===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 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 August 25, 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>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
July 28, October 29,
2000 1999
--------------- ---------------
ASSETS (Unaudited)
Current assets:
Cash ....................................... $ 852 $ 461
Accounts receivable, net of allowance of
of $47 and $65, respectively............... 1,215 1,709
Insurance proceeds receivable............... 6,600 1,799
Inventories ................................ 2,001 2,786
Prepaid expenses and other current
assets .................................... 727 1,032
--------------- ---------------
Total current assets ......................... 11,395 7,787
Property and equipment, net .................. 144,448 152,316
Real estate held for development and sale .... 9,074 8,851
Deferred financing costs, net of
accumulated amortization of $3,881 and
$3,078, respectively ....................... 5,570 6,071
Timber rights and other assets ............... 7,840 7,246
Goodwill, net of accumulated amortization
of $8,353 and $6,581, respectively ......... 26,136 28,075
--------------- ---------------
Total assets ................................. $ 204,463 $ 210,346
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Senior credit facility .................... $ 10,947 $ 23,035
Current portion of long-term debt ......... 1,475 1,468
Accounts payable and accrued liabilities .. 31,863 28,593
--------------- ---------------
Total current liabilities ................... 44,285 53,096
Long-term debt .............................. 136,682 136,483
Other long-term liabilities ................. 25 50
Commitments and contingencies
Preferred stock of subsidiary; 28,000
shares authorized, 14,000 shares issued
and outstanding at July 28, 2000
(17,000 shares at October 29, 1999);
liquidation preference and redemption
value of $1,763 at July 28, 2000 .......... 1,763 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 ....................... (50,292) (53,416)
--------------- ---------------
Total shareholder's equity .................. 21,708 18,584
--------------- ---------------
Total liabilities and shareholder's
equity .................................... $ 204,463 $ 210,346
=============== ===============
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended Nine Months Ended
--------------------- ---------------------
July 28, July 30, July 28, July 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(Unaudited)
Revenue:
Resort operations.......... $4,331 $4,113 $113,615 $107,203
Real estate and other...... 748 332 1,593 332
--------- --------- --------- ---------
Total revenue................ 5,079 4,445 115,208 107,535
Operating expenses:
Cost of sales - resort
operations................ 6,779 6,835 62,398 66,102
Cost of sales - real estate
and other................. 375 198 708 198
Depreciation and depletion. 5,180 4,750 15,204 14,353
Amortization of goodwill and
other intangible assets... 601 596 1,807 1,786
Selling, general and
administrative expense.... 3,867 4,072 17,472 17,938
--------- --------- --------- ---------
Total operating expenses..... 16,802 16,451 97,589 100,377
--------- --------- --------- ---------
Operating income(loss)....... (11,723) (12,006) 17,619 7,158
Other expense:
Interest expense........... (4,582) (4,724) (13,823) (14,412)
Amortization of deferred
financing costs............ (328) (227) (803) (863)
Gain on sale of Grand
Targhee.................... 389 - 389 -
Other expense.............. (96) (20) (117) (195)
--------- --------- --------- ---------
Total other income
(expense),net.............. (4,617) (4,971) (14,354) (15,470)
--------- --------- --------- ---------
Income(loss)before minority
interest.................. (16,340) (16,977) 3,265 (8,312)
Minority interest............ (42) (54) (141) (168)
--------- --------- --------- ---------
Net income(loss)............. $ (16,382) $(17,031) $3,124 $(8,480)
========= ========= ========= =========
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
-------------------------------
July 28, July 30,
2000 1999
------------- -------------
(Unaudited)
Cash flows from operating activities:
Net income(loss)............................... $ 3,124 $ (8,480)
Adjustments to reconcile net income(loss) to
net cash provided by operating activities:
Depreciation and depletion.................. 15,204 14,353
Amortization of goodwill and other
intangible assets ......................... 1,807 1,786
Noncash cost of real estate sales .......... 351 -
Amortization of deferred financing costs ... 803 863
Minority interest .......................... 141 168
Gain on sale of Grand Targhee resort........ (389) -
Changes in operating assets and liabilities,
net of divestiture:
Accounts receivable ....................... 348 238
Insurance proceeds receivable.............. (4,801) -
Inventories ............................... 499 1,700
Prepaid expenses and other current assets.. 203 326
Accounts payable and accrued liabilities... 2,858 10,660
Other long-term liabilities ............... (25) (95)
------------- -------------
Net cash provided by operating activities...... 20,123 21,519
Cash flows from investing activities:
Capital expenditures for property and
equipment .................................... (14,533) (12,107)
Proceeds on sale of Grand Targhee resort....... 11,422 -
Acquisition of businesses ..................... - (661)
Capital expenditures for real estate
held for development and sale ................ (574) (1,142)
Other assets .................................. (576) (780)
------------- -------------
Net cash used in investing activities ......... (4,261) (14,690)
Cash flows from financing activities:
Net repayments of senior credit facility ...... (12,088) (3,836)
Principal payments of long-term debt .......... (2,570) (1,584)
Deferred financing costs ...................... (302) (506)
Purchase of preferred stock of subsidiary
and payment of dividends ..................... (511) (544)
------------- -------------
Net cash used in financing activities ......... (15,471) (6,470)
------------- -------------
Increase in cash .............................. 391 359
Cash at beginning of period ................... 461 625
------------- -------------
Cash at end of period ......................... $ 852 $ 984
============= =============
See accompanying notes.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 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") 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 July 28, 2000 and
for the three and nine month periods ended July 28, 2000 and July 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 July
28, 2000, and its operating results and cash flows for the three and nine month
periods ended July 28, 2000 and July 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.
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 was consummated on June 20, 2000. At the closing of the
transaction, GT Acquisition also assumed all liabilities relating to the Grand
Targhee resort. The sale of the Grand Targhee resort resulted in an estimated
gain of $389,000 during the three and nine month periods ended July 28, 2000.
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.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 nine months ended July 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 has filed
claims under the Lake Tahoe, New Hampshire and Bear Mountain policies, which
are subject to the review and approval of the insurance underwriters.
3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
July 28, October
2000 29, 1999
-------------- --------------
(In thousands)
Accounts payable.................... $6,465 $10,072
Accrued compensation and benefits... 3,564 3,279
Taxes other than income............. 799 1,099
Unearned revenue and deposits
- resort operations................. 5,240 9,887
Unearned revenue - real estate
operations.......................... 7,050 -
Interest............................ 6,359 2,492
Other............................... 2,386 1,764
-------------- --------------
$31,863 $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 July 28, 2000 were approximately $10.9 million, which bore interest
at an annual rate of 9.5% on such date.
Long-Term Debt
As of July 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
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(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
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 significant 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 nine months ended July 28, 2000, the Company entered into
long-term debt and capital lease obligations of approximately $2.8 million 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) compliance with the Company's
other debt agreements, (3) completion of title evaluations and subdivision
requirements to effect the transfer of the subject property, and (4) other
normal and customary closing conditions.
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 nine months ended July 28, 2000, no
income tax provision has been provided.
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 Nine Months Ended
----------------------- -----------------------
July 28, July 30, July 28, July 30,
2000 1999 2000 1999
---------- ----------- ----------- ----------
(In thousands)
Revenue:
Resort operations.... $4,331 $4,113 $113,615 $107,203
Real estate and
other.............. 748 332 1,593 332
---------- ----------- ----------- -----------
$5,079 $4,445 $115,208 $107,535
========== =========== =========== ===========
Operating income:
Resort operations.... $(11,911) $(12,007) $16,919 $7,157
Real estate and
other.............. 188 1 700 1
---------- ----------- ----------- -----------
$(11,723) $(12,006) $17,619 $7,158
========== =========== =========== ===========
July 28, October 29,
2000 1999
------------- -------------
(In thousands)
Identifiable assets:
Resort operations.................. $182,789 $188,870
Real estate and other.............. 13,387 13,363
------------- -------------
$196,176 $202,233
============= =============
<PAGE>
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of combined operating income (loss) for Resort
Operations and Real Estate and Other to consolidated income
(loss) before minority interest is as follows:
Three Months Ended Nine Months Ended
---------------------- --------------------
July 28, July 30, July 28, July 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands)
Operating income(loss) for
reportable segments........ $(11,723) $(12,006) $17,619 $7,158
Interest expense........... (4,582) (4,724) (13,823) (14,412)
Amortization of deferred
financing costs............ (328) (227) (803) (863)
Gain on sale of Grand
Targhee resort............. 389 - 389 -
Other expense.............. (96) (20) (117) (195)
--------- --------- --------- ---------
Income(loss) before
minority interest.......... $(16,340) $(16,977) $3,265 $(8,312)
========= ========= ========= =========
<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 and Summit resorts are less
weather-sensitive based on their historical natural snowfall, averaging
approximately 326, 514 and 500 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.
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. Moreover, the
Company generates revenues from real estate and timber sales at Northstar,
although the amount and timing of these revenues vary considerably.
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
Northeast experienced variable temperatures and a lack of significant natural
snowfall through the middle of January 2000. Conditions began to improve for
the Company's 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. The Company sold the assets associated with the Grand
Targhee resort on June 20, 2000. The operations relating to Grand Targhee are
included in the Company's operating results through such date.
Three Months Ended July 28, 2000 as Compared to the Three Months Ended
July 30, 1999
Total revenue for the three months ended July 28, 2000 was $5,079,000, an
increase of $634,000, or 14%, over the Company's revenues for the three months
ended July 30, 1999. Revenues from resort operations for the 2000 period were
$4,331,000, an increase of $218,000, or 5%, from the Company's resort
operations revenues for the 1999 period. The increase in resort operations
revenue was primarily due to improved summer business at Northstar, partially
offset by the impact of the sale of the Grand Targhee resort on June 20, 2000
and lower sales at Loon Mountain in the 2000 period due to unseasonably cool
and wet summer weather in the Northeast and the timing of a special event.
Revenues from real estate sales were $211,000 for the three months ended July
28, 2000 due to the sale of the final lot within Phases 4 and 4A of the Big
Springs development at Northstar. Timber operations contributed revenues of
$537,000 in the 2000 period as compared to $332,000 in the 1999 period.
Cost of sales for resort operations for the three months ended July 28,
2000 were $6,779,000, a decrease of $56,000, or 1%, as compared to the 1999
period. Selling, general and administrative expense for the three months ended
July 28, 2000 was $3,867,000, a decrease of $205,000, or 5%, as compared to the
1999 period. The Company's continued focus on cost containment and lower
corporate costs were the principal contributors to the reductions in operating
costs and selling, general and administrative expense. Resort operations costs
were also lower due to the effect of the sale of the Grand Targhee resort on
June 20, 2000.
Cost of sales for real estate and timber operations for the three months
ended July 28, 2000 were $375,000 (including noncash cost of real estate sales
of $20,000), an increase of $177,000 over the 1999 period. Increased timber
harvesting and higher associated harvesting costs were the primary causes of
the increase.
Interest expense for the three months ended July 28, 2000 totaled
$4,582,000, a decrease of $142,000 from the Company's interest expense for the
three months ended July 30, 1999. The decrease in interest expense was 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 July 28, 2000, no
income tax benefit has been provided.
"EBITDA" represents income from operations before depreciation, depletion
and amortization expense and the noncash cost of real estate sales. EBITDA loss
for the three months ended July 28, 2000 was $5,922,000, an improvement of
$738,000, or 11%, from the EBITDA loss of $6,660,000 for the three months ended
July 30, 1999.
<PAGE>
Nine Months Ended July 28, 2000 as Compared to the Nine Months Ended July
30, 1999
Total revenue for the nine months ended July 28, 2000 was $115,208,000, an
increase of $7,673,000, or 7%, over the Company's revenues for the nine months
ended July 30, 1999. Revenues from resort operations for the nine months ended
July 28, 2000 were $113,615,000, an increase of $6,412,000, or 6%, as compared
to the 1999 period. Revenues from real estate and other operations for the nine
months ended July 28, 2000 were $1,593,000, which reflects the closing of
escrow on the final four lots within Phases 4 and 4A of the Big Springs
development at Northstar and timber sales of $537,000.
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 1999/00
season were 2,287,000, a decrease of 146,000 skier visits from the 1998/99
season.
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), the New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon
Mountain), Bear Mountain and the Summit. For the nine months ended July 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 has filed 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, were $107,015,000 for the nine months ended July 28, 2000, a
decrease of $188,000 from the 1999 period. Revenues for Northstar declined by
$304,000 due to lower total skier visits, partially offset by higher per skier
revenue yields and improved summer business. Revenues for Sierra and Bear
Mountain declined by $1,535,000 and $935,000, respectively, due to a decline in
total skier visits, partially offset by improvements in per skier revenue
yields and higher season pass revenues. Waterville Valley's revenues declined
by $1,413,000 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 $1,251,000 due to improved yields and higher season pass revenues.
Revenues for the Summit increased by $2,748,000 due to increases in season pass
revenues and improved yields. Grand Targhee generated slightly increased
revenues during the winter season due to higher total skier visits, which was
offset by the effect of the sale of the resort on June 20, 2000.
Cost of sales for resort operations for the nine months ended July 28,
2000 was $62,398,000, a decrease of $3,704,000, 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 $1,100,000 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 nine months ended July 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 nine
months ended July 28, 2000 was $17,072,000, a decrease of $866,000, or 5%, as
compared to the 1999 period. The decrease was primarily 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.
Noncash cost of sales for real estate sales was $351,000 for the four lot
closings which occurred during the 2000 period. Cost of sales for timber
operations was $357,000 for the 2000 period, as compared to $198,000 for the
1999 period.
<PAGE>
Interest expense for the nine months ended July 28, 2000 totaled
$13,823,000, a decrease of $589,000 from the Company's interest expense for the
nine months ended July 30, 1999. The decrease in interest expense was 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 nine months ended July 28, 2000, no
income tax provision has been provided.
EBITDA (as defined above) for the nine months ended July 28, 2000 was
$34,981,000, an increase of $11,684,000 or 50% over EBITDA of $23,297,000 for
the nine months ended July 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 currently amended, 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
July 28, 2000, outstanding borrowings under the Senior Credit Facility totaled
approximately $10.9 million.
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 Booth Creek
Ski Group, Inc. ("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.
<PAGE>
The Company had a net working capital deficit of $27.7 million as of July
28, 2000 (including $10.9 million in outstanding borrowings under the Senior
Credit Facility, and excluding $5.2 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 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 $20.1 million for
the nine months ended July 28, 2000 as compared to $21.5 million for the nine
months ended July 30, 1999. The cash flow effect of the $11.6 million
improvement in net income for the 2000 period as compared to the 1999 period
was partially offset by the increase in insurance proceeds receivable during
the 2000 period for expected claims under paid skier visit insurance policies
and the timing of disbursements for accounts payable and accrued liabilities.
In addition, operating cash flows for the 1999 period reflect the benefit of
$8.5 million in cash proceeds from the sale of Phases 4 and 4A of the Big
Springs development from TLC to TLH on July 28, 1999, whereas the 2000 period
reflects the benefit of $6.0 million in cash proceeds from the sale of Unit 7
and 7A from TLC to TLH on November 17, 1999. Operating cash flows for the 1999
period also reflect the benefit of the liquidation of retail inventories at
Waterville Valley in anticipation of the conversion of the resort's retail
business to a concessionaire arrangement for the 1999/00 ski season.
Cash used in investing activities totaled $4.3 million and $14.7 million
for the nine months ended July 28, 2000 and July 30, 1999, respectively. The
results for the 2000 and 1999 periods primarily reflect capital expenditures
for the purchase of property and equipment. In addition, investing cash flows
for the 2000 period reflect $11.4 million in proceeds from the sale of the
Grand Targhee resort on June 20, 2000.
Cash used in financing activities totaled $15.5 million and $6.5 million
for the nine months ended July 28, 2000 and July 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
nine months ended July 28, 2000 were approximately $17.3 million (including
$2.8 million of equipment acquired through capital lease arrangements and other
debt). On May 2, 2000, the Company funded the early buy-out option in the
amount of approximately $4.5 million for the purchase of three 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 with annual lease payments of approximately $1.3 million per year.
Based on the Company's existing operations, management anticipates that
capital expenditures for property and equipment during the last three months of
fiscal 2000 and fiscal 2001 will be approximately $15 million in the aggregate,
including approximately $7 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.
Commitments for future capital expenditures at July 28, 2000 were
approximately $4.7 million, and primarily relate to the construction of a new
detachable quad chairlift and snowmaking system at Northstar, rental equipment
orders for the 2000/01 ski season and certain other projects.
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. 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
<PAGE>
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) compliance with the Company's
other debt agreements, (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 was consummated on June 20, 2000. At the closing of the
transaction, GT Acquisition also assumed 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 and the receipt of paid skier visit insurance
proceeds, 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 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 July 28, 2000, the Company's earnings would
have been inadequate to cover fixed charges by $7.2 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.
<PAGE>
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. However, these policies would not fully
protect the Company against poor weather conditions or other factors that
adversely affect the Company's operations. Moreover, no assurances can be given
that these policies will continue to be available on commercially reasonable
terms or at all.
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 skiing 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, 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 and the Summit permit
expires in 2032.
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 its evaluation and analysis of the existing
snowmaking pipeline. The United States Forest Service has stated that it
expects to issue the draft NEPA documentation in the Fall of 2000 and the final
NEPA documentation in the Spring of 2001.
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
<PAGE>
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.
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
<PAGE>
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 ("SCAQMD") 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. Alternatively, the regulations of the
SCAQMD may require the resort to utilize operational equipment that meets
certain emission standards, the effect of which is not currently determinable.
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 has 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
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 same individual has verbally
advised the Company that he still intends to initiate a lawsuit under the CWA
regarding the alleged wetland fill.
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
<PAGE>
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), availability and terms of paid
skier visit insurance coverage, 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. The 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.
The 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 Motion to Intervene
in this matter by the brother of one of the LMRC Shareholder Plaintiffs was
denied by the court. Moreover, the Company has filed a Motion for Summary
Judgment seeking the dismissal of this action on the theory that the breach of
fiduciary duty action seeks no remedies other than those available in the
Corporation Act case. This motion is presently before the court for a decision.
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
plaintiffs an aggregate of $34,436, or $30.61 per share, as its estimate of the
<PAGE>
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. By
disclosure dated March 17, 2000 the LMRC Shareholder Plaintiffs' expert has
revised his opinion of fair value to $91.90 per share. 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 stated that it expects to issue draft NEPA documentation in the
Fall of 2000 and final NEPA documentation by the Spring of 2001. 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
First Circuit has issued a series of orders staying the appeal to permit
settlement negotiations, which are on-going. The current stay will expire on
August 31, 2000 at which time 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
On June 20, 2000, the holders of the outstanding securities of Booth Creek
Ski Group, Inc. ("Parent") consummated a restructuring of Parent's existing
capital structure (the "Capital Restructuring").
Prior to the Capital Restructuring, Parent had 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 was converted into Parent Notes in a principal
amount equal to 20% of the paid-in capital relating thereto. The Parent Notes
issued in connection with the Capital Restructuring have the same terms as the
existing Parent Notes. In addition, new shares of Class A and Class B common
stock of Parent were 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 continue to
own 100% of the outstanding Class A common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description of Exhibit
---------- ----------------------
4.1 Second Amended and Restated
Securities Purchase Agreement and
certain related agreements dated as
of May 28, 2000, among Booth Creek
Ski Group, Inc., Booth Creek Ski
Holdings, Inc., the Subsidiary
Guarantors as defined therein and
each of John Hancock Life Insurance
Company, CIBC WG Argosy Merchant
Fund 2, L.L.C., Hancock Mezzanine
Partners, L.P., Co-Investment
Merchant Fund, L.L.C. and Booth
Creek Partners Limited II, L.L.L.P.
10.1 Second Amendment dated May 28, 2000
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
Fleet National Bank.
10.2 Third Amendment dated May 28, 2000
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., LMRC Holding Corp.,
Loon Mountain Recreation
Corporation, Loon Realty Corp., and
Fleet National Bank.
27.1 Financial Data Schedule
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated July 6, 2000,
reporting under Item 5 thereof the consummation of the sale of 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)
August 31, 2000
