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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
1000 South Frontage Road West, 81657
Suite 100 (Zip Code)
Vail, Colorado
(Address of Principal Executive
Offices)
(970) 476-4030
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
As of August 27, 1999, the number of shares outstanding of the registrant's
Common Stock, par value $.01 per share, was 1,000 shares.
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<PAGE>
TABLE OF CONTENTS
Item Page Number
- ---- -----------
PART I - FINANCIAL INFORMATION
1. Financial Statements....................................... 1
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 9
3. Quantitative and Qualitative Disclosures about Market Risk. 19
PART II - OTHER INFORMATION
1. Legal Proceedings.......................................... 20
4. Submission of Matters to a Vote of Security Holders........ 22
6. Exhibits and Reports on Form 8-K........................... 22
Signatures....................................................... 23
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
July 30, October 30,
1999 1998
--------------- ---------------
ASSETS (Unaudited)
Current assets:
Cash ....................................... $ 984 $ 625
Accounts receivable, net of allowance of
of $55 and $54, respectively............... 1,335 1,573
Note receivable from sale of real estate ... 1,500 -
Inventories ................................ 2,670 4,370
Prepaid expenses and other current
assets .................................... 1,051 1,377
--------------- ---------------
Total current assets ......................... 7,540 7,945
Property and equipment, net .................. 154,758 156,469
Real estate held for development and sale .... 11,297 10,155
Deferred financing costs, net of
accumulated amortization of $2,848 and
$1,985, respectively ....................... 6,292 6,649
Timber rights and other assets ............... 8,185 7,428
Goodwill, net of accumulated amortization
of $5,949 and $4,190, respectively ......... 28,643 29,900
--------------- ---------------
Total assets ................................. $ 216,715 $ 218,546
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Senior credit facility .................... $ 13,307 $ 17,143
Current portion of long-term debt ......... 1,446 1,785
Accounts payable and accrued liabilities .. 34,270 22,110
--------------- ---------------
Total current liabilities ................... 49,023 41,038
Long-term debt .............................. 136,487 137,352
Other long-term liabilities ................. 50 145
Commitments and contingencies
Preferred stock of subsidiary; 28,000
shares authorized, 18,000 shares issued
and outstanding at July 30, 1999
(21,000 shares at October 30, 1998);
liquidation preference and redemption
value of $2,258 at July 30, 1999 .......... 2,258 2,634
Shareholder's equity:
Common stock, $.01 par value; 1,000
shares authorized, issued and
outstanding .............................. - -
Additional paid-in capital ................ 72,000 72,000
Accumulated deficit ....................... (43,103) (34,623)
--------------- ---------------
Total shareholder's equity .................. 28,897 37,377
--------------- ---------------
Total liabilities and shareholder's
equity .................................... $ 216,715 $ 218,546
=============== ===============
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended Nine Months Ended
------------------ ------------------
July 30, July 31, July 30, July 31,
1999 1998 1999 1998
--------- -------- --------- --------
(Unaudited)
Revenue:
Resort operations ............... $ 4,113 $ 3,861 $107,203 $ 91,709
Real estate and other ........... 332 207 332 207
-------- -------- -------- --------
Total revenue ..................... 4,445 4,068 107,535 91,916
Operating expenses:
Cost of sales - resort
operations ..................... 6,835 6,381 66,102 54,952
Cost of sales - real estate
and other ...................... 198 96 198 96
Depreciation and depletion....... 4,750 4,033 14,353 10,675
Amortization of goodwill and
other intangible assets ........ 596 556 1,786 1,672
Selling, general and
administrative expense ......... 4,072 4,034 17,938 14,288
-------- -------- -------- --------
Total operating expenses .......... 16,451 15,100 100,377 81,683
-------- -------- -------- --------
Operating income (loss) ........... (12,006) (11,032) 7,158 10,233
Other income (expense):
Interest expense ................ (4,724) (4,607) (14,412) (12,954)
Amortization of deferred
financing costs ................. (227) (369) (863) (980)
Other income (expense) .......... (20) 4 (195) 11
-------- -------- -------- --------
Other income (expense), net ..... (4,971) (4,972) (15,470) (13,923)
-------- -------- -------- --------
Loss before minority interest ..... (16,977) (16,004) (8,312) (3,690)
Minority interest ................. (54) (70) (168) (208)
-------- -------- -------- --------
Net loss .......................... $(17,031) $(16,074) $ (8,480) $ (3,898)
======== ======== ======== ========
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
-------------------------------
July 30, July 31,
1999 1998
------------- -------------
(Unaudited)
Cash flows from operating activities:
Net loss ...................................... $ (8,480) $ (3,898)
Adjustment to reconcile net loss to
net cash provided by operating activities:
Depreciation and depletion ................. 14,353 10,675
Amortization of goodwill and other
intangible assets ......................... 1,786 1,672
Amortization of deferred financing costs ... 863 980
Minority interest .......................... 168 208
Changes in operating assets and liabilities:
Accounts receivable ....................... 238 480
Inventories ............................... 1,700 806
Prepaid expenses and other current assets . 326 (47)
Accounts payable and accrued liabilities .. 10,660 482
Other long-term liabilities ............... (95) (83)
------------- -------------
Net cash provided by operating activities...... 21,519 11,275
Cash flows from investing activities:
Capital expenditures for property and
equipment .................................... (12,107) (8,604)
Acquisition of businesses ..................... (661) (30,016)
Capital expenditures for real estate
held for development and sale ................ (1,142) (684)
Other assets .................................. (780) 643
------------- -------------
Net cash used in investing activities ......... (14,690) (38,661)
Cash flows from financing activities:
Net (repayments) borrowings under senior
credit facility .............................. (3,836) 4,414
Proceeds of long-term debt .................... - 17,500
Principal payments of long-term debt .......... (1,584) (2,213)
Deferred financing costs ...................... (506) (1,557)
Purchase of preferred stock of subsidiary
and payment of dividends ..................... (544) (793)
Capital contributions ......................... - 10,500
------------- -------------
Net cash (used in) provided by financing
activities ................................... (6,470) 27,851
------------- -------------
Increase in cash .............................. 359 465
Cash at beginning of period ................... 625 462
------------- -------------
Cash at end of period ......................... $ 984 $ 927
============= =============
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 30, 1999
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
Booth Creek Ski Holdings, Inc. ("Booth Creek") was organized on October 8,
1996 in the State of Delaware for the purpose of acquiring and operating
various ski resorts, including Northstar-at-Tahoe ("Northstar"),
Sierra-at-Tahoe ("Sierra"), Bear Mountain, Waterville Valley, Mt. Cranmore,
the Summit at Snoqualmie Pass (the "Summit"), Grand Targhee and Loon Mountain.
The consolidated financial statements include the accounts of Booth Creek
and its subsidiaries (collectively referred to as the "Company"). Booth Creek
owns all of the common stock of its subsidiaries. Ski Lifts, Inc. (the owner
and operator of the Summit) has shares of preferred stock owned by third
parties. All significant intercompany transactions and balances have been
eliminated.
Booth Creek is a wholly-owned subsidiary of Booth Creek Ski Group, Inc.
("Parent").
The accompanying consolidated financial statements as of July 30, 1999 and
for the three and nine month periods ended July 30, 1999 and July 31, 1998
are unaudited, but include all adjustments (consisting only of normal,
recurring adjustments) which, in the opinion of management of the Company,
are considered necessary for a fair presentation of the Company's financial
position at July 30, 1999, and its operating results and cash flows for the
three and nine month periods ended July 30, 1999 and July 31, 1998. Due to
the highly seasonal nature of the Company's business and the effect of
acquisitions (Note 2), the results for the interim periods are not
necessarily indicative of results for the entire year. Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have
been omitted pursuant to generally accepted accounting principles applicable
for interim periods. Management believes that the disclosures made are
adequate to make the information presented not misleading. The unaudited
consolidated financial statements should be read in conjunction with the
following notes and the Company's consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for
the year ended October 30, 1998.
Reporting Periods
The Company's reporting periods end on the Friday closest to the end of
each month.
Costs of Computer Software Developed or Obtained for Internal Use
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1, which has been
adopted prospectively by the Company as of October 31, 1998, requires the
capitalization of certain costs incurred in connection with developing or
obtaining internal use software. Prior to the adoption of SOP 98-1, the
Company expensed development, production and maintenance costs associated
with computer software developed for internal use. The effect of adopting SOP
98-1 was to increase net income for the nine months ended July 30, 1999 by
approximately $198,000.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
<PAGE>
2. Acquisitions
Pro Forma Financial Information
The Company acquired Loon Mountain on February 26, 1998, which has been
included in the Company's results of operations since the date of
acquisition. The following table represents unaudited pro forma financial
information which presents the Company's consolidated results of operations
for the nine months ended July 31, 1998 as if the Loon Mountain acquisition
and related financing transactions occurred on November 1, 1997.
Nine Months
Ended
July 1, 1998
--------------
(In thousands)
Statement of operations data:
Revenue .............................................. $ 102,555
Operating income ..................................... $ 13,885
Net loss ............................................. $ (1,125)
Other data:
EBITDA ............................................... $ 27,026
EBITDA represents income from operations before depreciation, depletion and
amortization expense and the noncash cost of real estate sales. EBITDA is not
intended to represent cash flow from operations or net income as defined by
generally accepted accounting principles and should not be considered as a
measure of liquidity or an alternative to, or more meaningful than, operating
income or operating cash flow as an indication of the Company's operating
performance.
The pro forma information does not purport to be indicative of results that
actually would have occurred had the acquisition been made on the date
indicated or of results which may occur in the future.
Proposed Seven Springs Acquisition
On August 28, 1998, the Company, Booth Creek Ski Acquisition, Inc.,
("Acquisition Sub") a wholly-owned subsidiary of the Company, and Seven
Springs Farm, Inc. ("Seven Springs"), the owner and operator of the Seven
Springs Mountain Resort, a ski resort and conference center in Pennsylvania,
entered into an Agreement of Merger (the "Merger Agreement"), pursuant to
which the Company would acquire Seven Springs through the merger of
Acquisition Sub with and into Seven Springs. The aggregate merger
consideration and related payments was to be approximately $83 million plus
certain deferred payments, subject to certain price adjustments.
In connection with the proposed Seven Springs acquisition, certain
shareholders of Seven Springs filed a lawsuit in the Court of Common Pleas of
Somerset County, Pennsylvania against the Company, Acquisition Sub, and Seven
Springs and certain of its directors, seeking a declaratory judgment, along
with other relief including the rescission of the Merger Agreement. The
plaintiffs alleged that the terms of a certain shareholders' agreement among
Seven Springs and its shareholders (the "Seven Springs Shareholder Agreement")
banned the consummation of the proposed acquisition. On October 29, 1998, the
Court entered judgment denying the relief sought by plaintiffs and authorizing
the consummation of the transactions contemplated by the Merger Agreement. The
plaintiffs thereafter appealed that judgment, and on July 1, 1999, the Superior
Court of Pennsylvania affirmed the judgment in a 2-1 decision. On July 15,
1999, plaintiffs filed an application for reargument of the Superior Court's
July 1, 1999 order. On September 3, 1999, the Superior Court granted the
plaintiff's application and agreed to hear reargument of the appeal.
The Merger Agreement provided that the Company's obligations thereunder
were subject to satisfaction of various conditions, including the requirement
that there shall have been a judicial determination that the Seven
<PAGE>
2. Acquisitions - (Continued)
Proposed Seven Springs Acquisition - (Continued)
Springs Shareholder Agreement was inapplicable to the Merger Agreement. If
these conditions were not satisfied on or before October 31, 1998, the Company
was free to terminate the Merger Agreement, upon which termination the Merger
Agreement required Seven Springs to pay the Company a break-up fee of
$1,000,000. On June 18, 1999, the Company terminated the Merger Agreement and
demanded payment of the break-up fee. Seven Springs has refused to make the
required payment, claiming that the October 31, 1998 date had been extended to
December 31, 1999 by an alleged amendment to the Merger Agreement that had
never been approved or executed by the Company. Consequently, the Company
commenced an action against Seven Springs on June 30, 1999, in the United
States District Court for the Southern District of New York, seeking damages of
$1,000,000 plus interest and costs. Seven Springs has not yet answered that
complaint.
On July 2, 1999, Seven Springs filed for a writ of summons against the
Company in the Court of Common Pleas of Somerset County. That writ, which
has not yet been served on the Company, does not specify what claims Seven
Springs intends to assert against the Company. The plaintiff shareholders in
the prior Seven Springs Shareholder Agreement litigation have filed a motion
seeking leave to intervene in this new Court of Common Pleas action, alleging
that Seven Springs' payment of the $1,000,000 break-up fee required by the
Merger Agreement would itself be violative of the Seven Springs Shareholder
Agreement. The Company intends to oppose that motion, which has not yet been
submitted to the court for decision.
While the Company believes it is entitled to the $1,000,000 break-up fee
under the terms of the Merger Agreement, the ultimate impact of the
resolution of these matters on the Company"s financial condition or future
results of operations is not currently determinable.
3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
July 30, October 30,
1999 1998
---------- ----------
(In thousands)
Accounts payable ............................ $ 7,867 $ 10,652
Accrued compensation and benefits ........... 2,626 3,164
Taxes other than income ..................... 905 973
Unearned revenue from real estate sales ..... 10,000 -
Unearned revenue and deposits ............... 3,110 4,017
Interest .................................... 6,611 2,349
Other ....................................... 3,151 955
---------- ----------
$ 34,270 $ 22,110
========== ==========
4. Financing Arrangements
Senior Credit Facility
The total maximum borrowing availability under the provisions of the
Company's Amended and Restated Credit Agreement (the "Senior Credit Facility")
is $25 million. On May 18, 1999, the final maturity date of the Senior Credit
Facility was extended from November 15, 1999 to March 31, 2002. The Senior
Credit Facility requires that the Company not have borrowings thereunder in
excess of $8 million in addition to certain amounts
<PAGE>
4. Financing Arrangements - (Continued)
Senior Credit Facility - (Continued)
maintained by the Company in certain depository accounts with BankBoston, N.A.,
for a period of 60 consecutive days each year commencing between February 1 and
February 28. In June 1999, the Company obtained an amendment from the lender
that modified certain covenants at July 30, 1999. Total borrowings outstanding
under the Senior Credit Facility at July 30, 1999 were approximately $13.3
million, which bore interest at 8% per annum.
Long-Term Debt
As of July 30, 1999, the Company had outstanding $133.5 million aggregate
principal amount of its senior notes (the "Senior Notes"). The Senior Notes
mature on March 15, 2007, and bear interest at 12.5% per annum, payable
semi-annually on March 15 and September 15. The Senior Notes are redeemable
at the option of the Company, in whole or in part, at any time after March
15, 2002, with an initial redemption price of 106.25% declining through
maturity, plus accrued and unpaid interest to the redemption date.
The Senior Notes are unconditionally guaranteed, on an unsecured senior
basis, as to the payment of principal, premium, if any, and interest, jointly
and severally (the "Guarantees"), by all Restricted Subsidiaries of the
Company (as defined in the Indenture) having either assets or shareholders'
equity in excess of $20,000 (the "Guarantors"). All of the Company's direct
and indirect subsidiaries are Restricted Subsidiaries, except the Real Estate
LLC. Each Guarantee is effectively subordinated to all secured indebtedness
of such Guarantor. The Senior Notes are general senior unsecured obligations
of the Company ranking equally in right of payment with all other existing
and future senior indebtedness of the Company and senior in right of payment
to any subordinated indebtedness of the Company.
The Senior Notes are effectively subordinated in right of payment to all
secured indebtedness of the Company and the Guarantors, including
indebtedness under the Senior Credit Facility. In addition, the Senior Notes
are structurally subordinated to any indebtedness of the Company's
subsidiaries that are not Guarantors. The indenture for the Senior Notes (the
"Indenture") contains covenants for the benefit of the holders of the Senior
Notes that, among other things, restrict the ability of the Company and any
Restricted Subsidiaries to: (i) incur additional indebtedness; (ii) pay
dividends and make distributions; (iii) issue stock of subsidiaries; (iv)
make certain investments; (v) repurchase stock; (vi) create liens; (vii)
enter into transactions with affiliates, (viii) enter into sale and leaseback
transactions, (ix) create dividend or other payment restrictions affecting
Restricted Subsidiaries; (x) merge or consolidate the Company or any
Guarantors; and (xi) transfer and sell assets.
The Guarantors are wholly-owned subsidiaries of Booth Creek and have fully
and unconditionally guaranteed the Senior Notes on a joint and several basis.
Booth Creek is a holding company and has no operations, assets or cash flows
separate from its investments in its subsidiaries. In addition, the assets,
equity, income and cash flow of the Real Estate LLC, Booth Creek's only
non-guarantor subsidiary, are inconsequential and the membership interest of
the Real Estate LLC is entirely owned by Booth Creek. Accordingly, Booth
Creek has not presented separate financial statements and other disclosures
concerning the Guarantors or its non-guarantor subsidiary because management
has determined that such information is not material to investors.
Other Debt
During the nine months ended July 30, 1999, the Company entered into
capital lease obligations of $380,000 for the purchase of equipment.
<PAGE>
5. Income Taxes
Due to the Company's lack of profitable history, the tax benefits of
operating losses are fully offset by a valuation reserve. No federal income
tax provision is expected for the year ended October 29, 1999 due to
continued operating losses. Accordingly, during the nine months ended July
30, 1999, no federal income tax provision has been provided.
6. Northstar Real Estate Sales
On July 28, 1999, Northstar consummated the sale of the property comprising
Phases 4 and 4A of the Big Springs development to Trimont Land Holdings, Inc.
("TLH"), a wholly-owned subsidiary of the Parent and an affiliate of the
Company, for an aggregate sales price of $10,000,000, subject to adjustment
as described below. The consideration paid to Northstar consisted of
$8,500,000 in cash and a promissory note (the "TLH Note") for a minimum of
$1,500,000. Under the terms of the TLH Note, Northstar will receive the
greater of (a) $1,500,000 plus accrued interest at 7% per annum, or (b) the
Net Cash Proceeds of the resale of the lots within Phases 4 and 4A. "Net
Cash Proceeds" is defined as gross proceeds received by TLH from the
subsequent resale of the lots, after deduction for (i) the proceeds applied
to repay any indebtedness incurred by TLH in connection with its financing of
the purchase of the lots, (ii) any fees or other costs incurred by TLH in
connection with its financing of the purchase or sales of the lots, and (iii)
any corporate overhead costs incurred by TLH attributable to the purchase,
maintenance, marketing or sale of the lots. The TLH Note is prepayable at
any time, and is due on the earlier to occur of January 15, 2001 or the date
on which the last of the lots owned by TLH has been sold. Pursuant to the
terms of the sale, Northstar retained the obligation to complete the
scheduled construction of the development in accordance with the approved
site development plan. Due to the remaining construction obligations, the
Company has deferred the recognition of the sale of the property in the
accompanying consolidated financial statements as of July 30, 1999.
On August 1, 1999, TLH conducted an auction of 46 of the available 47 lots
within Phases 4 and 4A of the Big Springs development. As of August 31, 1999,
binding sales contracts have been executed for 45 lots for an aggregate sales
price of $13,726,000. The average sales price of $305,000 represents a 44%
increase over the average lot price of $212,000 realized for the prior phase of
the development. Upon the close of escrows for binding contracts between TLH
and the respective lot purchasers, the Company expects to receive net proceeds
of approximately $4,100,000 in September 1999, after deduction for i)
$8,500,000 previously received on July 28, 1999, ii) TLH's financing costs of
approximately $189,000, iii) third party sales commissions of $824,000, and iv)
other estimated closing costs and expenses in the amount of $113,000. The
remaining 2 available lots within the development are currently being marketed
by TLH for an aggregate list price of $645,000, which will result in additional
cash proceeds upon the ultimate sale of such properties.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis below relates to the historical financial
statements and historical and pro forma results of operations of the Company
and the liquidity and capital resources of the Company. The following
discussion should be read in conjunction with the consolidated financial
statements and related notes thereto included elsewhere in this report. The
following discussion contains certain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to the
differences are discussed in "Forward-Looking Statements" and elsewhere in
this report.
General
The Company's ski operations are highly sensitive to regional weather
conditions and the overall strength of the regional economies in the areas in
which the Company operates. The Company believes that the geographic
diversity of the Company's resorts and the use of extensive snowmaking
technology coupled with advanced trail grooming equipment, which together can
provide consistent skiing conditions, can partially mitigate the risk of both
economic downturns and adverse weather conditions in any given region.
However, the Company remains vulnerable to warm weather, heavy rains, drought
and other types of severe or unusual weather conditions, which can have a
significant effect on the operating revenues and profitability at any one of
the Company's resorts.
The Company's four most weather-sensitive resorts, Bear Mountain,
Waterville Valley, Loon Mountain and Mt. Cranmore, have invested heavily in
snowmaking capabilities to provide coverage on virtually all of their trails
and have been open for skiing at least 123, 143, 142, and 103 days,
respectively, during each of the last five ski seasons, including the 1998/99
ski season. The Company's Northstar, Sierra, Summit and Grand Targhee resorts
are less weather-sensitive based on their historical natural snowfall,
averaging approximately 367, 546, 493, and 544 inches of snowfall,
respectively, per year for the past five ski seasons. As a result of their
historic natural snowfall, their snowmaking capabilities are considerably
less extensive than at Bear Mountain, Waterville Valley, Loon Mountain or Mt.
Cranmore.
The Company's results of operations are also highly dependent on its
ability to compete in each of the large regional ski markets in which it
operates. At Northstar and Sierra, more than 70% of the 1998/99 ski season
total skier days were attributable to residents of the San Francisco,
Sacramento, Central California Valley and Lake Tahoe regions. At Bear
Mountain, more than 90% of the 1998/99 ski season total skier days were
attributable to residents of the Los Angeles and San Diego metropolitan
regions. At Waterville Valley, Loon Mountain and Mt. Cranmore, more than 70%
of the 1998/99 ski season total skier days were attributable to residents of
Massachusetts and New Hampshire, with a large percentage of such visitors
coming from the Boston metropolitan area. At the Summit, the Company
estimates that more than 90% of the 1998/99 ski season total skier days were
attributable to residents of the Seattle/Tacoma metropolitan region. The
Company's Grand Targhee resort attracts more than 40% of its skiers from
outside its regional skiing population.
In addition to revenue generated from skiing operations, the Company's
resorts generate significant revenue from non-ski operations, including real
estate and timber sales, lodging, conference center services, health and
tennis clubs and summer activities such as mountain biking rentals and golf
course fees.
A significant portion of total operating costs at the Company's resorts are
variable, consisting primarily of retail and food service cost of sales,
utilities and labor expense. These variable costs can fluctuate significantly
based upon skier days and other seasonal factors. With the exception of
certain management, marketing and maintenance personnel, all of the Company's
employees are compensated on an hourly basis.
Results of Operations of the Company
Overview
The Company's results of operations are significantly impacted by weather
conditions. Northstar and Sierra experienced generally favorable snow
conditions during the 1998/99 ski season. While Bear Mountain enjoyed cold
temperatures in early November which facilitated an early opening on man-made
snow, the resort suffered from a
<PAGE>
lack of natural snowfall throughout the season. Snowfall at Bear Mountain for
the 1998/99 ski season was 30% of its five year average for the five preceding
ski seasons. The East experienced mild temperatures through mid December and
rainfall on most weekends during January. These conditions negatively impacted
snow conditions, terrain availability and skier days at Waterville Valley, Mt.
Cranmore and Loon Mountain during the Company's first fiscal quarter.
Conditions and momentum for the Eastern resorts improved in February and March,
although the resorts closed earlier than anticipated due to declining demand
and Spring-like conditions in April. The Summit experienced a prolonged period
of continual snowfall, which resulted in increased snow removal and other
operating costs. While Grand Targhee enjoyed favorable snow conditions, its
operations were negatively impacted by unusually high winds on a number of days
during December through February.
The Company's results of operations for the historical three and nine month
periods ended July 30, 1999 includes the results of all of the Company's
resorts for the entire period. The results of operations for the historical
three and nine month periods ended July 31, 1998 includes the results of Loon
Mountain since February 26, 1998, the date it was acquired by the Company.
Historical Three Months Ended July 30, 1999 as Compared to the Historical
Three Months Ended July 31, 1998
Total revenue for the three months ended July 30, 1999 was $4,445,000, an
increase of $377,000, or 9%, over the Company's revenues for the three months
ended July 31, 1998. Revenue from resort operations increased $252,000, or
7%, due primarily to increased summer lodging, golf and retail sales.
Revenues from timber operations increased $125,000 in the 1999 period due to
the timing of timber harvesting.
On July 28, 1999, Northstar consummated the sale of the property comprising
Phases 4 and 4A of the Big Springs development to Trimont Land Holdings, Inc.
("TLH"), a wholly-owned subsidiary of the Parent and an affiliate of the
Company, for an aggregate sales price of $10,000,000, subject to adjustment
as described below. The consideration paid to Northstar consisted of
$8,500,000 in cash and a promissory note (the "TLH Note") for a minimum of
$1,500,000. Under the terms of the TLH Note, Northstar will receive the
greater of (a) $1,500,000 plus accrued interest at 7% per annum, or (b) the
Net Cash Proceeds of the resale of the lots within Phases 4 and 4A. "Net
Cash Proceeds" is defined as gross proceeds received by TLH from the
subsequent resale of the lots, after deduction for (i) the proceeds applied
to repay any indebtedness incurred by TLH in connection with its financing of
the purchase of the lots, (ii) any fees or other costs incurred by TLH in
connection with its financing of the purchase or sales of the lots, and (iii)
any corporate overhead costs incurred by TLH attributable to the purchase,
maintenance, marketing or sale of the lots. The TLH Note is prepayable at
any time, and is due on the earlier to occur of January 15, 2001 or the date
on which the last of the lots owned by TLH has been sold. Pursuant to the
terms of the sale, Northstar retained the obligation to complete the
scheduled construction of the development in accordance with the approved
site development plan. Due to the remaining construction obligations, the
Company has deferred the recognition of the sale of the property in its
consolidated financial statements as of July 30, 1999.
On August 1, 1999, TLH conducted an auction of 46 of the available 47 lots
within Phases 4 and 4A of the Big Springs development. As of August 31, 1999,
binding sales contracts have been executed for 45 lots for an aggregate sales
price of $13,726,000. The average sales price of $305,000 represents a 44%
increase over the average lot price of $212,000 realized for the prior phase of
the development. Upon the close of escrows for binding contracts between TLH
and the respective lot purchasers, the Company expects to receive net proceeds
of approximately $4,100,000 in September 1999, after deduction for i)
$8,500,000 previously received on July 28, 1999, ii) TLH's financing costs of
approximately $189,000, iii) third party sales commissions of $824,000, and iv)
other estimated closing costs and expenses in the amount of $113,000. The
remaining 2 available lots within the development are currently being marketed
by TLH for an aggregate list price of $645,000, which will result in additional
cash proceeds upon the ultimate sale of such properties.
Total operating expenses for the three months ended July 30, 1999 were
$16,451,000, an increase of $1,351,000, or 9%, over the Company's total
operating expenses for the three months ended July 31, 1998. Cost of sales
for resort operations increased by $454,000, or 7%, in line with the increase
in summer revenues and normal inflationary impacts. Cost of sales for timber
operations increased $102,000 due to the increase in timber sales and higher
removal costs due to steeper terrain. Depreciation and depletion increased
by $717,000 as a result of higher average asset balances and an increase in
the amount of timber harvested. Selling, general and administrative costs
were generally consistent between the periods.
<PAGE>
Interest expense for the three months ended July 30, 1999 totaled
$4,724,000, an increase of $117,000 over the Company's interest expense for
the three months ended July 31, 1998, reflecting generally higher levels of
borrowings in the 1999 period.
Due to the Company's lack of profitable history, the tax benefits of
operating losses are fully offset by a valuation reserve. No federal income
tax provision is expected for the year ended October 29, 1999 due to
continued operating losses. Accordingly, during the three months ended July
30, 1999, no federal income tax provision has been provided.
EBITDA loss for the historical three months ended July 30, 1999 was
$6,660,000, an increase of $217,000 or 3% over EBITDA loss of $6,443,000 for
the historical three months ended July 31, 1998.
Historical Nine Months Ended July 30, 1999 as Compared to the Historical
Nine Months Ended July 1, 1998
Total revenue for the nine months ended July 30, 1999 was $107,535,000, an
increase of $15,619,000, or 17%, over the Company's revenue for the nine
months ended July 31, 1998. The increase is principally due to the inclusion
of Loon Mountain for the entire 1999 period, which accounted for $9,975,000
of the increase in revenues for the nine months ended July 30, 1999 as
compared to the 1998 period. In addition, Northstar and Sierra generated
increased revenues of $1,212,000 and $1,175,000, respectively, primarily due
to improved yields in terms of revenues per skier visit. Bear Mountain's
revenues declined slightly due to lower skier visits as a result of the lack
of natural snowfall, partially offset by improved yields. Revenues for
Waterville Valley were slightly lower due to poor weather and snow conditions
in the first quarter, partially offset by improved yields. Revenues for Mt.
Cranmore increased $460,000, or 13%, due to improved yields and higher skier
visits as a result of new pricing strategies. The Summit generated
$2,632,000, or 25%, in additional revenues due to an earlier opening,
extended season, higher skier days and improved yields in its food and
beverage, snow school and retail businesses. Revenues for Grand Targhee
increased by $399,000, or 6%, due to slightly higher skier visits.
Total operating expenses for the nine months ended July 30, 1999 were
$100,377,000, an increase of $18,694,000 over the Company's total operating
expenses for the nine months ended July 31, 1998. The principal causes of the
increase are as follows:
(In thousands)
Total operating expenses - nine months ended
July 31, 1998...................................... $81,683
Acquisition of Loon Mountain:
Cost of sales - resort operations.................. 5,192
Selling, general and administrative................ 569
Depreciation and amortization...................... 818
---------
6,579
Nonrecurring maintenance, operations, snow
removal and severance costs, and increased costs
associated with an earlier opening, extended
season and revenue penetration efforts and new
operations during the winter season at the Summit.. 4,197
Costs of nonrecurring corporate initiatives and
process improvements and increased costs
associated with new management personnel and
functional expertise............................... 1,974
Increased depreciation due to higher average
asset balances..................................... 2,860
Increased snowmaking costs at Bear Mountain due
to the lack of natural snowfall.................... 480
Lease costs for three new lifts at the
Summit and Bear Mountain........................... 494
Labor associated with earlier openings at
Northstar, Sierra and Bear Mountain................ 197
Inflation and other changes, net.................... 1,913
---------
Total operating expenses - nine months ended
July 30, 1999...................................... $100,377
=========
As reflected above, the inclusion of Loon Mountain for the entire 1999
period resulted in an increase of $6,579,000 in operating expenses as
compared to the 1998 period.
<PAGE>
At the Summit, the Company incurred significant nonrecurring costs during
the nine months ended July 30, 1999 to appropriately prepare its facilities,
vehicle and snow grooming fleet, communications infrastructure and processes
and systems for the operation of the resort. In addition, record levels of
snowfall severely hampered operating efforts and resulted in significant
increases in snow removal, grounds maintenance and related costs. The Company
also accrued severance costs associated with certain personnel changes at the
Summit. Management believes that approximately $2,500,000 to $3,000,000 of
the cost increases at the Summit are of a nonrecurring nature and would not
be incurred in a typical year of operation. Further, the resort opened
thirteen days earlier for the 1998/99 ski season as compared to the prior
season, and operated for an additional six days in April 1999 as compared to
April 1998. Also, the resort implemented various revenue penetration efforts
and operated a new ski school business that was previously operated by a
third party, which contributed to the cost increases at the Summit. The
earlier opening, extended season, revenue penetration efforts and new ski
school generated an increase in revenues of $2,632,000 for the nine months
ended July 30, 1999 as compared to the 1998 period.
The Company has been executing numerous nonrecurring efforts to improve its
marketing collateral and database, establish strategic marketing alliances,
introduce new service offerings, evaluate potential revenue growth
opportunities and strategies, install public relations channels, implement
enhanced guest service training for employees, institute performance
management systems and evaluate technology related tools and methodologies.
Further, the Company has been conducting system and process improvements in
substantially all key administrative and operations areas. Management
believes that approximately $600,000 of the increased corporate spending is
of a nonrecurring nature. The Company has also added certain key corporate
personnel and functional expertise to enhance its management team. Management
believes that the nonrecurring initiatives, process improvements and
personnel additions have begun to favorably impact the Company's operations
through improved yields and higher guest service survey scores, and will
positively impact the Company's financial performance in future periods.
Interest expense for the nine months ended July 30, 1999 totaled
$14,412,000, an increase of $1,458,000 over the Company's interest expense
for the nine months ended July 31, 1998, reflecting generally higher levels
of borrowings in the 1999 period due principally to debt incurred to finance
the Loon Mountain acquisition.
Due to the Company's lack of profitable history, the tax benefits of
operating losses are fully offset by a valuation reserve. No federal income
tax provision is expected for the year ended October 29, 1999 due to
continued operating losses. Accordingly, during the nine months ended July
30, 1999, no federal income tax provision has been provided.
EBITDA for the historical nine months ended July 30, 1999 was $23,297,000,
an increase of $717,000 or 3% over historical EBITDA of $22,580,000 for the
nine months ended July 31, 1998.
Historical Nine Months Ended July 30, 1999 as Compared to the Pro Forma
Nine Months Ended July 31, 1998
The following unaudited pro forma results of operations of the Company for
the nine months ended July 31, 1998 assume that the Loon Mountain acquisition
and related financing had occurred on November 1, 1997. These unaudited pro
forma results of operations are not necessarily indicative of the actual
results of operations that would have been achieved nor are they necessarily
indicative of future results of operations.
<PAGE>
Historical nine Pro forma nine
months ended months ended
July 30, 1999 July 31, 1998
--------------- --------------
(In thousands)
Statement of Operations Data:
Revenue:
Resort operations ..................... $ 107,203 $ 102,348
Real estate and other ................. 332 207
--------------- --------------
107,535 102,555
Operating expenses:
Resort operations ..................... 84,040 75,433
Real estate and other ................. 198 96
Depreciation, depletion and
amortization .......................... 16,139 13,141
--------------- --------------
Operating income ........................ 7,158 13,885
Interest expense and other, net ......... 15,470 14,802
--------------- --------------
Loss before minority interest ........... (8,312) (917)
Minority interest ....................... 168 208
--------------- --------------
Net loss ................................ $ (8,480) $ (1,125)
=============== ==============
Other Data:
EBITDA .................................. $ 23,297 $ 27,026
Total historical revenues for the nine months ended July 30, 1999 were
$107,535,000, an increase of $4,980,000, or 5%, over the comparable pro forma
period in 1998. Total skier days for the nine months ended July 30, 1999 were
2,433,000, an increase of 47,000 days, or 2%, over the comparable pro forma
period in 1998. Total skier days increased due to significantly higher skier
days at the Summit and a larger number of skier visits attributable to season
pass sales and promotional offerings. Northstar and Sierra generated
increased revenues of $1,212,000 and $1,175,000, respectively, due to
improved yields. Bear Mountain's revenues declined slightly due to lower
skier visits as a result of the lack of natural snowfall, partially offset by
improved yields. Revenues for Waterville Valley and Loon Mountain declined by
$202,000 and $656,000, respectively, due to poor weather and snow conditions
in the first quarter, partially offset by improved yields. Revenues for Mt.
Cranmore increased $460,000, or 13%, due to improved yields and higher skier
visits as a result of new pricing strategies. The Summit generated
$2,632,000, or 25%, in additional revenues due to an earlier opening,
extended season, higher skier days and improved yields. Revenues for Grand
Targhee increased by $399,000, or 6%, due to slightly higher skier visits.
Historical resort operating expenses, excluding depreciation, depletion and
amortization, for the nine months ended July 30, 1999 were $84,040,000, an
increase of $8,607,000, or 11%, over the comparable pro forma period in 1998.
Increased costs of winter operations at the Summit of $4,197,000 and higher
corporate expenses of $1,974,000 for nonrecurring corporate initiatives,
process improvements and new management personnel as previously discussed
were the principal contributors to the increase. Increased snowmaking costs
at Bear Mountain of $480,000 due to the lack of natural snowfall, lease costs
in the amount of $494,000 for three new lifts at the Summit and Bear
Mountain, $197,000 of incremental labor costs associated with earlier
openings at Northstar, Sierra and Bear Mountain and normal inflationary
impacts also contributed to the increase.
Historical depreciation, depletion and amortization for the nine months
ended July 30, 1999 was $16,139,000. The increase of $2,998,000 over the 1998
pro forma period was due to higher average asset balances in the 1999 period.
Interest expense and other income (expense), net for the historical nine
months ended July 30, 1999 totaled $15,470,000, an increase of $668,000 or 5%
from the comparable pro forma period in 1998. The increase was principally due
to interest expense on borrowings under the Senior Credit Facility used to fund
capital expenditures, maintenance activities and normal seasonal working
capital requirements in the off-season period prior to the start of the 1998/99
ski season.
<PAGE>
EBITDA for the historical nine months ended July 30, 1999 was $23,297,000, a
decrease of $3,729,000 or 14% from the pro forma nine months ended July 31,
1998.
Liquidity and Capital Resources
The Company's primary liquidity needs are to fund capital expenditures,
service indebtedness and support seasonal working capital requirements. The
Company's primary sources of liquidity are cash flow from operations and
borrowings under the Senior Credit Facility. Virtually all of the Company's
operating income is generated by its subsidiaries. As a result, the Company
is dependent on the earnings and cash flow of, and dividends and
distributions or advances from, its subsidiaries to provide the funds
necessary to meet its debt service obligations. The Senior Credit Facility
currently provides for borrowing availability of up to $25 million during the
term of such facility. On May 18, 1999, the final maturity date of the Senior
Credit Facility was extended from November 15, 1999 to March 31, 2002. The
Senior Credit Facility requires that the Company not have borrowings
thereunder in excess of $8 million, in addition to amounts maintained by the
Company in certain depository accounts with BankBoston, N.A., for a period of
60 consecutive days each year commencing between February 1 and February 28.
In June 1999, the Company obtained an amendment from the lender that modified
certain covenants at July 30, 1999. The Company intends to use borrowings
under the Senior Credit Facility to meet seasonal fluctuations in working
capital requirements, primarily related to off-season operations and
maintenance activities during the months of May through November, to fund
capital expenditures for lifts, trail work, grooming equipment and other
on-mountain equipment and facilities, to build retail and other inventories
prior to the start of the ski season and for other cash requirements. As of
July 30, 1999 and August 31, 1999, outstanding borrowings under the Senior
Credit Facility totaled approximately $13.3 million and $15.4 million,
respectively, which reflects the receipt of $8.5 million in proceeds from the
sale of real estate by Northstar on July 28, 1999.
The Company had a net working capital deficit of $28.4 million (excluding
$10.0 million and $3.1 million in unearned revenue from real estate sales and
resort operations, respectively, which will not require cash spending to
settle such liabilities) as of July 30, 1999 which will negatively affect
liquidity during the remainder of 1999.
The Company generated cash from operating activities of $21.5 million for
the nine months ended July 30, 1999 as compared to $11.3 million for the nine
months ended July 31, 1998. The increase is principally due to the receipt
of $8.5 million in proceeds from the sale of real estate by Northstar on July
28, 1999.
Cash used in investing activities totaled $14.7 million and $38.7 million
for the nine months ended July 30, 1999 and July 31, 1998, respectively. The
results for the 1999 period primarily reflect capital expenditures for the
purchase of property and equipment, whereas the results for the 1998 period
also reflect the acquisition of Loon Mountain.
Cash used in financing activities totaled $6.5 million for the nine months
ended July 30, 1999, primarily reflecting repayments on the Senior Credit
Facility and long-term debt. Cash provided by financing activities totaled
$27.9 million for the nine months ended July 31, 1998, primarily reflecting
borrowings and additional capital contributions to fund the acquisition of
Loon Mountain.
The Company's capital expenditures for property and equipment for the nine
months ended July 30, 1999 were approximately $12.1 million. Management
anticipates that remaining expenditures for its fiscal 1999 and fiscal 2000
capital programs will be approximately $15 million in the aggregate, including
approximately $4 million in resort maintenance for each year. The Company plans
to fund these capital expenditures from available cash flow, vendor financing
to the extent permitted under the Senior Credit Facility and the Indenture and
borrowings under the Senior Credit Facility. There are no significant
commitments for future capital expenditures at July 30, 1999. However, in the
event the Company receives necessary approvals for a land swap currently being
pursued for certain base area land at Grand Targhee and the Company chooses to
exercise its options to acquire certain real estate to consummate the land
swap, it would be obligated to fund approximately $4.5 million to complete such
land acquisitions.
Management believes that there is a considerable degree of flexibility in
the timing (and, to a lesser degree, the scope) of its capital expenditure
program, and even greater flexibility as to its real estate development
objectives. While the capital expenditure program described above is regarded
by management as important, both as to timing and scope, discretionary
capital spending above maintenance levels can be deferred, in some instances
for
<PAGE>
substantial periods of time, in order to address cash flow or other
constraints. As a result of the Company's recent operating performance and
liquidity constraints, it may be required to defer or abandon certain of its
capital expenditure projects.
With respect to the Company's potential real estate development
opportunities, management believes that such efforts will enhance ski-related
revenues and will contribute independently to earnings. In addition, with
respect to significant development projects, the Company anticipates entering
into joint venture arrangements that would reduce infrastructure and other
development costs. Nonetheless, existing lodging facilities in the vicinity
of each resort are believed to be adequate to support current skier volumes
and a deferral or curtailment of development efforts is not regarded by
management as likely to adversely affect skier days and ski-related revenues
or profitability. The Company also believes that its current infrastructure
is sufficient, and that development of real estate opportunities is not
presently necessary to support its existing operations.
The Company's liquidity has been and will continue to be significantly
affected by its high leverage. As a result of its leveraged position, the
Company will have significant cash requirements to service debt and funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes are limited. In addition, the Company's high level of debt
may increase its vulnerability to competitive pressures and the seasonality
of the skiing and recreational industries. Any decline in the Company's
expected operating performance could have a material adverse effect on the
Company's liquidity and on its ability to service its debt and make required
capital expenditures.
In addition, the Senior Credit Facility and the Indenture each contain
covenants that significantly limit the Company's ability to obtain additional
sources of capital and may affect the Company's liquidity. These covenants
restrict the ability of the Company and its Restricted Subsidiaries to, among
other things, incur additional indebtedness, create liens, make investments,
consummate certain asset sales, create subsidiaries, issue subsidiary stock,
consolidate or merge with any other person, or transfer all or substantially
all of the assets of the Company. Further, upon the occurrence of a Change of
Control (as defined in the Indenture), the Company may be required to
repurchase the Notes at 101% of the principal amount thereof, plus accrued
and unpaid interest. The occurrence of a Change of Control may also
constitute a default under the Senior Credit Facility. No assurance can be
given that the Company would be able to finance a Change of Control
repurchase offer.
The Company currently has $133.5 million aggregate principal amount of
Senior Notes outstanding, which will result in annual cash interest
requirements of approximately $16.7 million. The Company expects that cash
generated from operations, cash proceeds of planned real estate sales at
Northstar and planned divestitures of other real estate and non-strategic
assets, together with borrowing availability, will be adequate to fund the
interest requirements on the Senior Notes and the Company's other cash
operating and debt service requirements over the next twelve months.
However, for the twelve months ended July 30, 1999, the Company's ratio of
EBITDA to interest expense was 1.25, and as of July 30, 1999, the ratio of
the Company's total debt to EBITDA for the last twelve months was 6.49. Any
decline in the Company's expected operating performance or the failure to
sell real estate at Northstar or achieve planned divestitures of other real
estate and non-strategic assets, in each case on the terms anticipated, could
have a material adverse effect on the Company's financial position and
liquidity. In such case, the Company could be required to attempt to
refinance all or a portion of its existing debt, sell other assets or obtain
additional financing. No assurance can be given of the Company's ability to
do so or the terms of any such transaction. In addition, the Company would
require additional financing for significant expansion of its existing
properties or for future acquisitions, if any. No assurances can be given
that any such financing would be available on commercially reasonable terms.
See "Forward-Looking Statements" herein.
Impact of the Year 2000 Issue
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions
or engage in normal business activities.
The Company has conducted an assessment of its information and
telecommunications technology ("IT") assets and systems. Substantially all of
the Company's IT systems, except for a portion of the Company's ticketing and
<PAGE>
sales systems, operate using software developed and supported by third party
vendors. The Company is in the process of implementing its planned program to
remedy such third party developed systems, which will entail either
modifications to or replacement of certain existing IT systems. The cost of
modifications will be expensed as incurred and is not expected to be
significant. The cost of purchased replacements will be capitalized and is
expected to range from $600,000 to $700,000, of which $530,000 has been
incurred through July 30, 1999.
The Company has substantially completed an assessment of the necessary
efforts to make its primary ticketing and sales system year 2000 compliant,
and is currently making modifications to such system to make it year 2000
compliant. The Company currently expects to complete such efforts by October
1999. The cost of necessary modifications to the ticketing and sales
software will be expensed as incurred and will be performed using primarily
existing internal resources. Purchases of replacement hardware will be
capitalized. The expected cost of software modifications is expected to range
from $130,000 to $170,000. Depending upon the results of final hardware
testing, necessary hardware replacements could require capital spending of up
to $200,000.
The Company has commenced a program to ensure that significant vendors and
service providers with which it does business are year 2000 compliant. In
addition, the Company is conducting an assessment of its operating assets to
determine whether there will be any significant financial impacts to ensure
year 2000 compliance for such assets.
The Company intends to complete its year 2000 assessments and remediation
program by October 1999. However, if the Company or its vendors are unable to
resolve the year 2000 issue in a timely manner, or the Company's assessment
of the extent of year 2000 issues surrounding its IT systems, operating
assets or significant vendors or service providers are incorrect, the year
2000 issue could have a material impact on the operations of the Company. The
Company does not presently have a contingency plan in the event its year 2000
compliance program is unsuccessful or not completed on a timely basis.
The cost of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability
and cost of personnel trained in this area, the ability to finance needed
system replacements and modifications, the ability to locate and correct all
relevant computer codes and similar uncertainties. See "Forward-Looking
Statements" herein.
Seasonality
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of
each fiscal year. Management considers it essential to achieve optimal
operating results during key holidays and weekends during this period. During
the off-season months of May through October, the Company's resorts typically
experience a substantial reduction in labor and utility expense due to the
absence of ski operations, but make significant expenditures for maintenance,
expansion and capital improvement in preparation for the ensuing ski season.
Regulation and Legislation
The Company's operations are dependent upon its ownership or control over
the real property constituting each resort. The real property presently used
at the Northstar and Mt. Cranmore resorts is owned by the Company. The
Company has the right to use a substantial portion of the real property
associated with the Bear Mountain, Sierra, Summit, Grand Targhee, Loon
Mountain and Waterville Valley resorts under the terms of Special Use Permits
issued by the United States Forest Service. The Special Use Permits for the
Bear Mountain, Sierra, Waterville Valley, the Summit and Grand Targhee
resorts were reissued at the time of the Company's acquisition of such
resorts, with the Bear Mountain permit expiring in 2020, the Sierra permit
expiring in 2039, the Waterville Valley permit expiring in 2034, the Summit
permit expiring in 2032 and the Grand Targhee permit expiring in 2034.
A substantial portion of the real property associated with the Loon
Mountain resort is likewise used under United States Forest Service permits.
In 1993, the United States Forest Service authorized various lift, trail and
snowmaking improvements on Loon Mountain and an expansion onto South
Mountain. In 1996, the United States
<PAGE>
Court of Appeals for the First Circuit (the "First Circuit") overturned this
authorization on the ground that the United States Forest Service had failed to
properly address certain environmental issues under the National Environmental
Policy Act ("NEPA"). Certain improvements, including a snowmaking pipeline, and
part of the expansion had been constructed before the First Circuit ruled. On
May 5, 1997, the United States District Court for the District of New Hampshire
(the "District Court") entered a stipulated order which authorized existing
improvements to remain in place and existing operations to continue but
generally prohibited future construction, restricted use of a major snowmaking
water source, and required certain water discharge permits to be pursued,
pending United States Forest Service reconsideration of the projects under
NEPA. In a December 4, 1998 filing, the United States Forest Service targeted
the Fall of 1999 for issuance of a draft NEPA document regarding the
improvements and the proposed expansion and stated that it intended to combine
such NEPA review with review of the existing snowmaking pipeline. The District
Court entered a final order on December 11, 1998 specifying that the conditions
imposed on operations at Loon Mountain in the May 5, 1997 order will remain in
effect until the United States Forest Service completes its NEPA review and
issues a new decision. On February 12, 1999, the District Court agreed that the
United States Forest Service may combine its evaluation and analysis of the
existing snowmaking pipeline with its NEPA review of the improvements and
proposed expansion.
In August 1997, the United States Forest Service authorized the Loon
Mountain resort to construct a new snowmaking pipeline across permitted land.
The United States Forest Service found that such construction was consistent
with the District Court order and enabled the resort to modify its snowmaking
operations to better protect water resources and replace snowmaking capacity
lost under the order. Although the pipeline was completed, its use was
challenged by private parties who asserted that the United States Forest
Service violated NEPA. On January 20, 1998, the District Court issued a
decision finding that the United States Forest Service violated NEPA in
failing to address the potential for the new pipeline to increase the amount
of snow made and any associated environmental effects. On March 10, 1998, the
District Court issued a series of further orders which, among other things,
direct the United States Forest Service to re-evaluate the pipeline, allow
such re-evaluation to proceed separate from and prior to the United States
Forest Service's reconsideration of the larger expansion, and enjoin the Loon
Mountain Resort from using the pipeline pending further action by the court.
On July 2, 1998, the United States Forest Service issued a new decision
approving the pipeline and addressing its potential to increase the amount of
snow made. This decision was challenged by several private parties, who
again, asserted that it violated NEPA. The United States Forest Service
subsequently withdrew its decision authorizing the pipeline to conduct
further review and the District Court consolidated the lawsuits concerning
the pipeline. On November 19, 1998, the District Court modified the
injunction precluding use of the pipeline to permit Loon Mountain Resort to
use the pipeline to withdraw and convert 159.7 million gallons of water per
ski season into snow while the United States Forest Service further reviews
the pipeline under NEPA. On February 12, 1999, the District Court dismissed
the consolidated lawsuit concerning the pipeline in light of the United
States Forest Service's decision to combine review of the pipeline's
construction and operation with its NEPA review of the improvements and
proposed expansion.
Existing use of Loon Mountain is authorized under a Term Special Use
Permit, which covers facilities and expires in 2006, and a supplemental
permit, which covers the balance of Loon Mountain; existing non-skiing use of
South Mountain is authorized under an annual permit issued by the United
States Forest Service that is expected to be reissued each year. After the
United States Forest Service reconsiders the pipeline improvements and
expansion under NEPA, it will need to render a new decision and, if
appropriate, issue a new permit. At that time, the District Court order will
terminate. Based upon the existing administrative record, and certain
proposed modifications to the resort's snowmaking operations which are
intended to better protect water resources, the Company expects that the
pipeline improvements and expansion will be approved by the United States
Forest Service. However, no assurance can be given regarding the timing or
outcome of this process.
The United States Forest Service has the right to approve the location,
design and construction of improvements in permit areas and many operational
matters at resorts with permits. Under the permits, the Company is required to
pay fees to the United States Forest Service. Under recently enacted
legislation, retroactively effective to the 1995/96 ski season, the fees range
from 1.5% to approximately 4.0% of certain revenues, with the rate generally
rising with increased revenues. Through fiscal 1998, the Company was required
to pay the greater of (i) the fees due under the new legislation and (ii) the
fees actually paid for the 1994/95 ski season unless gross revenue in a ski
season falls more than 10% below that of the 1994/95 ski season in which case
the fees due are calculated solely under the new legislation. The calculation
of gross revenues includes, among other things, revenue from lift ticket, ski
school lesson, food and beverage, rental equipment and retail merchandise
sales. Total fees paid to the United States Forest Service by the Company
during the year ended October 30, 1998 were $1,014,000. The new
<PAGE>
legislation is not expected to have a material effect on fees payable in future
periods.
The Company believes that its relations with the United States Forest
Service are good, and, to the best of its knowledge, no Special Use Permit
for any major ski resort has ever been terminated by the United States Forest
Service. The United States Secretary of Agriculture has the right to
terminate any Special Use Permit upon 180-days notice if, in planning for the
uses of the national forest, the public interest requires termination.
Special Use Permits may also be terminated or suspended because of
non-compliance by the permitee, however, the United States Forest Service
would be required to notify the Company of the grounds for such action and to
provide it with reasonable time to correct any curable non-compliance.
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations relating to land use, water resources, discharge,
storage, treatment and disposal of various materials and other environmental
matters. Management believes that the Company's resorts are presently in
compliance with all land use and environmental laws, except where
non-compliance is not expected to result in a material adverse effect on its
financial condition. The Company also believes that the cost of complying
with known requirements, as well as anticipated investigation and remediation
activities, will not have a material adverse effect on its financial
condition or future results of operations. However, failure to comply with
such laws could result in the imposition of severe penalties and other costs
or restrictions on operations by government agencies or courts that could
adversely affect operations.
The operations at the resorts require permits and approvals from certain
federal, state and local authorities. In addition, the Company's operations
are heavily dependent on its continued ability, under applicable laws,
regulations, policies, permits, licenses or contractual arrangements, to have
access to adequate supplies of water with which to make snow and service the
other needs of its facilities, and otherwise to conduct its operations. There
can be no assurance that new applications of existing laws, regulations and
policies, or changes in such laws, regulations and policies will not occur in
a manner that could have a detrimental effect on the Company, or that
material permits, licenses or agreements will not be canceled, not renewed,
or renewed on terms materially less favorable to the Company. Major
expansions of any one or more resorts could require, among other things, the
filing of an environmental impact statement or other documentation with the
United States Forest Service and state or local governments under NEPA and
certain state or local NEPA counterparts if it is determined that the
expansion may have a significant impact upon the environment. Although the
Company has no reason to believe that it will not be successful in
implementing its operations and development plans, no assurance can be given
that necessary permits and approvals will be obtained.
The Company has not received any notice of material non-compliance with
permits, licenses or approvals necessary for the operation of its properties
or of any material liability under any environmental law or regulation.
However, at Grand Targhee, following the Wyoming Department of Environmental
Quality (the "DEQ") issuing a Notice of Violation of state water pollution
requirements based on alleged discharge from a wastewater lagoon without a
permit, the Company entered into an negotiated compliance order with the DEQ
requiring construction and operation of a new wastewater facility at a cost
of approximately $1 million. The Company constructed a new wastewater
facility and the new facility commenced operation on December 19, 1998. A
DEQ inspection on July 12, 1999 verified that the facility was operating
satisfactorily. On July 16, 1999, the DEQ formally found that the Company
had satisfied all terms of the negotiated compliance order.
Pursuant to the air emissions reduction program currently in effect in the
area regulated by the South Coast Air Quality Management District in
California where Bear Mountain is located, depending on Bear Mountain's
operations and emissions, Bear Mountain may be required to acquire emission
credits from other facilities which have already implemented nitrogen oxide
emission reductions. When necessary, the Company may purchase "banked"
emission credits at prevailing market rates.
Bear Mountain has a water supply contract for 500 acre-feet per year with
Big Bear Municipal Water District executed January 8, 1988, the initial
fifteen-year term of which expires on January 7, 2003. Big Bear Municipal Water
District's primary source of water is from a portion of the water in Big Bear
Lake shared with Bear Valley Mutual Water Company, the senior water rights
holder. The water supply contract provides for water primarily for snow making
and slope irrigation purposes. The obligation of Big Bear Municipal Water
District to supply water is excused only if the level of Big Bear Lake recedes
below 6,735.2 feet above sea level or eight feet below the top of Big Bear Lake
Dam. Bear Valley Mutual Water Company recently claimed that its rights in the
lake are not subject
<PAGE>
to Big Bear Municipal Water District's obligation to supply water to Bear
Mountain. This claim is vigorously contested by all interested parties
including Bear Mountain and a two-year moratorium agreement between Bear Valley
Mutual Water Company and Big Bear Municipal Water District was executed in
November 1998, which withdraws Bear Valley's claim for two years while the
issues between Bear Valley and Big Bear Municipal are worked out. This allows
continued service to Bear Mountain on an uncontested basis during the
moratorium period. The Company expects that the issue will be resolved
favorable to the interests of Bear Mountain because of its contribution to the
local economy, the strength of its contract rights with Big Bear Municipal
Water District and the alternate sources of water supply that are available. It
should be noted the foregoing is premised on normal conditions prevailing and
the absence of droughts, earthquakes, dam failure or other types of similar
calamities that impact the ability to obtain or supply water. No assurance can
be made regarding the outcome of this situation or the timing negotiations
during the next two years.
Pursuant to the decision of the First Circuit and the order of the District
Court the Loon Mountain Resort has applied to the Environmental Protection
Agency ("EPA") for a Clean Water Act (the "CWA") discharge permit covering
discharges associated with its snowmaking operations. Certain ongoing
discharges are authorized by the District Court order pending final action on
the permit and subject to the District Court's reserved power to modify such
approval to address any resulting environmental issues. The EPA issued a
continuing discharge permit prior to the 1998/99 ski season.
Certain regulatory approvals associated with the new snowmaking pipeline at
Loon Mountain impose minimum stream flow requirements on Loon Mountain
Resort. These requirements will compel Loon Mountain Resort to construct
water storage facilities within the next ten years, and such construction
will require further regulatory approvals and environmental documentation
under NEPA.
In addition, the Loon Mountain Resort was notified in September 1997 that
it had allegedly filled certain wetlands at the resort in violation of the
CWA. In response, the Loon Mountain Resort worked with the EPA to remove the
alleged fill and implement certain erosion control measures. On January 15,
1998, an individual notified the EPA, the Loon Mountain Resort, and certain
other persons that he intended to initiate a lawsuit under the CWA regarding
the alleged wetland violation. On February 2, 1998, the EPA wrote to such
individual stating that the alleged fill had been removed and that the EPA
does not believe there is a continuing violation at the site. The Company
does not have any further notice of any threatened lawsuit or other action
regarding this matter.
Forward-Looking Statements
Except for historical matters, the matters discussed in Part I, Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward-looking statements that involve risks and
uncertainties. The forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on management's current views and
assumptions and involve risks and uncertainties that could significantly
affect expected results. The Company wishes to caution the reader that
certain factors, including those described below, could significantly and
materially affect the Company's actual results, causing results to differ
materially from those in any forward-looking statement. These factors
include, but are not limited to: uncertainty as to future financial results,
the substantial leverage and liquidity constraints of the Company, the
capital intensive nature of development of the Company's ski resorts,
uncertainties associated with obtaining financing for future real estate
projects and to undertake future capital improvements, demand for and costs
associated with real estate development, the discretionary nature of
consumers' spending for skiing and resort real estate, regional and national
economic conditions, the successful or unsuccessful integration of acquired
businesses, weather conditions, natural disasters (such as earthquakes and
floods), industry competition, governmental regulation and other risks
associated with expansion and development, the occupancy of leased property
and property used pursuant to the United States Forest Service permits, and
the ability of the Company to make its information technology assets and
systems year 2000 compliant and the costs of any modifications necessary in
this regard.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in information relating to market risk
since the Company's disclosure in Item 7a. of the Company's Annual Report on
Form 10-K for the year ended October 30, 1998 as filed with the Securities
and Exchange Commission.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Each of the Company's resorts has pending and is regularly subject to
litigation, and the threat thereof, with respect to personal injury claims
relating principally to skiing activities at its resorts but also relating to
premises and vehicular operations and worker's compensation matters. The
Company maintains extensive liability insurance that the Company considers
adequate to monetarily insure claims related to such usual and customary
risks associated with the operation of four-season recreation resorts.
Killington West, Ltd., formerly known as Bear Mountain, Ltd., ("Killington
West "), filed a breach of contract lawsuit in the Superior Court of the
State of California, San Bernardino County, against Fibreboard Corporation
("Fibreboard") and Bear Mountain, Inc. alleging that Fibreboard and Bear
Mountain, Inc. breached the asset purchase agreement dated October 6, 1995
(the "Original Bear Mountain Agreement") among Killington West, Fibreboard
and Bear Mountain, Inc. pursuant to which Bear Mountain, Inc. acquired the
Bear Mountain ski resort from Killington West. Killington West's lawsuit
concerned an alleged breach by Fibreboard and Bear Mountain, Inc. of a change
of control provision in the Original Bear Mountain Agreement. In connection
with the Company's acquisition of Bear Mountain, Inc. in December 1996, the
Company obtained from Fibreboard indemnification for any claim that might be
made by Killington West, and further, required that $1 million of the
purchase price be held in escrow pending the outcome of any potential
disputes with Killington West. Fibreboard acknowledged its obligation to
indemnify Bear Mountain, Inc. with respect to the Killington West lawsuit and
defended such lawsuit on behalf of Fibreboard and Bear Mountain, Inc. The
lawsuit was settled in February 1999 and the Company has determined Bear
Mountain, Inc. has no further interest in the matter.
In connection with the merger with Loon Mountain Recreation Corporation
("LMRC"), certain shareholders of LMRC (the "Shareholder Plaintiffs") filed a
lawsuit against LMRC and its former directors alleging breach of fiduciary
duty and against the Company alleging that the Company failed to comply with
the New Hampshire Security Takeover Disclosure Act (the "Takeover Statute")
in connection with the transaction. The two lawsuits were consolidated in the
Superior Court of Grafton County, New Hampshire. Prior to the filing of the
lawsuit against the Company, the Company received a "no action" order from
the Bureau of Securities Regulation, New Hampshire Department of State (the
"Bureau") finding that the Takeover Statute was inapplicable to the proposed
merger. The Shareholder Plaintiffs' initial request for a preliminary
injunction prohibiting the Company (or its affiliates) from proceeding with
the LMRC merger was denied by the court. Before the litigation proceeded
further, and prior to the merger, the parties to the merger agreement amended
such agreement. The Company then obtained an additional order by the Bureau
that the Takeover Statute did not apply to the merger transaction. The
Company answered the Shareholder Plaintiffs' petition and filed a motion to
dismiss the Shareholder Plaintiffs' action against the Company asserting that
the Takeover Statute did not apply to the transaction as a matter of law. The
court initially denied the Company's motion to dismiss but granted the motion
to dismiss upon reconsideration. Shareholder Plaintiffs have appealed the
dismissal to the New Hampshire Supreme Court. The parties have filed briefs
in the appeal and requested oral argument, which has not been scheduled.
Potential remedies under the Takeover Statute include money damages and
rescission of the transaction. While the Company does not believe
Shareholder Plaintiffs will prevail in their actions, no assurances can be
made regarding the outcome of these actions.
Shareholder Plaintiffs' breach of fiduciary duty action against LMRC and
its former directors remains pending and limited discovery has been
conducted; a trial date will be set after April 15, 2000. Shareholder
Plaintiffs were given leave by the court to amend their complaint to seek
money damages against the Company, LMRC and its former directors. If the
Shareholder Plaintiffs are successful in obtaining a judgment against the
former LMRC directors, the Company may have certain obligations to indemnify
the former directors pursuant to the former LMRC by-laws. While the Company
does not believe Shareholder Plaintiffs will prevail in this lawsuit, no
assurances can be made regarding the outcome of this litigation.
Also in connection with the merger with LMRC, Shareholder Plaintiffs
exercised dissenters' rights under the New Hampshire Business Corporation Act
(the "Corporation Act"). Under the statutory procedure for settling the
Shareholder Plaintiffs' dissenters' rights, LMRC paid Plaintiffs an aggregate
of $34,436, or $30.61 per share, as its estimate of the fair value of their
1,125 shares. Shareholder Plaintiffs demanded additional payments necessary to
<PAGE>
compensate them for the $71.38 per share price, plus interest, which they
asserted as the fair value of their shares. Pursuant to the Corporation Act,
LMRC commenced a proceeding in the Superior Court of Grafton County, New
Hampshire seeking a judicial appraisal of the value of Shareholder Plaintiffs'
shares in LMRC. Discovery in the case is pending. While the Company believes
that the amount paid to the Plaintiff's prior to the commencement of the
appraisal proceeding represents the fair value of their shares, there can be no
assurance as to the value which the appraisal proceeding will assign to the
Plaintiffs 1,125 shares.
In 1995, an individual sued the United States Forest Service (the "Forest
Service") in the United States District Court for the District of New
Hampshire (the "District Court") alleging that the Forest Service had
violated the National Environmental Policy Act ("NEPA"), the Clean Water Act
("CWA"), and an executive order in approving improvements to facilities on
Loon Mountain and an expansion of the Loon Mountain resort on to South
Mountain. LMRC and an environmental group intervened in the lawsuit. The
District Court entered summary judgment for the Forest Service on all claims
and the original plaintiff, along with the intervening environmental group,
(collectively or individually, the "Environmental Plaintiffs") appealed. In
December 1996, the United States Court of Appeal for the First Circuit (the
"First Circuit") reversed the District Court and ruled that the Forest
Service must reconsider certain environmental issues under NEPA and that LMRC
must obtain a discharge permit under the CWA for certain discharges from its
snowmaking system. The District Court then entered a stipulated order that:
enjoins LMRC from any further construction implementing the project with
certain limited exceptions; imposes various restrictions on LMRC's existing
snowmaking operations and requires LMRC to apply for a CWA discharge permit
for discharges of water and any associated pollutants associated with its
snowmaking; allows existing construction to remain in place and existing uses
to continue; requires LMRC to undertake certain erosion control and
monitoring measures; requires the Forest Service to prepare supplemental NEPA
documentation on the improvements and expansion; and reserves the right to
require restoration of areas developed under the original Forest Service
approval to their preexisting condition if not ultimately re-approved by the
Forest Service. This order remains in effect until the supplemental NEPA
process is completed. The Forest Service has previously stated it expects
to issue draft NEPA documentation in the Fall of 1999, however the Company
can give no assurance regarding the timing or outcome of such process. The
Environmental Plaintiffs also filed a motion asking the District Court to
impose against LMRC a CWA civil penalty of $5,550,125 and attorney's fees and
costs in connection with LMRC's discharges into Loon Pond during its
snowmaking operations for the 1996/97 ski season and prior years. The
discharge at issue involves water transfers from the East Branch of the
Pemigewasset River and drain back from the snowmaking system into Loon Pond.
The District Court dismissed the claim for civil penalties and attorney fees
under the CWA and one of the Environmental Plaintiffs appealed to the First
Circuit. The appeal is stayed pending a decision of the United States
Supreme Court in a different case involving the CWA. In connection with the
merger with LMRC, the Company obtained a specific insurance policy providing
$4.5 million of coverage (above a $1.2 million deductible) to cover any civil
penalties, fees and costs that the District Court may assess against LMRC.
In 1997, the Environmental Plaintiffs filed a second lawsuit against the
Forest Service in the District Court alleging that the Forest Service
violated NEPA in authorizing LMRC to construct and operate a snowmaking
pipeline across permitted land. LMRC intervened in the lawsuit. The District
Court held that the Forest Service had violated NEPA by failing to consider
the potential effects of an increase in snowmaking capacity. The District
Court then enjoined Loon Mountain from using the pipeline but later modified
the injunction to permit LMRC to use the pipeline provided that, among other
things, it does not make snow in excess of the historic production level
utilizing 159.7 million gallons. On February 12, 1999, the District Court
dismissed the pipeline litigation and allowed the Forest Service to combine
its NEPA analysis of the pipeline with the pending NEPA analysis of the South
Mountain expansion. The injunction authorizing LMRC to use the pipeline to
supply water for making historical levels of snow remains in place.
In connection with the proposed Seven Springs acquisition, certain
shareholders of Seven Springs filed a lawsuit in the Court of Common Pleas of
Somerset County, Pennsylvania against the Company, Acquisition Sub, and Seven
Springs and certain of its directors, seeking a declaratory judgment, along
with other relief including the rescission of the Agreement of Merger (the
"Merger Agreement"). The plaintiffs alleged that the terms of a certain
shareholders' agreement among Seven Springs and its shareholders (the "Seven
Springs Shareholder Agreement") banned the consummation of the proposed
acquisition. On October 29, 1998, the Court entered judgment denying the relief
sought by plaintiffs and authorizing the consummation of the transactions
contemplated by the Merger Agreement. The plaintiffs thereafter appealed that
judgment, and on July 1, 1999, the Superior Court of Pennsylvania affirmed the
judgment in a 2-1 decision. On July 15, 1999, plaintiffs filed an application
for
<PAGE>
reargument of the Superior Court's July 1, 1999 order. On September 3, 1999,
the Superior Court granted the plaintiff's application and agreed to hear
reargument of the appeal.
The Merger Agreement provided that the Company's obligations thereunder
were subject to satisfaction of various conditions, including the requirement
that there shall have been a judicial determination that the Seven Springs
Shareholder Agreement was inapplicable to the Merger Agreement. If these
conditions were not satisfied on or before October 31, 1998, the Company was
free to terminate the Merger Agreement, upon which termination the Merger
Agreement required Seven Springs to pay the Company a break-up fee of
$1,000,000. On June 18, 1999, the Company terminated the Merger Agreement
and demanded payment of the break-up fee. Seven Springs has refused to make
the required payment, claiming that the October 31, 1998 date had been
extended to December 31, 1999 by an alleged amendment to the Merger Agreement
that had never been approved or executed by the Company. Consequently, the
Company commenced an action against Seven Springs on June 30, 1999, in the
United States District Court for the Southern District of New York, seeking
damages of $1,000,000 plus interest and costs. Seven Springs has not yet
answered that complaint.
On July 2, 1999, Seven Springs filed for a writ of summons against the
Company in the Court of Common Pleas of Somerset County. That writ, which
has not yet been served on the Company, does not specify what claims Seven
Springs intends to assert against the Company. The plaintiff shareholders in
the prior Seven Springs Shareholder Agreement litigation have filed a motion
seeking leave to intervene in this new Court of Common Pleas action, alleging
that Seven Springs' payment of the $1,000,000 break-up fee required by the
Merger Agreement would itself be violative of the Seven Springs Shareholder
Agreement. The Company intends to oppose that motion, which has not yet been
submitted to the court for decision.
While the Company believes it is entitled to the $1,000,000 break-up fee
under the terms of the Merger Agreement, the ultimate impact of the
resolution of these matters on the Company's financial condition or future
results of operations is not currently determinable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 28, 1999, George N. Gillett, Jr., Sandeep D. Alva, Dean C. Kehler,
Edward Levy and Daniel C. Budde were elected to serve as the sole members of
the Board of Directors of the Parent and the Company, with Mr. Gillett
continuing to serve as Chairman and Chief Executive Officer of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
27.1 Financial Data Schedule
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 22, 1999,
reporting under Item 5 thereof the statement to the Press dated June 21,
1999, announcing the Company's decision to terminate the agreement regarding
the purchase of the Seven Springs Resort in Somerset County, Pennsylvania.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
Undersigned, thereunto duly authorized.
BOOTH CREEK SKI HOLDINGS, INC.
(Registrant)
By: /s/ ELIZABETH J. COLE
------------------------------------------
Elizabeth J. Cole
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer)
By: /s/ BRIAN J. POPE
------------------------------------------
Brian J. Pope
Vice President of Accounting and Finance,
(Chief Accounting Officer)
September 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED UNAUDITED INTERIM FINANCIAL STATEMENTS OF BOOTH CREEK SKI
HOLDINGS, INC. AS OF JULY 30, 1999 AND FOR THE THREE MONTHS THEN ENDED AND
THE NINE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> OCT-29-1999 OCT-29-1999
<PERIOD-START> OCT-31-1998 APR-30-1999
<PERIOD-END> JUL-30-1999 JUL-30-1999
<CASH> 984 984
<SECURITIES> 0 0
<RECEIVABLES> 1,390 1,390
<ALLOWANCES> 55 55
<INVENTORY> 2,670 2,670
<CURRENT-ASSETS> 7,540 7,540
<PP&E> 192,902 192,902
<DEPRECIATION> 38,144 38,144
<TOTAL-ASSETS> 216,715 216,715
<CURRENT-LIABILITIES> 49,023 49,023
<BONDS> 133,500 133,500
2,258 2,258
0 0
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<TOTAL-LIABILITY-AND-EQUITY> 216,715 216,715
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<INCOME-PRETAX> (8,312) (16,977)
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