SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended May 31, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
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Commission File No. 0-15030
WINTER SPORTS, INC.
(Exact name of registrant as specified in its charter)
Montana 81-0221770
(State of Incorporation) (I.R.S. Employer I.D. No.)
P. O. Box 1400, Whitefish, Montana 59937
Registrant's telephone number, including area code (406) 862-1900
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Check 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, and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues in its most recent fiscal year were $9,509,828.
Approximate aggregate market value of the voting stock held by non-affiliates of
the registrant as of August 15, 1996 was $8,107,409. As of August 15, 1996, the
number of shares outstanding of the registrant's common stock, no par value, was
969,918.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-KSB Incorporated Document
Part III, Item 9, Item 10 Proxy Statement dated September 17, 1996 to be
Item 11, Item 12 filed with the Securities and Exchange Commission
for the annual meeting of shareholders to be held
on October 8, 1996.
Total number of pages, including cover page Exhibit Index - page
---- ----
WINTER SPORTS, INC.
Form 10-KSB
Table of Contents
Page
Part I
Item 1 - Business ...................................................
Item 2 - Properties .................................................
Item 3 - Legal Proceedings ..........................................
Item 4 - Submission of Matters to a Vote of Security Holders ........
Part II
Item 5 - Market for Common Stock and Related Stockholder Matters ....
Item 6 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................
Item 7 - Financial Statements .......................................
Item 8 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ...................................
Part III
Item 9 - Directors and Executive Officers of the Registrant .........
Item 10 - Executive Compensation .....................................
Item 11 - Security Ownership of Certain Beneficial Owners and
Management .................................................
Item 12 - Certain Relationships and Related Transactions .............
Part IV
Item 13 - Exhibits and Reports on Form 8-K ...........................
Exhibit Index ..............................................
Exhibits ...................................................
Signatures ...........................................................
Part I
Item 1. Business
Winter Sports, Inc. d/b/a The Big Mountain Ski and Summer Resort (the
`Company'' or ``The Big Mountain''), was organized in 1947 as a Montana
corporation, for the purpose of developing and operating a ski resort at The Big
Mountain, located eight miles north of Whitefish, Montana.
Operations are carried out on nearly 4,000 acres of land at that location,
approximately 3,073 acres of which are utilized under permits from, and the
supervision of, the U.S. Department of Agriculture, U.S. Forest Service (the
`Forest Service''). The balance of the land is owned by the Company. Revenues
are generated from lift ticket sales, restaurant operations, auxiliary services,
and fees and rentals charged concessionaires and other parties leasing space for
buildings and concessions. In fiscal 1993, real estate sales became a
significant business segment. The Company owns approximately 600 acres in and
around its base area which is available for commercial and residential
development.
The ski facilities include seven chairlifts, a T-bar lift and a platter lift,
which service approximately 35 miles of ski slopes and trails. In addition to
the skiing facilities, the Company also operates the Hibernation House (hotel
facilities), Moguls Bar & Grille (food and beverage), the Alpine Lodge
(cafeteria), ZnoZone (food and video arcade), Big Mountain Sports (ski rental,
repair and ski shop) and a Ski School, all located in the base area, as well as
the Summit House (food, beverage and retail) located at the summit of the
mountain and the Outpost (cafeteria, ski shop and skier services operation) at
the lower village near overflow parking lots. The Company has leased to
concessionaires, three food and beverage operations, a day-care center, a
photography shop and a sleigh ride, wagon ride and summer horse back riding
operation. Revenues derived by the Company from these ancillary operations,
other than the ski facilities and real estate, represented 34.95%, 32.20% and
32.06% of total revenues in 1995-96, 1994-95 and 1993-94, respectively. The
Company has an all beverage liquor license and is designated as a `resort
area''for the issuance of additional resort retail liquor licenses.
During the 1992 fiscal year, twenty two condominiums located in the base area
were purchased for resale to third parties. At May 31, 1996, only one
condominium unit remains and the Company intends to retain ownership in that
unit for the foreseeable future. Also in 1992, the Company began developing
approximately seven percent of its fee simple land into single-family home lots
and townhome lots, for the purpose of sale to interested parties. Sales of
single-family and townhome lots began in 1993 when plat approval was received.
The Company has developed 54 townhome lots and 57 single-family lots in three
phases to date. In addition, four townhome units were constructed and sold by
the Company. At May 31, 1996, 17 single-family lots and 8 townhome lots remain
available for sale.
The Company operates its facilities for skiing and related winter activities
from approximately mid-November until the following mid-April of each year.
During the ski season, the Company's facilities are operated seven days a week.
During the past 48 years, The Big Mountain has averaged approximately 140 days
of skiing operations annually. A snowmaking system and improved grooming
equipment and technology have lessened the reliance on natural snowfall in
recent years; however, sufficient snowfall to operate the lifts and slopes
remains a primary consideration.
The Company also operates on a limited basis from late May through mid-October.
This operation consists of a chairlift/gondola ride to the summit for
sightseeing and hiking and limited food, beverage, rental and retail, hotel and
recreational facilities.
The Company's business is primarily seasonal. A significant portion of its
gross revenue is derived during the winter ski season. Real estate sales can
occur on a year-round basis. The Company maintains a year-round staff of
approximately 50 employees. During peak ski season, approximately 400
additional persons are employed. During the limited summer operations,
approximately 70 additional persons are employed.
Located at or near the base area and on the access road to The Big Mountain are
privately owned condominium developments, and a number of private homes, many of
which are available for public rental. Other accommodations are available in
the Flathead Valley. The ski area is served by an all weather secondary
highway.
The ski resort business is highly competitive. The success of The Big
Mountain's business is predicated on skiing, which is affected by weather and
other factors, such as the economy, cost and availability of transportation,
energy shortages and the Canadian exchange rate. The profitability and growth
of The Big Mountain's ski operation is largely determined by the number of
skiers attracted to the area. The Company believes that its principal
competition for skiers comes from other destination resorts throughout the
western United States and western Canada. Some of the ski resorts continuing to
be competitive with The Big Mountain are Whistler-Blackcomb in British Columbia,
Sun Valley, Schweitzer Basin in Idaho and Big Sky of Montana. In addition,
Canadian ski resorts such as Lake Louise and Sunshine in Banff are considered
strong competition. The Company also experiences competition from a number of
smaller regional ski areas, but believes it has a competitive advantage over
them because of the greater variety of skiing it offers, its larger facilities,
the length of its season and its extensive snowgrooming operations.
The land occupied by the mountain top restaurant (Summit House) and the
Company's lift sites is subject to a 30-year term, special-use permit from the
Forest Service expiring December 31, 2015, covering approximately 18 acres.
Approximately 3,055 acres are covered by a year-to-year Forest Service permit.
These permits do not create a legal interest in favor of the Company on the
subject lands. The continued use of these Forest Service lands is subject to
certain hazards, common to all ski areas developed on such lands, including
federal business guidelines. The Forest Service at any time may terminate the
permits under which the Company operates, upon payment of an equitable
consideration for the improvements. Both permits require the allowed use to be
actually exercised at least 90 days per year. The Company is obligated to pay
yearly fees to the Forest Service on a graduated rate based on the gross fixed
assets of the Company and on certain income. Such rates are adjustable every
year. The current rate is 1.9% of applicable revenues. Payments for fiscal
year 1996 were $133,650. Payments in 1995 and 1994 were $106,672 and $136,972,
respectively.
In carrying out its business, the Company must comply with a number of
requirements concerning environmental quality. Advance approval from the Forest
Service must be obtained for all construction, land alteration and significant
repair, in addition to obtaining approval from other state and federal agencies
regarding the protection of the environment and wildlife within the permitted
areas. In 1985-86, the Company undertook a major expansion to build a chairlift
and ski slopes on the previously undeveloped northern slope of The Big Mountain.
As a result of this expansion, restrictions for north slope lifts and slopes
were imposed by the Forest Service covering the length of the ski season on
those slopes, time periods for construction and restriction of outdoor cooking
at the mountain top restaurant during the summer season. Since 1990, the
Company has pursued additional expansion of ski terrain and additional amenities
to offer customers within its permit area and in 1996 a Record of Decision was
issued by the Forest Service approving most of the expansion items requested.
The Company has two wholly-owned subsidiaries. Big Mountain Water Co., a
regulated utility, supplies water to all base area facilities and nearby
properties. Big Mountain Development Corporation was activated in September
1991 to oversee and coordinate the planning and development of certain land
parcels owned by the Company.
Item 2. Properties
The properties owned or leased by the Company are located eight miles north of
the City of Whitefish, in the northwest corner of the State of Montana, in the
Whitefish Range overlooking the Flathead Valley. The Flathead Valley lies on
the western slope of the continental divide of the United States and is bordered
on the north by the Canadian provinces of British Columbia and Alberta.
In the winter of 1947, the Company opened a T-Bar lift, ski slopes, day
facilities and parking lots for use by the public. Since 1947, chairlifts, ski
slopes, trails, a cross country course, dining and lodging accommodations were
added periodically. In 1988-89 the one and one-half mile Big Ravine run from
the summit to the village area was constructed and in 1989-90, a major expansion
project included the construction of a high-speed detachable quad
chairlift/gondola to replace the first double chairlift. Also added in that
year were a snowmaking system, grooming vehicles, a warehouse and maintenance
building, expansion of the Summit House building, burial of utility lines and
clearing of slopes and trails. Additions in 1990-91 included a barn, a
mountaintop maintenance shop and tennis courts. Also added were building
improvements and snowmaking. During 1991-92, 22 condominiums located in the
base area were acquired for the purpose of resale. By the end of 1995 one of
the condominiums remained unsold and was taken off the market. Also in 1992
initial development costs were incurred to develop approximately seven percent
of the Company's fee simple land into single-family home lots and townhouse lots
for the purpose of sale to third parties.
During 1992-93, the Village Lift, a fixed-grip quad chairlift, was constructed.
Other additions included parking lots, two Alpinglow Inn condominium units, a
bus, improvements to buildings, land, trails and roads, and snowmaking. Real
estate lots began to sell in 1993. During 1993-94, the Company built a new
lower village day lodge facility of approximately 8,900 square feet. The
facility contains a cafeteria, ski rental and retail shop, ski patrol facilities
and ticket office. Four townhomes were constructed for sale. Facility
improvement projects in 1994-95 included hotel residing, grading of the road to
the Outpost Building, fabrication of a village stairway, completion of 14
additional single family lots, and the addition of a real estate sales building.
Improvements in 1995-96 included paving of the road to the Outpost Building,
remodeling of the rental and retail facility in the base area, extension of the
upper terminal of Chair #6 to improve access to the village, and an additional
pumping station for the snowmaking reservoir.
The Company operates on 4,000 acres, approximately 3,073 acres of which are
owned by the United States Forest Service and are subject to their special-use
permits. Substantially all of the Company's assets, excluding lands designated
for real estate development are encumbered to secure the Company's loans. See
Note 5 of the `Notes to Consolidated Financial Statements''.
The lengths and capacities of the Company's ski lifts are as follows:
Lifts Type Number * Vertical Rise Rides/Hour
- - - ----- ---- -------- ------------- ----------
Glacier Chaser Quad Chair #1 2,088 ft. 2,400
Hellroaring Double Chair #2 1,116 ft. 950
Tenderfoot Triple Chair #3 434 ft. 1,070
Great Northern Triple Chair #4 1,360 ft. 1,575
Glacier View Triple Chair #5 840 ft. 1,800
Village Lift Quad Chair #6 280 ft. 1,500
Big Creek Triple Chair #7 1,216 ft. 1,800
T-Bar 572 ft. 925
Platter 60 ft. 750
* Chair numbers refer to numbers assigned in The Big Mountain's Resort Area
Master Plan.
The Company's major buildings are as follows:
Square Footage
Building Floor Deck
- - - -------- ----- ----
Ski Lodge 17,494 3,500
Chalet 11,428 1,080
Alpine Lodge 10,272
Bierstube 3,860 2,000
Big Mountain Ski Shop 8,928
Hibernation House 15,360
Summit House 14,400 2,920
Ski Hut 896
Maintenance Building 5,250
Warehouse and Maintenance Building 15,360
Ticket Sales Building 850
Barn 1,800
Maintenance Shop on mountaintop 1,800
Outpost Building 8,904
Real Estate Sales Building 1,440
Item 3. Legal Proceedings
The information appearing in Note 13 of the Notes to Consolidated Financial
Statements is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended May 31, 1996.
Part II
Item 5. Market for Common Stock and Related Stockholder Matters
The Company's common stock is traded on the NASDAQ Small Cap Market under the
symbol `WSKI''.
The following table sets forth the range of quarterly high and low bid
quotations for the Company's common stock for the last two fiscal years. High
and low bid quotations have been supplied by D. A. Davidson & Co., Inc., a
registered broker-dealer which acts as a marketmaker in the Company's common
stock. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
1996 1995
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Quarter High Low High Low
------- ---- --- ---- ---
1st 14.906 14.656 18.75 16.586
2nd 15.750 14.656 18.75 16.856
3rd 15.500 14.000 18.25 15.50
4th 14.375 14.000 16.75 15.50
No cash dividends have been paid on the Company's common stock since 1984. On
August 25, 1989, August 31, 1990, August 19, 1991, November 10, 1992, November
12, 1993, November 22, 1994 and November 29, 1995, 4% common stock dividends
were paid, with fractional shares paid in cash.
The declaration of dividends is subject to certain restrictions contained in the
loan agreement between Bank of America Idaho N.A./Seattle-First National Bank
(Banks) and the Company. These restrictions prohibit the payment of cash
dividends, other than for preferred dividends or fractional shares, without
prior written consent of the Banks.
The Company's Bylaws authorize the Board of Directors to declare dividends on
common or preferred stock out of unreserved and unrestricted earned surplus or
out of unreserved and unrestricted net earnings of the current and preceding
fiscal years, taken as a single period. Cumulative dividends, in the amount of
$4 per share per year, must be paid on preferred stock prior to the payment of
cash dividends on the common stock. At August 15, 1996, there were 245 shares
of preferred stock outstanding.
The approximate number of shareholders of record for the Company's common stock
as of August 15, 1996 was 813.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following relates to the fiscal years of the Company.
RESULTS OF OPERATIONS
Revenues
Consolidated revenues declined in 1996 by $2,572,023 (21%). The decline is
primarily due to the drop in real estate sales of $2,276,591 (89%) from 1996 to
1995. The decline in real estate sales was due mainly to a down turn in the
local real estate market. The Company expects this trend to continue into the
first quarter of fiscal year 1997. Revenue from food, beverage and retail as
well as equipment rental and repair increased by $266,485 (16%) and $325,110
(345%), respectively. These increases are due to the fact that the Company's
lease with a ski shop concessionaire expired at the end of the 1995 ski season
and the Company negotiated the purchase of substantially all of the operating
assets of the concessionaire and operated the retail and rental business during
the 1996 ski season. Lease, management and other fees were off $453,668 (24%)
due mainly to the expiration of the concessionaire's lease, as noted above.
Skier visits declined by 19% (55,730) in 1996 due primarily to the continued
weakness of the Canadian dollar, poor snow conditions at the beginning of the
ski season, and changes to the Company's discounted preseason voucher program.
In the past the Canadian market has accounted for approximately a third of the
Company's market; it is estimated that it represented only 21% in 1996. The
Company does not believe the weakness in the Canadian dollar is permanent;
however, it is unclear as to when an improvement in the Canadian exchange rate
will occur. A lack of adequate snow did not allow for a timely opening of 100%
of the ski area in 1996. The lack of snow, coupled with unusually good snow
conditions at the locations of the Company's Canadian competition contributed to
the decline in Canadian skier visits. Finally, the Company made changes in its
preseason discount voucher sales program that resulted in lower voucher sales.
The Company sold 57,020 vouchers in 1996 compared to 82,012 in 1995. The
Company intends to eliminate the components of the program that resulted in the
decline. The Company plans to both continue and expand its marketing programs
both in Canada and domestically.
In 1995, the Company experienced a decline in revenue of $198,840 (2%). Real
estate sales and lodging revenues account for a major portion of the decline
($160,376 and $57,377, respectively). Real estate sales were lower primarily
due to fewer condominium sales as the Company's inventory of condominiums was
nearly depleted. Sales of condominiums were $71,500 in 1995 versus $436,900 in
1994. The decline in lodging revenues was due to an increased bed base in the
surrounding area, coupled with lower on-mountain occupancy rates.
Operating Expenses
Costs and expenses declined by $1,473,761 (14%) in 1996 to $9,121,351 compared
to $10,595,112 in 1995. The decline is primarily due to lower real estate sales
which resulted in a $1,014,229 or a 93% decline in cost of real estate sales.
In 1996, the Company also initiated a substantial cost reduction program that
accounted for a significant portion of the overall decline in costs and
expenses. Direct expenses of lift operations declined by 15% ($259,666) due
primarily to efficiencies gained through the organizational changes made in the
prior year coupled with the cost reduction plan of the current year. Marketing
expenses were $704,316 in 1996 compared to $785,977 in 1995. This decline is
due primarily to reduced staffing levels in 1996. The Company intends to
increase its marketing effort in the coming year in order to turn around the
decline in skier visits it experienced in 1996. The cost of food, beverage and
retail increased in 1996 to $805,061 from $565,236. The change is due to the
increase in retail sales operations that resulted from the acquisition of a
concessionaire's operation. Payroll and related costs decreased by $207,180 or
7% in 1996 from 1995 due to the Company's cost reduction efforts. The Company
is constantly looking for ways to decrease its costs in all areas of operations
while maintaining or increasing the level of customer service.
In 1995, overall operating costs and expenses declined by $141,812 (1%) due to
the initiation of an operational reorganization plan which improved efficiency,
communications and customer service. Direct expenses of lift operations
declined by 5% or $95,966 primarily due to lower snowmaking costs. Lower real
estate sales resulted in an 18% or $238,348 decline in the cost of real estate
sales. The Company realized high profits from the sale of real estate in 1995
due to the sales of higher margin lots as opposed to higher sales of
condominiums and finished townhome units in the prior year. Lower foreign
exchange rates, lower taxes and reduced snow removal costs resulted in a 22% or
$267,858 decline in general and administrative costs.
Interest Income/Expense and Other Income/Expense
Interest expense in 1996 declined by $101,432 or (31%). The decrease is
primarily due to lower levels of borrowing on the Company's revolving credit
line and lower interest rates. However, the Company did notice an increase in
short-term interest rates in the fourth quarter of 1996. Capitalized interest
in 1996 amounted to $6,106, which is a $16,177 decline from 1995 due to a lower
level of self-constructed capital investments made in 1996.
In 1995, interest expense was $330,353 compared to $271,059 in 1994,a 22%
increase. The increase was primarily due to a higher level of borrowing in
early 1995 and higher interest rates as a result of the actions of the Federal
Reserve Board. Capitalized interest in 1995 fell to $22,283 compared to $76,231
in 1994 due to lower levels of capital expenditures made during the year.
In the fourth quarter of 1995, the Company charged against income $102,109 of
planning costs carried in Construction in Progress. The charge relates to
certain elements of master planning costs for long-term resort development which
are not expected to be utilized within the foreseeable future. Also in 1995,
the Company received a profit recovery payment of $6,170 included in Other
Income (Expense).
Income Taxes and Net Income
Income before income taxes was $163,002, an 85% decrease from 1995. The
provision for income taxes in 1996 was $49,677 compared to $387,133 in 1995.
The decrease in the effective tax rate in 1996 (to 30% from 37%) was primarily
due to a lower Federal statutory rate. Net income in 1996 was $113,325 or $0.12
per common share compared to $665,037 or $0.68 per common share (restated to
recognize a 4% stock dividend issued November 29, 1995).
Pre-tax income in 1995 declined by $43,729. Income taxes provided in 1995
increased by $37,379. The increase in the effective tax rate in 1995 of 5% was
largely the result of higher federal income taxes in the current year due to
lower state deductions and the addition of taxable refunds in 1995. Net income
in 1995 dropped to $665,037 or $0.68 per common share (restated) from $746,145
or $0.77 per common share (restated) in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at the end of 1996 was $60,176, a $306,184 improvement from
($246,008) at the end of 1995. The increase was primarily due to the reduction
in Accounts Payable - Related Party and Income Taxes Payable. The ratio of
current assets to current liabilities at the end of 1996 was 1.07 to 1 versus
.81 to 1 at the end of 1995. Working capital has traditionally been negative at
the end of the fiscal year as the Company's main periods of activity are the
third and early fourth quarters. Cash flows from operating activity decreased
to $552,845 in 1996 from $2,407,085 in 1995 due primarily to lower net cash
flows from land development, lower accounts payable and higher income tax
refunds.
At the end of 1995, working capital increased significantly to ($246,008) from
($2,717,345) at the end of 1994. The increase was predominantly due to the
restructuring of the Company's credit facilities. At May 31, 1995, no portion
of the revolving, reducing facility was currently due compared to $1,766,000 in
current revolver borrowings and $893,783 in current portion of long-term debt at
May 31, 1994. The ratio of current assets to current liabilities at the end of
1995 was .81 to 1 versus .27 to 1 at the end of 1994.
Long-term debt at the end of 1996 decreased to $2,792,060 from $3,169,291 at the
end of 1995 which amounted to 32% of stockholders' equity compared to 37% at the
end of 1995.
At the end of 1995 long-term debt was $3,169,291 compared to $1,970,572 due to
the replacement of the Company's short-term revolving facility and term debt
with a long-term loan facility.
The Company provides for its cash requirements primarily through cash generated
by operating activities, supplemented by borrowing under a revolving, reducing
credit facility. The Company currently has a loan agreement with Bank of
America Idaho, N.A. and Seattle-First National Bank. The agreement provides for
an $8,000,000 revolving, reducing line of credit which matures on June 1, 2002.
The agreement provides funds for seasonal working capital, capital projects and
restructuring of long-term debt. The agreement calls for reducing availability
of funds in the amount of $750,000 each May 31st. Principal reductions are
required on any outstanding balances above the available amount. The agreement
allows any mandatory principal payment otherwise due to be skipped should annual
gross revenues (excluding real estate related revenues) drop below $8.5 million
due to conditions beyond the control of the Company. The provision is limited
to two such skip payments during the term of the loan. The interest rate on the
new facility is at or below the institutions' prime rate. The Company may
obtain funds below the prime rate by utilizing a London Interbank Offered Rate
based option. Standby letters of credit also reduce the amount available under
the revolving agreement. At May 31, 1996 the Company had one standby letter of
credit outstanding for $25,000. There were $4,432,940 of unused funds available
at May 31, 1996.
At May 31, 1995, the Company had standby letters of credit of $71,083
outstanding and had unused funds available of $4,759,626.
The Company has long-term plans to further develop The Big Mountain Ski & Summer
Resort and its real estate properties, on its own or with joint venture
partners. In addition, the Company has received a Record of Decision on its
Environmental Impact Statement from the United States Forest Service Supervisor
regarding requested expansion of the resort within its lease boundaries. The
decision will allow for most of the requested expansion the Company has been
pursuing for several years. Financing for future development is anticipated to
include cash generated from operations, issuance of additional debt and may also
include additional equity financing.
Item 7. Financial Statements
Index to Consolidated Financial Statements Page
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets as of May 31, 1996 and 1995
Consolidated Statements of Income and Retained Earnings
for the Years Ended May 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flow
for the Years Ended May 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Winter Sports, Inc.
Whitefish, Montana
We have audited the accompanying consolidated balance sheets of Winter Sports,
Inc. (a Montana Corporation) and Subsidiary Companies as of May 31, 1996 and
1995, and the related consolidated statements of income and retained earnings,
and cash flows for each of the three years in the period ended May 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Winter Sports, Inc.
and Subsidiary Companies as of May 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1996, in conformity with generally accepted accounting principles.
Jordahl & Sliter PLLC
Kalispell, Montana
July 8, 1996
WINTER SPORTS, INC. & SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
May 31
1996 1995
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 87,424 $ 382,519
Receivables (net of reserve for bad debts
of $42,043 and $0, respectively) 107,542 77,792
Receivables - related party (Note 11) 23,750 6,535
Income tax refund receivable 128,948 38,662
Current deferred tax asset (Note 7) 38,042 23,440
Inventories 424,500 343,054
Prepaid expenses 170,172 152,228
--------- ---------
Total Current Assets 980,378 1,024,230
--------- ---------
Property and Equipment, at Cost (Note 3) 18,436,526 18,503,716
Accumulated depreciation and amortization (8,742,075) (8,264,151)
----------- -----------
9,694,451 10,239,565
Construction in progress (Note 1) 762,831 791,732
Land and development costs 1,916,719 1,965,357
---------- ----------
Net Property and Equipment 12,374,001 12,996,654
---------- ----------
Other Assets (Note 4) 336,396 247,987
---------- ----------
TOTAL ASSETS $ 13,690,775 $ 14,268,871
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 421,544 $ 471,978
Accounts payable - related parties (Note 11) 11,489 250,675
Employee compensation and related expenses 120,870 226,601
Taxes other than payroll and income 138,327 136,562
Income taxes payable 108,594
Interest payable 42,577 5,037
Deposits and other unearned income 183,711 68,537
Other current liabilities 1,684 2,254
----------- -----------
Total current liabilities 920,202 1,270,238
Long-term debt (Note 5) 2,792,060 3,169,291
Deferred income taxes (Note 7) 1,379,508 1,337,202
------------ ------------
Total Liabilities 5,091,770 5,776,731
Commitments and contingencies (Note 13)
Stockholders' Equity (Notes 6 & 12)
Preferred stock (950 shares of $100 par value
authorized; 4% cumulative;
245 shares outstanding) 24,500 24,500
Common stock (5,000,000 shares of no-par
value authorized; 969,918 and 932,948 shares
outstanding in 1996 and 1995, respectively) 3,560,874 2,978,597
Additional paid-in capital 20,519 20,519
Retained earnings 4,993,112 5,468,524
------------ -------------
Total stockholders' equity 8,599,005 8,492,140
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 13,690,775 $ 14,268,871
The accompanying notes are an integral part of these financial statements.
WINTER SPORTS, INC. & SUBSIDIARY COMPANIES
------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
1996 1995 1994
---- ---- ----
Revenue
Lifts $ 5,219,915 $ 5,645,794 $ 5,638,026
Food, beverage and retail 1,938,393 1,671,908 1,678,997
Equipment rental and repair 419,325 94,215 65,473
Lodging 247,516 254,996 312,373
Lease, management and other fees 1,153,996 1,606,765 1,568,697
Lease, management and other fees,
related party 262,143 263,042 311,618
Real estate sales - net 268,540 2,545,131 2,705,507
---------- ---------- ----------
Total Revenue 9,509,828 12,081,851 12,280,691
---------- ---------- ----------
Operating Expenses
Direct expenses - lifts 1,629,790 1,889,456 1,985,422
Depreciation expenses - lifts 555,748 548,249 512,266
Cost of food, beverage and retail 805,061 565,236 527,659
Cost of real estate sales 76,645 1,090,874 1,329,222
Payroll and related expenses 2,896,111 3,103,291 3,045,408
Direct expenses 1,043,533 1,129,790 1,002,420
Direct expenses - related party 26,451 11,050 15,000
Marketing 704,316 785,977 656,200
Planning, development
and consulting costs 8,780 37,791
Depreciation and amortization 496,180 505,577 400,846
General and administrative 828,853 879,347 1,146,532
General and administrative -
related party 58,663 77,485 78,158
---------- ---------- ----------
Total Operating Expenses 9,121,351 10,595,112 10,736,924
---------- ---------- ----------
Operating Profit 388,477 1,486,739 1,543,767
---------- ---------- ----------
Other Income (Expense)
Interest income 4,528 3,091 2,901
Settlement expense (164,150)
Interest expense (228,921) (330,353) (271,059)
Other income(expense) (Note 14) (1,082) (107,307) (15,560)
----------- ----------- -----------
Total Other Income (Expense) (225,475) (434,569) (447,868)
----------- ----------- -----------
Income before income taxes 163,002 1,052,170 1,095,899
Provision for income taxes 49,677 387,133 349,754
---------- ---------- ----------
Net Income 113,325 665,037 746,145
Retained earnings - beginning
of year 5,468,524 5,432,646 5,308,976
Dividends (588,737) (629,159) (622,475)
----------- ----------- -----------
Retained earnings - end of year $4,993,112 $5,468,524 $5,432,646
Net income per common
share (Note 6) $ 0.12 $ 0.68(1) $ 0.77(1)
Weighted average shares outstanding 969,918 969,918(1) 969,459(1)
(1) Restated to reflect stock dividend issued November 29, 1995
The accompanying notes are an integral part of these financial statements
WINTER SPORTS, INC. & SUBSIDIARY COMPANIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Net income $ 113,325 $ 665,037 $ 746,145
--------- --------- ---------
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 1,051,928 1,053,826 913,112
Increase in deferred income taxes 14,519 93,201 128,520
Settlement expense (60,650) 60,650
Loss on sale or retirement of assets 1,122 113,488 690
Planning and development expensed 6,000 6,000
Bad debt expense 42,043
Employee stock bonus 40,647
Deferred revenue (223,453)
Changes in operating assets
and liabilities:
Receivables (89,008) 31,830 (25,375)
Refundable income taxes (90,286) 253,104 (291,766)
Inventories (81,446) (190,378) (2,310)
Prepaid expenses (17,944) 41,176 (27,174)
Construction in progress (66,782) (273,865) (145,940)
Land and development costs 48,638 368,626 (265,020)
Accounts payable (289,620) 312,935 53,444
Employee compensation and
related expenses (105,731) (84,812) 56,441
Interest payable 37,540
Taxes other than payroll and income 1,765 16,320 7,470
Income taxes payable (108,594) 108,594 (407,283)
Deposits and other unearned revenue 115,174 (90,179) 23,715
Other liabilities (570) 7,295 55,535
Decrease in other assets (23,228) 35,537 246,488
---------- --------- ---------
Total adjustments 439,520 1,742,048 204,391
--------- --------- ---------
Net cash provided by operating activities 552,845 2,407,085 950,536
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of assets 10,065 2,800 1,441
Proceeds from redemption of
certificate of deposit 59,170
Purchase of non-compete covenant (1,000)
Purchase of certificate of deposit (53,374)
Property and equipment acquisitions (533,484) (694,095) (2,334,698)
---------- ---------- -----------
Net cash used in investing activities (464,249) (745,669) (2,333,257)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from short-term borrowing 2,218,900 4,936,500
Proceeds from issuance of
long-term debt 6,809,928 7,956,499
Principal payments of short-term
borrowing (6,849,255) (3,170,500)
Principal payments of long-term debt (7,187,159) (4,787,208) (934,057)
Principal payments of capital lease
obligations (166) (5,883)
Loan costs paid on refinance (41,804)
Payments of dividends (6,460) (7,032) (7,289)
----------- ----------- ----------
Net cash (used in) provided by
financing activities (383,691) (1,510,066) 818,771
----------- ----------- ---------
Net increase (decrease) in cash
and cash equivalents (295,095) 151,350 (563,950)
Cash and cash equivalents - beginning
of year 382,519 231,169 795,119
---------- --------- ----------
Cash and cash equivalents - end of year $ 87,424 $ 382,519 $ 231,169
Supplemental Disclosures (Note 8)
The accompanying notes are an integral part of these financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Summary of Significant Accounting Policies
The consolidated financial statements include the amounts of Winter Sports, Inc.
and its wholly-owned subsidiaries, Big Mountain Water Company and Big Mountain
Development Corporation. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain amounts in the 1995 and 1994
financial statements have been reclassified to conform with the 1996
presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and equipment is stated at cost. Additions and betterments are
capitalized, while maintenance and repairs are expensed as incurred. For
financial reporting purposes, depreciation is provided for by the straight-line
method over estimated useful lives. Accelerated depreciation methods are used
for tax purposes. Gains and losses from the sale or retirement of assets are
included in income.
Land development in progress is stated at the lower of cost or net realizable
value. All direct and indirect costs related to land development (including
land acquisition costs, land improvement and construction costs for clearing and
grading, roads, utility systems, architectural, surveying, engineering and legal
fees) are charged to construction in progress. In addition, the Company
capitalizes interest costs related to qualified expenditures on projects under
development. The aggregate development cost is allocated to lots for sale based
upon the relative sales value and is charged to cost of revenues as the
individual lot sales are recognized as revenue. Costs not related to land
development are charged to operations as incurred.
Interest is capitalized in connection with the construction of major facilities
and development of land. The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the assets useful life, or is
allocated to lots for sale based upon the relative sales values and is charged
to cost of sales as the individual lot sales are recognized as revenue. In
1996, 1995 and 1994, $6,106, $22,283 and $76,231 of interest was capitalized,
respectively.
Profit from the sale of real estate is accounted for under the full accrual
method as provided for in Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 66, Accounting for the Sales of Real Estate.
Under this method, gain is not recognized until the collectibility of the sales
price is reasonably assured and the earnings process is virtually complete.
When a sale does not meet the requirements for income recognition, gain is
deferred until those requirements are met.
Advertising costs are expensed as incurred. Advertising expense was $532,158,
$449,834 and $416,551 in 1996, 1995 and 1994, respectively.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109) in 1993, retroactive
to June 1, 1992. SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in a company's financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse.
For purposes of the Consolidated Statements of Cash Flows, the Company considers
all highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.
Inventories are stated at the lower of cost or market value on a first-in,
first-out method.
Loan costs, included in Other Assets (Note 4), are being amortized ratably over
the term of the loans. Organization costs are being amortized on a straight-
line basis over a sixty month period.
On September 9, 1995, the company received approval from the U.S. Forest Service
for the Final Environmental Impact Statements (EIS) for The Big Mountain Ski and
Summer Resort. The Company is amortizing the costs of the EIS over a fifteen
year period (Note 4).
Financial instruments that potentially subject the Company to credit risk
consist of cash balances in one financial institution in excess of the Federal
Deposit Insurance Corporation's $100,000 limit.
Other potential credit risks to the Company consist of trade receivables. The
Company grants credit to customers for group banquets and retail inventory
sales, most of whom are located in the northwest United States.
NOTE 2. Business Segment Information
In 1996, 1995 and 1994, the Company operated principally in two industries, the
operation of a ski area, and the sale of real estate. Operations in the ski
area industry involve developing and providing ski recreation and related
services to skiers. Operations in the sale of real estate involve the
development of land into single-family lots and townhome lots for the purpose of
sales to interested parties. Condominium unit sales are included in real
estate.
Financial information by industry segment for 1996, 1995 and 1994 is summarized
as follows:
Ski Area Real Estate Consolidated
-------- ----------- ------------
1996
Net sales $ 9,228,575 $ 281,254 $ 9,509,829
Operating profit $ 374,644 $ 13,833 $ 388,477
Depreciation and amortization $ 1,033,698 $ 18,230 $ 1,051,928
Identifiable assets $ 12,192,293 $ 1,498,482 $ 13,690,775
Capital expenditures $ 533,484 $ 0 $ 533,484
1995
Net sales $ 9,536,720 $ 2,545,131 $ 12,081,851
Operating profit $ 600,205 $ 886,534 $ 1,486,739
Depreciation and amortization $ 1,039,537 $ 14,289 $ 1,053,826
Identifiable assets $ 12,236,104 $ 2,032,767 $ 14,268,871
Capital expenditures $ 542,381 $ 151,714 $ 694,095
1994
Net sales $ 9,575,184 $ 2,705,507 $ 12,280,691
Operating profit $ 770,306 $ 773,461 $ 1,543,767
Depreciation and amortization $ 909,732 $ 3,380 $ 913,112
Identifiable assets $ 12,703,358 $ 2,036,092 $ 14,739,450
Capital expenditures $ 2,329,196 $ 5,502 $ 2,334,698
NOTE 3. Property and Equipment
Asset
Life Years 1996 1995
---------- ---- ----
Leasehold improvements 30 $ 638,047 $ 638,047
Buildings and grounds 10-30 6,723,982 6,640,929
Lifts 10-15 6,532,679 6,436,473
Machinery and equipment 3-25 3,413,493 3,494,545
Furniture and fixtures 3-10 484,905 650,302
Water system 10-25 643,420 643,420
------------ -------------
Total property and equipment $ 18,436,526 $ 18,503,716
NOTE 4. Other Assets
Other assets at May 31, 1996 and 1995 are summarized as follows:
1996 1995
---- ----
Loan costs, net of amortization $ 34,029 $ 39,701
Deposits 0 59,335
Planning and development - long-term 69,565 69,022
Noncurrent deferred tax asset 37,835 24,650
Condominiums held for sale 0 50,728
Environmental Impact Statement 168,417 0
Other long-term assets 26,550 4,551
--------- ----------
Total other assets $ 336,396 $ 247,987
NOTE 5. Notes Payable
Long-term debt at May 31, 1996 and 1995 is summarized as follows:
1996 1995
---- ----
Bank of America Idaho NA/Seattle-First National Bank $ 2,792,060 $ 3,169,291
Revolving, reducing term loan with initial
$8,000,000 availability decreasing by $750,000 each
May 31st. Mandatory principal reductions are
required on outstanding balances above amounts
available. Interest at or below banks' prime rate.
Interest rate at May 31, 1996 and 1995 was 7.31% and
7.87%, respectively. Secured by all ski operation real
and personal property and assignment in trust of all
U.S. Forest Service special use permits.
Total long-term debt $ 2,792,060 $ 3,169,291
Mandatory reductions of long-term debt are as follows:
For the Year Ending May 31, Amount
1997 $ 0
1998 0
1999 0
2000 0
2001 0
2002 and beyond 2,792,060
-----------
$ 2,792,060
The loan agreement contains covenants that require minimum net worth, a fixed
charge coverage ratio and restrict investment, disposition of assets, capital
expenditures, outside borrowing and payment of dividends. At May 31, 1996 and
1995, the Company was in compliance with all loan covenants.
Standby letters of credit issued by Seattle-First National Bank (Seafirst) in
the amount of $25,000 and $71,083 reduce the amount available under the
revolving agreement at May 31, 1996 and 1995, respectively. At May 31, 1996 and
1995, $4,432,940 and $4,759,626 respectively, were unused and available for
borrowing.
NOTE 6. Capital Stock and Additional Paid-In Capital
Preferred stock is non-voting and subject to redemption at the Company's option
at any time upon payment of not less than the $100 par value and any accumulated
dividends.
The computation of earnings per common share is based on net income for the year
after deducting dividends paid on preferred stock of 1996-$980, 1995-$980 and
1994-$952. The number of shares used in the computation is the weighted average
number of common shares considered to be outstanding during the year. In 1996,
1995 and 1994, the Company issued 4% common stock dividends.
1996 1995 1994
---- ---- ----
Cash dividends per preferred share $ 4.00 $ 4.00 $ 4.00
Cash dividends per common share $ - $ - $ -
Changes in capital stock and additional paid-in capital are summarized as
follows:
Preferred Stock Common Stock
--------------- ------------
Number Number Additional
Of Shares Amount Of Shares Amount Paid-in Capital
Balance at 5/31/93 245 $ 24,500 860,831 $1,700,656 $ 20,519
Employee Stock Bonus 2,391 40,647
4% Stock Dividend 34,177 615,186
Balance at 5/31/94 245 $ 24,500 897,399 2,356,489 20,519
4% Stock Dividend 35,549 622,108
Balance at 5/31/95 245 $ 24,500 932,948 2,978,597 20,519
4% Stock Dividend 36,970 582,277
Balance at 5/31/96 245 $ 24,500 969,918 $3,560,874 $ 20,519
NOTE 7. Income Taxes
Income taxes (credits) consist of the following:
1996 1995 1994
---- ---- ----
Current
Federal $ 29,467 $ 279,249 $ 175,445
Amended returns (31,301)
Fuel tax credit (2,136) (2,157) (2,146)
------- -------- --------
27,331 245,791 173,299
State 7,827 55,502 47,935
Amended returns 0 (7,361) 0
------- ------ --------
35,158 293,932 221,234
Deferred
Federal 11,037 85,654 114,968
State 3,482 7,547 13,552
------ ------ -------
Provision for income taxes $ 49,677 $ 387,133 $ 349,754
Temporary differences exist in the computation of income for financial and tax
reporting purposes which gives rise to deferred taxes. The source of these
differences for the year ended May 31 is as follows:
1996 1995 1994
---- ---- ----
Depreciation $3,604,284 $3,480,432 $3,129,042
Uniform capitalization for income tax (110,540) (70,920) 10,268
Bad Debt Reserve (42,043) 0 0
Vacation Allowance (44,731) (54,136) (46,927)
----------- ---------- ----------
Total timing differences $3,406,970 $3,355,376 $3,092,383
The significant components of Deferred Taxes in the accompanying Balance Sheet
are as follows:
1996 1995
---- ----
Noncurrent deferred tax liability $1,379,508 $1,337,202
---------- ----------
Total deferred tax liability $1,379,508 $1,337,202
Current deferred tax assets $ 38,042 $ 23,440
Noncurrent deferred tax asset 37,835 24,650
Valuation allowance 0 0
Net deferred tax assets $ 75,877 $ 48,090
The difference between the Company's effective income tax rate and the statutory
Federal income tax rate is as follows:
1996 1995 1994
---- ---- ----
Income before taxes $ 163,002 $1,052,170 $1,095,899
Statutory federal rate 27% 34% 34%
Increased (decreases) resulting from:
State tax at statutory rate 7% 7% 7%
Other (net) (4%) (4%) (9%)
Effective tax rate 30% 37% 32%
NOTE 8. Supplemental Cash Flow Disclosures
Supplemental cash flow information is as follows:
Cash paid during the year for: 1996 1995 1994
---- ---- ----
Interest (net of capitalized) $ 191,379 $ 337,187 $ 264,620
Income taxes (net of refunds) $ 234,038 $ (67,766) $ 920,283
NOTE 9. Special Use Permits
The operation of ski lifts and trails involves the use of U.S. Forest Service
lands located in the Flathead National Forest. Winter Sports, Inc. is licensed
by special use permits issued by the U.S. Forest Service which expire December
21, 2015. Charges to income for fees paid, based on the Graduated Rate Fee
System set by the U.S. Forest Service were $133,650, $106,672 and $136,972 for
1996, 1995 and 1994, respectively.
NOTE 10. Employee Benefit Plans
The Company maintains a 401(k) Salary Deferred Plan that covers substantially
all full-time employees meeting minimum requirements. Plan benefits are limited
to the participants' vested share of plan contributions, earnings and
forfeitures. All enrolled employees contribute a minimum of 2% of their gross
compensation. The Company contributes a matching 2%. The plan is currently
100% funded. Company contributions to the Plan and charges to income for 1996,
1995 and 1994 amounted to $34,483, $49,297 and $41,047 respectively.
NOTE 11. Related Party Transactions
Revenues are derived and expenses incurred as a result of transactions with
executive officers, stockholders and directors of Winter Sports, Inc. or
companies controlled by them or parties which can significantly influence
management or the operating policies of the transacting parties. For reporting
purposes, shareholders holding 5% or more of the Company's common stock are
considered to be related parties who may, through their ownership, significantly
influence transactions with the Company.
At the end of the 1995 ski season the Company purchased all of the existing
rental and retail inventory, fixtures and equipment from The Big Mountain Ski
Shop, a related party concessionaire. The purchase price of $248,870 included a
covenant not to compete for both The Big Mountain Ski Shop, Inc. and Martin and
Greta Hale. Payment of the purchase price was not made until after the
Company's 1995 fiscal year end.
Related party transactions are summarized as follows:
1996 1995 1994
---- ---- ----
Revenue received
Rent and lease revenue $ 34,331 $ 203,590 $ 235,247
Management fee $ 31,500 $ 44,400 $ 64,152
Other revenue $ 196,312 $ 15,052 $ 12,219
Expenses incurred
Memberships $ 5,000 $ 11,050 $ 15,000
Legal fees $ 53,663 $ 34,343 $ 35,645
Contract labor $ 25,431 $ 29,250 $ 31,500
General and administrative $ 1,686 $ 13,892 $ 11,014
Amounts due to and from related parties
Accounts receivable $ 23,750 $ 6,535 $ 50,105
Accounts payable $ 11,489 $ 250,675 $ 12,602
NOTE 12. Stock Bonus and Stock Options
The Company has entered into employment agreements with its President which
provide for the award of common stock each year dependent upon achievement of
certain performance objectives. In 1996, 1995 and 1994, 0, 0 and 2,391 shares
were awarded, respectively. The value of the stock awarded totaled $0, $0, and
$40,647 in 1996, 1995 and 1994 and was charged to compensation.
Under prior employment agreements, non-qualified and incentive options to
purchase the Company's common stock had been granted to the President.
Incentive options were dependent upon achievement of certain performance
objectives. In each case, the purchase price was the bid price for the
Company's common stock at the date of the grant. All options granted expire five
years from the date of the underlying employment agreement. The Company has
agreed to repurchase all or any portion of the stock purchased through exercise
of options at a price equal to the purchase price for each stock plus $3.00 per
share.
On August 1, 1992, the Company entered into an employment agreement with its
President with a term ending July 31, 1996. Upon the successful conclusion of
each anniversary of the agreement, the President is entitled to a non-qualified
stock option allowing him to purchase 6,000 shares of the Company's common stock
according to the following schedule: after 7/31/93, $14.00 per share; after
7/31/94, $15.00 per share; after 7/31/95, $16.00 per share; and after 7/31/96,
$17.00 per share. Each year's allocation of shares may be purchased for a
period of five years beginning on each anniversary date of this agreement. The
Company does not guarantee purchase of the shares of stock pursuant to this
option.
On July 1, 1994 and December 1, 1994 respectively, the Company entered into two
year employment agreements with its Chief Operating Officer and its Treasurer.
Each officer was granted a non-qualified stock option to purchase 2,000 shares
of the Company's common stock at the bid price on the respective dates granted.
The options expire five years from the grant date. The exercise prices
established on the grant dates were $19.50 and $17.00, respectively.
Stock option transactions are summarized as follows:
Option Price Number
Per Share Of Shares
Outstanding, May 31, 1992 $8.25 - 8.75 9,000
Granted 12.50 6,000
Exercised 8.25 (6,000)
Exercised 8.75 (3,000)
Outstanding, May 31, 1993 12.50 6,000
Granted 14.00 6,000
Outstanding, May 31, 1994 12,000
Granted 15.00 - 19.50 10,000
Outstanding, May 31, 1995 12.50 - 19.50 22,000
Granted 16.00 6,000
Expired 12.50 (6,000)
Outstanding, May 31, 1996 14.00 - 19.50 22,000
Note 13. Commitments and Contingencies
The Company has been a defendant from time to time in unrelated claims and
lawsuits filed by individuals who are each seeking damages of specified and
unspecified amounts, for alleged personal injuries resulting from accidents
occurring on the Company's property or while skiing. The Company's insurance
carrier provides defense and coverage for these claims and the Company's
participation has been limited to its policy deductible. Such amounts are
charged to General and Administrative expense upon settlement.
In January, 1994, the Company agreed to settle without litigation a claim by a
former employee. The settlement agreement provides for payments of cash and
certain real estate owned by the Company and was charged against income in the
third quarter of 1994.
In April of 1994, the Company was issued a Citation and Notification of Penalty
by the Occupational Safety and Health Administration (OSHA), citing 14 alleged
violations of their regulations. All but one of the claimed violations were
corrected previously and the remaining issue was settled prior to going to
trial.
The Company has been named in a wrongful discharge lawsuit, with unspecified
damages, by a former employee. All pleadings have been filed, and the trial
date has been set for January, 1997. It has not been determined what exposure,
if any, the Company may have.
The Company was contingently liable for a standby letter of credit in the amount
of $25,000 and $71,083 at May 31, 1996 and 1995 respectively.
NOTE 14. Other Income and Expense
The Company periodically reviews its master plan for long-term resort
development. During the fourth quarter of 1995, the Company charged against
income $102,109 of planning costs included in Construction in Progress that were
not expected to be utilized within the foreseeable future.
Other Income (Expense) included in the Consolidated Statements of Income consist
of the following:
1996 1995 1994
---- ---- ----
Loss on sale or retirement of assets $ (1,122) $ (113,488) $ (690)
Profit recovery 6,170
Expiration of option for land (15,000)
Other 40 11 130
--------- --------- ---------
Total other income (expense) $ (1,082) $ (107,307) $ (15,560)
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
The Company has had no disagreements with its accountants on accounting or
financial disclosures.
Part III
Item 9. Directors and Executive Officers of the Registrant
Incorporated by reference from the Company's definitive proxy statement dated
September 17, 1996 to be filed with the Securities and Exchange Commission for
the annual meeting of shareholders to be held on October 8, 1996.
Item 10. Executive Compensation
Incorporated by reference from the Company's definitive proxy statement dated
September 17, 1996 to be filed with the Securities and Exchange Commission for
the annual meeting of shareholders to be held on October 8, 1996.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the Company's definitive proxy statement dated
September 17, 1996 to be filed with the Securities and Exchange Commission for
the annual meeting of shareholders to be held on October 8, 1996.
Item 12. Certain Relationships and Related Transactions
Incorporated by reference from the Company's definitive proxy statement dated
September 17, 1996 to be filed with the Securities and Exchange Commission for
the annual meeting of shareholders to be held on October 8, 1996.
Part IV
Item 13. Exhibits and Reports on Form 8-K
(a) Documents Filed as Part of this Report:
Page
(1) Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of May 31, 1996 and 1995
Consolidated Statements of Income and Retained Earnings
for the Years Ended May 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for
the Years Ended May 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
All other schedules are omitted because they are not applicable for the
required information as shown in the Consolidated Financial Statements
or Notes thereto.
(2) Exhibits Page
21.1 Subsidiaries of the Company
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the last
quarter of the period covered by this report.
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
WINTER SPORTS, INC.
By /s/ Michael J. Collins
Michael J. Collins, President
and Chief Executive Officer
(Principal Executive Officer)
Date: August 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in capacities and on the dates indicated:
/s/ Charles R. Abell Director August 26, 1996
Charles R. Abell
/s/ Brian T. Grattan Director August 26, 1996
Brian T. (Tim) Grattan
/s/ Dennis L. Green Director and Chairman August 26, 1996
Dennis L. Green of the Board
/s/ Michael T. Jenson Director August 26, 1996
Michael T. Jenson
/s/ Darrel R. Martin Director and Secretary August 26, 1996
Darrel R. (Bill) Martin
/s/ Michael J. Muldown Director August 26, 1996
Michael J. Muldown
/s/ Calvin S. Robinson Director August 26, 1996
Calvin S. Robinson
/s/ W. E. Schreiber Director and August 26, 1996
W. E. Schreiber Vice President
/s/ Paul D. Watson Director August 26, 1996
Paul D. Watson
/s/ Michael J. Collins Principal Financial August 26, 1996
Michael J. Collins Officer and Accounting
Officer
(c) Exhibits:
3.1 Restated Articles of Incorporation and Articles of Amendment
to the Articles of Incorporation (2)
3.2 By-Laws (3)
3.3 Fifth Amendment to By-Laws (4)
3.4 Sixth Amendment to By-Laws (4)
10.1 Employment Agreement between Michael Collins and Winter
Sports, Inc. as of August 1, 1992. (5)
10.2 Corrected Employment Agreement between Larry H. Hutchinson
and Winter Sports, Inc. as of July 6, 1994. (2)
10.3 Loan Agreement between Seattle-First National Bank and
Winter Sports, Inc. dated November 14, 1994. (6)
10.4 Employment Agreement between Steven P. Benner and Winter
Sports, Inc. as of February 24, 1995. (7)
21.1 Subsidiaries of the Company (1)
(1) Filed herewith.
(2) Incorporated by reference from the Company's Form 10-KSB for
fiscal year ended May 31, 1995.
(3) Incorporated by reference from the Company's Form 10-KSB for
fiscal year ended May 31, 1987.
(4) Incorporated by reference from the Company's Form 10-KSB for
fiscal year ended May 31, 1991.
(5) Incorporated by reference from the Company's Form 10-QSB for
the quarter ended September 6, 1992.
(6) Incorporated by reference from the Company's Form 10-QSB for
the quarter ended December 11, 1994.
(7) Incorporated by reference from the Company's Form 10-QSB for
the quarter ended March 5, 1995.
Exhibit 2.1 Subsidiaries
Name Jurisdiction of Incorporation
---- -----------------------------
Big Mountain Water Co. Montana
Big Mountain Development Corporation Montana
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<NAME> WINTER SPORTS, INC.
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