States tax
regulations, additional tax of $nil would have been recognized in the year
ended June 30, 1998 (1997 -- $95,000).
F-23
<PAGE> 64
INTRAWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Years Ended June 30, 1998 and 1997
(tabular amounts in thousands of dollars unless otherwise indicated)
(d) Retained Earnings
Opening retained earnings in accordance with United States GAAP for the year
ended June 30, 1997 includes the effects of:
(i) recalculating depreciation expense as described in (a). The net
decrease in retained earnings was $1,763,000.
(ii) adopting SFAS 109 as described in (g). The net decrease in retained
earnings was $7,598,000.
(iii) tax effecting the earnings of equity accounted investees as described
in (c). The net decrease in retained earnings was $370,000.
(iv) treating payments made to extinguish options and warrants as income
items as described in (b). The net decrease in retained earnings was
$1,850,000.
(v) classifying convertible debt instruments as liabilities rather than as
equity as described in (f). The net increase in retained earnings was
$1,237,000.
(e) Shareholder Loans
The Company accounts for loans provided to senior employees for the purchase
of shares as amounts receivable. Under United States GAAP, these loans,
totalling $1,206,000 and $1,236,000 as at June 30, 1998 and 1997,
respectively, would be deducted from share capital.
(f) Financial Instruments
Under Canadian GAAP, the components of convertible debt instruments are
classified as a liability or as equity in accordance with the substance of
the contractual arrangement (note 18(b)). The interest expense included in
the loss from discontinued operations would not exist under United States
GAAP as there is no such requirement.
(g) Income Taxes
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
109, "Accounting for Income Taxes", for the financial statement amounts
presented under United States GAAP. SFAS 109 requires that deferred tax
liabilities or assets be recognized for the difference between assigned
values and tax bases of assets and liabilities acquired pursuant to a
business combination except for non tax deductible goodwill and unallocated
negative goodwill. The effect of adopting SFAS 109 increases the carrying
values of certain balance sheet amounts at June 30, 1998 as follows:
<TABLE>
<S> <C>
Ski and resort assets....................................... $20,143
Goodwill.................................................... 3,465
Properties.................................................. 2,551
Deferred income tax asset................................... 4,404
Deferred income tax liability............................... 44,036
</TABLE>
(h) Information Relating to Cash Flow
The bank and other indebtedness and issue of common shares related to the
financing of the acquisitions described in notes 2(b), (c) and (d) are
non-cash components of the acquisitions and under United States GAAP would
not be included as financing and investing activities. Accordingly,
financing and investing cash flows would each be decreased by $10,415,000
(1997 -- $128,566,000).
(i) Joint Ventures
In accordance with Canadian GAAP, joint ventures are required to be
proportionately consolidated regardless of the legal form of the entity.
Under United States GAAP, incorporated joint ventures are required to be
accounted for by the equity method. However, in accordance with practices
prescribed by the SEC, the Company has elected for the purpose of this
reconciliation to account for incorporated joint ventures by the
proportionate consolidation method.
(j) Stock Compensation
The Company has elected to account for stock compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".
F-24
