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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 28, 2000
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) 476-1311
(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 26, 2000, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares.
===============================================================================
<PAGE>
TABLE OF CONTENTS
Item Page Number
PART I - FINANCIAL INFORMATION
1. Financial Statements.................................... 1
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 9
3. Quantitative and Qualitative Disclosures about
Market Risk............................................. 18
PART II - OTHER INFORMATION
1. Legal Proceedings....................................... 19
5. Other Information....................................... 21
6. Exhibits and Reports on Form 8-K........................ 21
Signatures.................................................... 22
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
April 28, October 29,
2000 1999
--------------- ---------------
ASSETS (Unaudited)
Current assets:
Cash ....................................... $ 617 $ 461
Accounts receivable, net of allowance of
of $88 and $65, respectively............... 1,862 1,709
Insurance proceeds receivable............... 7,368 1,799
Inventories ................................ 2,029 2,786
Prepaid expenses and other current
assets .................................... 605 1,032
--------------- ---------------
Total current assets ......................... 12,481 7,787
Property and equipment, net .................. 152,304 152,316
Real estate held for development and sale .... 9,017 8,851
Deferred financing costs, net of
accumulated amortization of $3,553 and
$3,078, respectively ....................... 5,694 6,071
Timber rights and other assets ............... 8,483 7,246
Goodwill, net of accumulated amortization
of $7,762 and $6,581, respectively ......... 26,948 28,075
--------------- ---------------
Total assets ................................. $ 214,927 $ 210,346
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Senior credit facility .................... $ 5,984 $ 23,035
Current portion of long-term debt ......... 1,544 1,468
Accounts payable and accrued liabilities .. 30,709 28,593
--------------- ---------------
Total current liabilities ................... 38,237 53,096
Long-term debt .............................. 136,687 136,483
Other long-term liabilities ................. 25 50
Commitments and contingencies
Preferred stock of subsidiary; 28,000
shares authorized, 15,000 shares issued
and outstanding at April 28, 2000
(17,000 shares at October 29, 1999);
liquidation preference and redemption
value of $1,888 at April 28, 2000 ......... 1,888 2,133
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 ....................... (33,910) (53,416)
--------------- ---------------
Total shareholder's equity .................. 38,090 18,584
--------------- ---------------
Total liabilities and shareholder's
equity .................................... $ 214,927 $ 210,346
=============== ===============
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended Six Months Ended
--------------------- ---------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(Unaudited)
Revenue:
Resort operations.......... $65,415 $56,791 $109,284 $103,090
Real estate and other...... - - 845 -
--------- --------- --------- ---------
Total revenue................ 65,415 56,791 110,129 103,090
Operating expenses:
Cost of sales - resort
operations................ 29,474 29,978 55,619 59,267
Cost of sales - real estate
and other................. - - 333 -
Depreciation............... 5,137 5,396 10,024 9,603
Amortization of goodwill and
other intangible assets... 600 596 1,206 1,190
Selling, general and
administrative expense.... 6,955 6,795 13,605 13,866
--------- --------- --------- ---------
Total operating expenses..... 42,166 42,765 80,787 83,926
Operating income............. 23,249 14,026 29,342 19,164
Other expense:
Interest expense........... (4,416) (4,720) (9,241) (9,688)
Amortization of deferred
financing costs............ (240) (307) (475) (636)
Other expense.............. (33) (179) (21) (175)
--------- --------- --------- ---------
Total other expense........ (4,689) (5,206) (9,737) (10,499)
--------- --------- --------- ---------
Income before minority interest 18,560 8,820 19,605 8,665
Minority interest............ (52) (55) (99) (114)
--------- --------- --------- ---------
Net income................... $18,508 $8,765 $19,506 $8,551
========= ========= ========= =========
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
-------------------------------
April 28, April 29,
2000 1999
------------- -------------
(Unaudited)
Cash flows from operating activities:
Net income..................................... $ 19,506 $ 8,551
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation................................ 10,024 9,603
Amortization of goodwill and other
intangible assets ......................... 1,206 1,190
Noncash cost of real estate sales .......... 331 -
Amortization of deferred financing costs ... 475 636
Minority interest .......................... 99 114
Changes in operating assets and liabilities:
Accounts receivable ....................... (153) (419)
Insurance proceeds receivable.............. (5,569) -
Inventories ............................... 757 1,728
Prepaid expenses and other current assets.. 427 249
Accounts payable and accrued liabilities... 1,066 (1,724)
Other long-term liabilities ............... (25) (87)
------------- -------------
Net cash provided by operating activities...... 28,144 19,841
Cash flows from investing activities:
Capital expenditures for property and
equipment .................................... (7,184) (10,717)
Acquisition of businesses ..................... - (661)
Capital expenditures for real estate
held for development and sale ................ (497) (447)
Other assets .................................. (266) (1,112)
------------- -------------
Net cash used in investing activities ......... (7,947) (12,937)
Cash flows from financing activities:
Net repayments of senior credit facility ...... (17,051) (4,360)
Principal payments of long-term debt .......... (2,548) (1,574)
Deferred financing costs ...................... (98) (432)
Purchase of preferred stock of subsidiary
and payment of dividends ..................... (344) (365)
------------- -------------
Net cash used in financing activities ......... (20,041) (6,731)
------------- -------------
Increase in cash .............................. 156 173
Cash at beginning of period ................... 461 625
------------- -------------
Cash at end of period ......................... $ 617 $ 798
============= =============
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 28, 2000
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
Booth Creek Ski Holdings, Inc. ("Booth Creek") owns and operates various ski
resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe
("Sierra"), Bear Mountain, Waterville Valley, Mt. Cranmore, the Summit at
Snoqualmie (the "Summit"), Grand Targhee and Loon Mountain. Booth Creek also
conducts certain real estate development activities, primarily at Northstar.
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 28, 2000 and
for the three and six month periods ended April 28, 2000 and April 30, 1999 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
28, 2000, and its operating results and cash flows for the three and six month
periods ended April 28, 2000 and April 30, 1999. Due to the highly seasonal
nature of the Company's business, 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 fiscal year ended October 29,
1999.
Reporting Periods
The Company's reporting periods end on the Friday closest to the end of each
month.
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.
2. Insurance Proceeds Receivable
For the 1999/00 ski season, the Company arranged for four separate paid
skier visit insurance policies covering its Lake Tahoe resorts (Northstar and
Sierra), its New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon
Mountain), Bear Mountain and the Summit. The policies have a deductible for the
initial decline from targeted paid skier visit levels, coinsurance for a
portion of the next 10% decline in paid skier visits, and stated maximum
coverage levels. The policies provide coverage for substantially all risks
relating to paid skier visit levels, including adverse weather conditions, road
and airport closures, downturns in the economy, strikes and most other events
that reduce the targeted number of paid skier visits. In the accompanying
consolidated financial statements as of and for the six months ended April 28,
2000, the Company has recorded a receivable and resort operating revenues of
$6,600,000 for expected claims proceeds attributable to the decline from
targeted paid skier visits for the 1999/2000 season. The Company is currently
in the process of filing claims under the Lake Tahoe, New Hampshire and Bear
Mountain policies, which are subject to the review and approval of the
insurance underwriters.
Also included in insurance proceeds receivable as of April 28, 2000 is
$768,000 due for reconstruction of the restaurant facility at the top of
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Northstar's terrain, which was destroyed in an electrical fire on February 26,
1999.
3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
April 28, October 29,
2000 1999
---------------- ----------------
(In thousands)
Accounts payable.................... $9,621 $10,072
Accrued compensation and benefits... 3,713 3,279
Taxes other than income............. 669 1,099
Unearned revenue and
deposits - resort operations........ 3,881 9,887
Unearned revenue - real
estate operations................... 7,050 -
Interest............................ 2,469 2,492
Other............................... 3,306 1,764
---------------- ----------------
$30,709 $28,593
4. Financing Arrangements
Senior Credit Facility
The total maximum borrowing availability under the provisions of the
Company's Amended and Restated Credit Agreement (the "Senior Credit Facility")
is $25 million. The final maturity date of the Senior Credit Facility is 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 Fleet National
Bank, for a period of 60 consecutive days each year commencing between February
1 and February 28. Total borrowings outstanding under the Senior Credit
Facility at April 28, 2000 were approximately $6.0 million, which bore interest
at an annual rate of 9.0% on such date.
Long-Term Debt
As of April 28, 2000, the Company had outstanding $133.5 million aggregate
principal 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 DRE, LLC. Each Guarantee is
effectively subordinated to all secured indebtedness of such Guarantor. The
Senior Notes are general senior unsecured obligations of the Company ranking
equally in right of payment with all other existing and future senior
indebtedness of the Company and senior in right of payment to any subordinated
indebtedness of the Company.
The Senior Notes are effectively subordinated in right of payment to all
secured indebtedness of the Company and the Guarantors, including indebtedness
under the Senior Credit Facility. In addition, the Senior Notes are
structurally subordinated to any indebtedness of the Company's subsidiaries
that are not Guarantors. The indenture for the Senior Notes (the "Indenture")
contains covenants for the benefit of the holders of the Senior Notes that,
among other things, restrict the ability of the Company and any Restricted
Subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends and make
distributions; (iii) issue stock of subsidiaries; (iv) make certain
investments; (v) repurchase stock; (vi) create liens; (vii) enter into
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 DRE, LLC, Booth Creek's only non-guarantor
subsidiary, are inconsequential and the membership interest in DRE, 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.
During the six months ended April 28, 2000, the Company entered into
long-term debt and capital lease obligations of $2,828,000 for the purchase of
equipment.
5. Northstar Real Estate Sales
On November 17, 1999, the Company, through its wholly-owned subsidiary,
Trimont Land Company ("TLC"), consummated the sale of certain single family
development property located at Northstar (the "Unit 7 and 7A Development") to
Trimont Land Holdings, Inc. ("TLH"), a wholly-owned subsidiary of Parent and an
affiliate of the Company, for an aggregate sales price of $7,050,000, subject
to adjustment as described below. The consideration paid to TLC consisted of
$6,000,000 in cash and a promissory note (the "TLH Note") for a minimum of
$1,050,000. Under the terms of the TLH Note, TLC will receive the greater of
(a) $1,050,000 plus accrued interest at 7% per annum, or (b) the Net Cash
Proceeds of the resale of the lots within the Unit 7 and 7A Development. "Net
Cash Proceeds" is defined as gross proceeds received by TLH from the subsequent
resale of the lots, after deduction for (1) the proceeds applied to repay any
indebtedness incurred by TLH in connection with its financing of the purchase
of the lots, (2) any fees or other costs incurred by TLH in connection with its
financing of the purchase or sales of the lots, and (3) any corporate overhead
costs incurred by TLH attributable to the purchase, maintenance, marketing or
sale of the lots. The TLH Note is prepayable at any time, and is due on the
earlier to occur of January 30, 2001 or the date on which the last of the lots
owned by TLH has been sold. Pursuant to the terms of the sale, TLC has (1)
retained the obligation to complete the scheduled construction of the
development in accordance with the tentative site development plan, and (2) an
option to repurchase the Unit 7 and 7A Development from TLH. Northstar will
recognize revenue and related cost of sales for these real estate transactions
upon the substantial completion of construction and the close of escrow for the
sales between TLH and third party buyers.
The Company is involved in continuing discussions with East West Partners,
Inc., a Colorado based real estate development firm, for the proposed sale of
certain developmental real estate consisting of approximately 500 acres of land
at Northstar. Any proposed transaction would be subject to a number of closing
conditions and requirements, including (1) required consent of the Company's
lender under the Senior Credit Facility, (2) limitations on asset sales and
other provisions under the Indenture for the Senior Notes, (3) completion of
title evaluations and subdivision requirements to effect the transfer of the
subject property, and (4) other normal and customary closing conditions.
6. 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 income
tax benefit is expected for the year ended October 27, 2000 due to continued
operating losses. Accordingly, during the six months ended April 28, 2000, no
income tax provision has been provided.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Business Segments
The Company currently operates in two business segments, Resort Operations
and Real Estate and Other. Data by segment is as follows:
Three Months Ended Six Months Ended
----------------------- -----------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
---------- ----------- ----------- ----------
(In thousands)
Revenue:
Resort operations.... $65,415 $56,791 $109,284 $103,090
Real estate and
other.............. - - 845 -
---------- ----------- ----------- -----------
$65,415 $56,791 $110,129 $103,090
========== =========== =========== ===========
Operating income:
Resort operations.... $23,249 $14,026 $28,830 $19,164
Real estate and
other.............. - - 512 -
---------- ----------- ----------- -----------
$23,249 $14,026 $29,342 $19,164
========== =========== =========== ===========
April 28, October 29,
2000 1999
------------- -------------
(In thousands)
Identifiable assets:
Resort operations.................. $194,409 $188,870
Real estate and other.............. 13,515 13,363
------------- -------------
$207,924 $202,233
============= =============
A reconciliation of combined operating profits for Resort Operations and
Real Estate and Other to consolidated income before minority interest is as
follows:
Three Months Ended Six Months Ended
---------------------- --------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands)
Total profit for reportable
segments................... $23,249 $14,026 $29,342 $19,164
Interest expense........... (4,416) (4,720) (9,241) (9,688)
Amortization of deferred
financing costs............ (240) (307) (475) (636)
Other expense.............. (33) (179) (21) (175)
--------- --------- --------- ---------
Income before minority
interest................... $18,560 $8,820 $19,605 $8,665
========= ========= ========= =========
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Subsequent Events
Sale of Grand Targhee
On March 21, 2000, the Company and GT Acquisition I, LLC ("GT Acquisition"),
an entity formed and controlled by the Chairman and Chief Executive Officer of
the Company, entered into an Asset Purchase Agreement pursuant to which the
Company agreed to sell to GT Acquisition all of the assets associated with the
Grand Targhee resort for $11 million in cash, subject to certain adjustments.
The sale of the Grand Targhee resort to GT Acquisition is anticipated to close
in June 2000. At the closing of the transaction, GT Acquisition will also
assume all liabilities relating to the Grand Targhee resort.
Capital Restructuring of Parent
The holders of the outstanding securities of Parent have agreed to a
restructuring of Parent's existing capital structure (the "Capital
Restructuring").
Currently, Parent has outstanding Class A and Class B common stock, warrants
to purchase Class B common stock and Parent senior notes ("Parent Notes"). The
Class B common stock is non-voting, and each share of Class B common stock is
convertible into one share of Class A common stock. Pursuant to the Capital
Restructuring, all of Parent's outstanding Class A and Class B common stock
will be converted into Parent Notes in a principal amount equal to 20% of the
paid-in capital relating thereto. The Parent Notes to be issued in connection
with the Capital Restructuring will have the same terms as the existing Parent
Notes. In addition, new shares of Class A and Class B common stock of Parent
will be issued to the holders of Parent Notes on a pro rata basis in proportion
to the respective ownership of Parent Notes. Under the terms of the proposed
restructuring George N. Gillett, Jr. and affiliates will continue to own 100%
of the outstanding Class A common stock. The closing of the Capital
Restructuring is subject to completion of final documentation and certain
closing conditions. It is anticipated that the closing of the Capital
Restructuring will occur in June 2000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below relates to the historical consolidated
financial statements and historical 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 its 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 and other types of severe
or unusual weather conditions, which can have a significant effect on the
operating revenues and profitability at any one of the Company's resorts.
The Company's four most weather-sensitive resorts, Bear Mountain, Waterville
Valley, Loon Mountain and Mt. Cranmore, have invested heavily in snowmaking
capabilities to provide coverage on virtually all of their trails and have been
open for skiing at least 145, 151, 159, and 119 days, respectively, during each
of the last five ski seasons, including the 1999/00 ski season. The Company's
Northstar, Sierra, Summit and Grand Targhee resorts are less weather-sensitive
based on their historical natural snowfall, averaging approximately 326, 514,
500, and 530 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, and therefore, such resorts are
dependent upon early season snowfall to provide necessary terrain for the
important Christmas holiday period.
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, approximately 70% of the 1999/00 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 1999/00 ski season total skier days were attributable to residents of the
Los Angeles and San Diego metropolitan regions. At Waterville Valley, Loon
Mountain and Mt. Cranmore, more than 75% of the 1999/00 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 1999/00 ski season
total skier days were attributable to residents of the Seattle/Tacoma
metropolitan region. The Company's Grand Targhee resort attracts more than 40%
of its skiers from outside its 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 seasonal factors. With the exception of certain
management, marketing and maintenance personnel, all of the Company's employees
are compensated on an hourly basis.
<PAGE>
Results of Operations of the Company
Overview
The Company's results of operations are significantly impacted by weather
conditions. Northstar and Sierra experienced unseasonably dry weather and a
lack of natural snowfall during November and December of 1999. However,
snowfall for these resorts returned to more normal levels during January and
February of 2000. Bear Mountain experienced a lack of natural snowfall through
mid February due to dry weather in Southern California, although snowstorm
activity picked up considerably in the second half of February and March. The
East experienced variable temperatures and a lack of significant natural
snowfall through the middle of January 2000. Conditions began to improve for
the New Hampshire resorts in late January, and were generally favorable in
February and portions of March. Accordingly, weaker conditions negatively
impacted terrain availability, snowmaking conditions and skier days at the
Company's California and New Hampshire resorts during the Company's first
fiscal quarter of 2000, although there was considerable improvement in the
second quarter. The Summit experienced generally favorable snow conditions
during the 1999/00 ski season. Grand Targhee had a delayed opening due to lower
than expected levels of natural snowfall through early December 1999. However,
conditions at Grand Targhee during the remainder of the 1999/00 season were
generally favorable.
Three Months Ended April 28, 2000 as Compared to the Three Months Ended
April 30, 1999
Revenues from resort operations for the three months ended April 28, 2000
were $65,415,000, an increase of $8,624,000, or 15%, from the Company's resort
operations revenues for the three months ended April 30, 1999. There were no
revenues generated by real estate and other operations during either the three
months ended April 29, 2000 or April 30, 1999.
For the 1999/00 ski season, the Company introduced new attractively priced
season pass products at Sierra, Bear Mountain, Waterville Valley, Mt. Cranmore,
Loon Mountain, the Summit and Grand Targhee, which were designed to stimulate
demand, attract greater market share and take advantage of off-peak capacity.
This initiative resulted in an increase of approximately $7,400,000 in the
total amount of season pass products sold for the 1999/00 season when compared
to the 1998/99 season. Revenues from these season pass products are recognized
ratably over the ski season, and increased by approximately $4,300,000 for the
three months ended April 28, 2000 as compared to the 1999 period.
Total skier visits for the three months ended April 28, 2000 were 1,434,000,
an increase of 47,000 skier visits, or 3%, over the 1999 period. The Company
believes that the increase was primarily due to the effect of the new season
pass products designed to stimulate demand and attract greater market share.
For the 1999/00 ski season, the Company arranged for four separate paid
skier visit insurance policies covering its Lake Tahoe resorts (Northstar and
Sierra), its New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon
Mountain), Bear Mountain and the Summit. The policies have a deductible for the
initial decline from targeted paid skier visit levels, coinsurance for a
portion of the next 10% decline in paid skier visits, and stated maximum
coverage levels. The policies provide coverage for substantially all risks
relating to paid skier visit levels, including adverse weather conditions, road
and airport closures, downturns in the economy, strikes and most other events
that reduce the targeted number of paid skier visits. For the three months
ended April 28, 2000, the Company has recorded resort operating revenues of
$1,600,000 for expected claims proceeds attributable to slight declines in paid
skier visits from targeted levels during the second quarter of 2000, as the
Company had previously met the deductible levels on the Lake Tahoe, New
Hampshire and Bear Mountain policies due to significant declines in paid skier
visits experienced during the first quarter of 2000. The Company is currently
in the process of filing claims under the Lake Tahoe, New Hampshire and Bear
Mountain policies, which are subject to the review and approval of the
insurance underwriters.
Resort operating revenues, excluding the effects of paid skier visit
insurance, increased by $7,024,000, or 12%, for the three months ended April
28, 2000 as compared to the 1999 period. Revenues for Northstar increased by
$1,371,000 due primarily to improvements in per skier revenue yields. Revenues
for Sierra increased by $1,037,000 due to higher total skier visits and season
pass revenues. Bear Mountain generated an increase in revenues of $959,000 due
principally to improved yields. Waterville Valley's revenues declined slightly
<PAGE>
due primarily to the conversion of its retail operations to a concessionaire
arrangement for the 1999/00 season, partially offset by higher season pass
revenues. Revenues for Mt. Cranmore increased slightly due to yield
improvements. Loon Mountain's revenues increased by $1,099,000 due to improved
yields and an increase in total skier visits and season pass revenues. Revenues
for the Summit increased by $2,352,000 due primarily to increases in season
pass revenues. Revenues for Grand Targhee increased $296,000 due to increased
total skier visits.
Cost of sales for resort operations for the three months ended April 28,
2000 were $29,474,000, a decrease of $504,000, or 2%, as compared to the 1999
period. The net reduction was primarily due to the combined effects of the
following: (1) elimination of certain nonrecurring maintenance, operations,
snow removal and other costs at the Summit, (2) elimination of $600,000 in
retail costs of sales at Waterville Valley due to the conversion of the
resort's retail operations to a concessionaire arrangement for the 1999/00 ski
season, and (3) slightly increased cost of operations in the 2000 period due to
higher business volumes and revenues. Included in selling, general and
administrative expense for the three months ended April 28, 2000 were costs in
the amount of approximately $400,000 for professional and other fees associated
with a consent solicitation to holders of the Company's Senior Notes, which
expired by its terms on April 13, 2000. Excluding the consent solicitation
costs, selling, general and administrative expense for the three months ended
April 28, 2000 was $6,555,000, a decrease of $240,000, or 4%, as compared to
the 1999 period. The decrease was due to reduced corporate general and
administrative costs coupled with efforts to maintain marketing and sales costs
at historical levels at all of the Company's resorts.
Interest expense for the three months ended April 28, 2000 totaled
$4,416,000, a decrease of $304,000 from the Company's interest expense for the
three months ended April 30, 1999. The decrease in interest expense was
primarily the result of lower borrowing levels under the Company's Senior
Credit Facility, offset by slightly higher borrowing rates.
Due to the Company's lack of profitable history, the tax benefits of
operating losses are fully offset by a valuation reserve. Similarly, no income
tax benefit is expected for the year ended October 27, 2000 due to continued
operating losses. Accordingly, during the three months ended April 28, 2000, no
income tax provision has been provided.
"EBITDA" represents income from operations before depreciation and
amortization expense and the noncash cost of real estate sales. EBITDA for the
three months ended April 28, 2000 was $28,986,000, an increase of $8,968,000 or
45% over EBITDA of $20,018,000 for the three months ended April 30, 1999.
Six Months Ended April 28, 2000 as Compared to the Six Months Ended April
30, 1999
Total revenue for the six months ended April 28, 2000 was $110,129,000, an
increase of $7,039,000, or 7%, over the Company's revenues for the six months
ended April 30, 1999. Revenues from resort operations for the six months ended
April 28, 2000 were $109,284,000, an increase of $6,194,000, or 6%, as compared
to the 1999 period. Revenues from real estate operations for the six months
ended April 28, 2000 were $845,000, which was due to the closing of escrow on
three lots within Phases 4 and 4A of the Big Springs development at Northstar.
For the 1999/00 ski season, the Company introduced new attractively priced
season pass products at Sierra, Bear Mountain, Waterville Valley, Mt. Cranmore,
Loon Mountain, the Summit and Grand Targhee, which were designed to stimulate
demand, attract greater market share and take advantage of off-peak capacity.
This initiative resulted in an increase of approximately $7,400,000 in the
total amount of season pass products sold for the 1999/00 season when compared
to the 1998/99 season.
Due to the unfavorable weather and terrain conditions experienced by most of
the Company's resorts during the first half of the 1999/00 ski season, the
Company experienced significant declines in total skier visits for the 1999/00
season as compared to the 1998/99 season. Total skier visits for the six months
ended April 28, 2000 were 2,287,000, a decrease of 146,000 skier visits from the
1999 period.
For the 1999/00 ski season, the Company arranged for four separate paid
skier visit insurance policies covering its Lake Tahoe resorts (Northstar and
Sierra), its New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon
Mountain), Bear Mountain and the Summit. For the six months ended April 28,
2000, the Company has recorded a receivable and resort operating revenues of
$6,600,000 for expected claims proceeds attributable to the decline from
targeted paid skier visits for the 1999/00 season. The Company is currently in
the process of filing claims under the Lake Tahoe, New Hampshire and Bear
Mountain policies, which are subject to the review and approval of the
insurance underwriters.
<PAGE>
Resort operating revenues, excluding the effects of paid skier visit
insurance, were $102,684,000 for the six months ended April 28, 2000, a
decrease of $406,000 from the 1999 period. Revenues for Northstar, Sierra and
Bear Mountain declined by $1,195,000, $1,544,000 and $914,000, respectively,
due to a decline in total skier visits, partially offset by improvements in per
skier revenue yields for these resorts and higher season pass revenues at
Sierra and Bear Mountain. Waterville Valley's revenues declined by $1,298,000
due to the conversion of its retail operations to a concessionaire arrangement
for the 1999/00 season and lower total skier visits, offset by improved yields
and higher season pass revenues. Revenues for Mt. Cranmore were consistent with
the prior period, as improved yields offset the impact of reduced total skier
visits. Loon Mountain generated increased revenues of $1,411,000 due to
improved yields and higher season pass revenues. Revenues for the Summit
increased by $2,815,000 due to increases in season pass revenues and improved
yields. Grand Targhee generated slightly increased revenues due to higher total
skier visits.
Cost of sales for resort operations for the six months ended April 28, 2000
were $55,619,000, a decrease of $3,648,000, or 6%, as compared to the 1999
period. The decline was primarily due to the combined effects of the following:
(1) lower business volumes and aggressive variable cost management at most of
the resorts during the first quarter of 2000, (2) elimination of certain
nonrecurring maintenance, operations, snow removal and other costs at the
Summit, and (3) elimination of $1,000,000 in retail costs of sales at
Waterville Valley due to the conversion of the resort's retail operations to a
concessionaire arrangement for the 1999/00 ski season. Included in selling,
general and administrative expense for the three months ended April 28, 2000
were costs in the amount of approximately $400,000 for professional and other
fees associated with a consent solicitation to holders of the Company's Senior
Notes, which expired by its terms on April 13, 2000. Excluding the consent
solicitation costs, selling, general and administrative expense for the six
months ended April 28, 2000 was $13,205,000, a decrease of $661,000, or 5%, as
compared to the 1999 period. The decrease was due to reduced corporate general
and administrative costs coupled with efforts to maintain marketing and sales
costs at historical levels at all of the Company's resorts.
Cost of sales for real estate operations was $333,000 for the three lot
closings which occurred during the 2000 period, including $331,000 of noncash
cost of real estate sales.
Interest expense for the six months ended April 28, 2000 totaled $9,241,000,
a decrease of $447,000 from the Company's interest expense for the six months
ended April 30, 1999. The decrease in interest expense was primarily the result
of lower borrowing levels under the Company's Senior Credit Facility, offset by
slightly higher borrowing rates.
Due to the Company's lack of profitable history, the tax benefits of
operating losses are fully offset by a valuation reserve. Similarly, no income
tax benefit is expected for the year ended October 27, 2000 due to continued
operating losses. Accordingly, during the six months ended April 28, 2000, no
income tax provision has been provided.
EBITDA for the six months ended April 28, 2000 was $40,903,000, an increase
of $10,946,000 or 37% over EBITDA of $29,957,000 for the six months ended April
30, 1999.
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, as amended and restated on
January 28, 1999 and May 18, 1999, currently provides for borrowing
availability of up to $25 million during the term of such facility, which
expires 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 Fleet
National Bank, for a period of 60 consecutive days each year commencing between
February 1 and February 28. 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 and to build retail and other inventories prior to the
start of the skiing season and for other cash requirements. As of April 28,
2000, outstanding borrowings under the Senior Credit Facility totaled
approximately $6.0 million.
<PAGE>
On November 17, 1999, the Company, through its wholly-owned subsidiary,
Trimont Land Company ("TLC"), consummated the sale of certain single family
development property located at Northstar (the "Unit 7 and 7A Development") to
Trimont Land Holdings, Inc. ("TLH"), a wholly-owned subsidiary of Parent and an
affiliate of the Company, for an aggregate sales price of $7,050,000, subject
to adjustment as described below. The consideration paid to TLC consisted of
$6,000,000 in cash and a promissory note (the "TLH Note") for a minimum of
$1,050,000. The proceeds of the sale were applied against the outstanding
borrowings under the Senior Credit Facility in order to provide the Company
with additional liquidity for early 1999/00 ski season operations. Under the
terms of the TLH Note, TLC will receive the greater of (a) $1,050,000 plus
accrued interest at 7% per annum, or (b) the Net Cash Proceeds of the resale of
the lots within the Unit 7 and 7A Development. "Net Cash Proceeds" is defined
as gross proceeds received by TLH from the subsequent resale of the lots, after
deduction for (1) the proceeds applied to repay any indebtedness incurred by
TLH in connection with its financing of the purchase of the lots, (2) any fees
or other costs incurred by TLH in connection with its financing of the purchase
or sales of the lots, and (3) any corporate overhead costs incurred by TLH
attributable to the purchase, maintenance, marketing or sale of the lots. The
TLH Note is prepayable at any time, and is due on the earlier to occur of
January 30, 2001 or the date on which the last of the lots owned by TLH has
been sold. Pursuant to the terms of the sale, TLC has (1) retained the
obligation to complete the scheduled construction of the development in
accordance with the tentative site development plan, and (2) an option to
repurchase the Unit 7 and 7A Development from TLH. Northstar will recognize
revenue and related cost of sales for these real estate transactions upon the
substantial completion of construction and the close of escrow for the sales
between TLH and third party buyers.
The Company had a net working capital deficit of $21.9 million as of April
28, 2000 (including $6.0 million in outstanding borrowings under the Senior
Credit Facility, and excluding $3.9 million of unearned revenue and deposits
from resort operations for deferred season pass and loyalty membership product
sales, lodging deposits, prepaid ticket vouchers and other advance product
sales, which will generally not require cash spending to settle such
liabilities), which will negatively affect liquidity during the remainder of
2000.
The Company generated cash from operating activities of $28.1 million for
the six months ended April 28, 2000 as compared to $19.8 million for the six
months ended April 30, 1999. The increase is principally due to the Company's
improved operating results for the six months ended April 28, 2000 as compared
to the 1999 period and the sale of the Unit 7 and 7A Development to TLH as
previously discussed, partially offset by the increase in insurance proceeds
receivable for expected claims under paid skier visit insurance policies.
Cash used in investing activities totaled $7.9 million and $12.9 million for
the six months ended April 28, 2000 and April 30, 1999, respectively. The
results for the 2000 and 1999 periods primarily reflect capital expenditures
for the purchase of property and equipment.
Cash used in financing activities totaled $20.0 million and $6.7 million for
the six months ended April 28, 2000 and April 30, 1999, respectively. The
results for the 2000 and 1999 periods primarily reflect repayments on the
Senior Credit Facility and long-term debt.
The Company's capital expenditures for property and equipment during the six
months ended April 28, 2000 were approximately $10.0 million (including $2.8
million of equipment acquired through capital lease arrangements and other
debt). Based on the Company's existing operations, management anticipates that
capital expenditures for property and equipment during the last six months of
fiscal 2000 and fiscal 2001 will be approximately $20 million to $21 million in
the aggregate, including approximately $8 million in resort maintenance. 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 for the Company's Senior Notes and borrowings under the Senior
Credit Facility.
There were no significant commitments for future capital expenditures at
April 28, 2000, except for an early buy-out option for the purchase of three
high speed detachable quad lifts that were installed at the Summit and Bear
Mountain at the start of the 1998/99 ski season. The lifts were originally
obtained under an operating lease arrangement. On May 2, 2000, the Company
funded the early buy-out option, which required a payment of approximately $4.5
million to purchase the lifts.
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
<PAGE>
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. As a result of the Company's liquidity constraints, it may be
required to defer or abandon certain of its capital expenditure projects.
With respect to the Company's potential real estate development
opportunities, management believes that such efforts would enhance ski-related
revenues and 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, among other things, 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 non-guarantor, 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 Senior Credit Facility also requires the Company to maintain specified
consolidated financial ratios and satisfy certain consolidated financial tests.
The Company's ability to meet these financial covenants may be affected by
events beyond its control, and there can be no assurance that the Company will
meet those covenants.
The Company is involved in continuing discussions with East West Partners,
Inc., a Colorado based real estate development firm, for the proposed sale of
certain developmental real estate consisting of approximately 500 acres of land
at Northstar. Any proposed transaction would be subject to a number of closing
conditions and requirements, including (1) required consent of the Company's
lender under the Senior Credit Facility, (2) limitations on asset sales and
other provisions under the Indenture for the Senior Notes, (3) completion of
title evaluations and subdivision requirements to effect the transfer of the
subject property, and (4) other normal and customary closing conditions.
On March 21, 2000, the Company and GT Acquisition I, LLC ("GT Acquisition"),
an entity formed and controlled by the Chairman and Chief Executive Officer of
the Company, entered into an Asset Purchase Agreement pursuant to which the
Company agreed to sell to GT Acquisition all of the assets associated with the
Grand Targhee resort for $11 million in cash, subject to certain adjustments.
The sale of the Grand Targhee resort to GT Acquisition is anticipated to close
in June 2000. At the closing of the transaction, GT Acquisition will also
assume all liabilities relating to the Grand Targhee resort.
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, cash proceeds of the Grand Targhee sale and potential divestitures
of other real estate and non-strategic assets, together with borrowing
availability, will be adequate to fund the interest requirements on the Senior
<PAGE>
Notes and the Company's other cash operating and debt service requirements over
the next twelve months. In order to focus the Company's resources on attractive
investment opportunities at certain of its resorts and to satisfy short-term
and long-term liquidity requirements, the Company may in the future consider
divestitures of non-strategic assets, including resorts, if such transactions
can be completed on favorable terms.
For the twelve months ended April 28, 2000, the Company's ratio of EBITDA
before unusual items to interest expense was 2.15, and as of April 28, 2000,
the ratio of the Company's total debt to EBITDA before unusual items for the
last twelve months was 3.73. For the twelve months ended April 28, 2000, the
Company's earnings would have been inadequate to cover fixed charges by $7.8
million. Any decline in the Company's expected operating performance or the
failure to sell real estate at Northstar or achieve planned divestitures of
other real estate and non-strategic assets, in each case on the terms
anticipated, could have a material adverse effect on the Company's financial
position and liquidity. In such case, the Company could be required to attempt
to refinance all or a portion of its existing debt, sell other assets or obtain
additional financing. No assurance can be given of the Company's ability to do
so or the terms of any such transaction. In addition, the Company would require
additional financing for expansion of its existing properties or for future
acquisitions, if any. No assurances can be given that any such financing would
be available on commercially reasonable terms. See "Forward-Looking Statements"
herein.
The Company believes that inflation has had little effect on its results of
operations and any impact on costs has been largely offset by increased
pricing.
Seasonality
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of each
fiscal year. Management considers it essential to achieve optimal operating
results during key holidays and weekends during this period. The Company's
results of operations are, in turn, significantly dependent on favorable
weather conditions and other factors beyond the Company's control. The Company
has sought to mitigate the downside risk of its seasonal business by purchasing
paid skier visit insurance policies for the 1999/00 ski season. However, these
policies would not fully protect the Company against poor weather conditions or
other factors that adversely affect the Company's operations.
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 Term Special Use Permits issued by the United
States Forest Service. The Bear Mountain permit expires in 2020, the Sierra
permit expires in 2039, the Waterville Valley permit expires in 2034, the
Summit permit expires in 2032 and the Grand Targhee permit expires 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. These authorizations and limitations were incorporated
into the final order issued by the District Court on December 11, 1998, and
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 this NEPA review with
<PAGE>
its evaluation and analysis of the existing snowmaking pipeline. On December
13, 1999, the United States Forest Service announced that it expects to issue
the draft NEPA documentation by June 2000 and the final NEPA documentation by
November 2000.
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 March 10, 1998, the District Court issued a series of
further orders which, among other things, directed the United States Forest
Service to re-evaluate the pipeline and enjoined 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,
which 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 allowing Loon Mountain 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 issued a final order,
which dismissed the consolidated lawsuit concerning the pipeline in light of
the United States Forest Service's decision to conduct further review of the
pipeline, and specified that the limitation on pipeline usage will continue
until that review is completed and a new decision is issued. On January 28,
2000, the District Court modified the final order to allow Loon Mountain to
convert up to 190 million gallons of water into snow during the 1999/2000 ski
season subject to certain additional conditions.
Existing use of Loon Mountain is authorized under a Term Special Use Permit,
which covers facilities and expires in 2006; existing non-skiing use of Loon
Mountain's South Mountain area is authorized under an annual permit issued by
the United States Forest Service that is subject to reissuance 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 Term Special Use Permit. At that time, the conditions
imposed by the two District Court orders 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 Term Special Use Permits, the
Company is required to pay fees to the United States Forest Service. The fees
range from 1.5% to approximately 4.0% of certain revenues, with the rate
generally rising with increased revenues. 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
29, 1999 were $1,189,000.
The Company believes that its relations with the United States Forest
Service are good, and, to the best of its knowledge, no Term 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 Term Special Use Permit upon 180-days notice if, in planning for the uses
of the national forest, the public interest requires termination. Term 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
materially adversely affect operations.
<PAGE>
The operations at the resorts require numerous permits and approvals from
federal, state and local authorities including permits relating to land use,
ski lifts and the sale of alcoholic beverages. 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.
Except for certain permitting and environmental compliance matters relating
to the Loon Mountain resort, 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.
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 snowmaking
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 being 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 resolved.
This allows continued service to Bear Mountain on an uncontested basis during
the moratorium period. No assurance can be made regarding the outcome or timing
of resolution of this matter.
Pursuant to the previously described decision of the First Circuit and the
order of the District Court, Loon Mountain applied for and was issued, by the
Environmental Protection Agency ("EPA"), 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.
Certain regulatory approvals associated with the new snowmaking pipeline at
Loon Mountain impose minimum stream flow requirements on the Loon Mountain
resort. These requirements will compel the 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. No assurances can be given that such regulatory approvals will be
obtained or that the Company will have the financial resources to complete such
construction.
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, Loon Mountain worked with the EPA to remove the alleged fill and
implement certain erosion control measures. On January 15, 1998, an individual
notified the EPA, Loon Mountain, 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
<PAGE>
fill had been removed and that the EPA does not believe there is a continuing
violation at the site. On January 18, 2000, in papers filed in connection with
the District Court's modification of the final order in the pipeline
litigation, the same individual again alleged that Loon Mountain had previously
filled wetlands in violation of the CWA. The Company does not have any further
notice of any threatened lawsuit or other action regarding this matter.
Forward-Looking Statements
Except for historical matters, the matters discussed in Part I, Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward-looking statements that involve risks and
uncertainties. The forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on management's current views and
assumptions and involve risks and uncertainties that could significantly affect
expected results. The Company wishes to caution the reader that certain
factors, including those described below, could significantly and materially
affect the Company's actual results, causing results to differ materially from
those in any forward-looking statement. These factors include, but are not
limited to: uncertainty as to future financial results, the substantial
leverage and liquidity constraints of the Company, the capital intensive nature
of development of the Company's ski resorts, uncertainties associated with
obtaining financing for future real estate projects and to undertake future
capital improvements, demand for and costs associated with real estate
development, the discretionary nature of consumers' spending for skiing and
resort real estate, regional and national economic conditions, the successful
or unsuccessful integration of acquired businesses, weather conditions, natural
disasters (such as earthquakes and floods), industry competition, governmental
regulation and other risks associated with expansion and development, and the
occupancy of leased property and property used pursuant to the United States
Forest Service permits.
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 29, 1999 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 will defend such lawsuit on behalf of
Fibreboard and Bear Mountain, Inc.
In connection with the merger with Loon Mountain Recreation Corporation
("LMRC"), certain shareholders of LMRC (the "LMRC Shareholder Plaintiffs")
filed a lawsuit against LMRC and its former directors alleging breach of
fiduciary duty and against the Company alleging that the Company failed to
comply with the New Hampshire Security Takeover Disclosure Act (the "Takeover
Statute") in connection with the transaction. The two lawsuits were
consolidated in the Superior Court of Grafton County, New Hampshire. Prior to
the filing of the lawsuit against the Company, the Company received a "no
action" order from the Bureau of Securities Regulation, New Hampshire
Department of State (the "Bureau") finding that the Takeover Statute was
inapplicable to the proposed merger. The LMRC 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 LMRC Shareholder Plaintiffs'
petition and filed a motion to dismiss the LMRC 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. LMRC
Shareholder Plaintiffs appealed the dismissal to the New Hampshire Supreme
Court and oral arguments were heard in January of 2000; the New Hampshire
Supreme Court's decision has not yet been entered. Potential remedies under the
Takeover Statute include money damages and rescission of the transaction. While
the Company does not believe the LMRC Shareholder Plaintiffs will prevail in
their actions, no assurances can be made regarding the outcome of these
actions.
LMRC Shareholder Plaintiffs' breach of fiduciary duty action against LMRC,
Parent and its former directors remains pending and discovery is being
conducted. The matter has been consolidated for trial with the Corporation Act
case described below; trial has not yet been set. The LMRC Shareholder
Plaintiffs were given leave by the court to amend their complaint to seek money
damages against the Company, LMRC and its former directors. If the LMRC
Shareholder Plaintiffs are successful in obtaining a judgment against the
former LMRC directors, the Company may have certain obligations to indemnify
the former directors pursuant to the former LMRC by-laws. A brother of one of
the LMRC Shareholder Plaintiffs, who owned 125 shares of LMRC common stock and
nine shares of LMRC preferred stock, recently filed a Motion to Intervene in
this matter and the Company has objected; such matter is awaiting decision by
the court. While the Company does not believe LMRC Shareholder Plaintiffs will
prevail in this lawsuit, no assurances can be made regarding the outcome of
this litigation.
Also in connection with the merger with LMRC, the LMRC Shareholder
Plaintiffs exercised dissenters' rights under the New Hampshire Business
Corporation Act (the "Corporation Act"). Under the statutory procedure for
settling the LMRC Shareholder Plaintiffs' dissenters' rights, LMRC paid the
<PAGE>
plaintiffs an aggregate of $34,436, or $30.61 per share, as its estimate of the
fair value of their 1,125 shares. The LMRC 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 the LMRC Shareholder Plaintiffs' shares in LMRC. Discovery in the case
is pending and the matter has been consolidated for trial with the fiduciary
duty case described above; trial has not yet been set. While the Company
believes that the amount paid to the LMRC Shareholder Plaintiffs 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 LMRC Shareholder Plaintiffs' 1,125 shares.
In 1995, an individual sued the United States Forest Service (the "Forest
Service") in the United States District Court for the District of New Hampshire
(the "District Court") alleging that the Forest Service had violated the
National Environmental Policy Act ("NEPA"), the Clean Water Act ("CWA"), and an
executive order in approving improvements to facilities on Loon Mountain and an
expansion of the Loon Mountain resort on to South Mountain. LMRC and an
environmental group intervened in the lawsuit. The District Court entered
summary judgment for the Forest Service on all claims and the original
plaintiff, along with the intervening environmental group, (collectively or
individually, the "Environmental Plaintiffs") appealed. In December 1996, the
United States Court of Appeals for the First Circuit (the "First Circuit")
reversed the District Court decision and ruled that the Forest Service must
reconsider certain environmental issues under NEPA and that LMRC must obtain a
discharge permit under the CWA for certain discharges from its snowmaking
system. The District Court then entered a stipulated order that: enjoins LMRC
from any further construction implementing the project with certain limited
exceptions; imposes various restrictions on LMRC's existing snowmaking
operations and requires LMRC to apply for a CWA discharge permit for discharges
of water and any associated pollutants associated with its snowmaking; allows
existing construction to remain in place and existing uses to continue;
requires LMRC to undertake certain erosion control and monitoring measures;
requires the Forest Service to prepare supplemental NEPA documentation on the
improvements and expansion; and reserves the right to require restoration of
areas developed under the original Forest Service approval to their preexisting
condition if not ultimately re-approved by the Forest Service. This order
remains in effect until the supplemental NEPA process is completed. The Forest
Service has announced it expects to issue draft NEPA documentation by June 2000
and final NEPA documentation by November 2000. The Company can give no
assurance regarding the timing or outcome of such process.
The Environmental Plaintiffs also filed a motion asking the District Court
to impose against LMRC a CWA civil penalty of $5,550,125 and attorney's fees
and costs in connection with LMRC's discharges into Loon Pond during its
snowmaking operations for the 1996/97 ski season and prior years. The discharge
at issue involved 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's fees under the CWA
and one of the Environmental Plaintiffs appealed to the First Circuit. The
District Court has previously stayed the appeal to permit settlement
negotiations and the parties have jointly requested the stay continue through
June 19, 2000, two days after which the parties are required to file a status
report with the First Circuit. 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, but was further modified to permit
LMRC to use 190 million gallons of water for snowmaking during the 1999/2000
ski season subject to certain additional conditions.
<PAGE>
ITEM 5. OTHER INFORMATION
The holders of the outstanding securities of Parent have agreed to a
restructuring of Parent's existing capital structure (the "Capital
Restructuring").
Currently, Parent has outstanding Class A and Class B common stock, warrants
to purchase Class B common stock and Parent senior notes ("Parent Notes"). The
Class B common stock is non-voting, and each share of Class B common stock is
convertible into one share of Class A common stock. Pursuant to the Capital
Restructuring, all of Parent's outstanding Class A and Class B common stock
will be converted into Parent Notes in a principal amount equal to 20% of the
paid-in capital relating thereto. The Parent Notes to be issued in connection
with the Capital Restructuring will have the same terms as the existing Parent
Notes. In addition, new shares of Class A and Class B common stock of Parent
will be issued to the holders of Parent Notes on a pro rata basis in proportion
to the respective ownership of Parent Notes. Under the proposed restructuring
George N. Gillett, Jr. and affiliates will continue to own 100% of the
outstanding Class A common stock. The closing of the Capital Restructuring is
subject to completion of final documentation and certain closing conditions. It
is anticipated that the closing of the Capital Restructuring will occur in June
2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
27.1 Financial Data Schedule
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated March 28, 2000,
reporting under Item 5 thereof the Company's decision on March 21, 2000 to
enter into an Asset Purchase Agreement pursuant to which the Company agreed to
sell the Grand Targhee resort to GT Acquisition I, LLC.
<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
(Principal Financial Officer)
By: /s/ BRIAN J. POPE
----------------------------------------
Brian J. Pope
Vice President of Accounting and Finance,
(Principal Accounting Officer)
June 12, 2000
