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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 April 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 May 28, 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.................................. 8
3. Quantitative and Qualitative Disclosures about Market Risk. 19
PART II - OTHER INFORMATION
1. Legal Proceedings.......................................... 20
3. Defaults Upon Senior Securities............................ 21
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)
April 30, October 30,
1999 1998
--------------- ---------------
ASSETS (Unaudited)
Current assets:
Cash ...................................... $ 798 $ 625
Accounts receivable, net of allowance
of $57 and $54, respectively ............. 1,992 1,573
Inventories ............................... 2,642 4,370
Prepaid expenses and other current
assets ................................... 1,128 1,377
--------------- ---------------
Total current assets ........................ 6,560 7,945
Property and equipment, net ................. 157,605 156,469
Real estate held for development and sale ... 10,602 10,155
Deferred financing costs, net of
accumulated amortization of $2,621 and
$1,985, respectively ...................... 6,445 6,649
Timber rights and other assets .............. 8,659 7,428
Goodwill, net of accumulated amortization
of $5,380 and $4,190, respectively ........ 29,230 29,900
--------------- ---------------
Total assets ................................ $ 219,101 $ 218,546
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Senior credit facility .................... $ 12,783 $ 17,143
Current portion of long-term debt ......... 1,257 1,785
Accounts payable and accrued liabilities .. 20,386 22,110
--------------- ---------------
Total current liabilities ................... 34,426 41,038
Long-term debt .............................. 136,306 137,352
Other long-term liabilities ................. 58 145
Commitments and contingencies
Preferred stock of subsidiary; 28,000
shares authorized, 19,000 shares issued
and outstanding at April 30, 1999
(21,000 shares at October 30, 1998);
liquidation preference and redemption
value of $2,383 at April 30, 1999 ......... 2,383 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 ....................... (26,072) (34,623)
--------------- ---------------
Total shareholder's equity .................. 45,928 37,377
--------------- ---------------
Total liabilities and shareholder's
equity .................................... $ 219,101 $ 218,546
=============== ===============
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended Six Months Ended
------------------ ------------------
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
--------- -------- --------- --------
(Unaudited)
Revenue:
Resort operations ............... $ 56,791 $ 48,832 $103,090 $ 87,848
Operating expenses:
Cost of sales - resort
operations ..................... 29,978 25,718 59,267 48,571
Depreciation .................... 5,396 3,613 9,603 6,642
Amortization of goodwill ........ 596 552 1,190 1,116
Selling, general and
administrative expense ......... 6,795 6,305 13,866 10,254
-------- -------- -------- --------
Total operating expenses .......... 42,765 36,188 83,926 66,583
-------- -------- -------- --------
Operating income................... 14,026 12,644 19,164 21,265
Other income (expense):
Interest expense ................ (4,720) (4,260) (9,688) (8,347)
Amortization of deferred
financing costs ................. (307) (332) (636) (611)
Other income (expense) .......... (179) 7 (175) 7
-------- -------- -------- --------
Other income (expense), net ..... (5,206) (4,585) (10,499) (8,951)
-------- -------- -------- --------
Income before minority interest ... 8,820 8,059 8,665 12,314
Minority interest ................. (55) (68) (114) (138)
-------- -------- -------- --------
Net income ........................ $ 8,765 $ 7,991 $ 8,551 $ 12,176
======== ======== ======== ========
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
-------------------------
April 30, May 1,
1999 1998
---------- ----------
(Unaudited)
Cash flows from operating activities:
Net income .................................. $ 8,551 $ 12,176
Adjustment to reconcile net income to
net cash provided by operating
activities:
Depreciation ............................. 9,603 6,642
Amortization of goodwill ................. 1,190 1,116
Amortization of deferred financing
costs ................................... 636 611
Minority interest ........................ 114 138
Changes in operating assets and
liabilities:
Accounts receivable ..................... (419) 335
Inventories ............................. 1,728 1,146
Prepaid expenses and other current
assets ................................ 249 176
Accounts payable and accrued
liabilities ........................... (1,724) 56
Other long-term liabilities ............. (87) (12)
---------- ----------
Net cash provided by operating
activities ................................ 19,841 22,384
Cash flows from investing activities:
Capital expenditures for property and
equipment ................................. (10,717) (6,438)
Acquisition of businesses ................... (661) (29,944)
Capital expenditures for real estate
held for development and sale ............. (447) (107)
Other assets ................................ (1,112) 679
---------- ----------
Net cash used in investing activities ....... (12,937) (35,810)
Cash flows from financing activities:
Net repayments of senior credit
facility .................................. (4,360) (8,581)
Proceeds of long-term debt .................. -- 17,500
Principal payments of long-term debt ........ (1,574) (2,185)
Deferred financing costs .................... (432) (1,416)
Purchase of preferred stock of
subsidiary and payment of dividends ....... (365) (603)
Capital contributions ....................... -- 10,500
---------- ----------
Net cash (used in) provided by
financing activities ...................... (6,731) 15,215
---------- ----------
Increase in cash ............................ 173 1,789
Cash at beginning of period ................. 625 462
---------- ----------
Cash at end of period ....................... $ 798 $ 2,251
========== ==========
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 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 April 30, 1999 and
for the three and six month periods ended April 30, 1999 and May 1, 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 April 30, 1999, and its operating results and cash flows for the
three and six month periods ended April 30, 1999 and May 1, 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 six months ended April 30, 1999 by
approximately $173,000.
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>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 six months ended May 1, 1998 as if the Loon Mountain acquisition and
related financing transactions occurred on November 1, 1997.
Six Months
Ended
May 1, 1998
--------------
(In thousands)
Statement of operations data:
Revenue .............................................. $ 98,487
Operating income ..................................... $ 24,917
Net income ........................................... $ 15,023
Other data:
EBITDA ............................................... $ 33,469
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., a
wholly-owned subsidiary of Booth Creek ("Acquisition Sub"), 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
will be approximately $83 million plus certain deferred payments, subject to
certain price adjustments. The proposed acquisition is conditioned on the
receipt of a judicial determination that the terms of a certain shareholders'
agreement among Seven Springs and its shareholders (the "Seven Springs
Shareholder Agreement") does not apply to the transactions contemplated by the
Merger Agreement, as well as customary closing conditions. In connection with
the proposed 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. Plaintiffs allege that the terms of the
Seven Springs Shareholder Agreement ban the consummation of the proposed
acquisition. On October 29, 1998, the Court entered a final judgment denying
Plaintiff's motion and has permitted the consummation of the transactions
contemplated by the Merger Agreement. On December 28, 1998, the Plaintiff's
filed an amended notice of appeal and a hearing was held on April 20, 1999, but
a ruling has not yet been entered. While the Company believes that Seven
Springs will prevail with its position that the Seven Springs Shareholder
Agreement does not apply to the transactions contemplated by the Merger
Agreement, no assurance can be made regarding the timing or outcome of this
litigation.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
April 30, October 30,
1999 1998
---------- ----------
(In thousands)
Accounts payable ............................ $ 9,190 $ 10,652
Accrued compensation and benefits ........... 2,535 3,164
Taxes other than income ..................... 1,098 973
Unearned income and deposits ................ 1,313 4,017
Interest .................................... 2,288 2,349
Other ....................................... 3,962 955
---------- ----------
$ 20,386 $ 22,110
========== ==========
4. Financing Arrangements
Senior Credit Facility
The 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 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. The
Company has obtained waivers from the lender that reduced the period of time
during which borrowings may not exceed $8 million to 20 consecutive days
commencing between February 1 and February 28, 1999, and waived certain other
covenant violations at April 30, 1999. Total borrowings outstanding under the
Senior Credit Facility at April 30, 1999 were approximately $12.8 million,
which bore interest at 7.75%.
Long-Term Debt
As of April 30, 1999, the Company had outstanding $133.5 million aggregate
amount of its senior debt securities (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.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4. Financing Arrangements - (Continued)
Long-Term Debt - (Continued)
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.
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. Similarly, no
federal income tax provision is expected for the year ended October 29, 1999
due to continued operating losses. Accordingly, during the six months ended
April 30, 1999, no federal income tax provision has been provided.
<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 and
drought 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 1997/98 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 1997/98 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, approximately
80% of the 1997/98 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 1997/98 ski season total skier days were
attributable to residents of the Seattle/Tacoma metropolitan region. The
Company's Grand Targhee resort attracts approximately 50% of its skiers from
outside its local skiing population.
In addition to revenue generated from skiing operations, the Company's
resorts generate significant revenue from non-ski operations, including
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 preceeding
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 six month
periods ended April 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 six month periods ended May 1, 1998 includes the results of Loon
Mountain since February 26, 1998, the date it was acquired by the Company.
Historical Three Months Ended April 30, 1999 as Compared to the Historical
Three Months Ended May 1, 1998
Total revenue for the three months ended April 30, 1999 was $56,791,000, an
increase of $7,959,000, or 16%, over the Company's revenues for the three
months ended May 1, 1998. The increase is principally due to the inclusion
of Loon Mountain for the entire 1999 period, which resulted in an increase of
$4,523,000 in revenues for the three months ended April 30, 1999 as compared
to the 1998 period. In addition, Northstar and Sierra generated increased
revenues of $593,000 and $987,000, respectively, due to improved yields.
Bear Mountain's revenues declined by $423,000 due to lower skier visits as a
result of the lack of natural snowfall, partially offset by improved yields.
Revenues for Waterville Valley increased by $186,000 due to improved yields.
Revenues for Mt. Cranmore increased by $598,000 due to improved yields and
higher skier visits as a result of new pricing strategies. The Summit
generated $1,184,000 in additional revenues due to an extended season, higher
skier days and improved yields in its food and beverage, snow school and
retail businesses. Revenues for Grand Targhee increased by $311,000 due to
slightly higher skier visits and improved yields.
Total operating expenses for the three months ended April 30, 1999 were
$42,765,000, an increase of $6,577,000, or 18%, over the Company's total
operating expenses for the three months ended May 1, 1998. The inclusion of
Loon Mountain for the entire 1999 period resulted in an increase of $2,022,000
in operating expenses as compared to the 1998 period. Increased costs of
operations at the Summit of $2,215,000 and higher corporate expenses of
$655,000 for nonrecurring corporate initiatives, process improvements and new
management personnel as discussed below were the principal contributions to the
increase. Increased depreciation expense, lease costs in the amount of $247,000
for three new lifts at the Summit and Bear Mountain and normal inflationary
impacts also contributed to the increase.
Interest expense for the three months ended April 30, 1999 totaled
$4,720,000, an increase of $460,000 over the Company's interest expense for
the three months ended May 1, 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. Similarly, 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
April 30, 1999, no federal income tax provision has been provided.
EBITDA for the historical three months ended April 30, 1999 was
$20,018,000, an increase of $3,209,000 or 19% over EBITDA of $16,809,000 for
the historical three months ended May 1, 1998.
Historical Six Months Ended April 30, 1999 as Compared to the Historical
Six Months Ended May 1, 1998
Total revenue for the six months ended April 30, 1999 was $103,090,000, an
increase of $15,242,000, or 17%, over the Company's revenue for the six
months ended May 1, 1998. The increase is principally due to the inclusion
of Loon Mountain for the entire 1999 period, which resulted in an increase of
$9,930,000 in revenues for the six months ended April 30, 1999 as compared to
the 1998 period. In addition, Northstar and Sierra generated increased
<PAGE>
revenues of $1,123,000 and $1,183,000, 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 were slightly lower due to poor weather and
snow conditions in the first quarter, partially offset by improved yields.
Revenues for Mt. Cranmore increased $469,000 or 14% due to improved yields
and higher skier visits as a result of new pricing strategies. The Summit
generated $2,687,000 or 26% 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 $343,000 or 5% due to slightly higher skier visits.
Total operating expenses for the six months ended April 30, 1999 were
$83,926,000, an increase of $17,343,000 over the Company's total operating
expenses for the six months ended May 1, 1998. The principal causes of the
increase are as follows:
(In thousands)
Total operating expenses - six months ended $66,583
May 1, 1998..................................
Acquisition of Loon Mountain:
Cost of sales - resort operations............ 5,065
Selling, general and administrative.......... 755
Depreciation and amortization................ 826
----------
6,646
Nonrecurring maintenance, operations, snow
removal and severance costs, and costs
associated with an earlier opening,
extended season and revenue penetration
efforts and new operations at the Summit..... 4,197
Costs of nonrecurring corporate initiatives
and process improvements and costs
associated with new management personnel and
functional expertise......................... 1,891
Increased depreciation due to higher average
asset balances............................... 2,135
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, consistent accrual practices
among resorts and other changes, net......... 1,303
----------
Total operating expenses - six months ended
April 30, 1999............................... $83,926
==========
As reflected above, the inclusion of Loon Mountain for the entire 1999
period resulted in an increase of $6,646,000 in operating expenses as
compared to the 1998 period.
At the Summit, the Company incurred significant nonrecurring costs during
the six months ended April 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 $2,687,000 for the six months ended April 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.
<PAGE>
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 six months ended April 30, 1999 totaled $9,688,000,
an increase of $1,341,000 over the Company's interest expense for the six
months ended May 1, 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. Similarly, no
federal income tax provision is expected for the year ended October 29, 1999
due to continued operating losses. Accordingly, during the six months ended
April 30, 1999, no federal income tax provision has been provided.
EBITDA for the historical six months ended April 30, 1999 was $29,957,000,
an increase of $934,000 or 3% over historical EBITDA of $29,023,000 for the
six months ended May 1, 1998.
Historical Three Months Ended April 30, 1999 as Compared to the Pro Forma
Three Months Ended May 1, 1998
The following unaudited pro forma results of operations of the Company for
the three months ended May 1, 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.
Historical three Pro forma three
months ended months ended
April 30, 1999 May 1, 1998
-------------- -------------
(In thousands)
Statement of Operations Data:
Revenue:
Resort operations ........... $ 56,791 $ 52,714
Operating expenses:
Resort operations ........... 36,773 33,793
Depreciation and amortization 5,992 4,363
------------- -------------
Operating income .............. 14,026 14,558
Interest expense and other, net 5,206 4,793
------------- -------------
Income before minority interest 8,820 9,765
Minority interest ............. 55 68
------------- -------------
Net income .................... $ 8,765 $ 9,697
============= =============
Other Data:
EBITDA ........................ $ 20,018 $ 18,921
Total revenue for the three months ended April 30, 1999 was $56,791,000, an
increase of $4,077,000, or 8%, over the Company's revenues for the pro forma
three months ended May 1, 1998. Total skier days for the three months ended
April 30, 1999 were 1,387,000, an increase of 82,000 days, or 6%, over the
comparable pro forma period in 1998. The increase in total skier days is
principally due to significantly higher skier days at the Summit and a larger
number of skier visits attributable to season pass sales and promotional
offerings, partially offset by lower skier visits at Bear Mountain. Northstar
and Sierra generated increased revenues of $593,000 and $987,000, respectively,
due to improved yields. Bear Mountain's revenues declined by $423,000 due to
lower skier visits as a result of the lack of natural snowfall, partially
offset by improved yields. Revenues for Waterville Valley increased
<PAGE>
by $186,000 due to improved yields. Revenues for Mount Cranmore increased by
$598,000 due to improved yields and higher skier visits as a result of new
pricing strategies. Revenues for Loon Mountain increased by $641,000 due to
improved yields and slightly higher skier visits. The Summit generated
$1,184,000 in additional revenues due to an extended season, higher skier days
and improved yields. Revenues for Grand Targhee increased by $311,000 due to
slightly higher skier visits and improved yields.
Historical resort operating expenses, excluding depreciation and
amortization, for the three months ended April 30, 1999 were $36,773,000, an
increase of $2,980,000, or 9%, over the comparable pro forma period in 1998.
Increased costs of operations at the Summit of $2,215,000 and higher
corporate expenses of $655,000 for nonrecurring corporate initiatives,
process improvements and new management personnel as previously discussed
were the principal contributors to the increase. Increased lease costs in the
amount of $247,000 for three new lifts at the Summit and Bear Mountain and
normal inflationary impacts also contributed to the increase.
Historical depreciation and amortization for the three months ended April
30, 1999 was $5,992,000. The increase of $1,629,000 over the 1998 pro forma
period was due to higher average asset balances in the 1999 period.
Net interest expense for the historical three months ended April 30, 1999
totaled $5,206,000, an increase of $413,000 or 9% 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.
EBITDA for the historical three months ended April 30, 1999 was
$20,018,000, an increase of $1,097,000 or 6% over EBITDA of $18,921,000 for
the pro forma three months ended May 1, 1998.
Historical Six Months Ended April 30, 1999 as Compared to the Pro Forma Six
Months Ended May 1, 1998
The following unaudited pro forma results of operations of the Company for
the six months ended May 1, 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.
Historical six Pro forma six
months ended months ended
April 30, 1999 May 1, 1998
-------------- -------------
(In thousands)
Statement of Operations Data:
Revenue:
Resort operations ........... $ 103,090 $ 98,487
Operating expenses:
Resort operations ........... 73,133 65,018
Depreciation and amortization 10,793 8,552
------------- -------------
Operating income .............. 19,164 24,917
Interest expense and other, net 10,499 9,756
------------- -------------
Income before minority interest 8,665 15,161
Minority interest ............. 114 138
------------- -------------
Net income .................... $ 8,551 $ 15,023
============= =============
Other Data:
EBITDA ........................ $ 29,957 $ 33,469
Total historical revenues for the six months ended April 30, 1999 were
$103,090,000, an increase of $4,603,000, or 5%, over the comparable pro forma
period in 1998. Total
<PAGE>
skier days for the six months ended April 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 $1,123,000 and
$1,183,000, 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 $218,000 and $702,000, respectively, due to poor
weather and snow conditions in the first quarter, partially offset by improved
yields. Revenues for Mt. Cranmore increased $469,000 or 14% due to improved
yields and higher skier visits as a result of new pricing strategies. The
Summit generated $2,687,000 in additional revenues due to an earlier opening,
extended season, higher skier days and improved yields. Revenues for Grand
Targhee increased by $343,000 or 5% due to slightly higher skier visits.
Historical resort operating expenses, excluding depreciation and
amortization, for the six months ended April 30, 1999 were $73,133,000, an
increase of $8,115,000, or 12%, over the comparable pro forma period in 1998.
Increased costs of operations at the Summit of $4,197,000 and higher
corporate expenses of $1,891,000 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 and amortization for the six months ended April 30,
1999 was $10,793,000. The increase of $2,241,000 over the 1998 pro forma
period was due to higher average asset balances in the 1999 period.
Net interest expense for the historical six months ended April 30, 1999
totaled $10,499,000, an increase of $743,000 or 8% 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.
EBITDA for the historical six months ended April 30, 1999 was $29,957,000,
a decrease of $3,512,000 or 10% from the pro forma six months ended May 1,
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. The Company has obtained waivers from the lender
that reduced the period of time during which borrowings may not exceed $8
million to 20 consecutive days commencing between February 1 and February 28,
1999, and waived certain other covenant violations at April 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 April 30, 1999, outstanding borrowings under
the Senior Credit Facility totaled approximately $12.8 million.
The Company had a working capital deficit of $27.9 million as of April 30,
1999 which will negatively affect liquidity during the remainder of 1999.
<PAGE>
The Company generated cash from operating activities of $19.8 million for
the six months ended April 30, 1999 as compared to $22.4 million for the six
months ended May 1, 1998. This decrease is principally due to the reduced
earnings for the period ended April 30, 1999 as compared to the 1998 period.
Cash used in investing activities totaled $12.9 million and $35.8 million
for the six months ended April 30, 1999 and May 1, 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 $6.7 million for the six months
ended April 30, 1999, primarily reflecting repayments on the Senior Credit
Facility and long-term debt. Cash provided by financing activities totaled
$15.2 million for the six months ended May 1, 1998, primarily reflecting
borrowings and additional capital contributions to fund the acquisition of
Loon Mountains.
The Company's capital expenditures for property and equipment for the six
months ended April 30, 1999 were approximately $10.7 million. Management
anticipates that remaining capital expenditures for property and equipment in
fiscal 1999 and fiscal 2000 will be approximately $14 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. Commitments for
future capital expenditures totaled approximately $4.1 million at April 30,
1999.
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
substantial periods of time, in order to address cash flow or other
constraints. 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
<PAGE>
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, any decline in the Company's expected operating
performance or the failure to sell scheduled 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
existng 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
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 $425,000 has been
incurred through April 30, 1999.
The Company has substantially completed an assessment of the necessary
efforts to make its primary ticketing and sales system year 2000 compliant. 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 $120,000 to $150,000.
Depending upon the results of 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 the third calendar quarter of 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 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
<PAGE>
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 2008, 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 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.
<PAGE>
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 is
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
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
<PAGE>
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 has completed the construction of the new wastewater facility and
final certification by appropriate governmental agencies is pending.
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 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
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 a threatened action since the September
1997 notice. While the Company believes that such position would prevail in
any lawsuit, no assurance can be given regarding any outcome.
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
<PAGE>
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 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, substantial
leverage 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 is currently
investigating whether Bear Mountain, Inc. has any 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").
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 and such court has agreed to
review the case. Shareholder Plaintiffs' breach of fiduciary duty action
against LMRC and its former directors remains pending and limited discovery
has been conducted but a trial date has not been set. Shareholder Plaintiffs
were given leave by the court to amend their complaint to seek money damages
against the Company, LMRC and its former directors.
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 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
<PAGE>
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 currently expects to
issue draft NEPA documentation in the Fall of 1999. The Environmental
Plaintiffs also filed 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 Merger Agreement.
Plaintiffs allege that the terms of the Seven Springs Shareholder Agreement
ban the consummation of the proposed acquisition. On October 29, 1998, the
Court entered a final judgment denying Plaintiff's motion and has permitted
the consummation of the transactions contemplated by the Merger Agreement. On
December 28, 1998, the Plaintiff's filed an amended notice of appeal and a
hearing was held on April 20, 1999, but a ruling has not yet been entered.
While the Company believes that Seven Springs will prevail with its position
that the Seven Springs Shareholders Agreement does not apply to the
transactions contemplated by the Merger Agreement, no assurance can be made
regarding the timing or outcome of this litigation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There has been no material default with respect to any of the Company's
senior securities which has not been waived or cured.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
10.1 First Amendment dated May 18, 1999, to Amended
and Restated Credit Agreement dated as of
October 30, 1998 among Booth Creek Ski
Holdings, Inc., Booth Creek Ski Acquisition
Corp., Trimont Land Company, Sierra-at-Tahoe,
Inc., Bear Mountain, Inc., Waterville Valley
Ski Resort, Inc., Mount Cranmore Ski Resort,
Inc., Ski Lifts, Inc., Grand Targhee
Incorporated, LMRC Holding Corp., Loon Mountain
Recreation Corporation, Loon Realty Corp. and
BankBoston, N.A.
10.2 Waiver Agreement dated June 14, 1999, to
Amended and Restated Credit Agreement dated as
of October 30, 1998 among Booth Creek Ski
Holdings, Inc., Booth Creek Ski Acquisition
Corp., Trimont Land Company, Sierra-at-Tahoe,
Inc., Bear Mountain, Inc., Waterville Valley
Ski Resort, Inc., Mount Cranmore Ski Resort,
Inc., Ski Lifts, Inc., Grand Targhee
Incorporated, LMRC Holding Corp., Loon Mountain
Recreation Corporation, Loon Realty Corp. and
BankBoston, N.A.
27.1 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period ended April
30, 1999.
<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)
June 14, 1999
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 18, 1999
Among
BOOTH CREEK SKI HOLDINGS, INC.
BOOTH CREEK SKI ACQUISITION CORP.
TRIMONT LAND COMPANY
SIERRA-AT-TAHOE, INC.
BEAR MOUNTAIN, INC.
WATERVILLE VALLEY SKI RESORT, INC.
MOUNT CRANMORE SKI RESORT, INC.
SKI LIFTS, INC.
GRAND TARGHEE INCORPORATED
LMRC HOLDING CORP.
LOON MOUNTAIN RECREATION CORPORATION
LOON REALTY CORP.
the Borrowers
and
BANKBOSTON, N.A.,
the Lender
and
BANKBOSTON, N.A.,
the Agent
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is
entered into as of the 18th day of May, 1999 by and among BOOTH CREEK SKI
HOLDINGS, INC., a Delaware corporation (together with its successors and
assigns, "BCS Holdings"), BOOTH CREEK SKI ACQUISITION CORP., a Delaware
corporation (together with its successors and assigns, "BCS Acquisition"),
TRIMONT LAND COMPANY, a California corporation (together with its successors and
assigns, "Northstar-at-Tahoe"), SIERRA-AT-TAHOE, INC., a Delaware corporation
(together with its successors and assigns, "Sierra-at-Tahoe"), BEAR MOUNTAIN,
INC., a Delaware corporation (together with its successors and assigns, "Bear
Mountain"), WATERVILLE VALLEY SKI RESORT, INC., a Delaware corporation (together
with its successors and assigns, "Waterville"), MOUNT CRANMORE SKI RESORT, INC.,
a Delaware corporation (together with its successors and assigns, "Cranmore"),
SKI LIFTS, INC., a Washington corporation (together with its successors and
assigns, "Ski Lifts"), GRAND TARGHEE INCORPORATED, a Delaware corporation
(together with its successors and assigns, "Grand Targhee"), LMRC HOLDING CORP.,
a Delaware corporation (together with its successors and assigns, "LMRC
Holding"), LOON MOUNTAIN RECREATION CORPORATION, a New Hampshire corporation
(together with its successors and assigns, "Loon"); LOON REALTY CORP., a New
Hampshire corporation (together with its successors and assigns, "Loon Realty,"
and together with BCS Holdings, BCS Acquisition, Northstar-at-Tahoe,
Sierra-at-Tahoe, Bear Mountain, Waterville, Cranmore, Ski Lifts, Grand Targhee,
LMRC Holding and Loon, the "Borrowers", and each a "Borrower"), BANKBOSTON,
N.A., a national banking association (together with its successors and assigns,
"BKB"), and BKB, as agent (the "Agent") for itself and the other Lenders, hereby
agree as follows:
Recitals
The Borrowers, BKB, as sole Lender, and the Agent are parties to an
Amended and Restated Credit Agreement dated as of October 30, 1998 (as amended,
the "Credit Agreement") and desire to amend the Credit Agreement in various
respects. All capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Credit Agreement.
NOW, THEREFORE, the Borrowers, BKB and the Agent hereby agree as
follows:
Section 1. Definitions. Section 1.2 of the Credit Agreement is hereby
amended by deleting the definition of "Final Maturity Date" in its entirety and
substituting therefor the following:
"Final Maturity Date" means March 31, 2002.
Section 2. Amendment of Covenants. (a) Section 2.2.1 of the Credit
Agreement is hereby amended by deleting the first sentence thereof in its
entirety and substituting therefor the following:
"Subject to all of the terms and conditions of this Credit
Agreement and so long as no Default exists, the Agent will
issue for the account of any Borrower one or more irrevocable
standby or documentary letters of credit (the "Letters of
Credit") up to a Maximum Exposure Under Letters of Credit of
$5,000,000."
(b) Section 3.3.3 of the Credit Agreement is hereby amended by
adding the following proviso at the end of the first sentence thereof:
; provided, however, that with respect to documentary Letters
of Credit the Borrowers and the Lenders may from time to time
agree to a lesser fee reflecting the Lenders' general rate
structure for documentiary letters of credit.
Section 3. Representations and Warranties; No Default. The Borrowers
hereby confirm to the Agent and BKB, the representations and warranties of the
Borrowers set forth in Section 8 of the Credit Agreement (as amended hereby) as
of the date hereof, as if set forth herein in full. The Borrowers hereby certify
that no Default exists under the Credit Agreement.
Section 4. Miscellaneous. The Borrowers agree, jointly and severally,
to pay on demand all the Agent's reasonable expenses in preparing, executing and
delivering this First Amendment to Amended and Restated Credit Agreement, and
all related instruments and documents, including, without limitation, the
reasonable fees and out-of-pocket expenses of the Agent's special counsel,
Goodwin, Procter & Hoar LLP. This First Amendment to Amended and Restated Credit
Agreement shall be a Credit Document and shall be governed by and construed and
enforced under the laws of The Commonwealth of Massachusetts.
[End of Page]
<PAGE>
IN WITNESS WHEREOF, the Borrowers, BKB and the Agent have caused this
First Amendment to Amended and Restated Credit Agreement to be executed by their
duly authorized officers as of the date first set forth above.
BOOTH CREEK SKI HOLDINGS, INC.
BOOTH CREEK SKI ACQUISITION CORP.
TRIMONT LAND COMPANY
SIERRA-AT-TAHOE, INC.
BEAR MOUNTAIN, INC.
WATERVILLE VALLEY SKI RESORT, INC.
MOUNT CRANMORE SKI RESORT, INC.
SKI LIFTS, INC.
GRAND TARGHEE INCORPORATED
LMRC HOLDING CORP.
LOON MOUNTAIN RECREATION CORPORATION
LOON REALTY CORP.
By: /s/ Elizabeth J. Cole
-------------------------------
Name: Elizabeth J. Cole
Title: Executive Vice President
BANKBOSTON, N.A.
By: /s/ Carlton F. Williams
-------------------------------
Name: Carlton F. Williams
Title: Director
BANKBOSTON, N.A., as Agent
By: /s/ Carlton F. Williams
-------------------------------
Name: Carlton F. Williams
Title: Director
WAIVER
------
This Waiver (this "Waiver") is entered into as of this 14th day of June,
1999, by and among BOOTH CREEK SKI HOLDINGS, INC., BOOTH CREEK SKI ACQUISITION
CORP., TRIMONT LAND COMPANY, SIERRA-AT-TAHOE, INC., BEAR MOUNTAIN, INC.,
WATERVILLE VALLEY SKI RESORT, INC., MOUNT CRANMORE SKI RESORT, INC., SKI LIFTS,
INC., GRAND TARGHEE INCORPORATED, LMRC HOLDING CORP., LOON MOUNTAIN RECREATION
CORPORATION, and LOON REALTY CORP. (collectively, the "Borrowers") and
BankBoston, N.A., as a Lender and as agent for itself and other Lenders (the
"Lender").
Reference is made to the Amended and Restated Credit Agreement dated as
of October 30, 1998, by and among the Borrowers and the Lender, as amended
through the date hereof (the "Credit Agreement"). Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed to them in the Credit
Agreement.
1. The Borrowers have informed the Lender that as of April 30, 1999, the
sum of (i) the Trailing Four Fiscal Quarter Cash Flow measured on such date,
minus (ii) Cash Flow Adjustment for the four fiscal quarters then ending was 90%
of the Consolidated Fixed Charges of the Borrowers for such four fiscal quarters
then ending, which is below the minimum percentage of 100% as required by
Section 7.5.2 of the Credit Agreement.
2. The Lender and the Borrowers hereby agree that for the quarter ending
July 30, 1999, the sum of (i) the Trailing Four Fiscal Quarter Cash Flow
measured on such date, minus (ii) Cash Flow Adjustment for the four fiscal
quarters shall not be less than 85% of the Consolidated Fixed Charges of the
Borrowers for such four fiscal quarters then ending, which is below the minimum
percentage of 100% as required by Section 7.5.2 of the Credit Agreement.
3. The Lender and the Borrowers hereby agree that for the quarter ending
July 30, 1999 the ratio of the unpaid principal amount of Consolidated Financing
Debt of the Borrowers to Trailing Four Fiscal Quarter Cash Flow for the quarter
then ending shall not exceed 6.75-to-1.0, which exceeds the maximum ratio of
6.5-to-1.0 for such quarter then ending as required by Section 7.5.1 of the
Credit Agreement.
4. The Lender hereby waives the covenant violation set forth under
paragraph 1 above.
5. In order to induce the Lender to enter into this Waiver, the Borrowers
hereby represent and warrant that (i) no Default or Event of Default under the
Credit Agreement exists on the date hereof after giving effect to this Waiver
and (ii) all of the representations and warranties contained in the Credit
Agreement are true and correct in all material respects as of the date hereof
after giving effect to this Waiver, with the same effect as if those
representations and warranties had been made on and as of the date hereof (it
being understood that any representation or warranty made as of a specified date
shall be required to be true and correct in all material respects only as of
such specified date).
<PAGE>
6. This Waiver is limited as specified and shall not constitute a
modification, amendment or waiver of any other provision of the Credit Agreement
or constitute a course of dealing between the parties. This Waiver may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which counterpart when executed and delivered
shall be an original, but all of which together shall constitute one and the
same instrument. From and after the date hereof, all references in the Credit
Agreement and in any other Credit Documents to the Credit Agreement shall be
deemed to be references to the Credit Agreement as modified hereby.
*The remainder of this page has been left blank intentionally*
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Waiver to be
executed under seal and delivered by its duly authorized officer as of the date
first above written.
BOOTH CREEK SKI HOLDINGS, INC.
BOOTH CREEK SKI ACQUISITION CORP.
TRIMONT LAND COMPANY
SIERRA-AT-TAHOE, INC.
BEAR MOUNTAIN, INC.
WATERVILLE VALLEY SKI RESORT, INC.
MOUNT CRANMORE SKI RESORT, INC.
SKI LIFTS, INC.
GRAND TARGHEE INCORPORATED
LMRC HOLDING CORP.
LOON MOUNTAIN RECREATION CORPORATION
LOON REALTY CORP.
By: /s/ Elizabeth J. Cole
-------------------------------
Elizabeth J. Cole
Executive Vice President
BANKBOSTON, N.A., as Agent
By: /s/ Carlton F. Williams
-------------------------------
Carlton F. Williams
Director
BANKBOSTON, N.A.
By: /s/ Carlton F. Williams
-------------------------------
Carlton F. Williams
Director
<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 APRIL 30, 1999 AND FOR THE THREE MONTHS THEN ENDED AND THE SIX MONTHS
THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> OCT-29-1999 OCT-29-1999
<PERIOD-START> OCT-31-1998 JAN-30-1999
<PERIOD-END> APR-30-1999 APR-30-1999
<CASH> 798 798
<SECURITIES> 0 0
<RECEIVABLES> 2,049 2,049
<ALLOWANCES> 57 57
<INVENTORY> 2,642 2,642
<CURRENT-ASSETS> 6,560 6,560
<PP&E> 191,147 191,147
<DEPRECIATION> 33,542 33,542
<TOTAL-ASSETS> 219,101 219,101
<CURRENT-LIABILITIES> 34,426 34,426
<BONDS> 133,500 133,500
2,383 2,383
0 0
<COMMON> 0 0
<OTHER-SE> 45,928 45,928
<TOTAL-LIABILITY-AND-EQUITY> 219,101 219,101
<SALES> 0 0
<TOTAL-REVENUES> 103,090 56,791
<CGS> 0 0
<TOTAL-COSTS> 59,267 29,978
<OTHER-EXPENSES> 24,659 12,787
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,688 4,720
<INCOME-PRETAX> 8,665 8,820
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 8,665 8,820
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,551 8,765
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
