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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[GRAPHIC OMITTED] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: October 30, 1998
OR
[GRAPHIC OMITTED] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the
Transition Period from _________ to _____________
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 South Frontage Road West, Suite 100
Vail, Colorado 81657
(970) 476-4030
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
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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 [GRAPHIC OMITTED] No [GRAPHIC
OMITTED]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [GRAPHIC OMITTED]
As of January 15, 1999, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares. There is
no trading market for the Common Stock. Accordingly, the aggregate market value
of the Common Stock held by non-affiliates of the registrant is not
determinable. See Part II, Item 5 of this Report.
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TABLE OF CONTENTS
Item Page Number
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PART I
1. Business................................................. 2
2. Properties............................................... 20
3. Legal Proceedings........................................ 20
4. Submission of Matters to a Vote of Security Holders...... 23
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 24
6. Selected Financial Data.................................. 24
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 27
8. Financial Statements and Supplementary Data.............. 36
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................. 36
PART III
10. Directors and Executive Officers of the Registrant....... 37
11. Executive Compensation................................... 39
12. Security Ownership of Certain Beneficial Owners and
Management............................................... 43
13. Certain Relationships and Related Transactions........... 46
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K...................................................... 51
2
PART I
As used in this Report, the "Company" or "Booth Creek" refers to Booth Creek
Ski Holdings, Inc. and its subsidiaries, unless the context otherwise requires.
The Company is a wholly-owned subsidiary of Booth Creek Ski Group, Inc.
("Parent"). Since November 27, 1996 the Company has acquired the
Northstar-at-Tahoe ("Northstar") and Sierra-at-Tahoe ("Sierra") ski resorts in
the Lake Tahoe region of Northern California, the Bear Mountain ski resort in
Southern California (together with Northstar and Sierra, the "California
Resorts"), the Waterville Valley and Mt. Cranmore ski resorts in New Hampshire,
the Summit at Snoqualmie (the "Summit") ski resort complex, which consists of
four separate and distinct resorts in the Cascade Mountains of Northwest
Washington and the Grand Targhee ski resort in the Grand Tetons in Wyoming. Most
recently, on February 26, 1998, the Company acquired the Loon Mountain ski
resort ("Loon Mountain") in the White Mountains of New Hampshire.
Item 1. Business
Overview
Booth Creek owns and operates eight ski resort complexes encompassing eleven
separate resorts, making the Company the fourth largest operator in North
America based on approximately 2.4 million skier days recorded during the
1997/98 ski season at such resorts. Booth Creek primarily operates regional ski
resorts which, in the aggregate, attract approximately 85% of their guests from
their regional ski markets, within a 200 mile driving radius of each resort. The
Company's properties offer approximately 9,281 acres of skiable terrain, 399
trails, 94 lifts (including 16 high-speed lifts and 2 Gondolas) and on-mountain
capacity to accommodate approximately 56,000 guests daily. For the fiscal years
ended October 30, 1998 and October 31, 1997, the Company's resorts generated
approximately $115.5 million and $97.8 million of pro forma revenue,
respectively, $27.4 million and $14.2 million of pro forma EBITDA, respectively,
and $14.8 million and $21.2 million of pro forma net loss, respectively.
The Company's resort properties are primarily located near major skiing
populations, including four of the five largest regional ski markets: Los
Angeles/San Diego, San Francisco/Sacramento, Boston and Seattle/Tacoma. The
Company believes this geographical diversification serves to limit the Company's
exposure to regional economic downturns and unfavorable weather conditions.
The Company's resorts continue to differentiate themselves in their
respective markets by selectively upgrading on-mountain facilities and guest
services, employing targeted marketing strategies and offering extensive skier
development programs, all of which create a competitively-priced, high-quality
guest experience. Since its formation in October 1996, the Company's resorts
have collectively spent over $27.5 million in capital improvements, including
the addition of high-speed chairlifts, additional snowmaking capability,
improved trail grooming equipment, and enhanced on-mountain lodging, retail and
food service amenities. The Company believes its existing resorts have been well
maintained. The Company also uses targeted advertising, database marketing and
strategic marketing alliances to enhance the image of its resorts and increase
regional market share. The Company also offers extensive development programs to
improve the technical skill level of all types of skiers, which management
believes is important to expand the total skier population and increase skier
visitation frequency. Northstar and Sierra are consistently rated by consumer
publications as having premier ski instruction and development programs. The
Company is currently implementing similar skier development programs at its
other resorts.
The following is an organizational chart of Booth Creek Ski Group, Inc.
("Parent") and the Company and its subsidiaries. Each subsidiary of the Company
is, directly or indirectly, wholly-owned by Booth Creek.
3
[GRAPH OF ORGANIZATIONAL CHART OMITTED]
The Company's principal executive offices are located at 1000 South Frontage
Road West, Suite 100, Vail, Colorado 81657. Its telephone number at that
location is (970) 476-4030. The Company was incorporated in Delaware on October
8, 1996.
Recent and Pending Acquisitions
On February 26, 1998, the Company acquired Loon Mountain Recreation
Corporation ("LMRC"), the owner and operator of the Loon Mountain ski resort
located in New Hampshire. The acquisition of LMRC (the "Loon Mountain
Acquisition") was effected pursuant to an Agreement and Plan of Merger, dated
September 18, 1997, as amended as of December 22, 1997, by and among the
Company, as assignee of Parent, LMRC Acquisition Corp. and LMRC. The aggregate
net purchase price for the Loon Mountain Acquisition was approximately $30.2
million (including the assumption of debt which was repaid in connection with
the acquisition and acquisition costs). The Loon Mountain Acquisition was
financed through (i) proceeds from the offering of $17.5 million aggregate
principal amount of the Company's 12.5% Series C Senior Notes due 2007, issued
under the Indenture for the Senior Notes dated as of March 18, 1997,(as amended
and supplemented, the "Indenture") among the Company, the Guarantors named
therein, and the trustee, (ii) a capital contribution of $10.5 million to the
Company by Parent (the "Equity Financing"), and (iii) available cash on hand and
borrowings under the Company's Amended and Restated Credit Agreement dated March
18, 1997, (which has since been amended and restated effective as of October 30,
1998 (the "Senior Credit Facility"). See Part II, Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources").
On August 28, 1998, the Company, Booth Creek Ski Acquisition, Inc., a
wholly-owned subsidiary of Booth Creek ("Acquisition Sub"), and Seven Springs
Farm, Inc. ("Seven Springs"), the owner and operator of the Seven Springs
Mountain Resort, a ski resort and conference center in Pennsylvania, entered
into an Agreement of Merger (the "Merger Agreement"), pursuant to which the
Company would acquire Seven Springs through the merger of Acquisition Sub with
and into Seven Springs. The aggregate merger consideration and related payments
will be approximately $83.0 million plus certain deferred payments, subject to
certain price adjustments. The proposed acquisition is conditioned on the
receipt of a judicial determination that the terms of a certain shareholders'
agreement among Seven Springs and its shareholders (the "Seven Springs
Shareholder Agreement") does not apply to the transactions contemplated by the
Merger Agreement, as well as customary closing conditions. In connection with
the proposed acquisition, certain shareholders of Seven Springs filed a lawsuit
in the Court of Common Pleas of Somerset County, Pennsylvania against the
Company, Acquisition Sub, and Seven Springs and certain of its directors,
seeking a declaratory judgment, along with other relief including the rescission
of the Merger Agreement. Plaintiffs allege that the terms of the Seven Springs
Shareholder Agreement ban the consummation of the proposed acquisition. On
October 29, 1998, the Court entered a final judgment denying Plaintiff's motion
and has permitted the consummation of the transactions contemplated by the
Merger Agreement. On December 28, 1998, the Plaintiff's filed an amended notice
of appeal which is currently pending. While the Company believes that Seven
Springs will prevail with its position that the Seven Springs Shareholders
Agreement does not apply to the transactions contemplated by the Merger
Agreement, no assurance can be made regarding the timing or the outcome of this
litigation.
4
Industry
There are 521 ski areas in the United States which, during the 1997/98 ski
season generated approximately 54.1 million skier days. A "skier day" represents
one skier or snowboarder visiting one ski resort for one day, including skiers
and snowboarders using complementary and season passes. Calculation of skier
days requires an estimate of visits by season passholders. Although different
ski resort operators may use different methodologies for making such estimates,
management believes that any resulting differences in total skier days are
immaterial. These areas range from small ski resort operations which, primarily
cater to day skiers and regional overnight skiers from nearby population
centers, to larger resorts which, given the scope of their operations and their
accessibility, are able to attract skiers and snowboarders from their regional
ski markets as well as destination resort guests who are seeking a comprehensive
vacation experience. While regional ski market skiers tend to focus primarily on
lift ticket price and round-trip travel time, destination travelers tend to be
heavily influenced by the number of amenities and activities offered as well as
the perceived overall quality of the vacation experience. The table below
summarizes regional skier days from the 1993/94 ski season through the 1997/98
ski season.
U.S. Ski Industry Regions and Skier Days
(in thousands)
Rocky Pacific Lake
Season Northeast Southeast Midwest Mts West Tahoe Total
------ --------- --------- ------- ------ -------- ------ -----
1993/94......................... 13,718 5,808 7,364 17,503 7,144 3,100 54,637
1994/95......................... 11,265 4,746 6,907 18,412 7,446 3,900 52,676
1995/96......................... 13,825 5,693 7,284 18,148 6,033 3,000 53,983
1996/97......................... 12,407 4,231 7,137 18,904 7,341 2,500 52,520
1997/98......................... 12,712 4,343 6,707 19,191 7,419 3,750 54,122
Five year average............... 12,785 4,964 7,080 18,432 7,077 3,250 53,588
Northeast: CT, MA, ME, NH, NY, VT, RI
Southeast: AL, GA, KY, MD, NC, NJ, PA, TN, VA, WV
Midwest: IA, IL, IN, MI, MN, MO, ND, NE, OH, SD, WI
Rocky Mts: CO, ID, MT, NM, UT, WY
Pacific West: AK, AZ, CA (excluding Lake Tahoe Region), NV, OR, WA
Source: 1997/98 Kottke National End of Season Survey
The ski resort industry is presently experiencing a period of consolidation. The
number of United States ski areas has declined from 709 in 1986 to 521 in 1998
and, based on industry estimates, the number of ski areas is expected to decline
further, as many mountain resorts lack the infrastructure, capital and
management capability to compete in this multi-dimensional and service-intensive
industry. No major new ski resort has opened in the United States since 1989. Of
the 521 ski areas, the 1997/98 Kottke National End of Season Survey estimates
the average resort recorded approximately 103,882 skier days. Only 25% of all
resorts typically report more than 200,000 skier days per season. All of the
Company's resorts except Mt. Cranmore and Grand Targhee typically record more
than 200,000 annual skier days. The trend among leading resorts is toward
investing in improving technology and infrastructure, including high-speed
lifts, attractive facilities and extensive snowmaking capabilities to deliver a
more consistent, quality experience. Since its formation, the Company's resorts
have spent over $27.5 million in capital expenditures to improve their
competitive position. Management believes the need for increased investment in
resorts in general has required a greater access to capital and has enhanced the
position of larger and better capitalized resort owners. Despite this
consolidation, the ski industry remains highly fragmented, with no one resort
accounting for more than 3%, and no one resort operator accounting for more than
approximately 10%, of the United States' 54.1 million skier days during the
1997/98 ski season. The four largest ski resort companies, including the
Company, accounted for approximately 27.6% of all U.S. skier days recorded
during the 1997/98 ski season.
Management believes that changes in demographics and certain ski industry
trends will be favorable for the U.S. ski industry. Members of the Baby Boom
generation, the single largest group of skiers, are moving into an age and
economic cycle when a greater portion of their disposable income is available
for recreational activities and the purchase of vacation homes. The next largest
group of skiers are the Echo Boom generation (children of Baby Boomers) and the
"X" Generation (young adults). With an estimated 114 million people, members of
these generations are beginning to form their recreational habits and offer the
largest potential increase in skiers since the emergence of the Baby Boom
generation in the late 1960's through the mid-1970's.
5
The emergence and growth of snowboarding, driven primarily by the Echo Boom
and X Generations, have energized interest in "on-snow" recreation. According to
the 1997/98 Kottke National End of Season Survey, the estimated number of
snowboarder visits has increased from 5.7 million in the 1993/94 ski season to
11.2 million in the 1997/98 ski season, an increase of approximately 96%.
Snowboarding is now regarded as one of the fastest growing sports in the world.
Recently the International Olympic Committee designated snowboarding as a medal
event in the 2002 Winter Olympic Games. Snowboarders tend to be between the
ages of 13 and 25 and presently represent an estimated 20.7% of all domestic ski
resort visitors. Regional resorts are the industry leaders in providing
designated snowboarding parks, trails and specialized trial grooming techniques
for snowboarders. All of the Company's resorts have allocated significant
terrain to snowboarders. Management believes that the growth in snowboarding has
had, and will continue to have, a positive impact on the snow sports industry,
especially since it is attracting new age groups, and will continue to be an
important source of lift ticket, ski school, retail and rental revenue growth
for the Company.
The advent of snowboarding has been accompanied by the recent introduction
of new "parabolic," or shaped, alpine skis which make skiing easier to
learn and enjoy. The new skis are expected to significantly improve a new
skier's learning progression, as well as enhance the experience of skiers of all
abilities through increased technical ability and control. The California
Resorts, the Summit, Grand Targhee and Loon Mountain have replaced all or a
majority of their rental skiing equipment with new shaped skis. Further advances
and innovations in skier equipment, trail maintenance and lift technology are
also expected to lead to the greater popularity of skiing.
The Lake Tahoe region has averaged approximately 3.3 million annual skier
days over the last five years. Management estimates that approximately 80% of
the skiers visiting Lake Tahoe resorts during the 1997/98 ski season were from
the San Francisco, Sacramento and Central California Valley metropolitan areas.
Other guests come principally from Southern California and states with large ski
populations, such as Texas, Illinois and Florida. Skiers in this market can
choose from among six major resorts, which include Northstar, Sierra, Squaw
Valley, Heavenly Valley, Alpine Meadows, and Kirkwood. Northstar, Squaw Valley
and Heavenly Valley attract a significantly greater share of destination skiers
than the area's other resorts.
The Southern California market has averaged approximately 2.3 million annual
skier days over the last five years. Management estimates that approximately 80%
of the skiers visiting Southern California resorts during the 1997/98 ski season
were drawn primarily from the Los Angeles, Orange County and San Diego
metropolitan areas. Skiers in this market can choose from among three major
resorts, which include Bear Mountain, Snow Summit and Mammoth Mountain.
The Northeast market (including New York) has averaged approximately 12.8
million annual skier days over the last five years. The Northeast market
consists of a significant percentage of day or weekend skiers due to the
relatively short driving radius to major metropolitan areas. While the Northeast
does not draw significant numbers of vacationing skiers from the Western regions
of the United States, it does compete with the Rocky Mountains and Pacific West
areas for Eastern vacationing skiers. Within the Northeast region, skiers can
choose from among over 50 major ski areas and resorts. The region's major ski
areas and resorts are concentrated in the mountainous areas of New England and
eastern New York, with the bulk of skiers coming from the population centers
located in eastern Massachusetts, southern New Hampshire, Connecticut, eastern
New York, New Jersey and the Philadelphia area.
The Company's Summit resort complex operates in the Washington state segment
of the Pacific West market, which recorded approximately 7.4 million skier days
during the 1997/98 ski season. Management estimates that approximately 95% of
the skier days recorded at Washington state resorts during the 1997/98 ski
season were attributable to residents of the Seattle/Tacoma metropolitan area.
Other guests come primarily from other parts of Washington, Oregon and Western
Canada. Washington state resorts do not attract a significant number of
destination skiers. Within Washington state, skiers can choose from among 14 ski
resorts, including the four resorts comprising the Summit. The largest ski areas
in Washington state are the Summit, Stevens Pass and Crystal Mountain. Other ski
areas in Washington are moderate to small in size.
The Rocky Mountains market has averaged approximately 18.4 million skier
days over the last five years, with a high percentage of visitors consisting of
destination skiers. Of the 90 ski areas in the region, 28 are located in
Colorado, accounting for approximately 62% of all recorded skier days in the
region during the 1997/98 ski season. The 38 ski resorts in the northern Rocky
Mountain states of Montana, Idaho and Wyoming recorded a total of approximately
2.9 million skier days during the 1997/98 ski season. Because resorts in this
part of the region are generally less accessible than resorts in Colorado or
6
Utah, they tend to be smaller and attract fewer destination skiers from outside
of the northern Rocky Mountain states.
Resort Operations
The Company's eight resort complexes offer a variety of ski and non-ski
activities. The table below provides a summary of each resort's ski operations
and is followed by a more detailed description of each resort.
Approx.
Snow- Snow Beds
Skiable Vertical Making Grooming Within 12
Resort Acres Drop Trails Lifts Coverage Machines Miles
- -------------------------------- ------ ------- ------- ------ --------- -------- -------
Northstar-at-Tahoe............. 2,400 2,280 63 1 Gondola 50% 14 16,000
4 High-Speed
Quads (1)
4 Fixed
Grip
3 Surface
Sierra-at-Tahoe................ 1,663 2,212 46 3 High-Speed 10% 12 30,000
Quads
6 Fixed
Grip
1 Surface
Bear Mountain.................. 195 1,665 32 2 High-Speed 100% 8 11,000
Quads
7 Fixed
Grip
3 Surface
Waterville Valley.............. 255 2,020 52 2 High-Speed 100% 8 6,500
Quads
6 Fixed
Grip
4 Surface
Mt. Cranmore................... 190 1,167 41 1 High-Speed 100% 4 16,000
Quad
4 Fixed
Grip
4 Surface
The Summit at
Snoqualmie................... 1,916 2,200 96 2 High-Speed 0% 14 1,000
Quads
18 Fixed
Grip
7 Surface
Grand Targhee.................. 2,412 2,200 28 1 High-Speed 0% 7 750
Quad
2 Fixed
Grip
1 Surface
Loon Mountain.................. 250 2,100 41 1 Gondola 96% 8 13,000
1 High-Speed
Quad
5 Fixed
Grip
1 Surface
(1) High-Speed Quads are four-person chairlifts which decelerate and detach from
a cable during passenger loading and unloading and reattach and accelerate
thereafter.
Northstar-at-Tahoe
In management's opinion, Northstar-at-Tahoe, located near the north end of
Lake Tahoe, California offers more activities and services in both winter and
summer than any of its competitors in the Lake Tahoe area. The resort's
8,600-foot Mt. Pluto features 2,400 acres of skiable terrain and a 2,280 foot
vertical drop. Northstar's 63 ski trails are served by 12 operating lifts,
including one gondola, four high-speed quads, two triple lifts and two double
lifts, which combine to transport up to 19,275 skiers uphill per hour. Northstar
also has approximately 42 kilometers of groomed trails for cross-country skiing
and snowshoeing and several on-mountain terrain parks for snowboarders and
adventurous skiers offering non-traditional bumps, jumps and turns. Other
facilities at Northstar include a European-style village that consists of
condominium/hotel accommodations, various restaurants, bars, shops, a child-care
center and entertainment and convention facilities, a 22,700 square foot
on-mountain ski lodge and a 5,800 square foot on-mountain children's ski school
facility. Summer recreation facilities include an 18-hole golf course, ten
tennis courts, a
7
horseback riding stable, fly fishing, mountain bike rentals and trails and
a swimming pool. Northstar currently ranks third in total skier days in the Lake
Tahoe area and is one of only 18 resorts in the United States to surpass the
500,000 skier days milestone, which it did during the 1994/95 and 1997/98 ski
seasons. Between 1990 and 1998, Northstar was named one of the top ten family
resorts in the United States by Travel & Leisure, Better Homes & Gardens and
Family Circle, as well as one of the best 50 ski resorts in North America by
Snow Country and Ski magazines.
Northstar provides a full-service skiing experience for its clientele, which
typically includes the upper-income, Baby Boomer population. Northstar's
marketing is focused on the San Francisco Bay and the Sacramento Valley areas as
a destination skier's alternative to Colorado and Utah resorts. Northstar also
markets aggressively in Southern California and states with large ski
populations. Northstar is within a one hour drive of the Reno International
Airport, which offers convenient scheduled air service to all parts of the
United States, Western Canada and Mexico. Small private planes can fly into the
all-weather Truckee Airport, where Northstar operates transit buses to the
resort.
Typical Northstar guests include single male intermediate skiers between
the ages of 25 and 44 and earning between $50,000 and $100,000 and families
headed by professionals or business executives with incomes in excess of
$100,000. Northstar is within a 200 mile driving radius of the major population
centers of San Francisco and Sacramento and, therefore, attracts a significant
number of its guests from Northern California. Northstar has approximately 6,000
beds at the resort with an additional 40,000 beds in the vicinity, 10,000 of
which are within a 12 mile radius. Management estimates that during the 1997/98
ski season 70% of the skiers visiting Northstar came from Northern California,
10% from Southern California, 17% from other states and 3% from international
locales.
Northstar's snowmaking system is engineered to cover approximately 50% of
its ski trails, which management believes is adequate given the area's heavy
annual snowfall, which averaged approximately 326 inches per year during the
past five years. Northstar has pumping rights from nearby water sources which,
when coupled with its 60 million gallon water storage capacity, have been more
than sufficient to support the resort's needs. Snowmaking during the 1997/98 ski
season consumed approximately 32.4 million gallons of water.
Northstar consists of over 6,500 acres of privately owned land, of which
less than one-third has been developed. Management believes that Northstar has
significant opportunities to develop additional ski terrain as well as
residential and commercial space. See Part I, Item 1. "Business - Real Estate
Development."
Sierra-at-Tahoe
Sierra-at-Tahoe is conveniently located near the large bed base of South
Lake Tahoe, California and is the closest major ski resort to Sacramento and the
Central California Valley. The resort's 8,852-foot peak offers 1,663 skiable
acres and a 2,212 foot vertical drop. Sierra's 46 ski trails are currently
served by ten operating lifts, including three high-speed quads, one triple lift
and five double lifts, which combine to transport up to 14,921 skiers uphill per
hour. In addition to significantly upgrading its retail and restaurant
facilities in recent years, Sierra has invested approximately $11.5 million
since 1994 to install new high-speed lifts, upgrade its grooming equipment and
rebuild its base lodge facilities. Sierra operates a 46,000 sq. ft. base lodge
which offers a variety of food and beverage services. Management believes that
Sierra's recent investment in its ski infrastructure has made it the best ski
value in the South Lake Tahoe area. Sierra does not offer summertime activities.
Sierra's demographic characteristics closely parallel Northstar's, although
Sierra's core customer base is slightly younger and less affluent with more
aggressive skiing demands. Sierra does not own or manage any real estate units
in the area but there are approximately 50,000 beds in the South Lake Tahoe
vicinity, including 30,000 beds within a 12 mile radius. Sierra attracts a
larger share of its guests from the Sacramento and Central California Valleys
than the San Francisco Bay area.
Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder
under a Special Use Permit from the United States Forest Service. See Part I,
Item 1. "Business - Regulation and Legislation." Sierra's skiable terrain,
notable for its extensive grooming and wind-protected slopes, requires less snow
than other resorts to provide appealing ski conditions. Due to its abundant
annual snowfall, which has averaged approximately 518 inches per year over the
past five years, Sierra is not dependent upon snowmaking and, as a result, its
snowmaking equipment covers only 10% of Sierra's total acreage. Sierra also
employs a modern fleet of snow grooming machines which maintain high-quality
skiing surfaces.
8
Bear Mountain
Bear Mountain is located in the San Bernardino mountains of Southern
California. Its 8,805-foot peak features 195 acres of skiable terrain and a
1,665 foot vertical drop. Bear Mountain's 32 ski trails are served by 12 lifts,
including two high-speed quads, one fixed grip quad, two triple lifts and four
double lifts, which combine to transport up to 16,590 skiers uphill per hour.
During the last two ski seasons, Bear Mountain invested approximately $1.5
million to upgrade its base lodge facilities. Other facilities at Bear Mountain
include three lodges which provide an aggregate of approximately 31,000 square
feet of space for food and beverage services (restaurants and cafeterias), skier
services and entertainment. Summer recreation facilities include a nine-hole
golf course.
Bear Mountain is within a one to three hour drive of the Los Angeles and
San Diego metropolitan areas, providing it with access to nearly 16 million
Southern Californians of whom approximately 800,000 actively participate in
skiing and snowboarding. Approximately 90% of Bear Mountain's skiers are from
Southern California. Bear Mountain appeals to the younger generations of skiers,
the Echo Boom and "X" Generations, who are generally less affluent than the
targeted customers at the Company's Lake Tahoe resorts. While Bear Mountain is
in the middle of an approximately 11,000 bed base area, it is primarily a day
skiing facility.
Bear Mountain owns an 116 of its 819 gross acreage, leases 698 acres of
mountain terrain under a Forest Service special use permit and leases five acres
from third parties. See Part I, Item 1. "Business - Regulation and Legislation."
Management believes that Bear Mountain has one of the largest snowmaking
capacities per acre of any resort west of the Mississippi River and incorporates
a state-of-the-art system which allows it to efficiently cover 100% of its ski
trails. Bear Mountain also has access to three reservoirs capable of holding six
million gallons of water for snowmaking. Management believes that the skiing
infrastructure at Bear Mountain, including lifts, snowmaking and trail grooming
equipment, is very strong, making it one of the most attractive ski areas in
Southern California.
Waterville Valley
Waterville Valley has long been recognized as one of the largest and most
picturesque ski resorts in New Hampshire. Waterville Valley's major base
facilities are located on the 4,004 square foot high Mt. Tecumseh and offer 255
skiable acres and a vertical drop of 2,020 feet. Waterville Valley's 52 trails
are served by 12 operating lifts, including two high-speed quads, two triple
lifts and four double lifts, which combine to transport up to 15,672 skiers
uphill per hour.
The resort operates a 41,872 square feet base lodge (complete with multiple
food service centers and child care), a mid-mountain lodge featuring a cafeteria
and deli and a mountain-top lodge with snack bar and acclaimed restaurant
dining.
The Waterville Valley resort has a year-round Adventure Center offering
mountain bikers, cross-country skiers, and hikers access to 105 kilometers of
trails in the White Mountain National Forest. Other resort amenities include an
ice skating arena, golf course, tennis center, sports and fitness center,
horsedrawn sleigh rides, skateboard park, beach and paddle boats. Waterville
Valley's Conference Center has 17,000 square feet of meeting space and provides
banquet facilities for up to 1,000 people. With 11 meeting rooms, a business
center, audio-visual capabilities and a self-contained pub, the Conference
Center's on-site staff supports events year-round.
Waterville Valley has traditionally created an environment conducive to
families composed of either day skiers, regional overnight skiers or vacation
skiers. Its location adjacent to Interstate 93 (a major north-south thoroughfare
for skiers) makes it one of the most accessible of the larger New England
resorts. The resorts facilities, trails and programs can satisfy adults and
children of all abilities. Waterville Valley's proximity to large East Coast
markets (Boston is less than two and one-half hours away by car) attracts day
skiers, while the town's substantial bed base can accommodate the regional
overnight skiers and vacationers who will stay an average of two to four days.
There are approximately 6,500 beds in the Waterville Valley area, of which
approximately 3,000 can be rented. Management estimates that during the 1997/98
ski season the majority of Waterville Valley's skiers came from Massachusetts
(49%) and New Hampshire (30%), with the remainder coming from Rhode Island,
Connecticut, New York, New Jersey and other regional locations.
9
Waterville Valley owns 35 acres on Snow Mountain and two acres at the
Conference Center. It leases 790 acres of land on Mt. Tecumseh under a Special
Use Permit issued by the United States Forest Service. See Part I, Item 1.
"Business - Regulation and Legislation." Waterville Valley's snowmaking system
is engineered to cover 100% of the ski trails on Mt. Tecumseh. Water for
snowmaking is currently pumped from a local river and a pond. Waterville Valley
is in the process of obtaining permits for additional water sources and water
storage facilities for snowmaking.
Mt. Cranmore
Mt. Cranmore is the oldest continuously operated ski area in the United
States. Strategically located in the hub of New Hampshire's Mount Washington
Valley, Mt. Cranmore's 1,714 foot summit offers 190 skiable acres and a 1,167
foot vertical drop. Mt. Cranmore's 41 trails, including nine trails lighted for
night skiing, are served by nine operating lifts, including one high-speed quad,
one triple lift, three double lifts, three handle tows and one surface lift,
which combine to transport up to 6,420 skiers uphill per hour. The mountain is
serviced by two base lodges, offering multiple eating locations and
pub/restaurant facilities, as well as a restaurant at the summit. In addition,
Mt. Cranmore owns a year-round 46,000 square foot athletic facility which
includes an outdoor tennis stadium with seating for up to 5,500 people, four
indoor tennis courts, a pool, a spa, a weight-lifting area, aerobic rooms, an
indoor-climbing wall, locker rooms, a snack area and a nursery. Mt. Cranmore
also operates on-site retail and rental shops.
Management believes that Mt. Cranmore has great appeal to the family skier
due to its intimate size, high percentage of intermediate trails (45%, with 33%
for advanced) and its well-developed children's ski programs. An additional
family attraction is Mt. Cranmore's neighboring town of North Conway, which is
within walking distance of the mountain and has one of New England's largest
rural, retail outlet and restaurant centers. North Conway is part of the White
Mountains area, which is the dominant tourist destination in New Hampshire.
Approximately 13 million people live within a four-hour drive of Mt. Cranmore.
During the 1997/98 ski season, management estimates that 46% of the resort's
guests were from the Boston metropolitan area, 36% were from New Hampshire and
8% were from Rhode Island. To accommodate destination/vacation skiers there are
approximately 16,000 rental beds in the Mt. Washington Valley, including 76
condominium units at Mt. Cranmore itself.
Mt. Cranmore owns 754 acres and holds easements enabling it to
develop an additional 1,200 acres of ski terrain. Mt. Cranmore does not lease
any of its land from the federal government. Mt. Cranmore's snowmaking equipment
consists of a computerized Hydralink weather-monitoring snowmaking system which,
when installed in 1995, increased snowmaking output by 40% and currently covers
100% of the resort's ski trails. In addition to pumping rights from a nearby
stream, Mt. Cranmore has an agreement with the local water district for
unrestricted access to an additional reservoir of 1 million gallons of water for
snowmaking. Mt. Cranmore's base area pond also holds 2.5 million gallons.
The Summit at Snoqualmie
The Summit is located in the Cascade Mountains of Northwest Washington and
consists of four separate resorts, Alpental at the Summit ("Alpental"), Summit
West, Summit Central, and Summit East, which collectively offer 1,916 acres of
skiable terrain. Individually, Alpental has a 5,400 foot top elevation, a 2,200
foot vertical drop and 170 acres of skiable trails and runs (93 of which are
lighted for night skiing); Summit West has a 3,860 foot top elevation, an 810
foot vertical drop and 172 acres of skiable trails and runs (166 of which are
lighted for night skiing); Summit Central has a 3,860 foot top elevation, a
1,020 foot vertical drop and 246 acres of skiable trails and runs (176 of which
are lighted for night skiing); and Summit East has a 3,760 foot top elevation, a
1,080 foot vertical drop and 110 acres of skiable trails and runs (58 of which
are lighted for night skiing). In total, the Summit complex has 96 designated
trails and runs served by 27 operating lifts, including two high-speed quads,
four triple lifts, 14 double lifts and 7 surface lifts, which combine to
transport up to 32,890 skiers uphill per hour. The Summit Nordic Center also
offers approximately 55 kilometers of cross-country skiing on an expert trail
system and a lighted beginner student trail which hosts a season-long night
racing series. In addition, the Summit West, Summit Central, and Summit East
areas are interconnected by a cross-over trail system. Since its acquisition in
January 1997, the Company has invested approximately $6.6 million at the Summit
to improve base facilities and install additional lifts. In December 1998, the
Company completed the installation of new detachable quad lifts at Alpental and
Summit Central for the 1998/99 ski season. The Summit
10
operates seven lodges which provide an aggregate of approximately 111,175 square
feet of space for food and beverage services (restaurants and cafeterias), skier
services and entertainment.
The Summit is within a one-hour drive of the Seattle/Tacoma metropolitan
area, providing it with access to nearly 450,000 active skiers and snowboarders.
Although the complex offers a relatively even variety of trail difficulty, each
of the separate properties have been designed to appeal to specific skier
profiles: Alpental's trails are designed primarily for intermediate to expert
skiers; Summit West's open slopes are geared toward beginner and intermediate
skiers; Summit Central's trail systems are heavily weighted toward intermediate
to advanced skiers; and Summit East's trails are designed primarily for novice
to intermediate skiers. Overall, the Summit complex is one of the largest
learn-to-ski areas in the United States, with approximately 30% of its 1997/98
skier days being attributable to guests enrolled in ski school. In addition, the
Summit is the largest night ski complex in the United States, with approximately
40% of its skier visits being recorded at night.
The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400
acres under a private permit and utilizes 1,864 acres of mountain terrain under
a United States Forest Service Special Use Permit. The Summit enjoys abundant
annual snowfall, averaging 422 inches annually over the past five years. As a
result, there are no man-made snowmaking capabilities at any of the resorts. The
Company does, however, possess water rights that would allow it to engage in
snowmaking, if necessary, or desired in the long term.
Grand Targhee
Grand Targhee is located in the Grand Teton mountains of Wyoming,
approximately 50 miles northwest of the town of Jackson. Jackson, Wyoming is a
major ski destination resort center, recording an average of 483,000 skier days
annually at the area's three resorts in the last five ski seasons. Grand
Targhee, with a top elevation of 9,873 feet, 2,412 acres of skiable terrain and
a 2,200 foot vertical drop, offers two different mountain ski areas. The first
mountain is served by four operating lifts, including the longest high-speed
quad in the state of Wyoming, which combine to transport up to 5,460 skiers
uphill per hour. The second mountain is reserved for Snowcat powder skiing.
Grand Targhee also has approximately 15 kilometers of machine groomed trails for
cross-country skiing. Grand Targhee has recently invested approximately $4.0
million to improve uphill capacity and the overall ski experience. Other
facilities at Grand Targhee include base lodge facilities, hotel accommodations,
restaurants, shops, a child care center and retail stores. In addition, Grand
Targhee owns and operates a spa, fitness and conference center.
Grand Targhee competes for day and regional overnight skiers in the northern
Rocky Mountain region as well as national destination skiers traveling to the
greater Jackson, Wyoming area. Guests from Idaho, Utah, Wyoming and Montana have
accounted for approximately 38% of Grand Targhee's total skier days over the
past five ski seasons. Grand Targhee's national destination guests, those guests
residing outside the northern Rocky Mountain region, accounted for the remaining
62% of the resort's skier days during the same period. A majority of these
guests came from California, Washington, New York and Minnesota. Overall,
approximately 60% of Grand Targhee's skiers reside more than 200 miles from the
resort. Given that Grand Targhee only operates 96 rental units, many of the
resort's overnight regional and destination skiers secure hotel accommodations
at other resorts or hotels in the area. The Company believes that there are in
excess of 5,000 beds in the vicinities of Jackson, Wyoming and Driggs, Idaho.
Management believes that the distinguishing features of Grand Targhee are
well-maintained and uncrowded facilities, excellent ski conditions, attractive
vacation packages and a high quality family ski school.
Grand Targhee is located entirely on land leased under a United States
Forest Service Special Use Permit. See Part I, Item 1. "Business - Regulation
and Legislation." Grand Targhee has averaged approximately 512 inches of
snowfall annually during the last five years, and historically has received the
second highest snowfall amount of all ski resorts in the United States. In 1997,
Snow Country magazine rated Grand Targhee as the best ski area in North America
for snow conditions.
Management believes that Grand Targhee is currently underutilized, and that
a key component of increasing skier days at the resort will be expanding its
bed base. Grand Targhee recently received United States Forest Service approval
to build 590 rental units and has had discussions with the Forest Service that
would allow for the future development of private dwellings. See Part I, Item 1.
"Business - Real Estate Development."
11
Loon Mountain
Loon Mountain is located in the White Mountains of New Hampshire in the town
of Lincoln. The resort's 3,050 foot peak features 250 skiable acres and a 2,100
foot vertical drop. Loon Mountain's 41 trails are served by eight operating
lifts, including a four-passenger gondola and a high-speed quad, which combine
to transport over 10,000 skiers uphill per hour. Loon Mountain's trails cater
mostly to intermediate level skiers (64%), with trails provided for beginners
(20%) and experts (16%) as well. Resort amenities include access to certain core
areas of the on-mountain Mountain Club, including a restaurant, a bar, a
swimming pool and conference rooms. Additionally, the resort offers a base lodge
with a cafeteria and coffee shop, a restaurant and deck at the summit, the
Governor Adams lodge (which provides traditional lodge facilities and also
serves as a forum for summer outdoor activities and concerts), trails for cross-
country skiing, horseback riding and mountain biking, a steam engine railroad
for shuttling visitors, and a Wildlife Theater.
Loon Mountain has traditionally created an environment conducive to families
who are either day skiers, regional overnight skiers or destination skiers. Its
location adjacent to Interstate 93 (a major north-south thoroughfare for skiers)
enabled it to receive the number one ranking in North America east of the
Mississippi River for accessibility by Snow Country magazine in 1997. Loon
Mountain's proximity to large East Coast markets (Boston is less than two and
one-half hours away by car) attracts day skiers, while an approximate bed base
of 13,000 within twelve miles of the resort can accommodate regional overnight
and destination skiers.
Loon Mountain owns 565 acres upon which substantially all of the buildings
and improvements relating to the resort are located. Loon Mountain leases 775
acres of land in the White Mountain National Forest under a Special Use Permit
issued by the United States Forest Service permitting year-round recreational
use. Adjacent to such land, an additional 581 acres are leased on "South
Mountain" under a separate Special Use Permit permitting certain limited
activities, including mountain biking, cross-country skiing and horseback
riding. These 581 acres have been designated by management for the eventual
development, subject to permitting, of skiing terrain to complement the current
skiing area. See Part I. Item 1. "Business-Real Estate Development." The average
annual snowfall at Loon Mountain was 142 inches over the last five seasons,
although when necessary Loon Mountain has the snowmaking capacity to cover
approximately 96% of the skiable acreage.
Business Segments
Business segment information is presented in Note 10 to the accompanying
consolidated financial statements.
Real Estate Development
The Company believes it has significant opportunities to develop available
acreage for additional skiing terrain as well as for residential lodging and
commercial uses. Management believes that selective real estate development can
enhance the Company's resorts and that there is opportunity for synergy between
real estate development and the Company's ski operations. In management's view,
increasing the on-mountain bed base, expanding retail and other commercial
services and developing additional skiable terrain at a resort can accelerate
growth in skier days and ski-related revenues. The following table lists certain
owned or leased land available to the Company for expansion. The land subject to
Special Use Permits with the United States Forest Service is subject to certain
restrictions and approval requirements.
Residential/
Commercial/ Number Principal
Location How Held Ski Terrain of Acres Uses
- ----------------------------- ------------ ------------ --------- -------------------
Northstar: Big Springs....... Owned Residential 90 On-mountain housing
Northstar: North Lookout
Mountain................... Owned Ski Terrain 450 Expand ski terrain
by 16%
Northstar: Sawtooth Ridge.... Owned Ski Terrain 652 Expand ski terrain
by 22%
Northstar: Zoned/Undeveloped. Owned Residential/ 765 On-mountain housing and
Commercial expand commercial
facilities
Mt. Cranmore: Black Cap...... Easement Ski Terrain 700 Significantly
expand and vary ski
terrain
Mt. Cranmore: Base Lands..... Easement Residential/ 35 On-mountain housing and
Commercial expand commercial
facilities
12
Residential/
Commercial/ Number Principal
Location How Held Ski Terrain of Acres Uses
- ----------------------------- ------------ ------------ --------- -------------------
Bear Mountain................ Leased: Ski Terrain 126 Expand ski
Forest Service terrain by 25%
Bear Mountain: Big Bear Lake. Owned Residential/ 6 Develop 56
Ski Terrain condominiums
and expand ski
terrain
Grand Targhee................ Leased: Ski Terrain 900 Expand ski terrain
Forest Service by 70%
Grand Targhee................ Leased: Residential/ 108 Develop Village
Forest Service Commercial (increase
on-mountain bed
base by 615%) and
expand commercial
facilities
The Summit................... Owned Residential 105 On-mountain housing
Loon Mountain:
South Mountain............. Leased: Ski Terrain 581 Expand ski terrain
Forest Service
Loon Mountain: Base Lands.... Deeded: Residential/ 412 On-mountain housing
Privately Owned Commercial and expand commercial
facilities
The Company's strategy with regard to the expansion of skiable terrain at
its resorts is based on the evaluation of several key factors, including (i) the
anticipated growth of the skier base within the relevant market and the
Company's ability to improve its competitive market position in that market, as
measured by the potential increase in the number of skier days and revenue per
skier on a long-term basis which the Company believes it can capture through
expansion and (ii) the return on capital expected to be realized from an
expansion project versus alternative projects. Management plans to undertake
extensive planning and pre-development steps prior to investing significant
capital into any development project. Currently, the Company is in the process
of developing comprehensive master plans for Northstar, Waterville Valley, the
Summit, Grand Targhee and Loon Mountain. The Company's management intends to
undertake a number of these projects with real estate partners who can provide a
substantial portion of the construction capital.
The Company's resorts have traditionally taken a conservative approach
toward residential and commercial development and real estate development
efforts have taken place primarily at Northstar. Beginning in 1995, the resort
developed a new single family home community on Mt. Pluto ("Big Springs")
consisting of 158 private residential lots. The total project has been planned
in five phases to reduce infrastructure development costs and maximize returns
by controlling both the timing and inventory of lots on the market. Prior to
fiscal 1998, Northstar sold all of the 44 lots offered in phase one and all of
the 35 lots offered in phase two for an average price of approximately $154,000.
In August 1998, Northstar sold all 32 lots available for sale in phase three for
an average lot price of approximately $212,000. New homes built by the owners of
such properties range in price from approximately $600,000 to $1.2 million.
Phases four and five will require an estimated $2.0 million in capital
expenditures to complete infrastructure development for the 46 available lots.
Northstar expects to sell the remaining properties over the next one to two
years. Management believes that the Big Springs development project alone will
increase the on-mountain bed base by 5% over the next two years, and should
contribute to an increase in paid skier days. Northstar also has opportunities
to develop an additional 756 acres of owned real property on Mt. Pluto, which
has been zoned for commercial and residential use.
In addition, Northstar has begun a program to harvest timber through third
party contracting. The timber harvesting program, which produced revenues of
$644,000 during the year ended October 30, 1998, is managed carefully to avoid
interference with Northstar's resort operations and prevent any diminution in
the quality of the resort's natural environment. The Company also intends to
eventually expand Northstar's ski operations to the challenging additional
terrain it owns on both North Lookout Mountain and Sawtooth Ridge, which are
adjacent to the resort's current operations. Management believes that the
skiable acreage at Northstar would increase by 30% with the development of this
terrain. The timing and scope of this expansion will depend on market conditions
and on an evaluation of the Company's other expansion criteria.
13
Mt. Cranmore holds an easement entitling it to develop at least 700 acres
of additional ski terrain known as the "Black Cap Mountain area" or "Black Cap."
The Black Cap easement was granted in 1951 and allows the Company to expand Mt.
Cranmore's existing ski and recreational infrastructure and develop additional
trails. The Black Cap property underlying the Company's easement is privately
owned and therefore not subject to the same governmental regulations which
presently restrict the activities of many New England ski areas that are located
on national or state forest land. The Black Cap land available for development
by the Company is high-quality, mostly north and west-facing ski terrain located
in an area that can accommodate alpine and cross-country trails, ski lifts and
snowmaking. Expansion would not only significantly increase Mt. Cranmore's skier
capacity, but would also enhance the quality and diversity of its skiable
terrain. Given the resort's location in the heart of the Mt. Washington region,
the dominant tourist destination in New Hampshire, the Company believes that
expansion into Black Cap could position Mt. Cranmore as a premier attraction in
the White Mountains and one of the largest and most appealing resorts in New
Hampshire. Additionally, Mt. Cranmore has 35 acres of privately owned land at
the southwest flank of the mountain. This southwest facing ski-in/ski-out land
is very suitable for development. The timing and scope of this development will
depend on market conditions and the Company's other expansion criteria.
Bear Mountain has received final approval from the Forest Service and local
governmental authorities of an expansion plan that would, among other things,
increase the resort's skiable terrain by 114 acres and increase daily skier
capacity by approximately 25%. The approval, however, is subject to numerous
mitigation conditions, including a requirement that Bear Mountain acquire and
dedicate to the Forest Service two acres of spotted owl habitat and one acre of
flying squirrel habitat in exchange for each acre proposed for development. Bear
Mountain has also entered into a developer's agreement with the City of Big Bear
Lake that generally authorizes, subject to certain conditions, the construction
of up to 56 condominium units on property currently owned by Bear Mountain. The
Company does not presently have any imminent expansion or development plans for
Bear Mountain, and any future expansion or development would depend on a variety
of factors, including local market conditions and the resolution of regulatory
and Forest Service permitting issues.
The Summit owns 66 acres of real property at the base of its mountain,
which is available for residential development. The developmental real estate at
the Summit is currently owned by DRE, L.L.C. (the "Real Estate LLC"), a
subsidiary of the Company. The Real Estate LLC has executed a deed of trust with
respect to the real property in favor of the holders of the Ski Lifts Preferred
Stock (as defined herein) to secure the Real Estate LLC's obligation to purchase
such preferred stock. In the event the Real Estate LLC defaults under its
obligation to purchase the Ski Lifts Preferred Stock, the holders thereof could
foreclose on the developmental real property and deprive the Company of the
benefit thereof. The Summit also owns 39 acres of real property at Summit East
that is ski-in/ski-out and is zoned as high-density residential and commercial.
The parcel will be studied for future development potential when market
conditions warrant.
The Company, through a study commissioned by Grand Targhee, has identified
approximately 900 acres of additional skiable terrain adjacent to the resort
which has received preliminary Forest Service approval for development. The
study also contains numerous recommendations for the further development of
Grand Targhee's infrastructure, including the creation of a European-style
village center comprising a variety of tightly-knit structures with central
pedestrian streets, plazas, commercial and recreation facilities and amenity
spaces which reflect and complement the sloped mountain topography. The village
center design includes nine additional or renovated hotel/condotel developments
providing 590 additional public accommodation units, which would increase the
resort's on-mountain bed base by 615%. The Company has received preliminary
approval for the construction of the residential units envisioned by the study,
together with the development of an additional 900 acres of skiable terrain,
subject to certain conditions. Management believes that the expansion of Grand
Targhee's on-mountain bed base will be an important component in addressing the
resort's historic underutilization. The Company intends to pursue long-term
development opportunities with third parties, although the timing and scope of
any such development is still being evaluated.
Loon Mountain currently leases approximately 581 acres known as "South
Mountain" from the Forest Service. Although currently limited to recreational
uses not including downhill skiing, this permitted area has been designated by
both Loon Mountain and the Forest Service as an area for expanded skiing
activities and the development of additional trails and lifts. A permit allowing
this expansion was issued by the Forest Service in 1993, but was subsequently
invalidated by the U.S. Court of Appeals. See "Legal Proceedings." Pending the
issuance of additional permits, expansion on South Mountain depends upon the
Company and Forest Service fulfilling the requirements, including the
preparation of supplemental National Environmental Policy Act ("NEPA")
documentation, of a court order issued by the
14
federal district court to which the related litigation was remanded. The
available South Mountain land is located in an area directly adjacent to the
present Loon Mountain ski area and will be able to accommodate alpine and cross
country trails, ski lifts (including one connecting the current ski area with
South Mountain) and snowmaking from newly installed snowmaking facilities.
Expansion would not only significantly increase Loon Mountain's skier capacity,
but would also enhance the quality and diversity of its skiable terrain. Loon
Mountain also owns 412 acres at the base of the mountain, of which 312 acres is
located at the base of South Mountain and is zoned as rural residential and
general use. Based on current zoning and subject to approvals, 844 units could
be constructed. The balance of land owned by Loon Mountain, subject to approvals
and zoning, could allow for up to 400 additional units to be constructed.
The Company has no agreements, arrangements or understandings with respect
to financing the development of any of the real estate projects discussed
herein. Any future development would be subject to, among other things, the
Company's ability to obtain the necessary financing and all necessary permits
and approvals. The Senior Credit Facility, the Indenture and the Securities
Purchase Agreements (as defined herein) significantly limit the Company's
ability to incur additional indebtedness. No assurance can be given that the
Company will develop successfully any additional properties or, if completed,
any such properties will be successful. In addition, there are risks inherent in
any expansion project and in the implementation of the Company's development
strategy.
Marketing and Sales
Staff
The Company has a marketing staff of approximately 50 persons, including a
marketing director at each resort who reports to the Vice President of Marketing
and Sales as well as to each resort's general manager. The marketing staff at
each resort is responsible for the development of resort-specific marketing
plans including advertising, sales, public relations, events, promotions and
research. Each resorts' marketing personnel also participate in the development
of the Company's overall marketing strategy.
Strategy
The Company's marketing plans are designed to attract both day skiers and
vacationers by emphasizing the Company's diverse facilities and services and
proximity to approximately 20% of the total skiers in the United States. The
Company intends to position each of its resorts as an attractive alternative to
competing regional resorts and to other forms of leisure and entertainment. The
primary objectives of the Company's marketing efforts are to (i) increase each
of its resorts' relative market share, (ii) expand the number of skiers in each
of its markets, (iii) increase skier visitation frequency, (iv) increase the
expenditures of each of its visitors, (v) influence the vacation destination
choice of its prospective guests by encouraging them to visit other Booth Creek
resorts, and (vi) attract and retain new guests to the Company's resorts by
expanding the scope of Booth Creek resorts to winter recreation centers offering
a multitude of snowsport options in addition to skiing and snowboarding.
The Company's marketing efforts are predicated on knowing its guests and
understanding the markets in which it competes. Accordingly, the Company's
resorts, typically through professional firms, conduct extensive market
research, including on-site guest surveys, focus groups, advertising tests and
regional phone surveys. Each of the Company's resorts develops its own
resort-specific marketing program based upon its unique qualities and
characteristics as well as the demographics of its skier base. Management
believes that a major benefit of being a multiple resort operator will be the
ability to coordinate resort marketing programs in a manner that makes them more
effective. For example, the extension of frequency/loyalty programs to all of
the Company's resorts will, in management's view, reinforce the existing
marketing programs at each resort and create significant cross-marketing
opportunities.
The Company's resorts offer a variety of terrain for alpine skiing and
snowboarding, with most providing a high percentage of intermediate trails and
well developed skier development programs, which can accommodate skiers and
snowboarders of all skill levels. Northstar markets primarily to the upper
income Baby Boom generation and their families residing in the San Francisco Bay
and Sacramento Valley areas as a full service, all season resort for day and
vacation guests. In addition, the resort has been successful in attracting
vacationing skiers from major Southern California markets largely through the
use of targeted marketing programs, including tour packages with major airlines
and tour operators. Management believes that Northstar's diverse year round
activities and services have made it attractive to affluent families interested
15
in recreation-centered vacation homes. Real estate development and the
resulting increase in on-mountain bed base likewise provide Northstar with
significant opportunities for future growth. Sierra has been positioned as Lake
Tahoe's economical "value" resort, primarily targeted to families, teenagers and
young adults from the Central California Valley. Bear Mountain primarily targets
Generation "X" skiers and snowboarders as well as value-oriented families from
the major Southern California metropolitan areas. Waterville Valley generally
focuses on regional and vacationing families from the Southern New Hampshire and
Boston metropolitan markets by promoting the resort's diverse year round
facilities and New England village atmosphere. Mt. Cranmore targets vacationing
families (including non-skiers) from the Boston metropolitan area by emphasizing
its proximity to the Mt. Washington 16,000 area bed base and North Conway retail
and restaurant district. The Summit's diversity of terrain among its four
resorts and significant night skiing programs allow the resort to target
multiple demographic groups including families, teenagers and young adults from
the Seattle/Tacoma metropolitan area. Grand Targhee primarily targets
destination skiers visiting the Jackson Hole area as well as day skiers and
regional overnight skiers from Wyoming, Idaho and Utah. Loon Mountain has
traditionally targeted families composed of either day skiers, regional
overnight skiers or destination skiers.
Programs
The Company has developed a number of specific marketing programs to achieve
its objectives, including the following:
o Customer loyalty programs
o Multimedia advertising (including Internet strategies)
o Data-based marketing programs (including e-mail broadcasting)
o Snowsport development programs (programs include a multitude of
snowsport options such as snowbikes, snowscoots and tubing as well as
more traditional skiing and snowboarding)
o Strategic marketing alliances
o School, group and business affiliations
Customer loyalty programs. The Company believes that the success of each of
its resorts depends, in large part, on its ability to retain and increase the
skier visitation frequency of its existing customer base. For example,
approximately 79% of Northstar's 1997/98 ski season skier days were attributable
to guests who had visited the resort on at least one other occasion. The Company
believes a critical component to developing customer loyalty will be the success
of its customer loyalty programs, including its Vertical Plus and Vertical Value
frequent skier programs. For an annual membership fee of $49, Vertical Plus
members receive a special, personalized identification wristband containing a
preprogrammed computer microchip which acts as their lift access for the season.
In addition to offering daily ticket discounts, the system tracks the amount of
vertical feet skied at participating resorts and rewards members with prizes
based on the number of vertical feet skied in a season. Other benefits of the
program include members-only lift lines, direct lift access, the convenience of
being able to make cashless retail transactions and electronic messaging. In
addition to Vertical Plus, the Company has developed Vertical Value, a program
that appeals to a broader range of skiers and offers an incentive for frequent
visitation at all of the Company's resorts. Visitors also receive a welcome
packet with targeted offers and a newsletter which allows the resorts to
communicate effective and timely information to their frequent guests.
Multimedia advertising. The Company's marketing efforts include print,
broadcast, outdoor, Internet and direct mail advertising, with the particular
method tailored for each resort and existing market opportunities. The Company
is also very active in a variety of promotional programs designed to attract
guests from population centers in and around the Los Angeles, San Diego, San
Francisco, Sacramento, Seattle and Boston metropolitan areas and states with
large skier populations such as Texas, Illinois, Florida and New York. For
example, the Company's Northstar and Sierra resorts have participated in
extensive cooperative marketing with other Lake Tahoe resorts to promote the
region as a premier vacation destination.
Data-based marketing programs. Through the information obtained from its
customer loyalty programs, extensive market surveys and other market research,
the Company maintains a database containing detailed information on its existing
customers. Management believes that database marketing is an effective and
16
efficient method to identify, target and maintain an on-going relationship with
the Company's best customers. For example, the Company has been successful in
the use of targeted direct mailings and e-mail broadcasts, which are designed to
match customer preferences with special ski package offers to build peak and
off-peak volume. Management believes that these types of relationship-based
marketing programs build guest loyalty and play an important role in solidifying
a resort's existing customer base.
Skier development programs. The Company's resorts operate a variety of
skier development programs designed to improve the skills of children and
beginners, as well as more advanced skiers and snowboarders. Management believes
that these development programs increase skier days at the Company's resorts by
expanding the total market of skiers and making skiing more enjoyable.
Northstar, Sierra and Waterville Valley operate ski schools that are
consistently rated among the best in their respective regions. In addition,
several of the Company's resorts have introduced a development program, Vertical
Improvement, geared toward intermediate and advanced skiers, which offers free
specialized instruction and daily training. This has proven to increase repeated
resort visitation. Booth Creek is expanding the definition of ski and snowboard
areas to winter recreation centers. Resorts are offering a multitude of unique
options for sliding on snow. Booth Creek Hill Thrill Centers include snow
tubing, snowbikes, snowfoxes, snowscoots and Zorbs. Many of these are low-skill,
high-sensation activities that even those who have never skied or snowboarded
can enjoy. There are also transferable learning skills from these sliding
devices to learning to ski or snowboard. Other efforts have been instituted at
all resorts to embrace and welcome new participants to the sport of skiing or
snowboarding.
Strategic marketing alliances. The Company is a national ski resort operator
with more than 2.4 million skier days recorded during the 1997/98 ski season. At
least one of the Company's resorts is within driving distance of four of the
five largest consumer markets in the United States. These factors, together with
the attractive demographics of the Company's skier base, position the Company to
further develop resort marketing programs with major corporate sponsors.
Sponsorship opportunities include potential relationships with automobile
manufacturers, soft drink companies, and ski and snowboard equipment
manufacturers. For example, Northstar and Sierra have a relationship with a
major automobile manufacturer that involves over $1 million worth of television
exposure, free use of vehicles for Company purposes and a vehicle give-away
promotion for resort guests. Management believes that the media exposure
generated by this partnership is important in building market share and the
image of the resorts, and that current joint marketing programs can be greatly
expanded.
School, group and business affiliations. The Company is dedicated to
developing special programs designed to attract school, business and other
groups. By introducing skiing, snowboarding and other methods of sliding on snow
to a wider audience, these programs broaden the Company's customer base and have
proven to be a particularly effective way to build name recognition and brand
loyalty. Ski groups have also emerged as the fastest and most profitable way of
increasing business during non-peak periods. Marketing personnel at each resort
provide year-round assistance to group leaders in organizing and developing
events. Business affiliations are developed and maintained through corporate
tickets programs, whereby participating businesses are given an opportunity to
provide their employees with incentive-based 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 has
sought to mitigate the downside risk of its seasonal business by purchasing a
skier day insurance policy for the 1998/99 ski season. During the off-season
months of May through October, the Company's resorts typically experience a
substantial reduction in labor and utility expense due to the absence of ski
operations, but make significant expenditures for maintenance, expansion and
capital improvement in preparation for the ensuing ski season.
Competition
The general unavailability of new developable mountains, regulatory
requirements and the high costs and expertise required to build and operate
resorts present significant barriers to entry in the ski industry. The last
major new ski resort to open in the United States was in 1989, and in the past
15 years, management believes at least 85 proposed resorts have been stalled or
abandoned due to environmental issues and the high costs of entering into the
capital intensive ski industry. The domestic ski industry is currently comprised
of 521 resorts
17
and is highly competitive. The Company's competitive position in the markets in
which it competes is dependent upon many diverse factors, including proximity to
population centers, pricing, snowmaking capabilities, type and quality of skiing
offered, prevailing weather conditions, quality and price of complementary
services. The Company's Lake Tahoe resorts, Northstar and Sierra, face strong
competition from Lake Tahoe's seven other major ski resorts. Northstar's primary
competition in the North Lake Tahoe area is from Squaw Valley and Alpine
Meadows. Northstar also competes with major ski and non-ski destination resorts
throughout North America. Sierra primarily competes in the Southern Lake Tahoe
area with Heavenly Valley and Kirkwood. The Company's other California resort,
Bear Mountain, competes primarily with Snow Summit and Mammoth Mountain.
The Company's New England resorts, Waterville Valley, Mt. Cranmore and Loon
Mountain, compete in the highly competitive Northeast ski market, which consists
of Maine, New Hampshire, Vermont, Massachusetts, Connecticut and New York.
Within the Northeast region, skiers can choose from over 50 major resorts and
ski areas, most of which are located in the mountainous areas of New England and
eastern New York. Waterville Valley's primary regional competitors include
Bretton Woods, Attitash/Bear Peak and Gunstock. Mt. Cranmore's primary regional
competitors are the Attitash/Bear Peak ski resort and Gunstock. Loon Mountain's
primary regional competitors are Okemo and Sunday River.
The Summit competes primarily with five local ski areas, including Crystal
Mountain, Stevens Pass, White Pass, Mission Ridge and Mt. Baker. Additional
competition comes from the regional destination resorts at Mt. Bachelor, Mt.
Hood Meadows, Sun Valley and Whistler/Blackcomb, as well as other day and
weekend ski facilities in Washington, Oregon and British Columbia.
Grand Targhee competes for day and regional overnight skiers in the northern
Rocky Mountain region as well as national destination skiers traveling to the
greater Jackson, Wyoming area. Jackson Hole Ski Resort is the resort's largest
single competitor. Grand Targhee has participated in joint marketing programs
with Jackson Hole to promote the Jackson area and many visitors to the region
ski at both resorts. Grand Targhee also competes for day and regional overnight
skiers with Sun Valley and resorts in Utah.
On a regional basis, at least one of the Company's resorts is readily
accessible to four of the five largest ski markets in the United States.
Management estimates that approximately 70% of the skiers visiting the Company's
Lake Tahoe resorts are from the San Francisco, Sacramento Valley, Central
California Valley and Lake Tahoe regions, while approximately 90% of Bear
Mountain's skiers are from the Los Angeles and San Diego metropolitan areas.
Waterville Valley, Mt. Cranmore and Loon Mountain are estimated to attract
approximately 80% of their guests from Massachusetts and New Hampshire, with a
large percentage of such visitors coming from the Boston metropolitan area. The
Summit attracts approximately 90% of its skier guests from the Seattle/Tacoma
region. Grand Targhee primarily attracts day and regional overnight skiers from
the northern Rocky Mountain region and destination skiers visiting the region.
Regulation and Legislation
The Company's operations are dependent upon its ownership or control over
the real estate constituting each resort. The real property presently used at
the Northstar and Mt. Cranmore resorts is owned by the Company. The Company has
the right to use a substantial portion of the real property associated with the
Bear Mountain, Sierra, Summit, Grand Targhee and Waterville Valley resorts under
the terms of Special Use Permits issued by the Forest Service. The Special Use
Permits for the Bear Mountain, Sierra, Waterville Valley, the Summit and Grand
Targhee resorts were reissued at the time of the Company's acquisition of such
resorts, with the Bear Mountain permit expiring in 2020, the Sierra permit
expiring in 2008, the Waterville Valley permit expiring in 2034, the Summit
permit expiring in 2032 and the Grand Targhee permit expiring in 2034.
A substantial portion of the real property associated with the Loon
Mountain resort is likewise used under Forest Service permits. In 1993, the
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 overturned this authorization on the
ground that the Forest Service had failed to properly address certain
environmental issues under NEPA. Certain improvements 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 entered a stipulated
order which authorizes existing improvements to remain in place and existing
operations to continue but generally prohibits future construction, restricts
use of a major snowmaking
18
water source, and requires certain water discharge permits to be pursued,
pending Forest Service reconsideration of the projects under NEPA. In August
1998, the Forest Service announced that it expects to complete this NEPA process
and issue a new decision on the improvements sometime in the Spring of 1999. In
a December 4, 1998 court filing, the Forest Service revised the target date for
a draft NEPA document on the improvements and the proposed expansion to the Fall
of 1999. The District Court entered a final order on December 11, 1998
specifying that the conditions imposed on operations at Loon Mountain in the May
5, 1997 order will remain in effect until the Forest Service completes its NEPA
review and issues a new decision.
Existing use of Loon Mountain is authorized under a Term Special Use
Permit, which covers facilities and expires in 2006, and a supplemental permit,
which covers the balance of Loon Mountain; existing non-skiing, use of South
Mountain is authorized under an annual permit which expires in February 1999,
but is expected to be reissued. After the Forest Service reconsiders the
improvements and expansion under NEPA, it will need to render a new decision
and, if appropriate, issue a new permit. At that time, the District Court order
will terminate. Based upon the existing administrative record, and certain
proposed modifications to the resort's snowmaking operations which are intended
to better protect water resources, the Company expects that the improvements and
expansion will be approved by the Forest Service. However, no assurance can be
given regarding the timing or outcome of this process.
In August 1997, the Forest Service authorized the Loon Mountain resort to
construct a new snowmaking pipeline across permitted land. The Forest Service
found that such construction is consistent with the District Court order and
will enable the resort to modify its snowmaking operations to better protect
water resources and replace snowmaking capacity lost under the order. Although
the pipeline has been completed, its use was challenged by private parties who
assert that the Forest Service violated NEPA. On January 20, 1998, the United
States District Court for the District of New Hampshire issued a decision
finding that the Forest Service violated NEPA in failing to address the
potential for the new pipeline to increase the amount of snow made and any
associated environmental effects. On March 10, 1998, the District Court issued a
series of further orders which, among other things, direct the Forest Service to
re-evaluate the pipeline, allow such re-evaluation to proceed separate from and
prior to the Forest Service's reconsideration of the larger expansion, and
enjoin LMRC from using the pipeline pending further action by the Court.
On July 2, 1998, the Forest Service issued a new decision approving the
pipeline and addressing its potential to increase the amount of snow made. This
decision was challenged by several of the same private parties, who, again,
asserted that it violated NEPA. The Forest Service subsequently withdrew its
decision authorizing the pipeline to conduct further review. Additionally, two
of the parties whose challenge to the new pipeline decision is pending before
the District Court filed a new lawsuit on August 20, 1998, in the same court,
challenging the same decision on the same grounds, as well as additional grounds
that another party has asserted in that case or that were previously addressed
by the District Court in its January 20, 1998 decision. The District Court
consolidated the new lawsuit with the existing action on November 19, 1998. The
same day, the Court modified the injunction precluding use of the pipeline to
permit LMRC to use the pipeline to withdraw and convert 159.7 million gallons of
water into snow per ski season while the Forest Service further reviews the
pipeline under NEPA. On December 4, 1998, the Forest Service filed a Notice of
Administrative Action stating that it intends to combine its NEPA review of the
pipeline with its NEPA review of the improvements and proposed expansion at Loon
Mountain. The Forest Service stated that it hopes to issue a draft NEPA document
for public comment on the pipeline, the improvements, and the expansion in the
Fall of 1999. No assurances can be given regarding the timing or outcome of this
process.
The Forest Service has the right to approve the location, design and
construction of improvements in permit areas and many operational matters at
resorts with permits. Under the permits, the Company is required to pay fees to
the Forest Service. Under recently enacted legislation, retroactively effective
to the 1995/96 ski season, the fees range from 1.5% to approximately 4.0% of
certain revenues, with the rate generally rising with increased revenues.
However, through fiscal 1998, the Company is required to pay the greater of (i)
the fees due under the new legislation and (ii) the fees actually paid for the
1994/95 ski season, unless gross revenue in a ski season falls more than 10%
below that of the 1994/95 ski season, in which case the fees due are calculated
solely under the new legislation. The calculation of gross revenues includes,
among other things, lift tickets, ski school lessons, food and beverages, rental
equipment and retail merchandise revenues. Total fees paid to the Forest Service
by the Company during the year ended October 30, 1998 were $1,014,000. The new
legislation is not expected to have a material effect on fees payable in future
periods.
19
The Company believes that its relations with the Forest Service are good,
and, to the best of its knowledge, no special use permit for any major ski
resort has ever been terminated by the Forest Service. Prior to permit
termination, 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.
Employees
As of December 31, 1998, the Company employed a full-time corporate staff of
40 persons. In addition, the Company's resorts employ an aggregate of
approximately 614 full-time and 5,600 seasonal employees. None of the employees
of the Company or its resorts is represented by a labor union, and the Company
considers its employee relations to be good.
Regulatory Matters
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations relating to land use, water resources, discharge,
storage, treatment and disposal of various materials and other environmental
matters. Management believes that the Company's resorts are presently in
compliance with all land use and environmental laws, except where non-compliance
is not expected to result in a material adverse effect on its financial
condition. The Company also believes that the cost of complying with known
requirements, as well as anticipated investigation and remediation activities,
will not have a material adverse effect on its financial condition or future
results of operations. However, failure to comply with such laws could result in
the imposition of severe penalties and other costs or restrictions on operations
by government agencies or courts that could adversely affect operations.
The Company has not received any notice of material non-compliance with
permits, licenses or approvals necessary for the operation of its properties or
of any material liability under any environmental law or regulation. However, at
Grand Targhee, the Wyoming Department of Environmental Quality (the "DEQ") has
issued a Notice of Violation of state water pollution requirements based on
alleged discharge from a wastewater lagoon without a permit. The Company has
entered into an negotiated compliance order with the DEQ requiring construction
and operation of a new wastewater facility at a cost of approximately $1.0
million. The Company has substantially completed the construction of the new
wastewater facility and is awaiting final approval of the facility by the DEQ.
Pursuant to the air emissions reduction program currently in effect in the
area regulated by the South Coast Air Quality Management District (the
"SCAQMD"), where Bear Mountain is located, Bear Mountain will be required to
"bank" emission credits from other facilities which have already implemented NOx
emission reductions. The Company may purchase "banked" emission credits in a
one-time transaction at the current market rate of approximately $700,000 or
over time up to the year 2010 at prevailing market rates.
Bear Mountain has a water supply contract ("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 Contract provides water primarily for snow making and
slope irrigation purposes. The obligation of Big Bear Municipal Water District
to supply water is excused only if the level of Big Bear Lake recedes below
6,735.2 feet above sea level or 8 feet below the top of Big Bear Lake Dam. Bear
Valley Mutual Water Company recently claimed that its rights in the Lake are not
subject to Big Bear Municipal Water District's obligation to supply water to
Bear Mountain. This claim is vigorously contested by all interested parties and
a two-year moratorium agreement between Bear Valley Mutual Water Company and Big
Bear Municipal Water District was executed in November, 1998, which withdraws
Bear Valley's claim for two years while the issues between Bear Valley and Big
Bear Municipal are worked out. This allows continued service to Bear Mountain on
an uncontested basis during the moratorium period. The Company expects that the
issue will be resolved favorable to the interests of Bear Mountain because of
its contribution to the local economy, the stenghth of its contract rights with
Big Bear Municipal Water District, and the alternate sources of water supply
that are available. It should be noted the foregoing is premised on normal
conditions prevailing and the absence of droughts, earthquakes, dam failure, or
other types of similar calamities that impact the ability to obtain or supply
water and no assurance can be made regarding the outcome of this situation or
the timing negotiations during the next two years.
The operations at the resorts require permits and approvals from certain
federal, state and local authorities. In addition, the Company's operations are
heavily dependent upon 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, non-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 Forest Service and state or
local governments under the NEPA and certain state or local counterparts if it
is determined that the expansion may have a significant impact upon the
environment. Although the Company has no reason to believe that it will not be
successful in implementing its operations and development plans, no assurance
can be given that necessary permits and approvals will be obtained.
Pursuant to the decision of the United States Court of Appeals for the
First Circuit and the United States District Court for the District of New
Hampshire's order, each discussed under Part I - Item 3, LMRC has applied to the
Environmental Protection Agency ("EPA") for a Clean Water Act (the "CWA")
discharge permit covering discharges associated with its snowmaking operations.
Certain ongoing discharges are authorized by the District Court order pending
final action on the permit and subject to the District Court's reserved power to
modify such approval to
20
address any resulting environmental issues. The EPA issued a discharge permit
prior to the 1998/99 ski season.
Certain regulatory approvals associated with the new snowmaking pipeline at
Loon Mountain impose minimum stream flow requirements on LMRC. These
requirements will compel LMRC to construct water storage facilities within the
next ten years, and such construction will require further regulatory approvals
and environmental documentation under the NEPA.
In addition, LMRC was notified in September 1997 that it had allegedly
filled certain wetlands at the resort in violation of the CWA. In response, LMRC
worked with the EPA to remove the alleged fill and implement certain erosion
control measures. On January 15, 1998, an individual notified the EPA, LMRC, 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. While the Company
believes that its position would prevail, no assurance can be given regarding
any outcome.
Item 2. Properties
Northstar consists of over 6,500 acres of privately owned land, of which
less than one-third has been developed. Sierra owns 20 acres of its 1,689 gross
acreage and leases the remainder under a Special Use Permit with the United
States Forest Service. Bear Mountain owns 116 of its 819 gross acreage, leases
698 acres of mountain terrain under a Forest Service Special Use Permit and
leases 5 acres from third parties. Waterville Valley owns 35 acres on Snow
Mountain and two acres at the Conference Center, and leases 790 acres of land on
Mt. Tecumseh from the federal government under a Special Use Permit issued by
the Forest Service. Mt. Cranmore owns 754 acres and holds deeded easements
enabling it to develop an additional 1,200 acres of ski terrain. The Summit owns
686 acres of its 4,152 gross acreage, leases 1,400 acres under a private permit
and utilizes 1,864 acres of mountain terrain under a Forest Service Special Use
Permit. Grand Targhee leases all of the land on which the resort is operated
under a Special Use Permit with the United States Forest Service. Loon Mountain
owns 565 acres upon which substantially all of the buildings and improvements
relating to the resort are located. Loon Mountain leases 775 acres of land in
the White Mountain National Forest under a Special Use Permit issued by the
United States Forest Service permitting year-round recreational use. Adjacent to
such land, an additional 581 acres are leased on "South Mountain" under a
separate Special Use Permit permitting certain limited activities, including
mountain biking, cross country skiing and horseback riding. For further
information regarding the Company's properties, see Part I, Item 1. "Business -
Resort Operations" and "- Regulation and Legislation."
Item 3. Legal Proceedings
Each of the Company's resorts has pending and is regularly subject to
litigation with respect to personal injury claims relating principally to skiing
activities at its resorts. The Company and each of its resorts maintain
extensive liability insurance that the Company considers adequate to insure
claims related to usual and customary risks associated with the operation of ski
resorts. The Company does not believe that it or any of its resorts are involved
in any litigation that will, individually or in the aggregate, have a material
adverse effect on its financial condition or future results of operations.
On March 25, 1997, Killington West, Ltd., a California corporation formerly
known as Bear Mountain, Ltd. ("Killington"), filed a breach of contract lawsuit
in the Superior Court of the State of California (County of San Bernardino)
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,
Fibreboard and Bear Mountain, Inc., pursuant to which Bear Mountain, Inc.
acquired the Bear Mountain ski resort from Killington. Killington's lawsuit
concerns 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, and further, required that $1.0 million of the purchase price be
held in escrow pending the outcome of any potential disputes with Killington.
Fibreboard has acknowledged its obligation to indemnify Bear Mountain, Inc. with
respect to the Killington lawsuit and has commenced the defense of such lawsuit
on behalf of Fibreboard and Bear Mountain, Inc. However, no assurances can be
given regarding the outcome of this litigation.
21
In connection with the Loon Mountain Acquisition, certain shareholders (the
"Plaintiffs") of LMRC filed a lawsuit in New Hampshire state court 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"). Prior to the filing
of the lawsuit against the Company, the Company had sought and 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 two lawsuits were consolidated in the Superior Court in
Grafton County, New Hampshire. The Plaintiffs' initial request for a preliminary
injunction prohibiting the Company (or its affiliates) from proceeding with the
Loon Mountain Acquisition based on allegations that the Company failed to comply
with the Takeover Statute was denied on October 28, 1997. Before the litigation
proceeded further, both parties amended the merger agreement relating to the
Loon Mountain Acquisition. The Company then sought and obtained an additional
order by the Bureau that the Takeover Statute did not apply. On January 30,
1998, the Company filed its answer to the Plaintiffs' petition and, on February
10, 1998, filed a motion to dismiss the action against the Company under the
Takeover Statute in its entirety, asserting, inter alia, that the Takeover
Statute did not apply to the transaction as a matter of law. On June 11, 1998,
the Court denied the Company's motion to dismiss. On July 2, 1998, the Company
filed a motion to reconsider the Court's decision. On August 1, 1998, the Court
granted the Company's motion for reconsideration and dismissed Plaintiffs'
claims under the Takeover Statute. Plaintiffs filed a motion for reconsideration
as to the Court's dismissal of the Takeover Statute claim which was denied on
October 1, 1998, and Plaintiffs have appealed the dismissal of their Takeover
Statute claim to the New Hampshire Supreme Court. Plaintiffs' breach of
fiduciary duty action against LMRC and its directors remains pending. Plaintiffs
have conducted limited discovery and a trial date has not been set. On December
15, 1998, Plaintiffs moved to amend their complaint to allege a cause of action
seeking money damages against the Company, LMRC and the former LMRC directors
for breach of fiduciary duty and omissions and misrepresentations in connection
with the approval of the Loon Mountain Acquisition and the solicitation of
proxies from the LMRC shareholders to approve the transaction. Plaintiffs'
potential remedies include monetary damages for the directors' alleged failure
to maximize the consideration to LMRC shareholders and/or failing to properly
disclose material information to LMRC shareholders in connection with the Loon
Mountain Acquisition. If Plaintiffs are successful in pursuing their claims
against the former LMRC directors, LMRC has certain indemnity obligations to the
former directors and is currently involved in such directors' defense. The
Company may have available to it as a defense the exclusive remedy
provisions of the New Hampshire statute on dissenters' rights, which rights, as
described below, the Plaintiffs have exercised. While management of the Company
believes that the former LMRC directors will prevail against Plaintiffs' claims
and appeals, no assurance can be given regarding the outcome of the above
described litigation.
In connection with the Loon Mountain Acquisition, Plaintiffs exercised
dissenters' rights under the New Hampshire Business Corporation Act (the
"NHBCA"). Under the statutory procedure for settling the Plaintiffs' dissenters'
rights, LMRC paid Plaintiffs an aggregate of $34,436, or $30.61 per share, as
its estimate of the fair value of their 1,125 shares. Plaintiffs demanded
additional payments necessary to compensate them for the $71.38 per share price,
plus interest, which they have asserted as the fair value of their shares.
Pursuant to the NHBCA, LMRC commenced a proceeding in the Grafton County New
Hampshire Superior Court on July 20, 1998 seeking a judicial appraisal of the
value of Plaintiffs shares in LMRC. On September 30, 1998, Plaintiffs moved to
dismiss the appraisal proceeding on the grounds that LMRC's payments to them
were untimely and that the accompanying notice omitted certain required
information. The court denied the Plaintiff's motion to dismiss on December 14,
1998. LMRC anticipates that discovery will commence in early 1999. While the
Company believes that the amount paid to the 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 Plaintiffs 1,125 shares.
In 1995, an individual sued the United States Forest Service in the United
States District Court for the District of New Hampshire (the "District Court")
alleging that the Forest Service had violated NEPA, the CWA, and an executive
order in 1993 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. The District Court entered summary judgment for
the United States Forest Service on all claims and the original plaintiff along
with an intervening party appealed.In December 1996, the United States Court of
Appeals for the First Circuit (the "First Circuit") reversed the District Court
and ruled that the Forest Service must reconsider certain environmental issues
under NEPA and that LMRC must obtain a discharge permit under the CWA for
certain discharges from its snowmaking system. On May 5, 1997, later finalized
December 11, 1998, the District Court 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
22
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 1993 Forest Service decision to their preexisting condition if not
ultimately approved by the Forest Service. This order will remain in effect
until the supplemental NEPA process is completed and the Forest Service issues a
new special use permit. The Company has received a CWA permit for its snowmaking
system, and the Forest Service currently expects to issue draft NEPA
documentation in the Fall of 1999. However, no assurance can be provided
on the timing, terms or outcome of this proceeding.
Following the First Circuit's decision, the plaintiffs filed a motion with
the District Court asking it to impose a civil penalty under the CWA of
$5,550,125 and attorney fees and costs against LMRC for unpermitted discharges
into Loon Pond without a discharge permit during its snowmaking operations in
the 1996/97 ski season and preceding years. The discharge at issue involves
water transfers from the East Branch of the Pemigewasset River and drain back
from the snowmaking system into Loon Pond. In connection with the Loon Mountain
Acquisition, the Company obtained environmental pollution insurance for
$4,500,000 of coverage above a $1.2 million deductible to cover any penalties,
fees, and costs that the Court assesses against LMRC. LMRC asserted defenses to
the merits and amount of penalty sought. In a December 11, 1998 final order, the
District Court dismissed the claim for civil penalties and attorney fees under
the CWA on grounds of mootness and standing. One of the plaintiffs filed a
notice of appeal on January 8, 1999 to appeal the final order to the United
States Court of Appeals for the First Circuit but has not yet identified issues
on appeal. No assurances can be given regarding the outcome of this litigation.
On August 29, 1997, the 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. Another party intervened as plaintiff, and LMRC intervened as
defendant. The Forest Service and LMRC asserted various defenses. On January 20,
1998, the District Court held that the pipeline may be analyzed and approved by
the Forest Service separately from the South Mountain expansion, but that the
Forest Service violated NEPA by failing to consider the potential environmental
effects of the alleged increase in snowmaking capacity. On March 10, 1998, the
District Court issued a series of further orders which establish a schedule for
the Forest Service's reconsideration of the pipeline and any resulting
challenges, deny plaintiffs' request that such reconsideration be deferred until
the Forest Service's decision on the larger expansion, and enjoin Loon Mountain
from using the pipeline pending further action by the Court. Three of the
plaintiffs have appealed the District Court's denial of their claim that
reconsideration of the pipeline be deferred until the Forest Service's decision
on the larger expansion, but briefing on these appeals has not yet commenced in
the First Circuit.
On July 2, 1998, the Forest Service issued a new decision reauthorizing the
pipeline and addressing the potential environmental effects of the projected
increase in snowmaking capacity. Three of the prior plaintiffs filed challenges
to this decision with the District Court, alleging that it, too, violated NEPA.
The Forest Service subsequently withdrew its decision authorizing the pipeline
to conduct further review under NEPA.
On August 20, 1998, two of the plaintiffs who have challenges to the new
pipeline decision pending before the District Court filed a separate lawsuit
against the Forest Service in the same court challenging the pipeline decision
on the same grounds, as well as additional grounds that another party has
asserted in that case or that are identical to claims that the Court addressed
in its January 20, 1998 decision. The Court consolidated the new lawsuit with
the existing action on the pipeline on November 19, 1998. That same day, the
Court modified the injunction precluding Loon Mountain from using the pipeline
to permit Loon Mountain to use the pipeline to withdraw and convert 159.7
million gallons of water into snow per ski season until the Forest Service
completes its environmental review of the pipeline. On December 4, 1998, the
Forest Service filed a Notice of Administrative Action stating that it intends
to combine its NEPA review of the pipeline with the NEPA review of the
improvements and proposed expansion at Loon Mountain. The Forest Service
currently expects to release a draft NEPA document for public comment on the
pipeline, the improvements, and the proposed expansion in Fall 1999. No
assurances can be given regarding the timing or outcome of this process or the
litigation on the pipeline.
The plaintiffs in the Loon Mountain pipeline litigation have stated that
they intend to seek attorney fees in the combined amount of $52,965. One
plaintiff has indicated that he will claim $23,581 in attorney fees against
LMRC on grounds of bad faith. The other plaintiffs have not ruled out claims for
attorney fees against LMRC. The Company believes LMRC has substantial defenses
23
in the event claims for attorney fees are filed; however, it cannot guarantee
any particular result.
On August 1, 1997, two plaintiffs filed a lawsuit against the Town of
Lincoln Planning Board and LMRC in the Grafton County Superior Court in the
State of New Hampshire alleging that the Lincoln Planning Board had improperly
approved various facilities associated with the snowmaking pipeline. On
September 30, 1997, LMRC moved to dismiss the claims against it, but sought to
remain in the case as in intervenor. Also on September 30, 1997, the Lincoln
Planning Board answered the complaint, denying most of the allegations and
raising various defenses. On February 23, 1998, the court granted LMRC's motion
to dismiss. However, in the event that the plaintiffs are successful, the
Lincoln Planning Board would be requested to reconsider the facilities and issue
a new decision. No assurance can be given regarding the outcome or timing of
this litigation or any resulting Lincoln Planning Board review.
In connection with the Seven Springs Acquisition certain shareholders of
Seven Springs filed a lawsuit in the Court of Common Pleas of Somerset County,
Pennsylvania against the Company, Acquisition Sub, and Seven Springs and certain
of its directors, seeking a declaratory judgment, along with other relief
including the rescission of the Merger Agreement by and among the Company,
Acquisition Sub and Seven Springs. Plaintiffs allege that the terms of the Seven
Springs Shareholder Agreement ban the consummation of the Seven Springs
Acquisition. On October 29, 1998, the Court entered a final judgment denying
Plaintiff's motion and has permitted the consummation of the transactions
contemplated by the Merger Agreement. On December 28, 1998, the Plaintiff's
filed an amended notice of appeal which is currently pending. While the Company
believes that Seven Springs will prevail with its position that the Seven
Springs Shareholders Agreement does not apply to the transactions contemplated
by the Merger Agreement, no assurance can be made regarding the timing or the
outcome of this litigation.
Item 4. Submission Of Matters To Vote Of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
24
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for any class of equity securities of
the Company.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with the
combined financial statements of the Fibreboard Resort Group and the
consolidated financial statements of the Company and related notes thereto
included elsewhere in this Report and Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
combined financial data (except for the other financial and operating data) of
the Fibreboard Resort Group (i) as of and for the years ended December 31, 1994
and 1995 and as of and for the ten months ended October 31, 1996 have been
derived from the audited combined financial statements of the Fibreboard Resort
Group, which have been audited by Arthur Andersen LLP, independent accountants,
(ii) for the ten months ended October 31, 1995 have been derived from the
unaudited combined financial statements of the Fibreboard Resort Group and (iii)
for the period from November 1, 1996 to December 2, 1996 have been derived from
the audited combined financial statements of the Fibreboard Resort Group, which
have been audited by Ernst & Young LLP, independent auditors. The selected
consolidated financial data (except for the other financial and operating data)
of the Company as of and for the years ended October 31, 1997 and October 30,
1998 have been derived from the audited consolidated financial statements of the
Company, which have been audited by Ernst & Young LLP, independent auditors. The
Company was formed in October 1996 and had no operations until its acquisition
of seven ski resort complexes during the first six months of fiscal 1997.
The other financial and operating data presented below includes information
on "EBITDA" and "EBITDA margin." "EBITDA" represents income from operations
before depreciation, depletion and amortization expense and the noncash cost of
real estate sales. "EBITDA margin" is EBITDA divided by total revenue. Although
EBITDA is not a measure of performance under United States generally accepted
accounting principles ("GAAP"), the term is presented because management
believes it provides useful information regarding a company's ability to incur
and service debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other income
or cash flow statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. In addition, "EBITDA" and "EBITDA margin" as
determined by the Company may not be comparable to related or similar measures
as reported by other companies and do not represent funds available for
discretionary use.
25
Fibreboard Resort Group
----------------------------------------------------
10 Months 10 Period From
Ended Months November 1,
Year Ended October Ended 1996 to
December 31, 31, October December 2,
------------------
1994(a) 1995(b) 1995(b) 1996(c) 1996(c)
------- -------- -------- ------- -----------
(Dollars in Thousands, except Revenue per Skier Day)
Statement of Operations Data:
Revenue:
Resort Operations..................... $ 40,810 $ 39,823 $ 32,072 $ 36,829 $ 1,395
Real Estate and Other................. 610 5,213 4,659 4,288 304
-------- -------- -------- -------- --------
41,420 45,036 36,731 41,117 1,699
Operating Expenses:
Cost of Sales - Resort Operations..... 23,471 24,545 18,547 22,596 2,884
Cost of Sales - Real Estate and Other. 280 1,989 1,780 2,142 161
Depreciation, Depletion and Amortization 3,449 4,024 2,989 4,354 6
Selling, General and Administrative... 5,545 5,871 4,399 5,220 1,766
Management Fees and Corporate Expenses 655 1,247 513 701 70
-------- -------- -------- -------- --------
Operating Income (Loss)................. 8,020 7,360 8,503 6,104 (3,188)
Interest Expense, Net................... 666 821 334 1,189 206
-------- -------- -------- -------- ---------
Pre-tax Income (Loss)................... 7,354 6,539 8,169 4,915 (3,394)
Income Taxes (Benefit).................. 2,979 2,624 3,308 2,018 (1,358)
-------- -------- -------- -------- ---------
Net Income (Loss)....................... $ 4,375 $ 3,915 $ 4,861 $ 2,897 $ (2,036)
======== ======== ======== ======== =========
Other Financial and Operating Data:
Skier Days............................... 837,179 784,964 626,500 706,075 30,818
Revenue per Skier Day (f)................ $ 48.75 $ 50.73 $ 51.19 $ 52.16 $ 45.27
Noncash Cost of Real Estate Sales (g).... $ - $ 1,618 $ 1,488 $ 1,461 $ 133
Capital Expenditures Excluding
Acquisitions and $ 6,199 $ 5,226 $ 3,786 $ 5,761 $ 5,587
Real Estate and Other..................
Net cash provided by (used in):
Operating activities................... $ 9,482 $ 7,861 $ 7,506 $ 4,923 $ 5,769
Investing activities................... (6,287) (29,430) (28,321) (8,467) (6,151)
Financing activities................... (2,664) 26,071 18,059 (2,778) 1,115
EBITDA................................... $ 11,469 $ 13,002 $ 12,980 $ 11,919 $ (3,049)
EBITDA Margin............................ 27.7% 28.9% 35.3% 29.0% (179.5)%
Fibreboard Resort Group
-----------------------------------------
As of December 31, As of October 31,
------------------ ---------------------
1994(a) 1995(b) 1995(b) 1996(c)
------ ------- -------- ----------
(Dollars in Thousands)
Balance Sheet Data:
Working Capital (Deficit)............ $ (6,555) $(35,980) $(36,123) $(36,187)
Total Assets......................... 43,065 73,316 64,125 69,602
Total Debt Including Intercompany 15,422 41,493 33,487 38,715
Payable............................
Net Assets........................... 19,752 23,667 24,606 26,564
(see accompanying footnotes)
26
Company
------------------------------------------------
Historical Unaudited Pro Forma(i)
---------- -----------------------
Year Year Year Year
Ended Ended Ended Ended
October October October October
31, 30, 31, 30,
1997(d) 1998(e) 1997 1998
--------- ------- ------- ------
(Dollars in Thousands, except Revenue per Skier Day)
Statement of Operations Data:
Revenue:
Resort Operations........................... $ 68,136 $ 97,248 $ 93,850 $ 107,887
Real Estate and Other....................... 3,671 7,608 3,975 7,608
-------- -------- --------- -----------
71,807 104,856 97,825 115,495
Operating Expenses:
Cost of Sales - Resort Operations........... 44,624 61,325 82,999(j) 87,163(j)
Cost of Sales - Real Estate and Other....... 2,799 4,671 2,960 4,671
Depreciation, Depletion and Amortization.... 11,681 17,752 15,795 18,547
Selling, General and Administrative......... 13,719 19,645 - -
--------- -------- --------- ----------
Operating Income (Loss)....................... (1,016) 1,463 (3,929) 5,114
Interest Expense, Net......................... 14,912 18,733 18,759 19,612
--------- -------- --------- -----------
Pre-tax (Loss)................................ (15,928) (17,270) (22,688) (14,498)
Income Tax Benefit............................ (1,728) - (1,728) -
--------- -------- --------- ----------
Loss Before Minority Interest and (14,200) (17,270) (20,960) (14,498)
Extraordinary Item..........................
Minority Interest............................. 229 260 281 260
--------- -------- --------- ---------
Loss Before Extraordinary Item................ (14,429) (17,530) (21,241) (14,758)
Extraordinary Loss on Early Retirement of Debt (2,664) - - -
--------- --------- --------- ----------
Net Loss...................................... $(17,093) $(17,530) $(21,241) $(14,758)
========= ========= ========== ===========
Other Financial and Operating Data:
Skier Days.................................... 1,565,917 2,113,562 2,186,196 2,386,478
Revenue per Skier Day (f)..................... $ 43.51 $ 46.01 $ 42.93 $ 45.21
Noncash Cost of Real Estate Sales (g).......... $ 2,237 $ 3,721 $ 2,370 $ 3,721
Capital Expenditures Excluding Acquisitions and
Real Estate $ 9,459 $ 15,500 $ 20,075 $ 16,721
and Other....................................
Net cash provided by (used in):
Operating activities........................ $ 1,552 $ 7,559 NA NA
Investing activities........................ (152,685) (47,718) NA NA
Financing activities........................ 151,595 40,322 NA NA
EBITDA........................................ $ 12,902 $ 22,936 $ 14,236 $ 27,382
EBITDA Margin................................. 18.0% 21.9% 14.6% 23.7%
Company
-------------------
As of As of
October October
31, 30,
1997(d) 1998(e)
--------- --------
(Dollars in
Thousands)
Balance Sheet Data:
Working Capital (Deficit)..................... $(26,634) $(33,093)
Total Assets.................................. 186,416 218,546
Total Debt.................................... 136,327 156,280
Preferred Stock of Subsidiary (h)............. 3,354 2,634
Common Shareholder's Equity................... 29,407 37,377
(see accompanying footnotes)
27
Notes to Selected Financial Data
The selection of a December 31 year end by the Fibreboard Resort Group does
not result in the presentation of the results of the resorts for a single ski
season. Accordingly, as the results of a single ski season are split into two
reporting periods, differing trends may develop, as compared to results of
operations for other resorts consisting of a single ski season, which should be
evaluated by the reader.
As the results of operations of ski resorts are highly seasonal, with the
majority of revenue generated in the period from November through April, the
results of operations for the 10 months ended October 31, 1996 and 1995 and the
period from November 1, 1996 to December 2, 1996 are not representative of a pro
rata year of operations.
(a) Includes the financial results of Northstar and Sierra for the entire
period.
(b) Includes the financial results of Northstar and Sierra for the entire period
and of Bear Mountain for the period beginning October 23, 1995, the date on
which it was acquired by Fibreboard Corporation.
(c) Includes the financial results of Northstar, Sierra and Bear Mountain for
the entire period.
(d) Reflects the financial results of Waterville Valley and Mt. Cranmore from
November 27, 1996, Northstar, Sierra and Bear Mountain from December 3,
1996, the Summit from January 15, 1997, and Grand Targhee from March 18,
1997, the respective dates of acquisition of each resort by the Company.
(e) Reflects the financial results of Waterville Valley, Mt. Cranmore,
Northstar, Sierra, Bear Mountain, the Summit and Grand Targhee for entire
period, and Loon Mountain for the period beginning February 26, 1998, the
date on which it was acquired by the Company.
(f) Reflects revenue from resort operations divided by skier days.
(g) Noncash cost of real estate sales represents the allocated portion of real
estate development expenditures previously capitalized (including
acquisition costs allocated to real estate development) which relate to
current year real estate sales.
(h) Represents preferred stock of a subsidiary of the Company which is subject
to mandatory redemption requirements.
(i) Pro forma statements of operations and other financial data for the years
ended October 31, 1997 and October 30, 1998 give effect to the resort
acquisitions and related financing transactions as if they had occurred on
November 1, 1996.
(j) The historical financial presentations for the Fibreboard Resort Group,
Waterville Valley, Mt. Cranmore, Ski Lifts, Inc., Grand Targhee Incorporated
and Loon Mountain Recreation Corporation are inconsistent in categorizing
cost of sales-resort operations and selling, general and administrative
expenses. For presentation purposes in the pro forma information, all
operating expenses, excluding depreciation, depletion and amortization, have
been aggregated as cost of sales-resort operations.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis relates to (i) the historical
financial statements and results of operations of the Company and the California
Resorts, (ii) the pro forma financial results of the Company, and (iii) 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.
Certain matters discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements
that involve risks and uncertainties. Forward-looking statements are based on
management's current views and assumptions and involve risks and uncertainties
that could significantly affect expected results. The Company wishes to caution
the reader that certain factors could significantly affect the Company's actual
results, causing results to differ materially from those in any forward-looking
28
statement. These factors include: regional and national economic conditions, the
successful or unsuccessful integration of acquired businesses, weather
conditions, natural disasters (such as earthquakes), industry competition,
governmental regulation and risks associated with expansion, leased property and
property used pursuant to United States Forest Service permits and the ability
of the Company to make its information technology assets and systems year 2000
compliant and the costs of any modifications necessary in this regard.
General
The Company's ski operations are highly sensitive to regional weather
conditions and the overall strength of the regional economies in the areas in
which the Company operates. The Company believes that the geographic diversity
of the Company's resorts and the use of extensive snowmaking technology coupled
with advanced trail grooming equipment, which together can provide consistent
skiing conditions, can partially mitigate the risk of both economic downturns
and adverse weather conditions in any given region. However, the Company remains
vulnerable to warm weather, heavy rains and drought conditions, which can have a
significant effect on the operating revenues and profitability at any one of the
Company's resorts.
The Company's four most weather-sensitive resorts, Bear Mountain, Waterville
Valley, Loon Mountain and Mt. Cranmore, have invested heavily in snowmaking
capabilities to provide coverage on virtually all of their trails and have been
open for skiing at least 123, 144, 145 and 105 days, respectively, during each
of the last five ski seasons. The Company's Northstar, Sierra, the Summit and
Grand Targhee resorts are less weather-sensitive based on their historical
natural snowfall, averaging approximately 326, 518, 422, and 512 inches of snow,
respectively, per year for the past five ski seasons. As a result of their
historic natural snowfall, their snowmaking capabilities are considerably less
extensive than at Bear Mountain, Waterville Valley, Loon Mountain or Mt.
Cranmore.
The Company's results of operations are also highly dependent on its ability
to compete in each of the large regional ski markets in which it operates. At
Northstar and Sierra more than 70% of the 1997/98 ski season total skier days
were attributable to residents of the San Francisco, Sacramento, Central
California Valley and Lake Tahoe regions. At Bear Mountain, more than 90% of the
1997/98 ski season total skier days were attributable to residents of the Los
Angeles and San Diego metropolitan regions. At Waterville Valley, Loon Mountain
and Mt. Cranmore, approximately 80% of the 1997/98 ski season total skier days
were attributable to residents of Massachusetts and New Hampshire, with a large
percentage of such visitors coming from the Boston metropolitan area. At the
Summit, the Company estimates that more than 90% of the 1997/98 ski season total
skier days were attributable to residents of the Seattle/Tacoma metropolitan
region. The Company's Grand Targhee resort attracts approximately 50% of its
skiers from outside its local skiing population.
The Company seeks to maximize revenues and operating income by managing the
mix of skier days and revenue per skier day. These strategies are also designed
to maximize resort cash flow. The strategy for each resort is based on the
demographic profile of its market and the physical capacity of its mountain and
facilities. The Company seeks to increase skier days by developing effective
ticket pricing strategies and marketing programs to improve peak and off-peak
volume. The Company seeks to improve revenue per skier day by effectively
managing the price, quality and value of each of its ski-related services,
including retail shops, ski rentals, ski lessons and food and beverage
facilities. The Company also generates revenue from a variety of non-ski related
services, such as golf, tennis, health clubs and conference centers, as well as
from real estate and timber sales.
The Company expects to increase skier days by offering a consistent, quality
guest experience and developing effective target marketing programs. See Part I,
Item 1. "Business - Marketing and Sales." The Company's resorts have spent more
than $27.5 million (including $2.5 million of equipment acquired through capital
leases and other debt) in capital expenditures during the last two years to
upgrade chairlift capacity, expand terrain, improve rental lodging and retail
facilities and increase snowmaking capabilities, all of which management
believes are important in providing a consistent, quality guest experience.
29
The Company believes it can selectively increase lift ticket prices and
skier days to generate additional revenue and resort cash flow from other
related services and activities in conjunction with the upgrading of its resort
infrastructure and facilities. The Company believes that by extending its
successful operating strategies it can significantly increase revenue per skier
day at each of its resorts.
In addition to revenues generated from skiing operations, the Company's
resorts generate significant revenues 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. During the year
ended October 30, 1998, approximately 47.9%, 39.9% and 12.2% of the Company's
revenues were generated from lift ticket sales, other ski-related sales and
non-ski related sales (excluding real estate and timber sales), respectively.
For the year ended October 31, 1997, approximately 49.6%, 40.5% and 9.9% of the
Company's revenues were generated from lift ticket sales, other ski-related
sales and non-ski-related sales (excluding real estate and timber sales),
respectively. Moreover, real estate and timber sales at Northstar generated $7.4
million and $3.7 million during the year ended October 30, 1998 and the period
from December 3, 1996 (the date the Company acquired Northstar) to October 31,
1997, accounting for 18.0% and 11.8% of Northstar's total revenue during such
periods.
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. Management believes a key element to
maximizing profitability during the winter season is to closely monitor staffing
requirements and to redirect or lay-off employees when skier volumes or seasonal
needs dictate. In addition to financial performance, the advanced management
information system currently in place at all of the Company's resorts provides
detailed statistics regarding staffing utilization which is instrumental in
adjusting personnel requirements. Management believes that, over time, the
utilization of this system will yield significant labor cost savings.
Results of Operations of the Company
Overview
The Company was formed on October 8, 1996. Since inception, the Company made
the following acquisitions, which are included in the results of operations of
the Company from the respective purchase dates and accounted for using the
purchase method:
Resort Acquisition Date
--------------------------------------------- ------------------
Waterville Valley......................... November 27, 1996
Mt. Cranmore.............................. November 27, 1996
Northstar................................. December 3, 1996
Sierra.................................... December 3, 1996
Bear Mountain............................. December 3, 1996
The Summit................................ January 15, 1997
Grand Targhee............................. March 18, 1997
Loon Mountain............................. February 26, 1998
Historical Year Ended October 30, 1998 as Compared to the Historical Year
Ended October 31, 1997
Total revenue for the year ended October 30, 1998 was $104,856,000, an
increase of $33,049,000 or 46.0%, over the Company's revenue for the year ended
October 31, 1997. Due to the timing of the acquisitions, the 1997 period does
not reflect a full period of operating revenues for the resorts, which accounts
for a significant part of the increase. The increase in revenue is also due to
more typical weather conditions in the Lake Tahoe region in the current period
than during the comparable period in the 1996/97 ski season, which resulted in
increased revenues at Sierra and Northstar of 67.9% and 23.2%, respectively.
During the 1996/97 ski season, revenue was negatively impacted by a mudslide
which shut down the highway which provides primary access to Sierra and poor
weather conditions during the Christmas holiday period at many of the Company's
other resorts. Total skier visits at Sierra and Northstar increased by 62.7% and
21.9% or approximately 132,000 and 97,000, respectively, in the 1998 period as
compared to the 1997 period. Real estate and timber sales for the year ended
October 30, 1998 were $7,608,000, an increase of $3,937,000 or 107.2%, over real
30
estate and timber sales for the year ended October 31, 1997. In August 1998,
Northstar conducted an auction of certain real estate parcels as part of the
third phase of an ongoing real estate development project. All of the lots
available for sale were sold at an average lot price of $212,000 as compared to
an average lot price of $154,000 for the two prior phases.
Total operating expenses for the year ended October 30, 1998 were
$103,393,000, an increase of $30,570,000 or 42.0%, over the Company's total
operating expenses for the year ended October 31, 1997. Due to the timing of the
acquisitions, the 1997 period does not reflect a full period of operating
expenses for the resorts, which accounts for a significant part of the increase.
Payroll related costs, the single largest component of operating expenses, were
approximately $37,628,000 for the year ended October 30, 1998, as compared to
$27,555,000 for the 1997 period. Cost of sales for the real estate and timber
sales increased by $1,872,000 due to an increase in the number of lots sold in
1998 as compared to the prior period.
Interest expense for the year ended October 30, 1998 totaled $17,510,000, an
increase of $4,241,000 over the Company's interest expense for the year ended
October 31, 1997, reflecting generally higher levels of borrowings in the 1998
period and a slightly higher interest rate on the Senior Notes as compared to
the interest rates on the bridge financing facilities in place through March 17,
1997.
During the year ended October 31, 1997, the Company recorded tax benefits
for current operating losses to the extent of recorded deferred tax liabilities.
Due to the Company's lack of profitable history, the tax benefits of excess
operating losses in the 1997 period were fully offset by a valuation reserve.
Similarly, no federal income tax provision was recorded for the year ended
October 30, 1998 due to continued operating losses.
Pro Forma Year Ended October 30, 1998 as Compared to the Pro Forma Year
Ended October 31, 1997
The following unaudited pro forma results of operations of the Company for
the year ended October 30, 1998 and October 31, 1997 assume that all the resort
acquisitions and related financings had occurred on November 1, 1996. These
unaudited pro forma results of operations are not necessarily indicative of the
actual results of operations that would have been achieved nor are they
necessarily indicative of future results of operations.
Pro Forma Pro Forma
Year Ended Year Ended
October 31, October 30,
1997 1998
------------- ------------
Statement of Operations Data:
Revenue:
Resort Operations........................... $ 93,850 $ 107,887
Real Estate and Other....................... 3,975 7,608
----------- -----------
97,825 115,495
Operating Expenses:
Resort Operations........................... 82,999 87,163
Cost of Sales - Real Estate and Other....... 2,960 4,671
Depreciation, Depletion and Amortization.... 15,795 18,547
----------- ----------
Operating Income (Loss)....................... (3,929) 5,114
Interest Expense, Net......................... 18,759 19,612
----------- ----------
Loss Before Income Taxes...................... (22,688) (14,498)
Income Tax Benefit............................ 1,728 -
----------- -----------
Loss Before Minority Interest................. (20,960) (14,498)
Minority Interest............................. 281 260
----------- ------------
Net Loss...................................... $ (21,241) $ (14,758)
============ =============
Other Data:
EBITDA........................................ $ 14,236 $ 27,382
Noncash Cost of Real Estate Sales............. $ 2,370 $ 3,721
31
Total pro forma revenues for the year ended October 30, 1998 would have been
$115,495,000, an increase of $17,670,000 or 18.1% over the comparable period in
1997. Sierra, Northstar, Grand Targhee, Bear Mountain and Waterville Valley
generated increased revenues in the 1998 period of 63.3%, 20.7%, 11.3%, 11.8%,
and 8.0%, respectively, due primarily to skier day increases. The increase in
revenue is primarily due to the more typical weather conditions in the Lake
Tahoe region in the 1998 period than during the comparable period in the 1996/97
ski season. Pro forma revenues for Mt. Cranmore, the Summit and Loon Mountain
for the 1998 period were generally comparable to the level of revenues in the
1997 period. Total pro forma skier visits would have increased 9.2%, or
approximately 200,000, in the 1998 period as compared to the 1997 period
primarily due to improved weather conditions during the holiday periods which
allowed travelers to reach the Company's resorts. During the 1996/97 ski season,
revenues were negatively impacted by a mudslide which shut down the highway
which provides primary access to Sierra and poor weather conditions during the
holiday period at many of the Company's other resorts. Sales of real estate and
timber during the year ended October 30, 1998 were $7,608,000, as compared to
$3,975,000 in the comparable 1997 pro forma period. In August 1998, Northstar
conducted an auction of certain real estate parcels as part of the third phase
of an ongoing real estate development project. All of the lots available for
sale were sold at an average lot price of $212,000 as compared to an average lot
price of $154,000 for the two prior phases.
Pro forma resort operating expenses, excluding depreciation, depletion and
amortization, for the year ended October 30, 1998 would have been $87,163,000,
an increase of $4,164,000, or 5.0%, over the comparable period in 1997. Pro
forma payroll related costs for the 1998 period would have been $40,039,000, an
increase of $1,593,000 or 4.1%, over the comparable 1997 period. The increase in
pro forma payroll related costs was due primarily to higher seasonal employment
at Northstar and Sierra due to the improved operating conditions and extended
season.
Cost of sales for real estate and timber activities for the year ended
October 30, 1998 would have been $4,671,000. The increase of $1,711,000 over the
comparable period in 1997 was due to an increase in the number of lots sold in
1998 as compared to the prior period.
Pro forma depreciation, depletion and amortization for the pro forma year
ended October 30, 1998 would have been $18,547,000. The increase of $2,752,000
or 17.4% over the 1997 period was due principally to higher average asset
balances in the 1998 period.
Net interest expense for the pro forma year ended October 30, 1998 would
have totaled $19,612,000, an increase of $853,000 or 4.6% from the comparable
period in 1997. The increase was due to interest expense on borrowings under the
Senior Credit Facility used to fund capital expenditures, maintenance activities
and normal seasonal working capital requirements in the off-season periods.
Income tax benefit for the pro forma year ended October 31, 1997 of
$1,728,000 reflects the benefit of operating losses to the extent of net
deferred tax liabilities recorded in purchase accounting. As the effective tax
rate for the year ended October 30, 1998 was zero, no income tax benefit was
recorded during the pro forma year ended October 30, 1998.
Historical Year Ended October 31, 1997
For the year ended October 31, 1997, revenues totaled approximately $71.8
million, approximately $31.2 million, or 43.4%, of which was generated by
Northstar. Operating loss for the same period totaled approximately $1.0
million.
Both revenues and operating income were negatively impacted by the poor
weather conditions experienced by a number of the Company's resorts during the
1996/97 ski season. During the peak period of the 1996/97 ski season, the Lake
Tahoe region experienced significant rainfall, flooding and mudslides. The
inclement weather resulted in poor ski conditions at Northstar and Sierra and a
major access highway to Sierra being closed for several weeks during the first
quarter of the Company's fiscal year ended October 31, 1997. Furthermore, much
of the poor weather occurred during the Christmas holiday period, a
traditionally busy period at the Company's resorts. As a result, skier days and
resort revenue at Sierra were adversely impacted. Certain of the Company's other
resorts also experienced poor weather conditions during the year ended October
31, 1997, which resulted in a reduction in skier days, revenue and operating
income. Operating loss is also net of approximately $11.7 million of
depreciation, depletion and amortization expenses reflecting the stepped-up
values of the recently acquired resorts.
32
Interest expense is primarily comprised of interest on $90 million in bridge
notes and $10 million in intercompany notes to the Company's parent (together,
the "Bridge Financing Facilities"), which bore interest at approximately 11% per
annum through March 18, 1997, and on $116 million aggregate principal amount of
the Company's 12.5% Senior Notes due 2007 (the "Senior Notes"), which have borne
interest at 12.5% per annum since March 18, 1997.
Amortization of deferred financing costs relate primarily to fees associated
with the Bridge Financing Facilities and the Senior Notes. Unamortized fees
associated with the Bridge Financing Facilities at March 18, 1997, the date the
Bridge Financing Facilities were repaid, totaled approximately $2.7 million and
were written off and reflected as an extraordinary loss on the early retirement
of debt in the consolidated statement of operations.
The effective income tax rate for the year ended October 31, 1997 was 10.8%.
The Company has recorded a tax benefit of $1.7 million primarily to reflect the
benefit of operating losses generated during the period to the extent of net
deferred tax liabilities recorded in purchase accounting. For financial
reporting purposes, the remaining net deferred tax assets arising in the year
ended October 31, 1997, which relate principally to the Company's net operating
losses, have been fully offset by a valuation allowance.
Results of Operations of California Resorts
The Fibreboard Resort Group was acquired by Booth Creek effective December
3, 1996, and its results of operations have been included in the Company's
consolidated results of operations since such date. The following review of the
performance of the Fibreboard Resort Group is for the unaudited ten month period
ended October 31, 1995 and the audited ten month period ended October 31, 1996.
The following table summarizes Fibreboard Resort Group's historical results
of operations as a percentage of revenue for the ten month periods ended October
31, 1995 and 1996.
Ten Months Ended
October 31,
----------------
1995 1996
------- ------
Statement of Operations Data:
Net revenues
- Lift Tickets....................................................... 42.7 % 45.0%
- Ski Related Resort................................................. 34.0 34.0
- Non-Ski related Resort............................................. 10.6 10.6
- Real Estate and Timber............................................. 12.7 10.4
------- -------
Total net revenues............................................... 100.0 100.0
Cost of Sales - Resort Operations.................................... 58.6 65.5
Cost of Sales - Real Estate and Other................................ 4.8 5.2
Selling, General and Administrative Expense.......................... 12.0 12.7
Corporate Allocations and Management Fees............................ 1.4 1.7
------- ------
Operating Income..................................................... 23.2 14.9
Interest (Income) Expense, Net....................................... 0.9 2.9
------- ------
Pre-tax Income....................................................... 22.3 12.0
Income Taxes......................................................... 9.0 4.9
------ ------
Net Income........................................................... 13.3 % 7.1%
======= =======
Other Data
EBITDA............................................................... 35.3 % 29.0%
Ten Months Ended October 31, 1996 as Compared to the Ten Months Ended
October 31, 1995
The ski resort industry is highly seasonal, with operations typically
commencing in November or December of each year, and closing in April or May.
The exclusion of the months of November and December from the 1996 and 1995
33
fiscal periods results in decreases in virtually all income statement captions
when compared to full fiscal periods.
Total revenue for the ten months ended October 31, 1996 was $41,117,000, an
increase of $4,386,000 or 11.9% from the comparable period in 1995. This
increase is attributable to the acquisition of Bear Mountain in October 1995,
which accounted for $7,147,000 of additional revenue during the ten month period
ended October 31, 1996. Partially offsetting this increase was a $2,390,000
decline in lift ticket and ski-related revenues at the Company's Northstar and
Sierra resorts, primarily resulting from fewer skier days, and a $371,000
decline in real estate and timber sales, primarily resulting from fewer
developmental real estate sales.
Skier days and revenue per skier day were 706,075 and $52.16 for the ten
months ended October 31, 1996, as compared to 626,500 and $51.19 for the
comparable period in 1995. The increase in skier days is attributable to the
acquisition of Bear Mountain in October 1995, which accounted for 174,984 of the
additional skier days. Skier days at the Company's Northstar and Sierra resorts
declined by 95,409 in the ten months ended October 31, 1996 as compared to the
comparable period in the prior year due to particularly favorable ski conditions
in the prior period.
Cost of sales for resort operations for the ten months ended October 31,
1996 increased by $5,414,000, or 25.1%, from the comparable period in the prior
year due to a $5,860,000 increase in costs resulting from the acquisition of
Bear Mountain in October 1995, offset by slightly lower cost of sales for resort
operations at Northstar and Sierra of approximately $500,000.
Selling, general, administrative and other operating expenses (including
management fees and corporate allocations) increased by $1,009,000, or 20.5%, in
the ten months ended October 31, 1996 as compared to the comparable period in
the prior year due to a $1,406,000 increase in costs resulting from the
acquisition of Bear Mountain in October 1995, offset by slightly lower selling,
general, administrative and other operating expenses at Northstar and Sierra.
Interest expense, net for the ten months ended October 31, 1996 increased by
$855,000 as compared to the same period in 1995 as a result of the advance made
by Fibreboard Corporation to the Resort Group in October 1995 to finance the
acquisition of Bear Mountain.
The provision for income taxes for the ten months ended October 31, 1996
decreased by $1,290,000 as compared to the comparable period in 1995 due to the
decrease in income subject to income tax. The effective income tax rate for the
ten months ended October 31, 1996 was 41.1%, as compared to 40.5% for the same
period in 1995.
EBITDA for the ten months October 31, 1996 was $11,919,000, a decrease of
$1,061,000, or 8.2%, from the comparable period in the prior year. EBITDA margin
decreased from 35.3% during the ten months ended October 31, 1995 to 29.0%
during the comparable 1996 period.
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 which was amended and restated on
January 28, 1999 and effective beginning on October 30, 1998. Virtually all of
the Company's operating income is generated by its subsidiaries. As a result,
the Company is dependent on the earnings and cash flow of, and dividends and
distributions or advances from, its subsidiaries to provide the funds necessary
to meet its debt service obligations. The Senior Credit Facility currently
provides for borrowing availability of up to $25 million during the term of such
facility, which expires November 15, 1999. The Senior Credit Facility requires
that the Company not have borrowings thereunder in excess of $8.0 million in
addition to certain amounts maintained by the Company in certain depository
accounts with the Agent for a period of 60 consecutive days each year commencing
sometime 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
October 30, 1998, outstanding borrowings under the Senior Credit Facility
totaled approximately $17.1 million.
34
While the Company's ski resorts typically generate significant amounts of
cash during the ski season, the Company had a working capital deficit of $33.1
million as of October 30, 1998 which will negatively affect liquidity during
1999.
The Company generated cash from operating activities of $7.6 million for the
year ended October 30, 1998 as compared to $1.6 million for the year ended
October 31, 1997. This increase is due to the significantly improved operating
results in the 1998 period and the inclusion of all resorts for the full period
in 1998 (except for Loon Mountain which has been included in 1998 operations
since February 26, 1998).
Cash used in investing activities totaled $47.7 million and $152.7 million
for the years ended October 30, 1998 and October 31, 1997, respectively. The
results for the 1998 period reflect primarily capital expenditures and the Loon
Mountain Acquisition, whereas the results for the 1997 period include $142.0
million of cash used for the acquisition of the Company's other ski resorts.
Cash provided by financing activities totaled $40.3 million and $151.6
million for the years ended October 30, 1998 and October 31, 1997, respectively.
The results for the 1998 period reflect net borrowings and receipt of additional
capital contributions to fund the Loon Mountain Acquisition and certain planned
capital expenditures. The results for the 1997 period reflect borrowings on
long-term debt and capital contributions used to fund the 1997 ski resort
acquisitions.
The Company's capital expenditures for property and equipment for the year
ended October 30, 1998 were approximately $18.0 million (including approximately
$2.5 million of equipment acquired through capital leases and other debt).
Management anticipates that capital expendentures for property and equipment for
fiscal year 1999 and fiscal 2000 will be approximately $14 million in the
aggregate, including approximately $4 million in resort maintenance capital for
each year. The Company plans to fund these capital expenditures from available
cash flow, vendor financing to the extent permitted under the Senior Credit
Facility and the Indenture and borrowings under the Senior Credit Facility.
Commitments for future capital expenditures through 1999 totaled approximately
$4.4 million at October 30, 1998.
Management believes that there is a considerable degree of flexibility in
the timing (and, to a lesser degree, the scope) of its capital expenditure
program, and even greater flexibility as to its real estate development
objectives. While the capital expenditure program described above is regarded by
management as important, both as to timing and scope, discretionary capital
spending above maintenance levels can be deferred, in some instances for
substantial periods of time, in order to address cash flow or other constraints.
With respect to the Company's potential real estate development opportunities,
management believes that such efforts will enhance ski-related revenues and will
contribute independently to earnings. In addition, with respect to significant
development projects, the Company anticipates entering into joint venture
arrangements that would reduce infrastructure and other development costs.
Nonetheless, existing lodging facilities in the vicinity of each resort are
believed to be adequate to support current skier volumes, and a deferral or
curtailment of these development efforts is not regarded by management as likely
to adversely affect skier days and ski-related revenues or profitability. The
Company also believes that its current infrastructure is sufficient, and that
development of real estate opportunities is not presently necessary, to support
its existing operations.
The Company's liquidity has been and will continue to be significantly
affected by its high leverage. As a result of its leveraged position, the
Company has 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.
Further, upon the occurrence of a Change of Control (as defined in the
Indenture), the Company may be required to repurchase the Senior 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.
In addition, the Senior Credit Facility and the Indenture each contain
covenants that significantly limit the Company's ability to obtain additional
35
sources of capital and may affect the Company's liquidity. These covenants
restrict the ability of the Company and its restricted subsidiaries to, among
other things, incur additional indebtedness, create liens, make investments,
consummate certain asset sales, create subsidiaries, issue subsidiary stock,
consolidate or merge with any other person, or transfer all or substantially all
of the assets of the Company.
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, together with borrowing availability, will be adequate to fund the
interest requirements on the Senior Notes and the Company's other cash operating
and debt service requirements over the next twelve months. However, any decline
in the Company's expected operating performance could have a material adverse
effect on the Company's liquidity. In such case, the Company could be required
to attempt to refinance all or a portion of its existing debt, sell assets or
obtain additional financing. No assurance can be given of the Company's ability
to do so or the terms of any such transaction. In addition, the Company would
require additional financing for future acquisitions.
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.
Impact of the Year 2000 Issue
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in normal
business activities.
The Company has conducted an assessment of its information and
telecommunications technology ("IT") assets and systems. Substantially all of
the Company's IT systems, except for a portion of the Company's ticketing and
sales systems, operate using software developed and supported by third party
vendors. The Company is in the process of implementing its planned program to
remedy such third party developed systems, which will entail either
modifications to or replacement of certain existing IT systems. The cost of
modifications will be expensed as incurred and is not expected to be
significant. The cost of purchased replacements will be capitalized and is
expected to range from $500,000 to $700,000.
The Company is currently performing an assessment of the necessary efforts
to make its primary ticketing and sales system year 2000 compliant, and expects
to complete this assessment by February 1999. The cost of necessary
modifications to the ticketing and sales software will be expensed as incurred.
Purchases of replacement hardware, if any, will be capitalized. The expected
cost of necessary software modifications and hardware replacements is not
currently known.
The Company has commenced a program to ensure that significant vendors and
service providers with which it does business are year 2000 compliant. In
addition, the Company is conducting an assessment of its operating assets to
determine whether there will be any significant financial impacts to ensure year
2000 compliance for such assets.
The Company intends to complete its year 2000 assessments and remediation
program by the third calendar quarter of 1999. However, if the Company or its
vendors are unable to resolve the year 2000 issue in a timely manner, or the
Company's assessment of the extent of year 2000 issues surrounding its IT
systems, operating assets or significant vendors or service providers were to be
incorrect, the year 2000 issue could have a material impact on the operations of
the Company. The Company does not presently have a contingency plan in the event
its year 2000 compliance program is unsuccessful or not completed on a timely
basis.
The cost of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
36
Seasonality
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of each
fiscal year. Management considers it essential to achieve optimal operating
results during key holidays and weekends during this period. During the
off-season months of May through October, the Company's resorts typically
experience a substantial reduction in labor and utility expense due to the
absence of ski operations, but make significant expenditures for maintenance,
expansion and capital improvement in preparation for the ensuing ski season.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company's market risk sensitive instruments do not subject the Company
to material market risk exposures, except for such risks related to interest
rate fluctuations. As of October 30, 1998, the Company has debt outstanding
(including the Senior Credit Facility) with a carrying value of $156.3 million
and an estimated fair value of $146.9 million.
Fixed interest rate debt outstanding as of October 30, 1998, which excludes
the Senior Credit Facility, was $139.1 million, carries an average interest rate
of approximately 12%, and matures as follows:
1999 2000 2001 2002 2003 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Senior Notes $ - $ - $ - $ - $ - $133,500,000 $133,500,000
ASC Seller Note 150,000 200,000 250,000 300,000 350,000 1,150,000 2,400,000
Other debt 1,635,000 907,000 101,000 88,000 90,000 416,000 3,237,000
------------------------------------------------------------------------------------
$1,785,000 $1,107,000 $ 351,000 $ 388,000 $ 440,000 $135,066,000 $139,137,000
====================================================================================
The amount of borrowings under the Senior Credit Facility as of October 30,
1998 was approximately $17.1 million. For purposes of calculating interest,
borrowings under the Senior Credit Facility can be, at the election of the
Company, Base Rate Loans or LIBOR Rate Loans or a combination thereof. Base Rate
Loans bear interest at the sum of (a) a margin of between 0% and .5%, depending
on the level of consolidated EBITDA of the Company and its subsidiaries (as
determined pursuant to the Senior Credit Facility), plus (b) the higher of (i)
the Agent's base rate or (ii) the federal funds rate plus .5%. LIBOR Rate Loans
bear interest at the LIBOR rate plus a margin of between 2% and 3%, depending on
the level of consolidated EBITDA. As of October 30, 1998 the borrowings
outstanding bore interest at 8%, pursuant to the Base Rate Loans option.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary financial information that are
required to be included pursuant to this Item 8 are listed in Item 14 of this
Report under the caption "(a)1." and follow Item 14. The financial statements
and supplementary financial information specifically referenced in such list are
incorporated in this Item 8 by reference.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
37
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors, Executive Officers and Key Employees
The following table sets forth information with respect to the directors,
executive officers and other key employees of the Company and Booth Creek Ski
Group, Inc., a Delaware corporation ("Parent"), of which the Company is a
wholly-owned subsidiary.
Name Age Position
- ------------------------------------------ ---- ------------------------------------------
George N. Gillett, Jr..................... 60 Chairman of the Board of Directors; Chief
Executive Officer; Assistant Secretary;
Director of the Company and Parent
Christopher P. Ryman...................... 44 Chief Operating Officer, President and
Assistant Secretary of the Company;
Director of Parent
Jeffrey J. Joyce.......................... 37 Executive Vice President of Finance,
Assistant Secretary of the Company;
Director of Parent
Elizabeth J. Cole......................... 38 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of the
Company
Timothy M. Petrick........................ 43 Executive Vice President, Branding and
Marketing of the Company; Director of
Parent
Timothy H. Beck........................... 48 Executive Vice President, Planning of the
Company
Brian J. Pope............................. 36 Vice President of Accounting and Finance,
Assistant Treasurer and Assistant
Secretary of the Company
Julianne Maurer........................... 42 Vice President of Marketing and Sales of
the Company
Mark St. J. Petrozzi...................... 39 Vice President of Risk Management of the
Company
Laura B. Moriarty......................... 43 Vice President of Human Resources of the
Company
Alexander F. Gillett...................... 26 Assistant Vice President and Assistant
Secretary of the Company
George N. Gillett, III.................... 29 Assistant Vice President and Assistant
Secretary of the Company
Timothy Silva............................. 47 General Manager - Northstar
John A. Rice.............................. 43 General Manager - Sierra
Brent G. Tregaskis........................ 38 General Manager - Bear Mountain
Thomas H. Day............................. 44 General Manager - Waterville Valley
Ted M. Austin............................. 38 General Manager - Mt. Cranmore
Larry H. Williamson....................... 57 General Manager - Grand Targhee
Rick F. Kelley............................ 44 General Manager - Loon Mountain
George N. Gillett, Jr. Mr. Gillett has been the Chairman of the Board of
Directors of the Company since its formation in October 1996 and Chief Executive
Officer since February 1997. Mr. Gillett served as Chairman from 1977 until
September 1996 of Gillett Holdings, Inc. (which was renamed Vail Resorts, Inc.
in 1996). Gillett Holdings, Inc. owned Packerland Packing Company, Inc. until
its sale in 1994, the Vail ski resort since its acquisition in 1985 and various
media properties, including a controlling interest in SCI Television, Inc. from
1987 until 1993. Since August 1994 he has served as Chairman of Packerland
Packing Company, Inc., a meatpacking company based in Green Bay, Wisconsin. From
October 1987 until May 1993, Mr. Gillett served as Chairman and Chief Executive
Officer of SCI Television, Inc. and from May 1993 until May 1996 as President of
New World Television, Inc. (renamed from SCI Television Inc. in 1993). Mr.
Gillett filed a petition of voluntary bankruptcy under Chapter 7 of the United
States Bankruptcy Code on August 13, 1992 and was discharged from bankruptcy on
38
July 27, 1993. In addition, certain entities for which Mr. Gillett has served as
an executive officer or director, including Gillett Holdings, Inc., SCI
Television, Inc. and their respective subsidiaries, filed bankruptcy petitions,
or had bankruptcy petitions filed against them, in 1991 and 1993 under Chapter
11 of the United States Bankruptcy Code. All of these entities have since been
discharged from bankruptcy.
Christopher P. Ryman. Mr. Ryman became Chief Operating Officer, President
and Assistant Secretary of the Company in May 1998 and became a Director of
Parent on September 15, 1998. Mr. Ryman was Chief Operating Officer and Senior
Vice President of Vail Associates from 1995. Prior to that time, from 1992 to
1995, he was Senior Vice President of Mountain Operations at Vail Associates.
Jeffrey J. Joyce. Mr. Joyce has held the position of Executive Vice
President, Finance of the Company since October 1996. He also has served since
August 1994 as a Vice President of Packerland Packing Company, Inc., which is
indirectly controlled by George N. Gillett, Jr., Chairman of the Board of
Directors and Chief Executive Officer of the Company. From July 1988 until July
1993, Mr. Joyce was employed by Gillett Holdings, Inc., an affiliate of George
N. Gillett, Jr., in various financial management positions.
Elizabeth J. Cole. Ms. Cole has held the positions of Executive Vice
President, Chief Financial Officer, Treasurer and Secretary of the Company since
May 1998. From May 1995 until May 1998, Ms. Cole worked at Vail Resorts with her
most recent position there being that of Vice President, Business Development.
Prior to this time, Ms. Cole was affiliated with Aurora Capital Partners. During
her employment with Aurora Capital Partners, she served as the Chief Financial
Officer of Petrowax PA, Inc., a manufacturer of petroleum waxes.
Timothy M. Petrick. Mr. Petrick has held the position of Executive Vic
President of the Company since May 1997. Prior to this time, he served as Vice
President and General Manager of K2 North America since July 1992 and has been a
Director of Parent since March 25, 1998.
Timothy H. Beck. Mr. Beck has held the positions of Executive Vice
President, Planning and President, Eastern Operations of the Company since July
1997. Prior to this time, he served as President of Sno-engineering, Inc. since
January 1991.
Brian J. Pope. Mr. Pope has held the position of Vice President of
Accounting and Finance of the Company since August 1998. In December 1998, Mr.
Pope was also named to the positions of Assistant Treasurer and Assistant
Secretary of the Company. Prior to August 1998, he served as Senior Manager in
the Assurance and Advisory Business Services unit of Ernst & Young LLP.
Julianne Maurer. Ms. Maurer has held the position of Vice President of
Marketing and Sales of the Company since December 1996. Prior to this time, she
served as Director of Marketing of the Fibreboard Resort Group as well as
Director of Marketing for Northstar.
Mark St. J. Petrozzi. Mr. Petrozzi has held the position of Vice
President of Risk Management of the Company since January 1998. Prior to this
time, Mr. Petrozzi held various management positions with Willis Corroon.
Laura B. Moriarty. Ms. Moriarty has held the position of Vice President of
Human Resources of the Company since 1997. Prior to this time, Ms. Moriarty was
the Training Development Director at Harvey's Resort Casino.
Alexander F. Gillett. Mr. Gillett has held the positions of Assistant
Vice President and Assistant Secretary since October 1996. Mr. Gillett is the
son of George N. Gillett, Jr.
George N. Gillett III. Mr. Gillett has held the positions of Assistant
Vice President and Assistant Secretary since October 1996. Mr. Gillett is the
son of George N. Gillett, Jr.
Timothy Silva. Mr. Silva has been the General Manager of Northstar since
January 1995. Prior to this time, he served as Director of Operations of Trimont
Land Company, the owner and operator of Northstar, since February 1992.
John A. Rice. Mr. Rice has been the General Manager of Sierra since July
1993. Prior to this time, he served as Vice President of Administration of Bear
Mountain, Ltd. (the predecessor of Bear Mountain, Inc.) since July 1988.
39
Brent G. Tregaskis. Mr. Tregaskis became the General Manager of Bear
Mountain in February 1998. Prior to this time, he served as Food and Beverage
and Facilities Director of Jackson Hole Mountain Resort since July 1996. From
1985 until July 1996, he served in a variety of positions at Snow Summit
Mountain Resort, including Profit Centers Manager and General Manager of the
Food and Beverage Department.
Thomas H. Day. Mr. Day has been the General Manager of Waterville Valley
since May 1997. Prior to this time, he served as Mountain Manager of Waterville
Valley since 1986.
Ted M. Austin. Mr. Austin became the General Manager of Mt. Cranmore in
September 1997. Prior to this time, he served as Director of Marketing at Sierra
since August 1993.
Larry H. Williamson. Mr. Williamson became the General Manager of Grand
Targhee in March 1997. Mr. Williamson has held the position of General Manager
of Grand Targhee Incorporated, the owner and operator of Grand Targhee, since
March 1996. Prior to this time, he served as Director of Mountain Operations of
Grand Targhee since 1989.
Rick F. Kelley. Mr. Kelley became the General Manager of Loon Mountain in
March 1998. Prior to this time, he served as Manager of Operations, Director of
Mountain Operations, Director of Skiing Operations, Director of Technical
Operations and Director of Maintenance Operations as well serving in a variety
of other positions at Loon Mountain since 1978.
Directors
All directors of Booth Creek and Parent hold office until the respective
annual meeting of stockholders next following their election, or until their
successors are elected and qualified. George N. Gillett, Jr. is the sole
director of Booth Creek. Pursuant to the Stockholders Agreement (as defined),
(i) in June 1997 Dean C. Kehler and Gregg L. Engles, as the designees of John
Hancock Mutual Life Insurance Company ("John Hancock"), and Jeffrey J. Joyce, as
a designee of Booth Creek Partners Limited II, L.L.L.P. (the "Gillett Family
Partnership"), became members of Parent's Board of Directors and George N.
Gillett, Jr., as a designee of the Gillett Family Partnership, was re-appointed
as Chairman of the Board of Directors of Parent, (ii) in March 1998, Timothy M.
Petrick, as a designee of the Gillett Family Partnership, became a member of
Parent's Board of Directors and (iii) in September 1998, Sandeep Alva, as a
designee of John Hancock, and Christopher P. Ryman, as a designee of the Gillett
Family Partnership became members of the Board of Directors. See Part III,
Item 13. "Certain Relationships and Related Transactions - Stockholders
Agreement." No directors of Booth Creek or Parent receives compensation for
acting in such capacity.
Since August 1985, Mr. Kehler has been a Managing Director of CIBC
Oppenheimer Corp., an affiliate of CIBC WG Argosy Merchant Fund 2, L.L.C. (the
"CIBC Merchant Fund"), and has investment responsibilities with respect to the
CIBC Merchant Fund. See Part III, Item 13. "Certain Relationships and Related
Transactions The Financing Transactions" and "- Stockholders Agreement." From
February 1990 to August 1995, Mr. Kehler was a Managing Director of Argosy
Group, L.P., an investment banking firm. Since March 1998, Mr. Alva has been the
President of Hancock Mezzanine Investments LLC, a private investment fund
established to provide subordinated debt and equity capital to middle market
companies and an affiliate of John Hancock. Mr. Alva has been with John Hancock
since 1985, except for 1990/91 when he was with Josephs, Littlejohn and Levy,
and has previously served as a Senior Investment Officer. See Part III, Item 13.
"Certain Relationships and Related Transactions" and - "Stockholders Agreement."
Mr. Engles has served as the Chairman of the Board and Chief Executive Officer
of Suiza Foods Corporation since October 1994. He has also served as the
Chairman of the Board and Chief Executive Officer of Reddy Ice Corporation since
May 1988, Chairman of the Board of Suiza Holdings, L.P. since December 1993, and
Chairman of the Board of Velda Farms since April 1994.
Item 11. Executive Compensation
Compensation of Executive Officers
The following table sets forth the compensation paid by Booth Creek to (i)
its Chairman of the Board and Chief Executive Officer and (ii) each of the four
most highly compensated individuals who served as executive officers of the
Company during fiscal 1998 and 1997 and received salary and bonus in excess of
$100,000 during such years (collectively, the "Named Executives"), for services
rendered in all capacities to Booth Creek during the periods indicated.
40
SUMMARY COMPENSATION TABLE
Annual Compensation
------------------------------------
Other All
Annual Other
Salary Bonus Compensation Compensation
Name and Principal Position Year ($) ($) ($) ($)
- -------------------------------------- ------ ---------- -------- ----------- -------------
George N. Gillett, Jr................ 1998 - - - -
1997 3,333(2) - - -
Chairman of the Board, Chief
Executive Officer and Director (1)
Timothy M. Petrick................... 1998 175,000 45,000 - 4,192(3)
Executive Vice President 1997 87,950 30,625 - 1,837(4)
Timothy H. Beck...................... 1998 143,268 45,000 - 4,040(5)
Executive Vice President
Timothy Silva........................ 1998 120,000 60,000 - 2,908(6)
General Manager - Northstar 1997 92,551 17,500 - 2,941(7)
John A. Rice......................... 1998 110,000 55,000 - 5,048(8)
General Manager - Sierra
Nanci N. Northway.................... 1997 100,410 6,000 - 3,181 (9)
Former Vice President, Treasurer,
Chief Financial Officer and Secretary
(1) Mr. Gillett is the sole shareholder, sole director and Chief Executive
Officer of Booth Creek, Inc., which, pursuant to the Management Agreement
(as defined), provides the Company with management services in exchange for
an annual management fee. See Part III, Item 13. "Certain Relationships and
Related Transactions - Management Agreement with Booth Creek, Inc."
(2) Mr. Gillett was only compensated by the Company during January and February
of 1997.
(3) Consists of a 401(k) matching contribution of $2,427 and term life insurance
premiums of $1,765.
(4) Consists of term life insurance premiums.
(5) Consists of a 401(k) matching contribution of $2,275 and term life insuranc
premiums of $1,765.
(6) Consists of a 401(k) matching contribution.
(7) Consists of a 401(k) matching contribution of $2,891 and term life insurance
premiums of $50.
(8) Consists of a 401(k) matching contribution.
(9) Consists of a 401(k) matching contribution of $3,158 and term life insurance
premiums of $23.
41
OPTIONS/SAR GRANTS IN FISCAL 1998
The following table sets forth certain information with respect to option grants
made to the Named Executives for the fiscal year ended October 30, 1998.
Potential Realizable Value at
Number of Percent of Total Assumed Annual Rates of
Securities Options/SARs Stock Price Appreciation for
Underlying Granted to Exercise Option Term
Options/SARS Employees in Price Expiration --------------------------------
Name Granted Fiscal Year ($/Sh) Date 5% 10%
------ -------------- ------------ ------- ----------- -------- ---------
Timothy H. Beck (1) 80 100% $500 October 1, 2007 $341,800 $568,000
Timothy Silva (2) 10 100% $500 October 1, 2007 $42,700 $71,000
John A. Rice (3) 10 100% $500 October 1, 2007 $42,700 $71,000
(1) Represents option to purchase Class A Common Stock of Parent pursuant to
that certain Stock Option Agreement by and between Parent and Mr. Beck. See Part
III, Item 11. "Executive Compensation - Parent Stock Options."
(2) Represents option to purchase Class A Common Stock of Parent pursuant to
that certain Stock Option Agreement by and between Parent and Mr. Silva. See
Part III, Item 11. "Executive Compensation - Parent Stock Options."
(3) Represents option to purchase Class A Common Stock of Parent pursuant to
that certain Stock Option Agreement by and between Parent and Mr. Rice. See Part
III, Item 11. "Executive Compensation - Parent Stock Options."
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998 AND
1998 FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities
Underlying
Unexercised Value of Unexercised
Shares Options/SARS at In-the-Money
Acquired on Fiscal Year-End, Options/SARs at
Exercise Value Exercisable/Unexercisable Fiscal Year-End,
Name (#) (1) Realized ($) (#) Exercisable/Unexercisable
--------- ----------- --------------- ----------------------------- ---------------------------
Timothy M. Petrick - - 20/80 $48,600/$194,400
Timothy H. Beck - - 16/64 $38,900/$155,500
Timothy Silva - - 2/8 $4,900/$19,400
John A. Rice - - 2/8 $4,900/$19,400
(1) No options were exercised during the fiscal year ended October 30, 1998.
Parent Stock Options
Parent has established the Booth Creek Ski Group, Inc. 1997 Stock Option
Plan (the "BCG Option Plan"), pursuant to which options with respect to a
maximum of 400 shares of Parent's Class A Common Stock may be granted. Options
may be granted under the BCG Option Plan to executive officers and key employees
of the Company at the discretion of the Board of Directors of Parent.
Under the BCG Option Plan, Parent has entered into several stock option
agreements (each, a "Stock Option Agreement" and collectively, the "Stock Option
Agreements") pursuant to which certain executive officers of the Company (each a
"Holder") have been granted options, subject to vesting, to purchase from Parent
a specified number of shares of Parent's Class A Common Stock at an exercise
price of $500 per share, subject to adjustment under certain circumstances. Each
Holder's option vested with respect to 20% of the related shares on the date of
grant, and will vest with respect to an additional 20% of the related shares on
each of the second, third, fourth and fifth anniversaries of such date. Upon the
occurrence of certain events resulting in the termination of such Holder's
42
employment (for example, the Holder's death, disability or for reasons other
than for "cause" (as defined in the Stock Option Agreement)) during a year in
which vesting would have taken place, such vesting will occur on a monthly, pro
rata basis. A Holder's option will become fully vested with respect to all of
the related shares upon a "change of control" (as defined in the Stock Option
Agreement) or if he terminates his employment within 45 days following certain
occurrences relating to the continued control and ownership of Parent by George
N. Gillett, Jr. and his family. Upon the termination of the Holder's employment,
all of his unvested options will be canceled and, depending on the reason for
such termination, certain percentages of his vested options will be canceled.
Following any termination of his employment, the Holder must, subject to certain
exceptions, exercise his option to purchase shares within 120 days following
such termination. In addition, the Holder generally may not exercise his option
after 10 years from the date of grant.
Pursuant to each Stock Option Agreement, if the Holder's employment is
terminated other than for "cause," he will have the right to require Parent to
purchase any shares of stock issued or issuable pursuant to his option at the
fair market value of such shares, as described therein. In addition, Parent will
have the right following the termination of the Holder's employment for "cause"
or his resignation without "good reason" to purchase all shares of stock
acquired by him pursuant to an exercise of his option at the fair market value
of such shares, as described in the Stock Option Agreement. Any shares of stock
issued pursuant to the options granted under the Stock Option Agreements will be
subject to the Stockholders Agreement (as defined). See "Certain Transactions -
Stockholders Agreement."
To date, Parent has entered into a Stock Option Agreement with and has
granted options to purchase shares of Parent's Class A Common Stock to each of
Timothy M. Petrick, Timothy H. Beck, Timothy Silva and John A. Rice, with
respect to 100, 80, 10 and 10 shares, respectively.
Employment and Other Agreements
The Company is a party to an employment agreement with Timothy M. Petrick,
Executive Vice President of the Company. Mr. Petrick's employment agreement
commenced on May 5, 1997 and will expire on April 30, 2002, unless sooner
terminated. Under such agreement, Mr. Petrick initially received a base salary
of $175,000 per annum, subject to certain increases as Mr. Petrick and the
Company may agree. Mr. Petrick will also be entitled to receive a bonus
following an initial public offering by the Company and, beginning with the
Company's fiscal year 1998, an annual incentive bonus of up to 50% of his base
salary based upon the Company's attainment of certain targeted financial,
business and personal goals. Under the terms of his employment agreement, Mr.
Petrick is eligible to participate in the health, disability and retirement
plans offered to other executives of the Company. In addition, pursuant to his
agreement, the Company provides Mr. Petrick with a $1,000,000 term life
insurance policy, reimburses him for all reasonable and necessary expenses
incurred by him in the discharge of his duties and indemnifies him to the
maximum extent permitted by Delaware law. In the event that Mr. Petrick is
required to relocate his residence due to a relocation of the Company's
executive offices (as described in his agreement), the Company shall reimburse
Mr. Petrick for certain costs related to such relocation.
Under the terms of his agreement, Mr. Petrick's employment may be terminated
by the Company at any time, with or without cause, or upon his death or
disability. In the event Mr. Petrick's employment agreement is terminated
"without cause" or by Mr. Petrick for "good reason" (as described in his
agreement), the Company will provide Mr. Petrick with salary continuation and
continuation of health and disability insurance coverage for a period of 18
months or until Mr. Petrick is eligible for comparable benefits from another
entity, whichever date is sooner. During the term of his employment and for a
period of one year thereafter, Mr. Petrick will be subject to provisions
prohibiting his competition with the Company, solicitation of certain of the
Company's executives or diversion of the Company's customers. Mr. Petrick's
employment agreement also contains provisions relating to non-disclosure of the
Company's proprietary information.
The Company is a party to an employment agreement with Timothy H. Beck,
Executive Vice President, Planning of the Company. Mr. Beck's employment under
such agreement commenced on July 1, 1997 and will expire on June 30, 2002,
subject to automatic annual one-year extensions, unless sooner terminated. Under
such agreement, Mr. Beck initially received a base salary of $137,500 per annum,
subject to annual review and discretionary increase by the Company. Mr. Beck
will also be entitled to receive a bonus following an initial public offering by
the Company and, beginning with the Company's fiscal year 1998, an annual
incentive bonus of up to 50% of his base salary based upon the Company's
attainment of certain targeted financial, business and personal goals. Under the
43
terms of his employment agreement, Mr. Beck is entitled to four weeks paid
vacation per year and is eligible to participate in the health, disability,
retirement, profit sharing, equity award and savings plans offered to other
executives of the Company. In addition, pursuant to his agreement, the Company
provides Mr. Beck with a $1,000,000 term life insurance policy, reimburses him
for all reasonable and necessary expenses incurred by him in the discharge of
his duties and indemnifies him to the maximum extent permitted by Delaware law.
In the event that the Company requires Mr. Beck to relocate his residence to the
community in which the Company's executive offices are located (as described in
his agreement), the Company shall reimburse Mr. Beck for certain costs related
to such relocation.
Under the terms of his employment agreement, Mr. Beck's employment may be
terminated by the Company at any time, with or without cause, or upon his death,
disability or resignation. In the event Mr. Beck's employment is terminated
"without cause" or by Mr. Beck for "good reason" (as described in his
agreement), the Company will provide Mr. Beck with salary continuation and
continuation of health and disability insurance coverage for a period of 18
months or until such time as Mr. Beck is eligible for comparable benefits from
another entity, whichever date is sooner. In the event Mr. Beck's employment is
terminated "without cause" within six months of a "change of control" (as
described in his agreement), the Company will provide Mr. Beck with salary
continuation and continuation of health and disability insurance coverage until
the earlier of (i) June 30, 2002 or (ii) the third anniversary of such
termination, but at least for a period of 18 months. However, such salary
continuation shall be reduced by any compensation received for services as an
employee or independent contractor during such periods and such benefit
continuation will cease at such time as Mr. Beck is eligible for comparable
benefits from another entity. During the term of his employment and for a period
of one year thereafter, Mr. Beck will be subject to provisions prohibiting his
competition with the Company, solicitation of certain of the Company's
executives or diversion of the Company's customers. Mr. Beck's employment
agreement also contains provisions relating to non-disclosure of certain
confidential information of the Company (as described in his agreement).
Compensation Committee Interlocks and Insider Participation
The Company's compensation policies are determined and executive officer
compensation decisions are made by the Board of Directors. Mr. George N.
Gillett, Jr. has been the sole director of the Company since its formation in
October 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company is a wholly-owned subsidiary of Parent. The following table sets
forth information concerning the beneficial ownership of Parent's Common Stock
(including Class A Common Stock and Class B Common Stock) as of October 30, 1998
by (i) each person known to the Company to own beneficially more than 5% of the
outstanding Common Stock of Parent, (ii) by each director of the Company and
each Named Executive and (iii) all directors and executive officers of the
Company as a group. Each share of Parent's Class B Common Stock is non-voting
(except with respect to certain amendments to the certificate of incorporation
and bylaws of Parent and as otherwise required by the General Corporation Law of
the State of Delaware) and is convertible into one share of voting Class A
Common Stock of Parent at any time, subject to applicable regulatory approvals.
All shares are owned with sole voting and investment power, unless otherwise
indicated.
Parent's Class A Parent's Class B
Common Stock Common Stock
Beneficially Owned Beneficially Owned
------------------- ----------------------
Beneficial Owner Shares % Shares %
--------------------- ---------- ------ --------- --------
Booth Creek Partners Limited II, L.L.L.P.......... 4,763.4 (1) 34% 182.9 (2) 2%
6755 Granite Creek Road
Teton Village, Wyoming 83025
John Hancock Mutual Life Insurance Company........ 6,192.9 (3) 44% 6,192.9 (3) 66%
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
CIBC WG Argosy Merchant Fund 2, L.L.C............. 2,664.3 (4) 19% 2,664.3 (4) 28%
425 Lexington Avenue, 3rd Floor
New York, New York 10017
George N. Gillett, Jr............................. 4,763.4 (5) 34%
Chairman of the Board of the Company
Rose Gillett...................................... 4,763.4 (5) 34%
6755 Granite Creek Road
Teton Village, Wyoming 83025
Jeffrey J. Joyce.................................. 687.1 (6) 5%
Executive Vice President, Finance of the Company
Hancock Mezzanine Partners L.P.................... 391.4 (7) 3% 391.4 (7) 4%
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
Timothy M. Petrick................................ 20 (8) *
Executive Vice President of the Company
Timothy H. Beck................................... 16 (9) *
Executive Vice President, Planning of the Company
Timothy Silva..................................... 2(10) *
General Manager - Northstar
John A. Rice...................................... 2(11) *
General Manager - Sierra
Total Executive Officers and Directors as a Group. 4,803.4(12) 34%
* Less than 1%.
(1) Comprised of 4,580.5 shares of Class A Common Stock of Parent and Warrants
to purchase 182.9 shares of Class B Common Stock of Parent. Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(2) Represents Warrants to purchase 182.9 shares of Class B Common Stock of
Parent.
(3) Comprised of 3,301 shares of Class B Common Stock of Parent and Warrants to
purchase 2,891.9 shares of Class B Common Stock of Parent. Each Warrant
may be exercised for one share of Parent's Class B Common Stock at an
exercise price of $.01 per share. Each share of Parent's Class B Common
Stock is convertible into one share of Class A Common Stock of Parent
at any time, subject to applicable regulatory approvals.
(4) Comprised of 1,642.7 shares of Class B Common Stock of Parent and Warrants
to purchase 1,021.6 shares of Class B Common Stock of Parent. Each share of
Parent's Class B Common Stock is convertible into one share of Class A
45
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(5) Booth Creek Partners Limited II, L.L.L.P. owns directly 4,580.5 shares of
Class A Common Stock of Parent and Warrants to purchase 182.9 shares of
Class B Common Stock of Parent. Each share of Parent's Class B Common Stock
is convertible into one share of Class A Common Stock of Parent at any time,
subject to applicable regulatory approvals. Each warrant may be exercised
for one share of Parent's Class B Common Stock at an exercise price of $.01
per share. George N. Gillett, Jr. is the managing general partner and Rose
Gillett is a co-general partner of Booth Creek Partners Limited II, L.L.L.P.
and each may be deemed to possess shared voting and/or investment power with
respect to the interests held therein. Accordingly, the beneficial ownership
of such interests may be attributed to George N. Gillett, Jr. and Rose
Gillett. Rose Gillett is the wife of George N. Gillett, Jr.
(6) Represents shares of Class A Common Stock of Parent that Mr. Joyce has an
option to purchase from Booth Creek Partners Limited II, L.L.L.P. (the
"Option") pursuant to that certain Option Letter Agreement dated December 3,
1996 which was amended in connection with the Equity Financing. The Option
is exercisable, in whole or in part, at any time on or prior to December 1,
2006 at an initial exercise price equal to $2,066.12 per share, which
exercise price shall increase by $55.10 on each December 1. The shares
subject to the Option and the per share exercise price are subject to
adjustment under certain circumstances, and the obligation of Booth Creek
Partners Limited II, L.L.L.P. to sell shares of Class A Common Stock of
Parent upon exercise of the Option is subject to compliance with applicable
securities laws.
(7) Comprised of 227.1 shares of Class B Common Stock of Parent and Warrants to
purchase 164.3 shares of Class B Common Stock of Parent. Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(8) Represents shares of Class A Common Stock of Parent that Mr. Petrick has an
option to purchase from Parent pursuant to that certain Stock Option
Agreement, by and between Parent and Mr. Petrick. See Part III, Item 11.
"Executive Compensation - Parent Stock Options."
(9) Represents shares of Class A Common Stock of Parent that Mr. Beck has an
option to purchase from Parent pursuant to that certain Stock Option
Agreement, by and between Parent and Mr. Beck. See Part III, Item 11.
"Executive Compensation - Parent Stock Options."
(10)Represents shares of Class A Common Stock of Parent that Mr. Silva has an
option to purchase from Parent pursuant to that certain Stock Option
Agreement, by and between Parent and Mr. Silva. See Part III, Item 11.
"Executive Compensation - Parent Stock Options."
(11)Represents shares of Class A Common Stock of Parent that Mr. Rice has an
option to purchase from Parent pursuant to that certain Stock Option
Agreement, by and between Parent and Mr. Rice. See Part III, Item 11.
"Executive Compensation - Parent Stock Options."
(12)Represents (i) 4,580.5 shares of Class A Common Stock of Parent and
Warrants to purchase 182.9 shares of Class B Common Stock of Parent owned by
Booth Creek Partners Limited II, L.L.L.P., of which George N. Gillett, Jr.
may be deemed to be the beneficial owner. Each share of Parent's Class B
Common Stock is convertible into one share of Class A Common Stock of Parent
at any time, subject to applicable regulatory approvals. Each warrant may be
exercised for one share of Parent's Class B Common Stock at an exercise
price of $.01 per share, (ii) 20 shares of Class A Common Stock of Parent
that Timothy M. Petrick has an option to purchase from Parent pursuant to
the option described in note (8) above, (iii) 16 shares of Class A Common
Stock of Parent that Timothy H. Beck has an option to purchase from Parent
pursuant to the option described in note (9) above, (iv) 2 shares of Class A
Common Stock of Parent that Timothy Silva has an option to purchase from
Parent pursuant to the option described in note (10) above and (v) 2 shares
of Class A Common Stock of Parent that John A. Rice has an option to
purchase from Parent pursuant to the option described in note (11) above.
Jeffrey J. Joyce may be deemed to be the beneficial owner of 687.1 of the
shares owned by Booth Creek Partners Limited II, L.L.L.P. pursuant to the
Option described in note (6) above.
46
Item 13. Certain Relationships and Related Transactions
The Financing Transactions
Since its formation in October 1996, the Company has engaged in a series of
related transactions for the purpose of raising capital to finance the
acquisitions of its resorts. As part of these transactions, (i) in November and
December 1996, the Gillett Family Partnership contributed an aggregate of $7.5
million to Parent in exchange for 3,630 shares of Class A Common Stock of
Parent; (ii) on November 27, 1996, Parent entered into a Securities Purchase
Agreement as amended and restated on February 26, 1998 and further amended on
September 14, 1998 (the "Hancock Securities Purchase Agreement") with John
Hancock pursuant to which John Hancock purchased for an aggregate consideration
of $42.5 million (a) 2,558 shares of Parent's Class B Common Stock (the "Hancock
Purchased Common Shares"), (b) warrants (the "Hancock Warrants") to purchase an
additional 2,500 shares of Parent's Class B Common Stock (the "Hancock
Underlying Shares") and (c) $35.0 million aggregate principal amount of Parent's
notes, including the Hancock Option Notes (the "Hancock Parent Financing Debt");
(iii) on November 27, 1996, Parent entered into a Securities Purchase Agreement
(the "CIBC Merchant Fund Securities Purchase Agreement" and, together with the
Hancock Securities Purchase Agreement, the "Securities Purchase Agreements")
with the CIBC Merchant Fund pursuant to which the CIBC Merchant Fund purchased
for an aggregate consideration of $6.5 million (a) 512 shares of Parent's Class
B Common Stock (the "CIBC Merchant Fund Purchased Common Shares" and, together
with the Hancock Purchased Common Shares, the "Purchased Common Shares"), (b)
warrants (the "CIBC Merchant Fund Warrants" and, together with the Hancock
Warrants, the "Warrants") to purchase an additional 400 shares of Parent's Class
B Common Stock (the "CIBC Merchant Fund Underlying Shares" and, together with
the Hancock Underlying Shares, the "Underlying Shares") and (c) $5.0 million
aggregate principal amount of Parent's notes as amended and restated on February
26, 1998 and further amended on September 14, 1998 (the "CIBC Merchant Fund
Parent Financing Debt"); and (iv) in December 1996, using the proceeds of the
foregoing, Parent made an equity contribution of $40.0 million and a loan of
$10.0 million to the Company, which was used to consummate the acquisitions of
certain of the Company's resorts (the foregoing transactions are collectively
referred to herein as the "Financing Transactions"). The loan from Parent to the
Company had terms identical to the Hancock Option Notes and was repaid in
connection with the consummation of the Company's offering of $110 million of
its 12.5% Senior Notes in March 1997 (the "Note Offering").
In connection with the consummation of the Note Offering, the Hancock Option
Notes were exchanged for notes of the Company with substantially identical terms
and repaid with a portion of the proceeds of the Note Offering. The remaining
portion of the Hancock Parent Financing Debt and the CIBC Merchant Fund Parent
Financing Debt (collectively, the "Parent Financing Debt") matures on November
27, 2008 and bears interest at 12% per annum, if paid in cash, or 14% per annum,
if paid in kind, payable semi-annually on each May 27 and November 27. In
connection with the consummation of the Equity Financing, (i) the Gillett Family
Partnership contributed an aggregate of $1.1 million to Parent in exchange for
536 shares of Class A Common Stock of Parent; (ii) John Hancock purchased for an
aggregate consideration of $4.8 million (a) a senior note which has been
converted into 378 shares of Parent's Class B Common Stock, (b) warrants to
purchase an additional 295 shares of Parent's Class B Common Stock and (c) $3.7
million aggregate principal amount of Parent's notes (the "1998 Hancock Parent
Financing Debt") and (iii) the CIBC Merchant Fund purchased for an aggregate
consideration of $4.6 million (a) 361 shares of Parent's Class B Common Stock,
(b) warrants to purchase an additional 282 shares of Parent's Class B Common
Stock and (c) $3.5 million aggregate principal amount of Parent's notes (the
"1998 CIBC Parent Financing Debt").
The Securities Purchase Agreements were each amended pursuant to a
Securities Purchase and Amendment Agreement dated as of September 14, 1998 by
and among Parent and the Gillett Family Partnership, John Hancock, CIBC Merchant
Fund and Hancock Mezzanine Partners L.P. (an affiliate of John Hancock) whereby:
(i) the Gillett Family Partnership contributed an aggregate of $3,500,000 to
Parent in exchange for 414.5 shares of the Class A Common Stock of Parent,
warrants to purchase an additional 182.9 shares of Class B Common stock of
Parent and $2.3 million aggregate principal amount of Parent's notes, (ii) John
Hancock contributed an aggregate of $4,789,898 to Parent in exchange for 554
shares of the Class B Common Stock of Parent, warrants to purchase an additional
244.4 shares of Class B Common Stock of Parent, and $3.1 million aggregate
principal amount of Parent's notes, (iii) Hancock Mezzanine Partners L.P.
contributed an aggregate of $210,102 to Parent in exchange for 38.1 shares of
the Class B Common Stock of Parent, warrants to purchase an additional 16.8
shares of Class B Common Stock of Parent, and $210,102 aggregate principal
amount of Parent's notes; and (iv) the CIBC Merchant Fund contributed an
aggregate of $6,500,000 to Parent in exchange for 769.7 shares of the Class B
47
Common Stock of Parent, warrants to purchase an additional 339.6 shares of Class
B Common Stock of Parent, and $4.2 million aggregate principal amount of
Parent's notes. On August 11, 1998, John Hancock transferred ownership of 189
shares of Class B Common Stock of Parent and warrants to purchase an additional
147.5 shares of Class B Common Stock of Parent to Hancock Mezzanine Partners
L.P., collectively (the "Additional Parent Financing Debt").
The Securities Purchase Agreements, which govern the Parent Financing Debt
and the Additonal Parent Financing Debt, contain financial covenants relating to
the maintenance of ratios of (a) consolidated total debt to consolidated cash
flow, (b) consolidated cash flow to consolidated fixed charges and (c)
consolidated cash flow to consolidated interest charges. The Securities Purchase
Agreements also contain restrictive covenants pertaining to the management and
operation of Parent and its subsidiaries, including the Company. The covenants
include, among others, significant limitations on discounts or sales of
receivables, funded debt and current debt, dividends and other stock payments,
redemption, retirement, purchase or acquisition of equity interests in Parent
and its subsidiaries, transactions with affiliates, investments, liens,
issuances of stock, asset sales, acquisitions, mergers, fundamental corporate
changes, tax consolidation, modifications of certain documents and leases. The
Securities Purchase Agreements further required that all of the issued and
outstanding common stock of Booth Creek be pledged upon consummation of the Note
Offering to secure the Parent Financing Debt and provide that Parent shall cause
Booth Creek to pay cash dividends to Parent in the maximum amount permitted by
law, subject to restrictions contained in the Company's debt agreements, in
order to satisfy Parent's interest payment obligations under the Parent
Financing Debt and the Additional Parent Financing Debt.
The Securities Purchase Agreements provide for events of default customary
in agreements of this type, including: (i) failure to make payments when due;
(ii) breach of covenants; (iii) bankruptcy defaults; (iv) breach of
representations or warranties in any material respect when made; (v) default by
Parent or any of its subsidiaries under any agreement relating to debt for
borrowed money in excess of $1.0 million in the aggregate; (vi) final judgments
for the payment of money against Parent or any of its subsidiaries in excess of
$1.0 million in the aggregate; (vii) ERISA defaults; (viii) any operative
document ceasing to be in full force and effect; (ix) any enforcement of liens
against Parent or any of its subsidiaries; and (x) a change of control of
Parent. The Securities Purchase Agreements contain financial and operating
covenants, events of default and other provisions customary for agreements of
this type.
The Warrants are exercisable, subject to certain conditions, at a per share
price of $0.01 (as adjusted by certain anti-dilution provisions) at any time
prior to November 27, 2008, on which date all unexercised Warrants will be
deemed automatically exercised. The Securities Purchase Agreements provide that
the holders of at least two-thirds of the Purchased Common Shares and the
Underlying Shares will each be entitled to require Parent to register their
shares under the Securities Act for resale to the public. The holders of
Registrable Shares (as defined in the Securities Purchase Agreements) are also
entitled to certain piggyback and other registration rights, subject in all
cases to certain qualifications.
Stockholders Agreement
In connection with the consummation of the Financing Transactions, Parent,
the Gillett Family Partnership, John Hancock and the CIBC Merchant Fund entered
into a Stockholders Agreement dated November 27, 1996, and which was amended and
restated of February 26, 1998 and further amended on August 5, 1998 (the
"Stockholders Agreement"). Pursuant to the Stockholders Agreement, the Board of
Directors of Parent shall consist of seven directors, four of whom shall be
designated by the Gillett Family Partnership and three of whom (the
"Unaffiliated Directors") shall be designated by John Hancock. No transaction
between Parent or any of its subsidiaries, including the Company, and George N.
Gillett, Jr. or any of his affiliates may be approved by the Board of Directors
of Parent unless such transaction is approved by all of the Unaffiliated
Directors. Moreover, without the consent of John Hancock and the CIBC Merchant
Fund (or their respective transferees) (collectively, the "Institutional
Investors"), neither Parent nor any subsidiary of Parent, including the Company,
may issue any equity securities except, in the case of Parent, for certain
enumerated permitted issuances and, in the case of any subsidiary of Parent,
issuances to Parent or to any wholly-owned subsidiary of Parent. With respect to
issuance of equity securities of Parent requiring the approval of the
Institutional Investors, the Institutional Investors also are entitled to
certain preemptive rights. In addition, the Stockholders Agreement provides that
neither Parent nor any of its subsidiaries, including the Company, may acquire
any assets or business from any other person (other than inventory and equipment
in the ordinary course of business) without the consent of the Required
Institutional Investors (as defined in the Stockholders Agreement).
48
The Stockholders Agreement further provides that, subject to certain
exceptions, the Gillett Family Partnership may not sell, assign, gift, pledge or
otherwise transfer any equity securities of Parent beneficially owned by it
(other than to an affiliate of the Gillett Family Partnership that becomes a
party to the Stockholders Agreement) prior to November 27, 1999. In the event
that at any time after such date, the Gillett Family Partnership shall not hold
a majority of the outstanding Class A Common Stock of Parent as a result of the
conversion of shares of Class B Common Stock into Class A Common Stock, the
Stockholders Agreement requires that Parent grant to the Gillett Family
Partnership registration rights with respect to its equity securities which are
in all material respects the same as those provided to the Institutional
Investors under the Securities Purchase Agreements.
In addition to the foregoing, the Stockholders Agreement gives each party
thereto certain co-sale rights and rights of first offer upon the sale or other
transfer of any equity securities of Parent by any other party, and requires
that, as a condition to the issuance or transfer of any equity securities of
Parent to any third party (other than a person who acquires such securities
pursuant to an effective registration statement under the Securities Act) that
such person become a party to the Stockholders Agreement and agree to be bound
by all the terms and conditions thereof.
The provisions of the Stockholders Agreement relating to the composition of
the Board of Directors of Parent terminate following any transfer or transfers
of equity securities of Parent by the Gillett Family Partnership, John Hancock
and the CIBC Merchant Fund (other than a transfer by any of them to any of their
respective affiliates) if after giving effect to any such transfer or transfers
the Gillett Family Partnership, John Hancock and the CIBC Merchant Fund have
transferred in the aggregate 20% or more of the equity securities of Parent, as
calculated in the Stockholders Agreement. The Stockholders Agreement shall
terminate, and be of no force or effect, upon the consummation of a Qualified
Public Offering (as defined in the Stockholders Agreement).
Pursuant to the Stockholders Agreement, (i) in June 1997 Dean C. Kehler and
Gregg L. Engles, as the designees of John Hancock, and Jeffrey J. Joyce, as a
designee of the Gillett Family Partnership, became members of Parent's Board of
Directors and George N. Gillett, Jr., as a designee of the Gillett Family
Partnership, was re-appointed as Chairman of the Board of Directors of Parent;
(ii) in March 1998, Timothy M. Petrick, as a designee of the Gillett Family
Partnership, became a member of Parent's Board of Directors and (iii) in
September 1998, Sandeep Alva, as a designee of John Hancock, and Christopher P.
Ryman, as a designee of the Gillett Family Partnership became members of the
Board of Directors. George N. Gillett, Jr., Chairman and Chief Executive Officer
of the Company, is the managing general partner of the Gillett Family
Partnership. See Part III, Item 10. "Directors and Executive Officers of the
Registrant - Directors."
Initial Offering
CIBC Oppenheimer Corp. was the Initial Purchaser in the Initial Offering
and in the Note Offering and received customary compensation in such capacity.
In addition, CIBC Oppenheimer Corp. acted as a financial advisor to the Company
with respect to the Consent Solicitation in conjunction with the Loon Mountain
acquisition. In connection therewith, the Company reimbursed CIBC Oppenheimer
Corp. for its out-of-pocket expenses and provided customary indemnification.
The Initial Purchaser is an affiliate of Canadian Imperial Bank of Commerce,
which was the lender under the Bridge Notes, and is an affiliate of the CIBC
Merchant Fund, which owns 1,642.7 shares, and Warrants to acquire an additional
1,021.6 shares, of Class B Common Stock of Parent and $12.8 million aggregate
principal amount of notes issued by Parent. Dean C. Kehler, who has been a
Managing Director of the Initial Purchaser since August 1995 and has investment
responsibilities with respect to the CIBC Merchant Fund, serves on Parent's
Board of Directors.
Management Agreement with Booth Creek, Inc.
Booth Creek has in effect a management agreement with Booth Creek, Inc. (the
"Management Company") dated November 27, 1996 (the "Management Agreement")
pursuant to which the Management Company provides Parent, Booth Creek and its
subsidiaries with financial advice with respect to, among other matters, cash
management, accounting and data processing systems and procedures, budgeting,
equipment purchases, business forecasts, treasury functions and investor
relations. The Management Company also provides general supervision and
49
management advice concerning tax, legal and corporate finance matters,
administration and operation, personnel matters, business insurance and the
employment of consultants, contractors and agents.
Under the terms of the Management Agreement, Booth Creek provides customary
indemnification, reimburses certain costs and pays the Management Company an
annual management fee of $350,000 plus an operating bonus (the "Operating
Bonus") (not to exceed $400,000) equal to 2.5% of the excess of Consolidated
EBITDA (as defined below) for such year over $25 million. The Operating Bonus
for each fiscal year must be paid within 15 days after Parent receives its
fiscal year-end audited financial statements for that year. Booth Creek pays the
Management Company amounts necessary to cover operations costs (other than
office operations costs but including, without limitation, reasonable travel and
entertainment costs) and reimburses certain costs and expenses, of the
Management Company attributable to, arising out of, in connection with, or
related to management services rendered by the Management Company.
The term "Consolidated EBITDA," as used in the Management Agreement, means
the EBITDA of Booth Creek and its subsidiaries consolidated in accordance with
GAAP, and after giving appropriate effect to outside minority interests, if any,
in subsidiaries, and taking into account certain exclusions, including without
limitation (a) the net income of any person (other than a subsidiary of Booth
Creek) in which Booth Creek or any such subsidiary has an ownership interest;
(b) any undistributed net income of a subsidiary of Booth Creek which for any
reason is unavailable for distribution to Booth Creek or any other subsidiary;
(c) the net income of any person accrued prior to the date it becomes a
subsidiary of Booth Creek or is merged into or consolidated with Booth Creek or
a subsidiary; (d) in the case of a successor to Booth Creek by consolidation,
merger or transfer of assets, the net income of such successor accrued prior to
such consolidation, merger or transfer; (e) any deferred or other credit
representing the excess of the equity in any subsidiary of Booth Creek at the
date of acquisition thereof over the cost of the investment in such subsidiary;
(f) any restoration to income of any contingency reserve, except to the extent
that provision for such reserve was made out of income accrued during the same
period; (g) any aggregate net gain and any aggregate net loss arising from the
sale, conversion, exchange or other disposition of capital assets; (h) any gains
resulting from any write-up of any assets (but not any loss resulting from any
write-down); (i) any net gain from the collection of any proceeds of life
insurance policies; (j) any gain arising from the acquisition of any shares or
other securities or the extinguishment, under GAAP, of any indebtedness, of
Booth Creek or any subsidiary of Booth Creek; (k) any net income or gain (but
not any net loss) from (1) any change in accounting principles in accordance
with GAAP, (2) any prior period adjustments resulting from any change in
accounting principles in accordance with GAAP and (3) any discontinued
operations or the disposition thereof; and (l) any portion of net income that
cannot be freely converted into United States Dollars. In determining
Consolidated EBITDA, the net income of any person for any period shall be (x)
increased by the amount deducted therefrom in respect of "noncash costs of real
estate sales" incurred during such period and (y) decreased by the amount of
"cash real estate development costs" to the extent capitalized during such
period.
Certain obligations of Booth Creek to make payments under the Management
Agreement are subject to the provisions of the following securities purchase
agreements that have been entered into by Parent (a) an agreement entered into
with John Hancock dated November 27, 1996 as amended and restated on February
26, 1998 and further amended on September 14, 1998, and (ii) an agreement
entered into with CIBC Merchant Fund dated November 27, 1996 as amended and
restated on February 26, 1998 and further amended on September 14, 1998
(collectively, referred to herein as the "Securities Purchase Agreements").
Booth Creek may make payments under the Management Agreement so long as (i) both
at the time of making such payments and after giving effect thereto, no default
or event of default shall have occurred and be continuing under the Securities
Purchase Agreements and (ii) the aggregate amount of such management fees paid
during any fiscal year of the Parent shall not exceed the lesser of (1) $750,000
and (2) the sum of (x) $350,000 plus (y) 2.5% of Consolidating EBITDA in excess
of $25,000,000 for the then most recently completed fiscal year of Parent.
Management fees that are not permitted to be paid due to the creation of a
default or event of default under the Securities Purchase Agreements will accrue
without interest and may be paid at such time as no default or event of default
shall exist.
The management fees and the calculation of the Operating Bonus may be
amended only by the mutual consent of both Booth Creek and the Management
Company. To the fullest extent permitted by law, with certain limitations, the
Management Company and any officer, director, employee, agent or attorney of the
Management Company (collectively, the "Indemnities") shall not have any
liability to any of the Parent, Booth Creek or any of their subsidiaries for any
loss, damage, cost or expense (including, without limitation, any court costs,
attorneys' fees and any special, indirect, consequential or punitive damages)
allegedly arising out of the Management Company's management services rendered
50
to the Parent, Booth Creek or any of their subsidiaries or Indemnities' acts,
conduct or omissions in connection with the Management Company's management
services rendered to Booth Creek or any of their subsidiaries.
In addition, to the fullest extent permitted by law, Booth Creek indemnifies
the Indemnitees and holds the Indemnitees harmless against, any loss, damage,
cost or expense (including, without limitation, court costs and reasonable
attorneys' fees) which the Indemnitees may sustain or incur by reason of any
threatened, pending or completed investigation, action, claim, demand, suit,
proceeding or recovery by any person (other than the Indemnitees) allegedly
arising out of the Management Company's management services rendered to the
Parent, Booth Creek or any of their subsidiaries or the Indemnitees' acts,
conduct or omissions in connection with the Management Company's management
services rendered to the Parent, Booth Creek or any of their subsidiaries.
Since the formation of Booth Creek, the Management Company and certain of
its affiliates have made advances and deposits, and have incurred fees and
expenses, in connection with certain of the acquisitions of Booth Creek's
resorts for which they were later reimbursed by Booth Creek pursuant to the
Management Agreement.
The Management Agreement will terminate automatically upon consummation of a
sale of all or substantially all of the assets or stock of Parent and its
subsidiaries on a consolidated basis, and may be terminated earlier for certain
cause by either Booth Creek or the Management Company.
51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of Documents Filed as Part of This Report:
1. The financial statements listed on page F-1 are filed as part of this
Report.
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable, not
required or the information is included elsewhere in the Consolidated
Financial Statements or Notes thereto.
3. List of Exhibits:
+2.1 Agreement and Plan of Merger dated as of September 18, 1997 by and among
Booth Creek Ski Group, Inc., LMRC Acquisition Corp. and Loon Mountain
Recreation Corporation.
+2.2 First Amendment to Merger Agreement, dated December 22, 1997, by and among
Booth Creek Ski Group, Inc., LMRC Acquisition Corp. and Loon Mountain
Recreation Corporation.
++++2.3 Agreement of Merger dated as of August 28, 1998 by and among Booth Creek
Ski Holdings, Inc., Booth Creek Ski Acquisition, Inc. and Seven Springs
Farm, Inc.
*3.1 Certificate of Incorporation of Booth Creek Ski Holdings, Inc.
*3.2 Bylaws of Booth Creek Ski Holdings, Inc.
*3.3 Restated Articles of Incorporation of Trimont Land Company.
*3.4 Bylaws of Trimont Land Company.
*3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc.
*3.6 Bylaws of Sierra-at-Tahoe, Inc.
*3.7 Certificate of Incorporation of Bear Mountain, Inc.
*3.8 Bylaws of Bear Mountain, Inc.
*3.9 Certificate of Incorporation of Booth Creek Ski Acquisition Corp.
*3.10 Bylaws of Booth Creek Ski Acquisition Corp.
*3.11Amended and Restated Certificate of Incorporation of Waterville Valley Ski
Resort, Inc.
*3.12 Bylaws of Waterville Valley Ski Resort, Inc.
*3.13Amended and Restated Certificate of Incorporation of Mount Cranmore Ski
Resort, Inc.
*3.14 Bylaws of Mount Cranmore Ski Resort, Inc.
*3.15 Amended and Restated Articles of Incorporation of Ski Lifts, Inc.
52
*3.16 Bylaws of Ski Lifts, Inc.
*3.17 Certificate of Incorporation of Grand Targhee Incorporated.
*3.18 Bylaws of Grand Targhee Incorporated.
*3.19 Articles of Incorporation of B-V Corporation.
*3.20 Bylaws of B-V Corporation.
*3.21 Certificate of Incorporation of Targhee Company.
*3.22 Bylaws of Targhee Company.
*3.23 Certificate of Incorporation of Targhee Ski Corp.
*3.24 Bylaws of Targhee Ski Corp.
****3.25 Articles of Incorporation of LMRC Holding Corp.
****3.26 Amended and Restated Articles of Incorporation of Loon Mountain
Recreation Corporation.
****3.27 Amended and Restated Bylaws of Loon Mountain Recreation Corporation.
****3.28 Amended and Restated Articles of Incorporation of Loon Realty Corp.
****3.29 Amended and Restated Bylaws of Loon Realty Corp.
****3.30 Bylaws of LMRC Holding Corp.
*4.1 Indenture dated as of March 18, 1997 by and among Booth Creek Ski Holdings,
Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear
Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts, Inc., Grand
Targhee Incorporated, B-V Corporation, Targhee Company and Targhee Ski
Corp., as Subsidiary Guarantors, and Marine Midland Bank, as trustee
(including the form of 12 1/2% Senior Note due 2007 and the form of
Guarantee).
*4.2 Supplemental Indenture No. 1 to Indenture dated as of April 25, 1997 by and
among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort,
Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp.,
Ski Lifts, Inc., Grand Targhee Incorporated, B-V Corporation, Targhee
Company and Targhee Ski Corp., as Subsidiary Guarantors, and Marine Midland
Bank, as trustee.
+4.3 Supplemental Indenture No. 2 to Indenture dated as of February 20, 1998 by
and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort,
Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp.,
Ski Lifts, Inc, Grand Targhee Incorporated, B-V Corporation, Targhee
Company and Targhee Ski Corp, as Subsidiary Guarantors, and Marine Midland
Bank, as Trustee.
+4.4 Supplemental Indenture No. 3 to Indenture dated as of February 26, 1998, by
and among Booth Creek Ski Holdings, Inc., as Issuer, LMRC Holding Corp.,
Loon Mountain Recreation Corporation and Loon Realty Corp., as Subsidiary
Guarantors, and Marine Midland Bank, as Trustee.
53
+++++ 4.5 Supplemental Indenture No. 4 to Indenture dated as of October 8, 1998
by and between Booth Creek Ski Holdings, Inc., as Issuer, Booth Creek Ski
Acquistion, Inc. and Marine Midland Bank, as Trustee.
+4.6 Registration Rights Agreement, dated as of February 26, 1998 by and among
the Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort,
Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp.,
Ski Lifts, Inc, Grand Targhee Incorporated, B-V Corporation, Targhee
Company, Targhee Ski Corp, LMRC Holding Corp, Loon Mountain Recreation
Corporation and Loon Realty Corp., as Subsidiary Guarantors and CIBC
Oppenheimer Corp.
+4.7 Securities Purchase Agreement, dated as of February 23, 1998, by and among
the Booth Creek Ski Holdings, Inc., Trimont Land Company, Sierra-at-Tahoe,
Inc., Bear Mountain, Inc., Booth Creek Ski Acquisition Corp., Waterville
Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc.,
Grand Targhee Incorporated, B-V Corporation, Targhee Company, Targhee Ski
Corp., LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon
Realty Corp and CIBC Oppenheimer Corp.
+++++4.8 Amended and Restated Securities Purchase Agreement, dated as of
September 14, 1998, among Booth Creek Ski Group, Inc., Booth Creek Ski
Holdings, Inc., the Subsidiary Guarantors as defined therein and each of
John Hancock Mutual Life Insurance Company, CIBC WG Argosy Merchant Fund 2,
L.L.C. and Hancock Mezzanine Partners L.P.
++5.1 Opinion of Winston & Strawn.
+++++10.1 Amended and Restated Credit Agreement dated as of October
30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition
Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski
Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain
Recreation Corporation, Loon Realty Corp. and BankBoston, N.A.
54
*10.2Purchase and Sale Agreement dated as of August 30, 1996 by and between
Waterville Valley Ski Area, Ltd., Cranmore, Inc., American Skiing Company
and Booth Creek Ski Acquisition Corp.
*10.3Subordinated Promissory Note dated November 27, 1996 issued by Booth Creek
Ski Acquisition Corp., Waterville Valley Ski Resort, Inc. and Mount
Cranmore Ski Resort, Inc. to American Skiing Company.
*10.4Stock Purchase and Indemnification Agreement dated as of November 26, 1996
among Booth Creek Ski Holdings, Inc., Fibreboard Corporation, Trimont Land
Company, Sierra-at-Tahoe, Inc. and Bear Mountain, Inc.
*10.5Escrow Agreement dated December 3, 1996 by and among Fibreboard
Corporation, Booth Creek Ski Holdings, Inc. and First Trust of California.
*10.6 Purchase Agreement dated February 11, 1997 among Booth Creek Ski
Holdings, Inc., Grand Targhee Incorporated, Moritz O. Bergmeyer and Carol
Mann Bergmeyer.
*10.7 Promissory Note dated February 11, 1997 issued by Grand Targhee
Incorporated to Booth Creek Ski Holdings, Inc.
*10.8 Stock Purchase Agreement dated as of February 21, 1997 by and between
Booth Creek Ski Holdings, Inc., William W. Moffett, Jr., David R. Moffett,
Laurie M. Padden, individually and as custodian for Christina Padden,
Jennifer Padden and Mary M. Padden, Stephen R. Moffett, Katharine E.
Moffett, Frances J. DeBruler, individually and as representative of the
Estate of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund, and David
R. Moffett, as representative.
*10.9 Preferred Stock Purchase Agreement dated as of February 21, 1997 by and
between DRE, L.L.C., William W. Moffett, Jr., David R. Moffett, Laurie M.
Padden, individually and as custodian for Christina Padden, Jennifer Padden
and Mary M. Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J.
DeBruler, individually and as representative of the Estate of Jean S.
DeBruler, Jr., deceased, and Peggy Westerlund and David R. Moffett, as
representative.
*10.10 Management Agreement dated as of November 27, 1996 by and between Booth
Creek Ski Holdings, Inc. and Booth Creek, Inc.
*10.11Ski Area Term Special Use Permit No. 4002/01 issued by the United States
Forest Service to Waterville Valley Ski Resort, Inc.
*10.12 Ski Area Term Special Use Permit No. 5123/01 issued by the United States
Forest Service to Bear Mountain, Inc.
*10.13 Ski Area Term Special Use Permit No. 4186/01 issued by the United States
Forest Service to Sierra-at-Tahoe, Inc.
*10.14 Ski Area Term Special Use Permit No. 4033/01 issued by the United States
Forest Service to Grand Targhee Incorporated.
*10.15 Ski Area Term Special Use Permit No. 4127/09 issued by the United States
Forest Service to Ski Lifts, Inc.
55
*10.16 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by the United
States Forest Service to Ski Lifts, Inc.
++10.17 Ski Area Term Special Use Permit No. 4031/01 issued by the United States
Forest Service to Loon Mountain Recreation Corporation.
++10.18 Amendment Number 2 for Special Use Permit No. 4008/1 issued by the
United States Forest Service to Loon Mountain Recreation Corporation.
++10.19 Amendment Number 5 for Special Use Permit No. 4008/1 issued by the
United States Forest Service to Loon Mountain Recreation Corporation.
****10.20 Employment Agreement dated as of July 1, 1997, by and between Booth
Creek Ski Holdings, Inc. and Timothy H. Beck.
***10.21 Employment Agreement dated May 5, 1997 by and between Booth Creek Ski
Holdings, Inc. and Timothy M. Petrick.
***10.22 Stock Option Agreement dated as of October 1, 1997 between Booth Creek
Ski Group, Inc. and Timothy M. Petrick.
56
+++10.23 Stock Option Agreement by and between Booth Creek Ski Group, Inc. and
Timothy Silva.
+++++10.24 Stock Option Agreement by and between Booth Creek Ski Group, Inc. and
Timothy H. Beck.
+++++10.25 Stock Option Agreement by and between Booth Creek Ski Group, Inc. and
John A. Rice.
+++++ 21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
* Filed with Registration Statement No. 333-26091 and incorporated herein by
reference.
** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended August 1, 1997 and incorporated herein by reference.
*** Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 31, 1997 and incorporated herein by reference.
**** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended January 30, 1998 and incorporated herein by reference.
+ Filed with the Company's Current Report on Form 8-K dated February 26, 1998
and incorporated herein by reference.
++ Filed with Registration Statement No. 333-48619 and incorporated herein by
reference.
+++ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended May 1, 1998 and incorporated herein by reference.
++++ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended July 31, 1998 and incorporated herein by reference.
+++++ Filed herewith as an Exhibit to this Form 10-K.
(b) Reports on Form 8-K:
None
(c) Exhibits: See (a)(3) above for a listing of Exhibits filed as a part of this
Report.
(d) Additional Financial Statement Schedules: None.
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(D) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act
Neither an annual report covering the Registrant's last fiscal year nor
proxy materials with respect to any annual or other meeting of security holders
have been sent to security holders.
F-1
BOOTH CREEK SKI HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
INDEX OF FINANCIAL STATEMENTS
Page
Page
Booth Creek Ski Holdings, Inc.
Financial Statements - October 30, 1998 and October 31, 1997
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Shareholder's Equity...................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
The Resort Group of Fibreboard Corporation
Combined Financial Statements - December 2, 1996
Report of Independent Auditors....................................................... F-21
Combined Balance Sheet............................................................... F-22
Combined Statement of Operations..................................................... F-23
Combined Statement of Cash Flows..................................................... F-24
Notes to Combined Financial Statements............................................... F-25
Combined Financial Statements - October 31, 1996 and October 31, 1995
(unaudited) and December 31, 1995 and 1994
Report of Independent Public Accountants............................................. F-30
Combined Balance Sheets.............................................................. F-31
Combined Statements of Operations.................................................... F-32
Combined Statements of Cash Flows.................................................... F-33
Notes to Financial Statements........................................................ F-34
F-2
REPORT OF INDEPENDENT AUDITORS
Booth Creek Ski Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Booth Creek
Ski Holdings, Inc. as of October 30, 1998 and October 31, 1997, and the related
consolidated statements of operations, shareholder's equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Booth Creek Ski
Holdings, Inc. at October 30, 1998 and October 31, 1997, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Sacramento, California
December 18, 1998, except for
the first paragraph of
Note 5 for which the date is
January 28, 1999
F-3
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
October 30, October 31,
1998 1997
------------ -----------
ASSETS
Assets
Current assets:
Cash ................................................. $ 625 $ 462
Accounts receivable, net of allowance of $54 and
$35, respectively................................... 1,573 1,528
Inventories........................................... 4,370 3,059
Prepaid expenses and other current assets............. 1,377 1,396
------------- ----------
Total current assets.................................... 7,945 6,445
Property and equipment, net............................. 156,469 123,639
Deferred financing costs, net of accumulated amortization
of $1,985 and $782, respectively...................... 6,649 6,229
Timber rights and other assets.......................... 7,428 7,402
Goodwill, net of accumulated amortization of $4,190 and
$1,953, respectively.................................. 29,900 31,851
------------ ---------
Total assets............................................ $ 218,546 $ 186,416
============ =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Senior credit facility................................ $ 17,143 $ 15,000
Current portion of long-term debt..................... 1,785 947
Accounts payable and accrued liabilities.............. 22,110 17,132
----------- -----------
Total current liabilities............................... 41,038 33,079
Long-term debt.......................................... 137,352 120,380
Other long-term liabilities............................. 145 196
Commitments and contingencies
Preferred stock of subsidiary; 28,000 shares authorized,
21,000 shares issued and outstanding at October 30, 1998
(25,000 shares at October 31, 1997); liquidation
preference and redemption value of $2,634 at
October 30, 1998...................................... 2,634 3,354
Shareholder's equity:
Common stock, $.01 par value; 1,000 shares authorized,
issued and outstanding.............................. - -
Additional paid-in capital............................ 72,000 46,500
Accumulated deficit................................... (34,623) (17,093)
------------ -----------
Total shareholder's equity.............................. 37,377 29,407
------------ -----------
Total liabilities and shareholder's equity.............. $ 218,546 $ 186,416
============ ===========
See accompanying notes.
F-4
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Year Ended
----------------------------
October 30, October 31,
1998 1997
------------- ------------
Revenue:
Resort operations.................................... $ 97,248 $ 68,136
Real estate and other................................ 7,608 3,671
------------ ----------
Total revenue.......................................... 104,856 71,807
Operating expenses:
Cost of sales - resort operations.................... 61,325 44,624
Cost of sales - real estate and other................ 4,671 2,799
Depreciation and depletion........................... 15,515 9,728
Amortization of goodwill............................. 2,237 1,953
Selling, general and administrative expense.......... 19,645 13,719
----------- ---------
Total operating expenses............................... 103,393 72,823
----------- ---------
Operating income (loss)................................ 1,463 (1,016)
Other income (expense):
Interest expense..................................... (17,510) (13,269)
Amortization of deferred financing costs............. (1,203) (1,809)
Other income (expense)............................... (20) 166
------------ ---------
Other income (expense), net.......................... (18,733) (14,912)
------------ ---------
Loss before income taxes, minority interest and
extraordinary item................................... (17,270) (15,928)
------------ ---------
Income tax benefit..................................... - 1,728
------------ ---------
Loss before minority interest and extraordinary item... (17,270) (14,200)
Minority interest...................................... (260) (229)
------------ ----------
Loss before extraordinary item......................... (17,530) (14,429)
Extraordinary loss on early retirement of debt......... - (2,664)
------------ ----------
Net loss............................................... $ (17,530) $ (17,093)
============ ==========
See accompanying notes.
F-5
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED OCTOBER 30, 1998 AND OCTOBER 31, 1997
(In thousands, except shares)
Note
Common Stock Additional Receivable
----------------- Paid-in from Accumulated
Shares Amount Capital Shareholder Deficit Total
------- ------- ------------ ------------- ---------- ---------
Initial capitalization and
balance at October 31, 1996.. 1,000 $ - $ 2 $ (2) $ - $ -
Payment received on shareholder
note receivable............... - - - 2 - 2
Capital contributions.......... - - 46,498 - - 46,498
Net loss....................... - - - - (17,093) (17,093)
------- ------ ---------- ------------ ----------- -------
Balance at October 31, 1997.... 1,000 - 46,500 - (17,093) 29,407
Capital contributions.......... - - 25,500 - - 25,500
Net loss....................... - - - - (17,530) (17,530)
------- ------ ---------- ------------ ---------- ----------
Balance at October 30, 1998.... 1,000 $ - $ 72,000 $ - $ (34,623) $ 37,377
======== ======= ========== ============= ========== ==========
See accompanying notes.
F-6
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
---------------------------
October 30, October 31,
1998 1997
------------ --------------
Cash flows from operating activities:
Net loss.............................................. $ (17,530) $ (17,093)
Adjustment to reconcile net loss to net cash provided
by operating activities:
Depreciation and depletion........................ 15,515 9,728
Amortization of goodwill.......................... 2,237 1,953
Noncash cost of real estate sales................. 3,721 2,237
Amortization of deferred financing costs.......... 1,203 1,809
Deferred income tax benefit....................... - (1,548)
Minority interest................................. 260 229
Extraordinary loss on early retirement of debt.... - 2,664
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable............................. 279 (914)
Inventories..................................... (785) 1,115
Prepaid expenses and other current assets....... 103 303
Accounts payable and accrued liabilities........ 2,707 1,003
Other long-term liabilities..................... (151) 66
------------ ---------
Net cash provided by operating activities............. 7,559 1,552
Cash flows from investing activities:
Acquisition of ski resorts, net of cash acquired...... (30,211) (142,028)
Capital expenditures for property and equipment....... (15,500) (9,459)
Capital expenditures for real estate held for
development and sale................................ (1,717) (72)
Other assets.......................................... (290) (1,126)
------------ ---------
Net cash used in investing activities................. (47,718) (152,685)
Cash flows from financing activities:
Net borrowings under senior credit facility........... 2,143 15,000
Proceeds of long-term debt............................ 17,500 216,000
Principal payments of long-term debt.................. (2,218) (114,827)
Deferred financing costs.............................. (1,623) (10,703)
Purchase of preferred stock of subsidiary and payment
of dividends........................................ (980) (375)
Payment received on shareholder note receivable....... - 2
Capital contributions................................. 25,500 46,498
------------ ---------
Net cash provided by financing activities............. 40,322 151,595
------------ ---------
Increase in cash...................................... 163 462
Cash at beginning of year............................. 462 -
------------ ----------
Cash at end of year................................... $ 625 $ 462
============ ==========
See accompanying notes.
F-7
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 30, 1998
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
Booth Creek Ski Holdings, Inc. ("Booth Creek") was organized on October 8,
1996 in the State of Delaware for the purpose of acquiring and operating various
ski resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe
("Sierra"), Bear Mountain, Waterville Valley, Mt. Cranmore, the Summit at
Snoqualmie Pass (the "Summit"), Grand Targhee and Loon Mountain as described
more fully in Note 2.
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 operator
of the Summit) has shares of preferred stock owned by a third party. All
significant intercompany transactions and balances have been eliminated.
Booth Creek is a wholly-owned subsidiary of Booth Creek Ski Group, Inc.
("Parent").
Reporting Periods
The Company's reporting periods end on the Friday closest to the end of
each month. Fiscal 1998 and 1997 were both 52 week years.
Business and Principal Markets
Northstar is a year-round destination resort including ski and golf
facilities. Sierra is a day ski area. Both Northstar and Sierra are located near
Lake Tahoe, California. Bear Mountain is a day ski area located approximately
two hours from Los Angeles, California. Waterville Valley, a destination resort,
and Mt. Cranmore, a day ski area, are located in New Hampshire. Loon Mountain is
a day ski area with other outdoor recreational activities located in Lincoln,
New Hampshire. The Summit is located in Northwest Washington and is a day ski
area. Grand Targhee is a destination ski resort located in Wyoming.
Operations are highly seasonal at all locations with the majority of
revenues realized during the ski season from late November through early April.
The length of the ski season and the profitability of operations are
significantly impacted by weather conditions. Although Northstar, Bear Mountain,
Waterville Valley, Loon Mountain and Mt. Cranmore have snowmaking capacity to
mitigate some of the effects of adverse weather conditions, abnormally warm
weather or lack of adequate snowfall can materially affect revenues. Sierra, the
Summit and Grand Targhee lack significant snowmaking capability but generally
benefit from higher annual snowfall.
Other operational risks and uncertainties that face the Company include
competitive pressures affecting the number of skier visits and ticket prices;
the success of marketing efforts to maintain and increase skier visits; the
possibility of equipment failure; and continued access to water supplies for
snowmaking.
Cash
Included in cash at October 30, 1998 and October 31, 1997 is restricted cash
of $533,000 and $344,000, respectively, relating to advance deposits and rental
fees due to property owners for lodging and property rentals.
F-8
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
1. Organization, Basis of Presentation and Summary of Significant
Accounting Policies - (Continued)
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market. The components of inventories are as follows:
October 30, October 31,
1998 1997
------------ ----------
(In thousands)
Retail products........................... $ 3,199 $ 2,560
Supplies.................................. 916 314
Food and beverage......................... 255 185
----------- ----------
$ 4,370 $ 3,059
=========== ==========
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method based upon the estimated service lives, which are as
follows:
Land improvements........................................ 20 years
Buildings and improvements............................... 20 years
Lift equipment........................................... 15 years
Other machinery and equipment............................ 3 to 15 years
Amortization of assets recorded under capital leases is included in depreciation
expense.
Real Estate Activities
The Company capitalizes as real estate held for development and sale the
original acquisition cost (or appraised value in connection with purchase
business combinations), direct construction and development costs, and other
related costs. Property taxes, insurance and interest incurred on costs related
to real estate under development are capitalized during periods in which
activities necessary to get the property ready for its intended use are in
progress. Land costs and other common costs incurred prior to construction are
allocated to each land parcel benefited. Construction related costs are
allocated to individual units in each development phase using the relative sales
value method. Selling expenses are charged against income in the period
incurred. Interest capitalized on real estate development projects for the year
ended October 30, 1998 was $162,000 (none for the year ended October 31, 1997).
Sales and profits on real estate sales are recognized using the full accrual
method at the point that the Company's receivables from land sales are deemed
collectible and the Company has no significant remaining obligations for
construction or development, which typically occurs upon transfer of title. If
such conditions are not met, the recognition of all or part of the sales and
profit is postponed.
Long-Lived Assets
The Company evaluates potential impairment of long-lived assets and
long-lived assets to be disposed of in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No.
121 establishes
F-9
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies - (Continued)
Long-Lived Assets - (Continued)
procedures for review of recoverability, and measurement of impairment if
necessary, of long-lived assets, goodwill and certain identifiable intangibles
held and used by an entity. SFAS No. 121 requires that those assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. SFAS No. 121 also
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less
estimated selling costs. As of October 30, 1998 and October 31, 1997, management
believes that there has not been any impairment of the Company's long-lived
assets or goodwill.
Fair Value of Financial Instruments
The fair value of amounts outstanding under the Company's Senior Credit
Facility approximates book value, as the interest rate on such debt generally
varies with changes in market interest rates. The fair value of the Company's
Senior Notes was approximately $124 and $114 million at October 30, 1998 and
October 31, 1997, respectively, which is based on the market price of such debt.
Revenue Recognition
Revenues are recognized as services are provided and products are sold.
Sales of season passes are initially deferred in unearned income and recognized
ratably over the ski season.
Amortization
The excess of the purchase price over the fair values of the net assets
acquired (goodwill) is being amortized using the straight-line method over a
period of 15 years.
Deferred financing costs are being amortized over the lives of the related
obligations.
Advertising Costs
The cost of advertisements is expensed when the advertisement is initially
released. The cost of professional services for advertisements, sales campaigns,
promotion, and public relations is expensed when the services are rendered. The
cost of brochures is expensed over the ski season. Advertising expenses for the
years ended October 30, 1998 and October 31, 1997 were $3,193,000 and
$1,983,000, respectively.
Income Taxes
Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
The Company is included in the federal and state tax returns of Parent. The
provision for federal and state income tax is computed as if the Company filed
separate consolidated tax returns.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") requires that comprehensive income and
its components, as defined in the pronouncement, be reported within the
F-10
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies - (Continued)
Comprehensive Income - (Continued)
consolidated financial statements of the Company. The Company adopted SFAS No.
130 during the year ended October 30, 1998. The Company currently does not have
any transactions that would necessitate disclosure of comprehensive income;
however, the Company will continue to evaluate the impact of SFAS No. 130.
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.
Pending Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 is required
to be adopted by the Company during fiscal 1999. SFAS No. 131 requires that
annual and interim financial and descriptive information about reportable
operating segments be reported on the same basis used internally for evaluating
segment performance and the allocation of resources. The Company anticipates
providing segment disclosures for its resort operations and real estate and
other segments. However, the Company does not expect any change to its primary
financial statements.
The Accounting Standards Executive Committee recently issued Statement of
Position ("SOP") 98-1 providing guidance on accounting for the costs of computer
software developed or obtained for internal use. The effective date for SOP 98-1
is for fiscal years beginning after December 15, 1998. Currently, the Company
capitalizes purchased software above its capitalization threshold, and expenses
development, production and maintenance costs associated with computer software
developed for internal use. The Company is in the process of reviewing its
current policies for accounting for costs associated with internal use software
and how they may be affected by SOP 98-1.
Reclassifications
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform with the current year's presentation.
2. Acquisitions
As described below, Booth Creek consummated the Waterville Valley, Mt.
Cranmore, California, Summit and Grand Targhee acquisitions prior to October 31,
1997, and the Loon Mountain acquisition prior to October 30, 1998. These
acquisitions have been accounted for using the purchase method of accounting.
The results of operations of the resorts have been included in the accompanying
consolidated statements of operations since the effective dates of such
acquisitions.
The Waterville Valley and Mt. Cranmore Acquisitions
On November 27, 1996, Booth Creek purchased the assets of the Waterville
Valley and Mt. Cranmore resorts from subsidiaries of American Skiing Company
("ASC") for an aggregate purchase price of $17.5 million. The purchase price was
paid with $14.75 million in cash, before giving effect to normal working capital
adjustments for current assets acquired and current liabilities assumed, and the
$2.75 million ASC Seller Note (Note 5).
F-11
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
2. Acquisitions - (Continued)
The California Acquisitions
On December 3, 1996, Booth Creek purchased from Fibreboard Corporation all
of the issued and outstanding capital stock of Trimont Land Company, which
operates Northstar, Sierra-at-Tahoe, Inc., which operates Sierra, and Bear
Mountain, Inc., which operates Bear Mountain. The aggregate purchase price was
$121.5 million in cash, before giving effect to normal working capital
adjustments for current assets acquired and current liabilities assumed.
The Summit Acquisition
Effective January 15, 1997, Booth Creek purchased all of the issued and
outstanding common stock of Ski Lifts, Inc. ("Ski Lifts"), the owner and
operator of the ski resort assets of the Summit for an aggregate purchase price
of approximately $14 million, which included the assumption of approximately
$3.6 million of indebtedness, the issuance by Ski Lifts of the approximately
$9.8 million Summit Seller Note, and other obligations to the selling
shareholders of approximately $600,000.
In connection with the consummation of the Summit acquisition, Ski Lifts
transferred certain owned real estate held for development purposes and related
buildings into a Delaware limited liability company (the "Real Estate LLC"), of
which Ski Lifts is a member and 99% equity interest holder and Booth Creek is
the other member and 1% equity interest holder. In addition, Ski Lifts granted
the Real Estate LLC an option (the "Real Estate Option") to purchase acreage of
developmental real estate for nominal consideration. Ski Lifts also issued
28,000 shares of non-voting preferred stock (the "Ski Lifts Preferred Stock") to
its prior owners having an aggregate liquidation preference equal to $3.5
million, the aggregate estimated fair market value of the real estate
transferred to the Real Estate LLC and the real estate subject to the Real
Estate Option. Concurrently with these transactions, the Real Estate LLC entered
into an agreement to purchase (the "Preferred Stock Purchase Agreement") the Ski
Lifts Preferred Stock, on a quarterly basis over the five years following the
date of the Summit Acquisition, at a purchase price equal to the liquidation
preference thereof plus accrued dividends to the date of purchase. Through
October 30, 1998, the Company has paid $875,000 under the Preferred Stock
Purchase Agreement. The Real Estate LLC's obligations under the Preferred Stock
Purchase Agreement are secured by a first priority lien on the developmental
real estate held by the Real Estate LLC and substantially all of its other
assets. The Ski Lifts Preferred Stock provides for a 9% cumulative dividend and
is redeemable at the option of Ski Lifts without premium. In addition, pursuant
to the terms of the Ski Lifts Preferred Stock, the holders thereof have no
redemption rights.
The Grand Targhee Acquisition
On March 18, 1997, Booth Creek acquired all the issued and outstanding
capital stock of Grand Targhee Incorporated, the owner of the ski resort assets
of Grand Targhee, for an aggregate purchase price of approximately $7.9 million
plus contingent payments of up to $1.5 million based on the performance of Grand
Targhee during the 1998/99 ski season and additional commissions based on the
number of dwelling units developed at the resort through 2012.
The Loon Mountain Acquisition
On February 26, 1998, the Company acquired Loon Mountain Recreation
Corporation ("LMRC"), the owner and operator of the Loon Mountain ski resort.
The aggregate net purchase price for the Loon Mountain acquisition was
approximately $30.2 million (including the assumption of debt which was repaid
in connection with the acquisition and acquisition costs).
F-12
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
2. Acquisitions - (Continued)
Summary of Purchase Price Allocations
Summary information regarding the purchase price allocations to the assets
acquired and liabilities assumed in each of the acquisitions described above is
as follows:
Waterville
Valley and Grand Loon
Mt. Cranmore California Summit Targhee Mountain
Acquisitions Acquisitions Acquisition Acquisition Acquisition
------------ ------------- ----------- ----------- -----------
(In thousands)
Net working capital........ $ (714) $ (5,206) $ (5,822) $ (752) $ (1,339)
Property and equipment..... 17,500 86,078 9,148 8,837 30,045
Real estate and other long-
term assets.............. - 15,608 4,189 26 1,319
Goodwill................... 1,931 22,318 9,655 - 186
Long-term debt............. (3,172) (796) (9,880) (80) -
Deferred income taxes and
other long-term liabilities - - (6,782) (58) -
--------- ---------- ---------- --------- ---------
$ 15,545 $ 118,002 $ 508 $ 7,973 $ 30,211
========= ========== ========== ========= =========
Pro Forma Financial Information
The following table represents unaudited pro forma financial information
which presents the Company's consolidated results of operations for the years
ended October 30, 1998 and October 31, 1997 as if the acquisitions and related
financing transactions occurred on November 1, 1996.
1998 1997
(In thousands)
Statement of operations data:
Revenues................................. $ 115,495 $ 97,825
Income (loss) from operations............ $ 5,114 $ (3,929)
Net loss................................. $ (14,758) $ (21,241)
Other data:
EBITDA................................... $ 27,382 $ 14,236
Noncash cost of real estate sales........ $ 3,721 $ 2,370
EBITDA represents income from operations before depreciation, depletion and
amortization expense and the noncash cost of real estate sales.
The pro forma information does not purport to be indicative of results that
actually would have occurred had the acquisitions been made on the date
indicated or of results which may occur in the future.
Proposed Seven Springs Acquisition (continued)
On August 28, 1998 the Company, Booth Creek Ski Acquisition, Inc., a wholly
owned subsidiary of Booth Creek ("Aquisition Sub"), and Seven Srings Farm, Inc.
("Seven Springs"), the owner and operator of the Seven Springs Mountain Resort,
a ski resort and conference center, entered into an Agreement of Merger (the
"Merger Agreement"), pursuant to which the Company would acquire Seven Springs
through the merger of Acquistion Sub with and into Seven Springs. The aggregate
merger consideration and related payments will be approxmimately $83.0
F-13
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
2. Acquisitons - (Continued)
Proposed Seven Springs Acquisition (continued)
million plus certain deferred payments, subject to certain price
adjustments. The proposed acquisition is conditioned on the receipt of a
judicial determination that the terms of a certain shareholders' agreement among
Seven Springs and its shareholders (the "Seven Springs Shareholder Agreement")
does not apply to the transactions contemplated by the Merger Agreement, as well
as customary closing conditions. In connection with the proposed acquisition,
certain shareholders of Seven Springs filed a lawsuit in the Court of Common
Pleas of Somerset County, Pennsylvania against the Company, Acquisition Sub, and
Seven Springs and certain of its directors, seeking a declaratory judgment,
along with other relief including the rescission of the Merger Agreement.
Plaintiffs allege that the terms of the Seven Springs Shareholder Agreement ban
the consummation of the proposed acquisition. On October 29, 1998, the Court
entered a final judgment denying Plaintiff's motion and has permitted the
consummation of the transactions contemplated by the Merger Agreement. On
December 28, 1998, the Plaintiff's filed an amended notice of appeal which is
currently pending. While the Company believes that Seven Springs will prevail
with its position that the Seven Springs Shareholders Agreement does not apply
to the transactions contemplated by the Merger Agreement, no assurance can be
made regarding the timing or the outcome of this litigation.
3. Property and Equipment
Property and equipment consist of the following:
October 30, October 31,
1998 1997
------------- ------------
(In thousands)
Land and improvements.............. $ 36,933 $ 28,791
Buildings and improvements......... 45,309 34,624
Lift equipment..................... 42,807 32,998
Other machinery and equipment...... 45,099 29,008
Construction in progress........... 10,670 7,491
----------- -----------
180,818 132,912
Less accumulated depreciation..... 24,349 9,273
----------- -----------
$ 156,469 $ 123,639
=========== ===========
4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
October 30, October 31,
1998 1997
------------ -----------
(In thousands)
Accounts payable..................... $ 10,652 $ 7,618
Accrued compensation and benefits.... 3,164 1,575
Taxes other than income.............. 973 545
Unearned income and deposits......... 4,017 3,341
Interest............................. 2,349 2,027
Other................................ 955 2,026
----------- -----------
$ 22,110 $ 17,132
=========== ===========
F-14
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
5. Financing Arrangements
Senior Credit Facility
The following is a summary of certain provisions of the Amended and
Restated Credit Agreement (the "Senior Credit Facility"), as amended and
restated on January 28, 1999 and effective beginning October 30, 1998, among
Booth Creek, its subsidiaries, the financial institutions party thereto and
BankBoston, N.A., as administrative agent ("Agent").
General - The Senior Credit Facility provides for borrowing
availability of up to $25 million. The Senior Credit Facility requires
that the Company not have borrowings thereunder in excess of $8.0
million in addition to certain amounts maintained by the Company in
certain depository accounts with the Agent for a period of 60
consecutive days each year commencing sometime between February 1 and
Feburary 28. Borrowings under the Senior Credit Facility are
collectively referred to herein as the "Loans." Total borrowings
outstanding under the Senior Credit Facility at October 30, 1998 was
$17,143,000.
Interest - For purposes of calculating interest, the Loans can be, at
the election of the Company, Base Rate Loans or LIBOR Rate Loans or a
combination thereof. Base Rate Loans bear interest at the sum of (a) a
margin of between 0% and .5%, depending on the level of consolidated
EBITDA of the Company and its subsidiaries (as determined pursuant to
the Senior Credit Facility), plus (b) the higher of (i) the Agent's base
rate or (ii) the federal funds rate plus .5%. LIBOR Rate Loans bear
interest at the LIBOR rate plus a margin of between 2% and 3%, depending
on the level of consolidated EBITDA. The Senior Credit Facility also
requires a commitment fee of .375% based on the unused borrowing base.
As of October 30, 1998 the borrowings outstanding bore interest at
8%, pursuant to the Base Rate Loans option.
Repayment - Subject to the provisions of the Senior Credit Facility,
the Company may, from time to time, borrow, repay and reborrow under the
Senior Credit Facility. The entire unpaid balance under the Senior
Credit Facility is due and payable on November 15, 1999.
Security - Borrowings under the Senior Credit Facility are secured by
(i) a pledge of the Agent for the ratable benefit of the financial
institutions party to the Senior Credit Facility of all of the capital
stock of Booth Creek's principal subsidiaries and (ii) a grant of a
security interest in substantially all of the consolidated assets of
Booth Creek and its subsidiaries (excluding the Real Estate LLC).
Covenants - The Senior Credit Facility contains financial covenants
relating to the maintenance of (i) ratios of (a) financing debt to
consolidated cash flow, (b) adjusted consolidated cash flow to
consolidated debt service and (c) consolidated cash flow to consolidated
interest expense, (ii) consolidated net worth, and (iii) consolidated
cash flow. The Senior Credit Facility also contains restrictive
covenants pertaining to the management and operation of Booth Creek and
its subsidiaries. The covenants include, among others, significant
limitations on indebtedness, guarantees, mergers, acquisitions,
fundamental corporate changes, capital expenditures, asset sales,
leases, investments, loans and advances, liens, dividends and other
stock payments, transactions with affiliates, optional payments and
modification of debt instruments and issuances of stock.
F-15
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
5. Financing Arrangements - (Continued)
Long-Term Debt
Long-term debt consists of the following instruments, which are described
below:
October 30, October 31,
1998 1997
------------ -----------
(In thousands)
Senior Notes........................ $ 133,500 $ 116,000
ASC Seller Note..................... 2,400 2,500
Other debt.......................... 3,237 2,827
------------ -----------
139,137 121,327
Less current portion............... 1,785 947
------------- -----------
$ 137,352 $ 120,380
============= ===========
Senior Notes
As of October 30, 1998, the Company had outstanding $133.5 million aggregate
amount of its senior debt securities (the "Senior Notes"). The Senior Notes
mature on March 15, 2007, and bear interest at 12.5% per annum, payable
semi-annually on March 15 and September 15. The Senior Notes are redeemable at
the option of the Company, in whole or in part, at any time after March 15,
2002, with an initial redemption price of 106.25% declining through maturity,
plus accrued and unpaid interest to the redemption date.
The Senior Notes are unconditionally guaranteed, on an unsecured senior
basis, as to the payment of principal, premium, if any, and interest, jointly
and severally (the "Guarantees"), by all Restricted Subsidiaries of the Company
(as defined in the Indenture) having either assets or shareholders' equity in
excess of $20,000 (the "Guarantors"). All of the Company's direct and indirect
subsidiaries are Restricted Subsidiaries, except the Real Estate LLC. Each
Guarantee is effectively subordinated to all secured indebtedness of such
Guarantor. The Senior Notes are general senior unsecured obligations of the
Company ranking equally in right of payment with all other existing and future
senior indebtedness of the Company and senior in right of payment to any
subordinated indebtedness of the Company.
The Senior Notes are effectively subordinated in right of payment to all
secured indebtedness of the Company and the Guarantors, including indebtedness
under the Senior Credit Facility. In addition, the Senior Notes are structurally
subordinated to any indebtedness of the Company's subsidiaries that are not
Guarantors. The indenture for the Senior Notes (the "Indenture") contains
covenants for the benefit of the holders of the Senior Notes that, among other
things, restrict the ability of the Company and any Restricted Subsidiaries to:
(i) incur additional indebtedness; (ii) pay dividends and make distributions;
(iii) issue stock of subsidiaries; (iv) make certain investments; (v) repurchase
stock; (vi) create liens; (vii) enter into transactions with affiliates, (viii)
enter into sale and leaseback transactions, (ix) create dividend or other
payment restrictions affecting Restricted Subsidiaries; (x) merge or consolidate
the Company or any Guarantors; and (xi) transfer and sell assets.
The Guarantors are wholly-owned subsidiaries of Booth Creek and have fully
and unconditionally guaranteed the Senior Notes on a joint and several basis.
Booth Creek is a holding company and has no operations, assets or cash flows
separate from its investments in its subsidiaries. In addition, the assets,
equity, income and cash flow of the Real Estate LLC, Booth Creek's only
non-guarantor subsidiary, are inconsequential and the common stock of the Real
Estate LLC is entirely owned by Booth Creek. Accordingly, Booth Creek has not
presented separate financial statements and other disclosures concerning the
Guarantors or its non-guarantor subsidiary because management has determined
that such information is not material to investors.
F-16
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
5. Financing Arrangements - (Continued)
Long-Term Debt (continued)
On March 18, 1997, the Company consummated an offering of $110 million in
Senior Notes. A portion of the proceeds from the offering were used to repay $90
million in bridge notes bearing interest at approximately 11%. Existing deferred
financing costs at March 18, 1997 of $2,664,000 relating principally to the
bridge notes repaid, were charged off in connection with the early
extinguishment of debt, and have been reflected as an extraordinary item in the
accompanying statement of operations for the year ended October 31, 1997.
ASC Seller Note
As part of the purchase price for the acquisitions of Waterville Valley and
Mt. Cranmore, Booth Creek issued a promissory note to American Skiing Company in
the aggregate principal amount of $2.75 million. The ASC Seller Note requires
annual principal payments at an initial level of $100,000 per year and
increasing to $350,000 by January 31, 2003, with the remaining principal balance
of $1,150,000 due on June 30, 2004. The ASC Seller Note bears interest at 12%
per annum payable semi-annually on each June 30 and December 31.
Other Debt
Other debt of $3,237,000 and $2,827,000 at October 30, 1998 and October 31,
1997, respectively, consists of various capital lease obligations, notes
payables and improvement bond obligations.
For the year ended October 30, 1998, the Company entered into long-term debt
and capital lease obligations of approximately $2.5 million for the purchase of
equipment.
During the years ended October 30, 1998 and October 31, 1997, the Company
paid cash for interest costs (net of amounts capitalized) of $17,176,000 and
$11,243,000, respectively.
6. Commitments and Contingencies
Lease Commitments
The Company leases certain machinery, equipment and facilities under
operating leases. Aggregate future minimum lease payments as of October 30, 1998
are as follows:
Year
Ending
October (In thousands)
------- --------------
1999.................................. $ 2,713
2000.................................. 1,888
2001.................................. 1,619
2002.................................. 1,427
2003.................................. 1,421
Thereafter............................ 284
-----------
$ 9,352
===========
Total rent expense for all operating leases amounted to $2,675,000 and
$2,882,000 for the years ended October 30, 1998 and October 31, 1997,
respectively.
F-17
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
6. Commitments and Contingencies - (Continued)
Lease Commitments (continued)
The Company leases certain machinery and equipment under capital leases.
Aggregate future minimum lease payments as of October 30, 1998 for years ending
October 1999 and October 2000 were $783,000 and $823,000, respectively. The cost
and accumulated depreciation of equipment recorded under capital leases at
October 30, 1998 were $2,511,000 and $791,000, respectively.
In addition, the Company leases property from the U.S. Forest Service under
Special Use Permits for all or certain portions of the operations of Sierra,
Bear Mountain, Waterville Valley, Loon Mountain, the Summit and Grand Targhee.
These leases are effective through 2008, 2020, 2034, 2006, 2032 and 2034,
respectively. Lease payments are based on a percentage of revenues, and were
$1,014,000 and $665,000 for the years ended October 30, 1998 and October 31,
1997, respectively.
Other Commitments
Commitments for future capital expenditures totaled approximately $4.4
million at October 30, 1998.
In September 1997, the Company acquired a two year land purchase option for
$500,000. The land purchase option permits the Company to acquire certain land
for additional consideration of approximately $3.2 million. If the land purchase
option is not exercised due to certain events, $250,000 of the option price is
refundable.
Litigation
The nature of the ski industry includes the risk of skier injuries.
Generally, the Company has insurance to cover potential claims; in some cases
the amounts of the claims may be substantial. The Company is also involved in a
number of other claims arising from its operations.
Management, in consultation with legal counsel, believes resolution of these
claims will not have a material adverse impact on the Company's consolidated
financial condition or results of operations.
Pledge of Stock
The stock of the Company is pledged to secure $54.0 million of indebtedness
of the Parent.
7. Income Taxes
The income tax benefit (provision) consists of the following:
Year Ended
October 30, October 31,
----------- -----------
1998 1997
(In thousands)
Current:
Federal.............................. $ - $ 200
State................................ $ - (20)
--------- -----------
- 180
========= ============
Deferred:
Federal............................. - 1,442
State............................... - 106
--------- -----------
$ - $ 1,548
--------- -----------
- 1,728
========= ===========
F-18
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
7. Income Taxes - (Continued)
The difference between the statutory federal income tax rate and the
effective tax rate is attributable to the following:
Year Ended
---------------------------
October 30, October 31,
1998 1997
---------------------------
(In thousands)
Tax benefit computed at federal statutory rate
of 35% of pre-tax loss..................... $ 6,045 $ 5,575
Net change in valuation allowance........... (6,073) $ (3,691)
Other, net................................... 28 (156)
------------ ----------
$ - $ 1,728
============ ==========
As all of the income tax benefit for the year ended October 31, 1997 was
attributable to the losses from continuing operations, none of the benefit was
allocated to the extraordinary loss on early retirement of debt (Note 5).
Accordingly, the extraordinary loss increased the Company's net operating losses
by $2,664,000 and the valuation allowance by $972,000. In connection with the
purchase accounting for the Loon Mountain acquisition, approximately $13 million
of the Company's existing net operating losses were used to offset net taxable
temporary differences relating principally to Loon Mountain's long-term assets.
Accordingly, the Company's valuation allowance for net deferred tax assets was
reduced by $4,639,000. After consideration for the Loon Mountain acquisition,
the net increase in the Company's valuation allowance for the year ended October
30, 1998 was $826,000, which included the effect of adjustments to the prior
year's estimated net operating loss.
At October 30, 1998, the Company has net operating loss carryforwards of
approximately $43 million for federal income tax reporting purposes, which
expire in 2012 and 2018.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
October 30, October 31,
1998 1997
------------ -----------
(In thousands)
Deferred tax assets:
Accruals and reserves.................. $ 1,216 $ 754
Alternative minimum tax credit
carryforwards.......... 545 130
Net operating loss carryforwards....... 15,806 5,909
------------ ---------
Total deferred tax assets.......... 17,567 6,793
Deferred tax liabilities:
Property and equipment................. (10,514) (2,000)
------------ --------
Total deferred tax liabilities......... (10,514) (2,000)
------------ --------
Net deferred tax assets................. 7,053 4,793
Valuation allowance..................... (7,053) (4,793)
------------ --------
Net deferred tax assets reflected in
the accompanying consolidated balance
sheet.................................. $ - $ -
============= =========
8. Management Agreement and Related Party Transactions
Booth Creek has in effect a management agreement with Booth Creek, Inc. (the
"Management Company") dated November 27, 1996 (the "Management Agreement")
pursuant to which the Management Company provides Parent, Booth Creek and its
subsidiaries with financial advice with respect to, among other matters, cash
19
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
8. Management Agreement and Related Party Transactions - (Continued)
management, accounting and data processing systems and procedures, budgeting,
equipment purchases, business forecasts, treasury functions and investor
relations. The Management Company also provides general supervision and
management advice concerning tax, legal and corporate finance matters,
administration and operation, personnel matters, business insurance and the
employment of consultants, contractors and agents.
Under the terms of the Management Agreement, the Company provides customary
indemnification, reimburses certain costs and pays the Management Company an
annual management fee of $350,000 plus an operating bonus (the "Operating
Bonus"), not to exceed $400,000, equal to 2.5% of the excess of Consolidated
EBITDA (as defined in the Management Agreement) for such year over $25 million.
The Operating Bonus for each fiscal year must be paid within 15 days after
Parent receives its fiscal year-end audited financial statements for that year.
Booth Creek pays the Management Company amounts necessary to cover operations
costs (other than office operations cost but including, without limitation,
reasonable travel and entertainment costs) and reimburse certain costs and
expenses, of the Management Company attributable to, arising out of, in
connection with, or related to management services rendered by the Management
Company. Management fees and reimbursable operating expenses during the years
ended October 30, 1998 and October 31, 1997 were $646,000 and $350,000,
respectively.
During the year ended October 30, 1998, the Management Company incurred fees
and expenses of approximately $119,000 in connection with certain of the
acquisitions. For the year ended October 31, 1997, the Management Company and
certain of its affiliates made advances and deposits of approximately
$1,400,000, and incurred expenses of approximately $1,000,000, in connection
with certain of the acquisitions. All of these costs were later reimbursed by
the Company pursuant to the Management Agreement.
At October 31, 1997, the Company had a receivable of $331,000 from Parent
which is included in other current assets in the accompanying consolidated
balance sheet at October 31, 1997 (none at October 30, 1998).
9. Employee Benefit Plan
The Company maintains a defined contribution retirement plan (the "Plan"),
qualified under Section 401(k) of the Internal Revenue Code, for certain
eligible employees. Pursuant to the Plan, eligible employees may contribute a
portion of their compensation, subject to a maximum amount per year as specified
by law. The Company provides a matching contribution based on specified
percentages of amounts contributed by participants. The Company's contribution
expense for the years ended October 30, 1998 and October 31, 1997 was $490,000
and $215,000, respectively.
10. Business Segments
The Company currently operates in two business segments, Resorts and Real
Estate and other. Data by segment is as follows:
October 30, October 31,
1998
--------------- -------------
(In Thousands)
Revenue:
Resorts......................... $ 97,248 $ 68,136
Real estate and other........... 7,608 3,671
--------------- ------------
$ 104,856 $ 71,807
=============== ============
Operating income (loss):
Resorts............................. $ (1,201) $ (1,628)
Real estate and other............... 2,664 612
-------------- -------------
$ 1,463 $ (1,016)
============== ============
F-20
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
10. Business Segments - (Continued)
October 30, October 31,
1998 1997
----------- ----------
(In thousands)
Depreciation, depletion and amortization:
Resorts.............................. $ 17,479 $ 11,421
Real estate and other................ 273 260
----------- ----------
$ 17,752 $ 11,681
=========== ==========
Capital expenditures:
Resorts.............................. $ 15,042 $ 8,918
Real estate and other................ 1,717 72
----------- ----------
$ 16,759 $ 8,990
=========== ==========
Identifiable assets:
Resorts.............................. $ 162,796 $ 127,709
Real estate and other................ 15,240 16,559
----------- ----------
$ 178,036 $ 144,268
=========== ==========
F-21
REPORT OF INDEPENDENT AUDITORS
Fibreboard Corporation
We have audited the accompanying combined balance sheet of The Resort Group
of Fibreboard Corporation (wholly-owned subsidiaries of Fibreboard Corporation)
as of December 2, 1996, and the related combined statements of operations and
cash flows for the period from November 1, 1996 to December 2, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Resort Group of
Fibreboard Corporation at December 2, 1996, and the results of its operations
and its cash flows for the period from November 1, 1996 to December 2, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
September 30, 1997
F-22
THE RESORT GROUP OF FIBREBOARD CORPORATION
(Wholly-owned subsidiaries of Fibreboard Corporation)
COMBINED BALANCE SHEET
December 2, 1996
(Dollar amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 2,232
Accounts receivable, net of allowance for
doubtful accounts of $10..................................... 661
Current portion of notes receivable........................... 343
Inventories................................................... 2,910
Prepaid expenses.............................................. 987
Current portion of real estate held for resale................ 1,554
---------
Total current assets............................................ 8,687
Property and equipment:
Land and improvements......................................... 26,491
Buildings..................................................... 15,479
Machinery and equipment....................................... 44,838
Construction in progress...................................... 3,557
---------
90,365
Less accumulated depreciation................................. 26,461
---------
Property and equipment, net................................... 63,904
Timber rights, net of accumulated depletion of $16.............. 1,484
Notes receivable, net of current portion........................ 1,260
Real estate held for resale, net of current portion............. 726
Other assets.................................................... 1,258
---------
Total assets.................................................... $ 77,319
=========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued liabilities...................... $ 12,962
Intercompany payable to Fibreboard Corporation................ 39,829
---------
Total current liabilities....................................... 52,791
=========
Commitments and contingencies (Notes 8 and 9)
Net assets...................................................... 24,528
---------
Total liabilities and net assets................................ $ 77,319
=========
See accompanying notes.
F-23
THE RESORT GROUP OF FIBREBOARD CORPORATION
(Wholly-owned subsidiaries of Fibreboard Corporation)
COMBINED STATEMENT OF OPERATIONS
For the Period from November 1, 1996 to December 2, 1996
(Dollar amounts in thousands)
Revenue:
Resort operations............................................ $ 1,395
Real estate and other........................................ 304
--------
Total revenue.................................................. 1,699
Cost of sales:
Resort operations............................................ 2,890
Real estate and other........................................ 161
--------
Total cost of sales............................................ 3,051
--------
Gross margin................................................... (1,352)
Sales, general and administrative expense...................... 1,766
Management fee................................................. 70
--------
Operating loss................................................. (3,188)
Interest expense............................................... (3)
Interest and other income...................................... 14
Intercompany interest expense, net............................. (217)
---------
Loss before income taxes....................................... (3,394)
Income tax benefit............................................. 1,358
---------
Net loss....................................................... $ (2,036)
=========
See accompanying notes.
F-24
THE RESORT GROUP OF FIBREBOARD CORPORATION
(Wholly-owned subsidiaries of Fibreboard Corporation)
COMBINED STATEMENT OF CASH FLOWS
For the Period from November 1, 1996 to December 2, 1996
(Dollar amounts in thousands)
Cash flows from operating activities:
Net loss................................................. $ (2,036)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................... 6
Noncash cost of real estate sales....................... 133
Net changes in operating assets and liabilities:
Accounts receivable................................... 138
Inventories........................................... (804)
Prepaid expenses...................................... (306)
Accounts payable and accrued liabilities.............. 8,638
----------
Net cash provided by operating activities................. 5,769
Cash flows from investing activities:
Purchase of other assets.................................. (488)
Capital expenditures - property and equipment............. (5,587)
Development expenditures - real estate held for resale.... (191)
Principal payments received on notes receivable........... 115
----------
Net cash used in investing activities..................... (6,151)
Cash flows from financing activities:
Increase in intercompany payable to Fibreboard
Corporation.............................................. 1,115
----------
Net cash provided by financing activities................. 1,115
----------
Net increase in cash and cash equivalents................. 733
Cash and cash equivalents, beginning of period............ 1,499
---------
Cash and cash equivalents, end of period.................. $ 2,232
=========
Supplemental cash flow information:
Cash paid for interest to third parties................. $ 53
=========
Noncash investing and financing activities:
Exchange of old lift for new lift....................... $ 2,000
=========
See accompanying notes.
F-25
THE RESORT GROUP OF FIBREBOARD CORPORATION
(Wholly-owned subsidiaries of Fibreboard Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
December 2, 1996
1. Organization
Basis of Presentation
The Resort Group of Fibreboard Corporation (the "Resort Group") includes
the following wholly-owned subsidiaries of Fibreboard Corporation, a Delaware
corporation ("Fibreboard"): Trimont Land Company, d.b.a., Northstar-at-Tahoe
("Northstar"), Sierra-at-Tahoe, Inc. ("Sierra"), and Bear Mountain, Inc.
("Bear").
Business
Northstar is a year-round destination resort including ski and golf
facilities. Northstar also has real estate operations. Sierra is a day ski area.
Both Northstar and Sierra are located near Lake Tahoe, California. Bear is a day
ski area located approximately two hours from Los Angeles, California.
Operations are highly seasonal at all locations with the majority of
revenues realized during the ski season from late November through early April.
The length of the ski season and the profitability of operations are
significantly impacted by weather conditions. Although Northstar and Bear have
snowmaking capacity to mitigate some of the effects of adverse weather
conditions, abnormally warm weather or lack of adequate snowfall can materially
affect revenues. Sierra lacks significant snowmaking capability but generally
benefits from higher annual snowfall.
Other operational risks and uncertainties that face the Resort Group include
competitive pressures affecting the number of skier visits and ticket prices;
the success of marketing efforts to maintain and increase skier visits; the
possibility of equipment failure; and continued access to water supplies for
snowmaking.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Resort Group participates in Fibreboard's centralized cash management
system to minimize the amount of cash on deposit with banks and to maximize
interest income. Cash includes cash on hand or in banks available for immediate
disbursal. The Resort Group considers all highly-liquid investments with an
original maturity of three months or less to be cash equivalents.
Included in cash at December 2, 1996 is restricted cash of $526,000 relating
to advance deposits and rental fees due to property owners for lodging and
property rentals.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
The components of inventories at December 2, 1996 are as follows (in thousands):
Retail products........................................ $ 1,732
Supplies............................................... 1,003
Food and beverage...................................... 175
--------
Total inventories....................................... $ 2,910
========
F-26
THE RESORT GROUP OF FIBREBOARD CORPORATION
(Wholly-owned subsidiaries of Fibreboard Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS -(Continued)
2. Summary of Significant Accounting Policies - (Continued)
Property And Equipment
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method based upon the estimated service lives of the property,
ranging from 3 to 20 years. The Resort Group recognizes depreciation expense on
substantially all resort related assets over the operating ski season, which is
presumed to be the months of December through March. Accordingly, depreciation
expense of approximately $6,000 was recorded in the period from November 1, 1996
to December 2, 1996 and is not reflective of the Resort Group's annual
depreciation charges.
The Resort Group capitalizes interest on borrowed funds during construction
periods. Capitalized interest is amortized over the lives of the related assets.
Interest capitalized for the period from November 1, 1996 to December 2, 1996
was $80,000.
Advertising Costs
The cost of advertising is expensed when the advertisement is released. The
cost of professional services for advertising, sales campaigns, promotions, and
public relations is expensed when the services are rendered. The cost of
brochures is expensed over the ski season. Advertising expenses were
approximately $259,000 for the period from November 1, 1996 to December 2, 1996.
Income Taxes
The Resort Group accounts for income taxes under the liability method.
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. Deferred taxes
primarily consist of the basis differences associated with property and
equipment and certain liabilities as of December 2, 1996.
The Resort Group is included in the federal and state consolidated tax
returns of Fibreboard. The Resort Group computes its tax liability as if it had
filed a separate tax return and accrues such amount to Fibreboard. Accordingly,
all current and deferred tax balances, which are provided for in total at the
statutory rate, are included in the intercompany payable to Fibreboard
Corporation.
The following table summarizes the differences between the statutory federal
and the effective rate at December 2, 1996 (in thousands):
Income taxes at statutory federal rate................... $ 1,188
State taxes, net of federal tax benefit.................. 170
--------
Income tax benefit....................................... $ 1,358
========
Use Of Estimates In The Preparation Of Financial Statements
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.
F-27
THE RESORT GROUP OF FIBREBOARD CORPORATION
(Wholly-owned subsidiaries of Fibreboard Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS -(Continued)
3. Real Estate Operations
Revenues and profits on real estate sales at Northstar are recognized using
the full accrual method at the point that the Resort Group's receivables from
land sales are deemed collectible and the Resort Group has no significant
remaining obligations for construction or development. If such conditions are
not met, the recognition of all or part of the revenues and profit is postponed.
Real estate held for resale includes the initial development expenditures
(e.g., roads, sewage systems, engineering fees, and capitalized interest) for a
new residential development at Northstar. The costs have been allocated to the
individual lots based on the development phase in which the lot is located. The
current portion of these costs relates to lots which the Resort Group expects to
sell within one year. These costs are recognized as noncash cost of real estate
sales upon the sale of the lot.
Notes receivable relate to these real estate sales and equipment sales and
consist of the following as of December 2, 1996 (in thousands):
Secured notes receivable bearing interest at 9% to
10.5%; payments of interest and principal are due
monthly and the notes mature between 1997 and 2011... $ 1,469
Notes receivable for sale of equipment; payable in
full in April 1997................................... 134
---------
1,603
Less current portion.................................. 343
---------
Long-term notes receivable............................ $ 1,260
=========
Future maturities of these notes are as follows (in thousands):
1996 (one month)....................................... $ 5
1997................................................... 343
1998................................................... 782
1999................................................... 26
2000................................................... 28
2001................................................... 30
Thereafter............................................. 389
--------
$ 1,603
========
F-28
THE RESORT GROUP OF FIBREBOARD CORPORATION
(Wholly-owned subsidiaries of Fibreboard Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS -(Continued)
4. Accounts Payable And Accrued Liabilities
Accounts payable and accrued liabilities consist of the following at
December 2, 1996 (in thousands):
Accounts payable....................................... $ 8,585
Unearned income........................................ 2,020
Payroll related........................................ 1,501
Taxes other than income................................ 622
Other.................................................. 234
--------
$ 12,962
========
Unearned income relates primarily to season ski passes, coupon and ticket
voucher sales and customer deposits. Revenue from season passes is recognized
ratably over the ski season.
5. Employee Benefit Plans
The Resort Group's employees are eligible to participate in a 401(k) plan
sponsored by Fibreboard. The Resort Group contributed $35,000 as a result of
these plans in the period from November 1, 1996 to December 2, 1996. Certain
current and former Resort Group employees have vested benefits in Fibreboard's
defined benefit pension plan, which was frozen in 1993. All pension liabilities
and expenses are funded directly by Fibreboard.
6. Credit Facility
The Resort Group has a reducing revolving credit facility which provided for
maximum borrowing of $34,043,940 at December 2, 1996. At December 2, 1996, no
amounts were outstanding under the credit facility, which was subsequently
terminated as a result of the sale of the Resort Group (Note 10).
7. Intercompany Transactions
The Resort Group is charged a management fee by Fibreboard based on services
rendered by Fibreboard for the benefit of the Resort Group. These services
primarily relate to legal, accounting, cash management, human resources, tax
consultation and filings, management information systems (MIS), and overall
corporate strategy and direction. The fee for the above services and others is
based on a percentage of income, headcount, and estimated time spent by the
legal and MIS staff on the Group's behalf. This fee was $70,000 for the period
from November 1, 1996 to December 2, 1996.
The Resort Group was charged interest of approximately $297,000, including
$80,000 which was capitalized by the Resort Group (Note 2), by Fibreboard for
the period from November 1, 1996 to December 2, 1996, based on outstanding
intercompany amounts.
All of the above transactions are accounted for through the intercompany
payable to Fibreboard Corporation account, which totaled $39,829,335 at December
2, 1996. In addition, all excess cash is remitted to and checks are covered by
Fibreboard. Allocations for payroll and related taxes, workers' compensation and
income taxes are also accounted for through this account.
F-29
THE RESORT GROUP OF FIBREBOARD CORPORATION
(Wholly-owned subsidiaries of Fibreboard Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS -(Continued)
8. Litigation
The nature of the ski industry includes the risk of skier injuries. The
Resort Group is involved in a number of claims arising from its operations.
Generally, the Resort Group has insurance to cover potential claims; in some
cases the amounts of the claims may be substantial.
Management, in consultation with legal counsel, believes resolution of these
claims will not have a material adverse impact on the Resort Group's combined
financial condition or results of operations.
9. Commitments
The Resort Group leases certain machinery and equipment under operating
leases. Remaining minimum lease payments for the balance of 1996 and the
calendar years following are as follows (in thousands):
1996 (one month)....................................... $ 154
1997................................................... 973
1998................................................... 504
1999................................................... 224
2000................................................... 84
--------
$ 1,939
In addition, the Resort Group leases property from the U.S. Forest Service
for Sierra and Bear. These leases are effective through 2008 and 2020,
respectively. Lease payments are based on a percentage of revenues. Total rent
expense for all operating leases amounted to $103,000 for the period from
November 1, 1996 to December 2, 1996.
10. Subsequent Event
On December 3, 1996, Booth Creek Ski Holdings, Inc. purchased from
Fibreboard all of the issued and outstanding capital stock of the companies
comprising the Resort Group. The aggregate purchase price was $121.5 million in
cash, before giving effect to normal working capital adjustments for current
assets acquired and current liabilities assumed.
F-30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Fibreboard Corporation and Mr. George N. Gillett, Jr.:
We have audited the accompanying combined balance sheets of The Resort Group
of Fibreboard Corporation (wholly-owned subsidiaries of Fibreboard Corporation,
a Delaware corporation) as of October 31, 1996, December 31, 1995, and 1994, and
the related combined statements of income, and cash flows for the ten months
ended October 31, 1996, and each of the three years ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of The Resort Group of
Fibreboard Corporation as of October 31, 1996, December 31, 1995, and 1994, and
the results of its operations and its cash flows for the ten months ended
October 31, 1996, and each of the three years ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
November 22, 1996
F-31
THE RESORT GROUP OF FIBREBOARD CORPORATION
COMBINED BALANCE SHEETS
As of October 31, 1996, December 31, 1995, and 1994
(Dollar amounts in thousands)
October 31, December 31,
------------------------
1996 1995 1994
----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents..................... $ 1,499 $ 7,821 $ 3,319
Accounts receivable, net of allowance for
doubtful accounts of $10, $12, and $11, 799 853 537
respectively................................
Current portion of notes receivable........... 350 78 24
Inventories................................... 2,106 3,267 1,468
Prepaid expenses.............................. 681 545 502
Current portion of real estate held for resale 1,416 1,105 208
--------- --------- --------
Total current assets........................ 6,851 13,669 6,058
--------- --------- --------
Property and equipment, at cost:
Land and improvements......................... 26,500 26,500 12,469
Buildings..................................... 15,309 14,914 10,907
Machinery and equipment....................... 38,415 38,923 31,820
Construction in progress...................... 5,384 - -
--------- --------- --------
85,608 80,337 55,196
Less: Accumulated depreciation................ (27,285) (23,261) (19,447)
----------- --------- --------
Net property and equipment.................. 58,323 57,076 35,749
Timber rights, net of accumulated depletion of 1,484 - -
$16...........................................
Notes receivable, net of current portion........ 1,368 752 554
Real estate held for resale, net of current 806 1,162 303
portion.......................................
Other assets.................................... 770 657 401
---------- ---------- ----------
Total assets................................ $ 69,602 $ 73,316 $ 43,065
========== ========== ==========
LIABILITIES AND NET ASSETS
Current liabilities:
Current portion of long-term debt............. $ - $ - $ 1,000
Accounts payable and accrued liabilities...... 4,323 8,156 7,391
Intercompany payable to Fibreboard Corporation 38,715 41,493 4,222
---------- ---------- ----------
Total current liabilities..................... 43,038 49,649 12,613
Long-term debt.................................. - - 10,200
Other long-term liabilities..................... - - 500
---------- ---------- ----------
Total liabilities........................... 43,038 49,649 23,313
Commitments (Note 11)
Net assets.................................... 26,564 23,667 19,752
---------- ---------- ----------
Total liabilities and net assets.............. $ 69,602 $ 73,316 $ 43,065
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-32
THE RESORT GROUP OF FIBREBOARD CORPORATION
COMBINED STATEMENTS OF OPERATIONS
For the Ten Months Ended October 31, 1996 and 1995 and
the Years Ended December 31, 1995, 1994, and 1993
(Dollar amounts in thousands)
October October December 31,
31, 31, ---------------------------
1996 1995 1995 1994 1993
-------- -------- ------ ------- -------
(Unaudited)
Revenue:
Resort..................................... $ 36,829 $ 32,072 $ 39,823 $40,810 $ 25,528
Real estate................................ 3,595 4,659 5,028 610 -
Timber..................................... 693 - 185 - -
--------- --------- -------- -------- -------
Total revenue............................ 41,117 36,731 45,036 41,420 25,528
--------- --------- -------- -------- -------
Cost of Sales:
Resort..................................... 26,950 21,536 28,569 26,920 18,117
Real estate (including $1,461, $1,488,
$1,618, $0, and $0, respectively, of
non-cash cost of sales) (Note 3)......... 1,739 1,780 1,928 280 -
Timber..................................... 403 - 61 - -
-------- --------- -------- -------- --------
Total cost of sales...................... 29,092 23,316 30,558 27,200 18,117
-------- --------- -------- -------- --------
Gross margin............................... 12,025 13,415 14,478 14,220 7,411
Sales, General, and Administrative Expense... 5,220 4,399 5,871 5,545 4,579
Management Fee (Note 8)...................... 701 513 1,247 655 507
------- --------- ------- -------- -------
Operating income......................... 6,104 8,503 7,360 8,020 2,325
Interest expense............................. 100 418 439 741 326
Interest and other income.................... (350) (84) (106) (75) (140)
Intercompany interest expense, net........... 1,439 - 488 - -
-------- ------- ------- -------- -------
Income before income taxes............... 4,915 8,169 6,539 7,354 2,139
Provision for Income Taxes................... 2,018 3,308 2,624 2,979 876
-------- --------- --------- -------- --------
Net income................................... $ 2,897 $ 4,861 $ 3,915 $ 4,375 $ 1,263
========= ========= ========== ======== ========
The accompanying notes are an integral part of these financial statements.
F-33
THE RESORT GROUP OF FIBREBOARD CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
For the Ten Months Ended October 31, 1996 and 1995 and
the Years Ended December 31, 1995, 1994, and 1993
(Dollar amounts in thousands)
October October December 31,
31, 31, ---------------------------
1996 1995 1995 1994 1993
--------- --------- ---------- --------- ---------
(Unaudited)
Cash flows from operating activities:
Net income............................... $ 2,897 $ 4,861 $ 3,915 $ 4,375 $ 1,263
Adjustments to reconcile to cash
provided by operating activities -
Depreciation, amortization, and 4,354 2,989 4,024 3,449 2,514
depletion..........................
Non-cash cost of real estate sales 1,461 1,488 1,618 - -
(Note 3)...........................
Gain on sale of assets............... (147) (20) (342) (326) -
Changes in assets and liabilities -
Decrease (increase) in accounts 54 242 (286) (107) (161)
receivable.........................
Decrease (increase) in inventories... 1,161 (427) (1,427) (9) (308)
(Increase) decrease in prepaid (136) (116) 56 106 (479)
expenses...........................
(Increase) decrease in notes (888) (150) (252) 116 66
receivable.........................
(Decrease) increase in accounts
payable and accrued liabilities..... (3,833) (1,361) 555 1,878 1,317
Net cash provided by operating -------- -------- ------- -------- --------
activities........................ 4,923 7,506 7,861 9,482 4,212
-------- -------- ------- -------- --------
Cash flows from investing activities:
Non-cash assets of acquired operations... - (20,604) (20,604) - (13,054)
Proceeds from property and equipment 361 - - - -
sales..................................
Development expenditures - real estate
held for resale........................ (1,297) (3,443) (3,374) (198) -
Capital expenditures - property and (5,761) (3,786) (5,226) (6,199) (4,619)
equipment..............................
Capitalized interest..................... (157) - - - (183)
Acquisition of timber rights............. (1,500) - - - -
(Increase) decrease in other assets...... (113) (488) (226) 110 (480)
Net cash used by investing -------- -------- -------- ------- --------
activities............................ (8,467) (28,321) (29,430) (6,287) (18,336)
Cash flows from financing activities:
New borrowings........................... - - - - 15,000
Repayment of long-term debt.............. - (11,200) (11,200) (3,798) (24)
(Decrease) increase in intercompany
payable to Fibreboard Corporation...... (2,778) 29,259 37,271 1,134 (5,949)
-------- --------- --------- -------- -------
Net cash (used) provided by
financing activities.............. (2,778) 18,059 26,071 (2,664) 9,027
-------- --------- -------- -------- -------
Net increase (decrease) in cash and cash
equivalents.............................. (6,322) (2,756) 4,502 531 (5,097)
Cash and cash equivalents, beginning of
year..................................... 7,821 3,319 3,319 2,788 7,885
Cash and cash equivalents, end of year..... $ 1,499 $ 563 $ 7,821 $ 3,319 $ 2,788
========= ========= ========= ======== =========
Supplemental cash flow information:
Cash paid for interest to third parties.. $ 55 $ 590 $ 590 $ 810 $ 186
========= ========= ========= ======== =========
The accompanying notes are an integral part of these financial statements.
F-34
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
1. Organization
Basis Of Presentation
The Resort Group of Fibreboard Corporation (the Group) includes the
following wholly-owned subsidiaries of Fibreboard Corporation, a Delaware
corporation (Fibreboard): Trimont Land Company, d.b.a. Northstar-at-Tahoe
(Northstar), Sierra-at-Tahoe, Inc. (Sierra), and Bear Mountain, Inc. (Bear),
from the date of acquisition by Fibreboard.
Although for presentation purposes the Group's fiscal years and months are
on a calendar basis, these fiscal periods actually end on the last Saturday of
the period. Fiscal year 1995 and 1993 each contained 52 weeks; fiscal year 1994
contained 53 weeks. The impact of the additional week in 1994 resulted in
increased revenue and income as the additional week was a peak holiday week.
Business
Northstar is a year-round destination resort including ski and golf
facilities. Northstar also has real estate operations. Sierra is a day ski area.
Both Northstar and Sierra are located near Lake Tahoe, California. Bear is a day
ski area located approximately two hours from Los Angeles, California.
Operations are highly seasonal at all locations with more than 75% of
revenues realized during the ski season from late November through early April.
The length of the ski season and the profitability of operations are impacted by
weather. Although Northstar and Bear have snowmaking capacity to mitigate some
of the effects of adverse weather conditions, abnormally warm weather or lack of
adequate snowfall can materially affect revenues. Sierra lacks significant
snowmaking capability but generally benefits from higher annual snowfall.
Depending on the weather and other factors, annual skier visits have varied from
300,000 to 500,000 at Northstar, 230,000 to 350,000 at Sierra and 230,000 to
360,000 at Bear over the last decade.
In 1993 and 1994, Northstar's real estate activities consisted primarily of
property management services for the homeowners at the resort. Beginning in
1995, the Group began also developing and selling residential lots.
Other risks and uncertainties that face the resort group include competitive
pressures affecting the number of skier visits and ticket prices; the success of
marketing efforts to maintain and increase skier visits; the possibility of
equipment failure; and continued access to water for snowmaking.
On August 29, 1996, Fibreboard entered into a letter of intent to sell the
assets of the Group to Booth Creek, Inc., for $121.5 million in cash. The
transaction is expected to close in December 1996.
2. Summary Of Significant Accounting Policies
Cash And Cash Equivalents
The Group participates in Fibreboard's centralized cash management system to
minimize the amount of cash on deposit with banks and to maximize interest
income. Cash includes cash on hand or in banks available for immediate
disbursal. The Group considers all highly-liquid investments with an original
maturity of three months or less to be cash equivalents.
F-35
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
2. Summary Of Significant Accounting Policies - (Continued)
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.
The components of inventories are as follows:
October 31, December 31,
-------------------
1996 1995 1994
--------- ---------- -----------
Retail Products............... $ 1,186 $ 1,851 $ 756
Supplies...................... 805 1,141 424
Food and Beverage............ 115 275 288
--------- --------- --------
Total inventories......... $ 2,106 $ 3,267 $ 1,468
========= ========= ========
Property And Equipment
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method based upon the estimated service lives of the property,
ranging from 3 to 20 years. Annual depreciation on most property and equipment
is recognized from December 1 to March 31, consistent with the ski season.
Therefore, the accompanying statement of operations for the ten month period
ended October 31, 1996 includes 75% of annual depreciation. Depreciation expense
for the ten month period ended October 31, 1996 and the years ended December 31,
1995, 1994, and 1993 was $4,338, $4,024, $3,449, and $2,514, respectively.
The Group capitalizes interest on borrowed funds during construction
periods. Capitalized interest is amortized over the lives of the related assets.
Interest capitalized in the ten month period ended October 31, 1996 and the
years ended December 31, 1995, 1994, and 1993 was $64, $0, $0, and $183,
respectively.
Advertising Costs
The cost of advertising is expensed when the advertisement is released. The
cost of professional services for advertising, sales campaigns, promotion, and
public relations is expensed when the services are rendered. The cost of
brochures is expensed over the ski season.
Income Taxes
The Group accounts for income taxes according to the provisions of Statement
of Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No.
109 utilizes the liability method and deferred taxes are determined based on the
estimated future tax effects of differences between the financial statement and
tax bases of assets and liabilities given the provisions of the enacted tax
laws. Deferred taxes primarily consist of the basis differences associated with
property and equipment and certain liabilities as of October 31, 1996 and
December 31, 1995 and 1994.
The Group is included in the federal and state consolidated tax returns of
Fibreboard. The Group computes its tax liability as if it had filed a separate
tax return and accrues such amount to Fibreboard. Accordingly, all current and
deferred taxes, which are provided for in total at the statutory rate, are
included in the intercompany payable to Fibreboard Corporation.
F-36
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
2. Summary Of Significant Accounting Policies - (Continued)
The following table summarizes the differences between the statutory federal
and the effective rate:
October December 31,
31, -------------------------------
1996 1995 1994 1993
--------- --------- ---------- ---------
Tax at statutory federal rate........ $ 1,721 $ 2,289 $ 2,574 $ 749
State taxes, net of federal tax benefit 297 395 445 129
Other................................ - (60) (40) (2)
-------- --------- -------- ---------
Tax provision........................ $ 2,018 $ 2,624 $ 2,979 $ 876
======== ========= ======== =========
Use Of Estimates In The Preparation Of Financial Statements
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.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to be consistent with the current year presentation.
3. Real Estate Operations
Revenues and profits on the sales of real estate at Northstar are
recognized in accordance with SFAS No. 66, "Accounting for the Sales of Real
Estate."
Real estate held for resale includes the initial development expenditures
(e.g., roads, sewage systems, engineering fees, and capitalized interest) for a
new residential development at Northstar. The costs have been allocated to the
individual lots based on the development phase in which the lot is located. The
current portion of these costs relates to lots which the Group expects to sell
within one year. These costs are recognized as non-cash cost of sales upon the
sale of the lot.
Effective January 1, 1996, the Group capitalized interest applicable to real
estate development. In the ten months ended October 31, 1996, approximately $119
was capitalized. Of that amount, $26 was applicable to lots sold in 1996. Such
amount is reflected in cost of sales in the accompanying statement of
operations.
Notes receivable relate to these real estate sales and equipment sales and
consist of the following as of October 31, 1996 and December 31, 1995 and 1994:
F-37
3. Real Estate Operations - (Continued)
October 31, December 31,
--------------------
1996 1995 1994
------------ ------- --------
Secured notes receivable bearing interest at
7.75% to 10.5%; payments of interest and
principal are due monthly and the notes
mature between 1997 and 2011............. $ 1,584 $ 830 $ 578
Notes receivable for sale of equipment;
payable in full in April 1997............ 134 - -
--------- --------- ----------
1,718 830 578
Less: current portion..................... (350) (78) (24)
--------- --------- ----------
Long-term notes receivable................ $ 1,368 $ 752 $ 554
========= ========= =========
Future maturities of these notes are as follows:
1996 (two months).................................................... $ 11
1997................................................................. 454
1998................................................................. 784
1999................................................................. 29
2000................................................................. 32
2001................................................................. 34
Thereafter........................................................... 374
--------
$ 1,718
========
4. Accounts Payable and Accrued Liabilities
October 31, December 31,
------------------
1996 1995 1994
----------- ----------- ---------
Accounts payable.......................... $ 1,176 $ 3,396 $ 2,885
Payroll related........................... 1,076 1,640 1,362
Taxes other than income................... 945 647 541
Unearned income........................... 880 2,177 2,153
Interest.................................. 50 5 155
Other..................................... 196 291 295
---------- -------- --------
Long-term notes receivable................ $ 4,323 $ 8,156 $ 7,391
========== ======== ========
Unearned income relates primarily to season ski passes and customer
deposits. Revenue from season passes is recognized ratably over the ski season.
F-38
5. Employee Benefit Plans
The Group's employees are eligible to participate in a 401(k) plan. The
Group contributed $226, $288, $246, and $207 as a result of these plans in the
ten month period ended October 31, 1996 and the years ended December 31, 1995,
1994, and 1993, respectively. Certain current and former group employees have
vested benefits in Fibreboard's defined benefit plan which was frozen in 1993.
All pension liabilities and expenses are funded directly by Fibreboard.
Certain Group officers and key employees participate in the Fibreboard stock
option, rights, and long-term equity incentive plans. Stock options are
generally granted at the then market value of Fibreboard stock. If the option
price is less than the market price, compensation expense is recognized over the
vesting period. Compensation related to restricted stock awards, rights, and
incentive compensation is recognized over the related term of the award.
6. Credit Facility
The Group's long-term debt consisted of the following as of December 31,
1994:
Reducing revolving credit facility, interest at LIBOR plus
1.0% to 1.375%, secured by the assets of the Group........ $ 6,700
Term loan, interest at prime plus 0.5%, secured by the
assets of Northstar....................................... 4,500
---------
11,200
Less current portion....................................... (1,000)
---------
$ 10,200
=========
The group has a reducing revolving credit facility which provides for
maximum borrowings of $34,686. Maximum availability reduces to $28,657 on April
30, 1997, $22,628 on April 30, 1998, and $16,600 on April 30, 1999, with any
remaining outstanding amounts due on May 31, 2000. Borrowings against the line
are secured by all of the stock and assets of the Group. As of October 31, 1996,
no amounts were borrowed against this facility. The Company pays a fee of 0.375%
of the unused amount; such fees were $81, $85, $33, and $9 for the ten months
ended October 31, 1996, and each of the years ended December 31, 1995, 1994, and
1993, respectively, and are included in interest expense. The amount of credit
available to the Group is reduced by $1,207 of letters of credit outstanding as
of October 31, 1996.
The Group's loan agreements contain various financial covenants, the most
restrictive of which impose limitations on dividends and other distributions and
require the maintenance of minimum levels of net worth and certain coverage
ratios. As of September 30, 1996, the most recent reporting date for the bank,
the Group was not in compliance with certain covenants. The Group obtained a
waiver from the bank and was therefore able to draw on the line of credit
through the next reporting date for the bank, December 31, 1996. At that time,
the compliance with covenants will again be reviewed.
F-39
7. Acquisitions
Sierra-At-Tahoe
In July 1993, the Group acquired the net assets of Sierra Ski Ranch for
$13,054 in cash. The acquisition was accounted for as a purchase of assets. The
ski area was subsequently renamed Sierra-at-Tahoe.
Bear Mountain
In October 1995, the Group acquired the net assets of Bear for $20,604 in
cash. The acquisition was accounted for as a purchase of assets. The Group's
acquisition of Bear was financed by a loan from Fibreboard, which has been
recorded at the Group level and is included in the intercompany payable balance
as of October 31, 1996 and December 31, 1995.
The table below presents the unaudited revenues and net income of the Group
as if Sierra and Bear had been a member of the Group since January 1, 1994, and
had been charged intercompany interest from that date.
December 31,
----------------------------
1995 1994 1993
------ ----- ------
Revenue:
Resort........................... $ 48,304 $ 56,891 $ 44,302
Real estate...................... 5,028 610 -
Timber........................... 185 - -
-------- -------- ---------
$ 53,517 $ 57,501 $ 44,302
======== ======== =========
Net Income....................... $ 3,672 $ 5,065 $ 1,737
======== ======== ========
The pro forma information does not purport to be indicative of results that
actually would have occurred had the acquisitions been made on the dates
indicated or of results which may occur in the future.
8. Intercompany Transactions
The Group is charged a management fee by Fibreboard based on services
rendered at Fibreboard for the benefit of the Group. These services primarily
relate to legal, accounting, cash management, human resources, tax consultation
and filings, management information systems (MIS), and overall corporate
strategy and direction. The fee for the above services and others is based on a
percentage of income, headcount, and estimated time spent by the legal and MIS
staff on the Group's behalf.
This fee was $701, $1,247, $655, and $507, for the ten month period ended
October 31, 1996 and the years ended December 31, 1995, 1994, and 1993,
respectively.
The Group was charged interest of $1,622, including $183 which was
capitalized by the Group (Notes 2 and 3), and $488 by Fibreboard for the ten
months ended October 31, 1996, and for the year ended December 31, 1995,
respectively, based on outstanding intercompany amounts.
In 1996, Fibreboard transferred timber rights of $1.5 million to the Group.
F-40
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
8. Intercompany Transactions - (Continued)
All of the above transactions are accounted for through the Intercompany
payable to Fibreboard Corporation account. In addition, all excess cash is
remitted to and checks are covered by Fibreboard. Allocations for payroll,
taxes, workers' compensation and income taxes are also accounted for through
this account. The most significant activity, which occurred during 1995, related
to the acquisition of Bear Mountain ($20,604) which was funded by Fibreboard and
the refinancing of separate Group debt ($11,200) by Fibreboard.
Intercompany payable to Fibreboard Corporation
Balance, December 31, 1994............................ $ 4,222
Bear Mountain Acquisition............................. 20,604
Debt Refinancing...................................... 11,200
Other, net............................................ 5,467
---------
Balance, December 31, 1995............................ 41,493
Other, net............................................ (2,778)
---------
Balance, October 31, 1996.............................. $ 38,715
=========
9. Litigation
The nature of the ski industry includes the risk of skier injuries.
Generally, the Group has insurance to cover potential claims; in some cases the
amounts of the claims are very substantial. Also, a case involving a fatality in
1994 may subject the Group to punitive damages which are not included in the
Group's insurance coverage. The Group is also involved in a number of other
claims arising from its operations. Management, in consultation with legal
counsel, believes resolution of these claims will not have a material adverse
impact on its financial condition or results of operations.
F-41
10. Business Segments
The Company operates is three business segments - resorts, real estate, and
timber. Data by segment is as follows:
October 31, December 31,
---------------------------------------------
1996 1995 1994 1993
------------ --------- --------- --------
Revenue:
Resort........................... $ 36,829 $ 39,823 $ 40,810 $ 25,528
Real estate...................... 3,595 5,028 610 -
Timber........................... 693 185 - -
-------- -------- -------- -------
41,117 45,036 41,420 25,528
======== ======== ======== ======
Operating income:
Resort........................... 5,014 5,721 7,834 2,325
Real estate...................... 943 1,576 186 -
Timber........................... 147 63 - -
--------- ------- ------ ------
6,104 7,360 8,020 2,325
========= ====== ====== ======
Depreciation, amortization, and
depletion:
Resort........................... 4,338 4,024 3,449 2,514
Real estate...................... - - - -
Timber........................... 16 - - -
--------- ------- ------- -------
4,354 4,024 3,449 2,514
========== ======= ======= =======
Capital expenditures, exclusive of
acquisitions:
Resort........................... 5,761 5,226 6,199 4,619
Real estate...................... 1,297 3,374 198 -
Timber........................... 1,500 - - -
--------- -------- ------- ------
8,558 8,600 6,397 4,619
========= ======== ======= =======
Identifiable assets:
Resorts.......................... 58,323 57,076 35,749
Real estate...................... 3,806 3,097 1,089
Timber........................... 1,484 - -
Corporate........................ 5,989 13,143 6,227
---------- -------- ---------
$ 69,602 $ 73,316 $ 43,065
========== ======== =========
F-42
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
11. Commitments
The Group leases certain machinery and equipment under operating leases.
Minimum lease payments for the remainder of 1996 and the next five years are as
follows:
1996 (two month)....................................... $ 307
1997................................................... 973
1998................................................... 504
1999................................................... 224
2000................................................... 84
2001................................................... -
--------
$ 2,092
=========
In addition, the Group leases property from the U.S. Forest Service for
Sierra and Bear. These leases are effective through 2008 and 2020, respectively.
Lease payments are based on a percentage of revenues. Total rent expense for all
operating leases amounted to $1,842, $1,411, $1,216, and $550, in the ten months
ended October 31, 1996 and the years ended December 31, 1995, 1994, and 1993,
respectively.
During 1996, the Group entered into a contract to replace certain lift
equipment at Sierra. The total cost of the new equipment is approximately $8.4
million of which the Group will receive a vendor's credit for $2 million related
to the equipment being replaced. As of October 31, 1996, the Group had incurred
approximately $2.3 million toward this commitment.
F-43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Truckee, State of California, as of January 28, 1999.
BOOTH CREEK SKI HOLDINGS, INC.
(Registrant)
By: /s/ GEORGE N. GILLETT
----------------------
George N. Gillett
Chairman of the Board of Directors and
Chief Executive Officer
By: /s/ ELIZABETH J. COLE
----------------------------------
Elizabeth J. Cole
Executive Vice President and Chief
Financial Officer
By: /s/ BRIAN J. POPE
-----------------------------------
Brian J. Pope
Vice President of Accounting and Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons in the capacities
and as of the dates indicated.
Signature Title Date
- --------- ------ ----
/s/ GEORGE N. GILLETT Chairman of the Board January 28, 1999
- ------------------------------- of Directors and Chief
George N. Gillett Executive Officer
/s/ ELIZABETH J. COLE Executive Vice President January 28, 1999
- -------------------------------- and Chief Financial
Elizabeth J. Cole Officer
/s/ BRIAN J. POPE Vice President of Accounting January 28, 1999
- ------------------------------ and Finance (Chief Accounting
Brian J. Pope Officer)
F-44
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION
------------ ---------------
+2.1 Agreement and Plan of Merger dated as of September 18, 1997 by and among Booth Creek Ski
Group, Inc., LMRC Acquisition Corp. and Loon Mountain Recreation Corporation.
+2.2 First Amendment to Merger Agreement, dated December 22, 1997, by and among Booth Creek Ski
Group, Inc., LMRC Acquisition Corp. and Loon Mountain Recreation Corporation.
++++2.3 Agreement of Merger dated as of August 28, 1998 by and among Booth Creek Ski Holdings,
Inc., Booth Creek Ski Acquisition, Inc. and Seven Springs Farm, Inc.
*3.1 Certificate of Incorporation of Booth Creek Ski Holdings, Inc.
*3.2 Bylaws of Booth Creek Ski Holdings, Inc.
*3.3 Restated Articles of Incorporation of Trimont Land Company.
*3.4 Bylaws of Trimont Land Company.
*3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc.
*3.6 Bylaws of Sierra-at-Tahoe, Inc.
*3.7 Certificate of Incorporation of Bear Mountain, Inc.
*3.8 Bylaws of Bear Mountain, Inc.
*3.9 Certificate of Incorporation of Booth Creek Ski Acquisition Corp.
*3.10 Bylaws of Booth Creek Ski Acquisition Corp.
*3.11 Amended and Restated Certificate of Incorporation of Waterville Valley Ski Resort, Inc.
*3.12 Bylaws of Waterville Valley Ski Resort, Inc.
*3.13 Amended and Restated Certificate of Incorporation of Mount Cranmore Ski Resort, Inc.
*3.14 Bylaws of Mount Cranmore Ski Resort, Inc.
*3.15 Amended and Restated Articles of Incorporation of Ski Lifts, Inc.
*3.16 Bylaws of Ski Lifts, Inc.
*3.17 Certificate of Incorporation of Grand Targhee Incorporated.
*3.18 Bylaws of Grand Targhee Incorporated.
*3.19 Articles of Incorporation of B-V Corporation.
*3.20 Bylaws of B-V Corporation.
F-45
EXHIBIT
NUMBER DESCRIPTION
--------- ---------------
*3.21 Certificate of Incorporation of Targhee Company.
*3.22 Bylaws of Targhee Company.
*3.23 Certificate of Incorporation of Targhee Ski Corp.
*3.24 Bylaws of Targhee Ski Corp.
****3.25 Articles of Incorporation of LMRC Holding Corp.
****3.26 Amended and Restated Articles of Incorporation of Loon Mountain Recreation Corporation.
****3.27 Amended and Restated Bylaws of Loon Mountain Recreation Corporation.
****3.28 Amended and Restated Articles of Incorporation of Loon Realty Corp.
****3.29 Amended and Restated Bylaws of Loon Realty Corp.
****3.30 Bylaws of LMRC Holding Corp.
*4.1 Indenture dated as of March 18, 1997 by and among Booth Creek
Ski Holdings, Inc., as Issuer, Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley
Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek
Ski Acquisition Corp., Ski Lifts, Inc., Grand Targhee
Incorporated, B-V Corporation, Targhee Company and Targhee Ski
Corp., as Subsidiary Guarantors, and Marine Midland Bank, as
trustee (including the form of 12 1/2% Senior Note due 2007
and the form of Guarantee).
*4.2 Supplemental Indenture No. 1 to Indenture dated as of April
25, 1997 by and among Booth Creek Ski Holdings, Inc., as
Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear
Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount
Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp.,
Ski Lifts, Inc., Grand Targhee Incorporated, B-V Corporation,
Targhee Company and Targhee Ski Corp., as Subsidiary
Guarantors, and Marine Midland Bank, as trustee.
+4.3 Supplemental Indenture No. 2 to Indenture dated as of February
20, 1998 by and among Booth Creek Ski Holdings, Inc., as
Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear
Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount
Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp.,
Ski Lifts, Inc, Grand Targhee Incorporated, B-V Corporation,
Targhee Company and Targhee Ski Corp, as Subsidiary
Guarantors, and Marine Midland Bank, as Trustee.
+4.4 Supplemental Indenture No. 3 to Indenture dated as of
February 26, 1998, by and among Booth Creek Ski Holdings,
Inc., as Issuer, LMRC Holding Corp., Loon Mountain
Recreation Corporation and Loon Realty Corp., as Subsidiary
Guarantors, and Marine Midland Bank, as Trustee.
+++++4.5 Supplemental Indenture No. 4 to Indenture dated as of October
8, 1998 by and among Booth Creek Ski Holdings, Inc. as Issuer,
Booth Creek Ski Acquisiton, Inc. and Marine Midland Bank, as
Trustee.
+4.6 Registration Rights Agreement, dated as of February 26, 1998
by and among the Booth Creek Ski Holdings, Inc., as Issuer,
Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain,
Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts,
Inc, Grand Targhee Incorporated, B-V Corporation, Targhee
Company, Targhee Ski Corp, LMRC Holding Corp, Loon Mountain
Recreation Corporation and Loon Realty Corp., as Subsidiary
Guarantors and CIBC Oppenheimer Corp.
F-46
EXHIBIT
NUMBER DESCRIPTION
+4.7 Securities Purchase Agreement, dated as of February 23, 1998,
by and among the Booth Creek Ski Holdings, Inc., Trimont Land
Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Booth
Creek Ski Acquisition Corp., Waterville Valley Ski Resort,
Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand
Targhee Incorporated, B-V Corporation, Targhee Company,
Targhee Ski Corp., LMRC Holding Corp., Loon Mountain
Recreation Corporation and Loon Realty Corp and CIBC
Oppenheimer Corp.
+++++4.8 Amended and Restated Securities Purchase Agreement, dated as
of September 14, 1998, among Booth Creek Ski Group, Inc.,
Booth Creek Ski Holdings, Inc., the Subsidiary Guarantors as
defined therein and each of John Hancock Mutual Life Insurance
Company, CIBC WG Argosy Merchant Fund 2, L.L.C. and Hancock
Mezzanine Partners L.P.
++5.1 Opinion of Winston & Strawn.
+++++10.1 Amended and Restated Credit Agreement dated as of
October 30, 1998 among Booth Creek Ski Holdings, Inc.,
Booth Creek Ski Acquisition Corp., Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley
Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski
Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp.
Loon Mountain Recreation Corporation, Loon Realty Corp. and
BankBoston, N.A.
*10.2 Purchase and Sale Agreement dated as of August 30, 1996 by and
between Waterville Valley Ski Area, Ltd., Cranmore, Inc.,
American Skiing Company and Booth Creek Ski Acquisition Corp.
*10.3 Subordinated Promissory Note dated November 27, 1996 issued
by Booth Creek Ski Acquisition Corp., Waterville Valley Ski
Resort, Inc. and Mount Cranmore Ski Resort, Inc. to American
Skiing Company, LMRC Holding Corp., Loon Mountain Recreation
Corporation, Loon Realty Corp. and BankBoston, N.A.
F-47
EXHIBIT
NUMBER DESCRIPTION
---------- ---------------
*10.4 Stock Purchase and Indemnification Agreement dated as of November 26, 1996 among Booth
Creek Ski Holdings, Inc., Fibreboard Corporation, Trimont Land Company, Sierra-at-Tahoe,
Inc. and Bear Mountain, Inc.
*10.5 Escrow Agreement dated December 3, 1996 by and among Fibreboard Corporation, Booth Creek
Ski Holdings, Inc. and First Trust of California.
*10.6 Purchase Agreement dated February 11, 1997 among Booth Creek Ski Holdings, Inc., Grand
Targhee Incorporated, Moritz O. Bergmeyer and Carol Mann Bergmeyer.
*10.7 Promissory Note dated February 11, 1997 issued by Grand
Targhee Incorporated to Booth Creek Ski Holdings, Inc.
*10.8 Stock Purchase Agreement dated as of February 21, 1997 by and between Booth Creek Ski
Holdings, Inc., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually
and as custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R.
Moffett, Katharine E. Moffett, Frances J. DeBruler, individually and as representative of
the Estate of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund, and David R. Moffett,
as representative.
*10.9 Preferred Stock Purchase Agreement dated as of February 21, 1997 by and between DRE,
L.L.C., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually and as
custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R. Moffett,
Katharine E. Moffett, Frances J. DeBruler, individually and as representative of the Estate
of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund and David R. Moffett, as
representative.
*10.10 Management Agreement dated as of November 27, 1996 by and between Booth Creek Ski Holdings,
Inc. and Booth Creek, Inc.
*10.11 Ski Area Term Special Use Permit No. 4002/01 issued by the United States Forest Service to
Waterville Valley Ski Resort, Inc.
*10.12 Ski Area Term Special Use Permit No. 5123/01 issued by the United States Forest Service to
Bear Mountain, Inc.
*10.13 Ski Area Term Special Use Permit No. 4186/01 issued by the United States Forest Service to
Sierra-at-Tahoe, Inc.
*10.14 Ski Area Term Special Use Permit No. 4033/01 issued by the United States Forest Service to
Grand Targhee Incorporated.
*10.15 Ski Area Term Special Use Permit No. 4127/09 issued by the United States Forest Service to
Ski Lifts, Inc.
*10.16 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by the United States Forest Service
to Ski Lifts, Inc.
++10.17 Ski Area Term Special Use Permit No. 4031/01 issued by the United States Forest Service to
Loon Mountain Recreation Corporation.
++10.18 Amendment Number 2 for Special Use Permit No. 4008/1 issued by the United States Forest
Service to Loon Mountain Recreation Corporation.
F-48
EXHIBIT
NUMBER DESCRIPTION
++10.19 Amendment Number 5 for Special Use Permit No. 4008/1
issued by the United States Forest
Service to Loon Mountain Recreation Corporation.
****10.20 Employment Agreement dated as of July 1, 1997, by and
between Booth Creek Ski Holdings, Inc. and Timothy H. Beck.
***10.21 Employment Agreement dated May 5, 1997 by and between
Booth Creek Ski Holdings, Inc. and Timothy M. Petrick.
***10.22 Stock Option Agreement dated as of October 1, 1997
between Booth Creek Ski Group, Inc. and Timothy M. Petrick.
+++10.23 Stock Option Agreement by and between Booth Creek Ski Group,
Inc. and Timothy Silva.
++++10.24 Stock Option Agreement by and between Booth Creek Ski Group,
Inc. and Timothy H. Beck.
++++10.25 Stock Option Agreement by and between Booth Creek Ski Group,
Inc. and John A. Rice.
+++++21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
F-49
* Filed with Registration Statement No. 333-26091 and incorporated herein
by reference.
** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended August 1, 1997 and incorporated herein by reference.
*** Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 31, 1997 and incorporated herein by reference.
**** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended January 30, 1998 and incorporated herein by reference.
+ Filed with the Company's Current Report on Form 8-K dated February 26,
1998 and incorporated herein by reference.
++ Filed with Registration Statement No. 333-48619 and incorporated
herein by reference.
+++ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended May 1, 1998 and incorporated herein by reference.
++++ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended July 31, 1998 and incorporated herein by reference.
+++++ Filed herewith as an Exhibit to this Form 10-K.