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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
1000 South Frontage Road West, 81657
Suite 100 (Zip Code)
Vail, Colorado
(Address of Principal Executive
Offices)
(970) 476-1311
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]
As of February 28, 2003, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares.
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TABLE OF CONTENTS
Item Page Number
- ---- -----------
PART I - FINANCIAL INFORMATION
1. Financial Statements.............................................. 1
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 10
3. Quantitative and Qualitative Disclosures about Market Risk........ 22
4. Controls and Procedures........................................... 22
PART II - OTHER INFORMATION
1. Legal Proceedings................................................. 23
3. Defaults Upon Senior Securities................................... 24
6. Exhibits and Reports on Form 8-K.................................. 24
Signatures........................................................ 25
Certifications.................................................... 26
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
January 31, November 1, February 1,
2003 2002 2002
------------ ----------- ------------
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents.............. $ 1,883 $ 664 $ 2,239
Accounts receivable, net of allowance
of $51, $44 and $39, respectively..... 2,361 1,964 2,507
Insurance proceeds receivable.......... 800 800 1,500
Inventories ........................... 3,153 2,298 3,152
Prepaid expenses and other current
assets ............................... 3,214 1,425 2,535
------------ ----------- ------------
Total current assets ................... 11,411 7,151 11,933
Property and equipment, net ............ 118,535 119,337 139,214
Real estate held for development
and sale .............................. 7,292 6,966 7,983
Deferred financing costs, net of
accumulated amortization of $4,377,
$4,609 and $5,367, respectively ....... 3,441 4,137 3,862
Timber rights and other assets ......... 5,969 6,071 6,193
Goodwill................................ 22,938 22,938 22,938
------------ ----------- ------------
Total assets ........................... $ 169,586 $ 166,600 $ 192,123
============ =========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Revolving credit facility ............. $ 7,500 $ 1,245 $ -
Current portion of long-term debt ..... 5,464 5,717 1,926
Accounts payable and accrued
liabilities .......................... 43,606 36,124 44,625
------------ ----------- ------------
Total current liabilities .............. 56,570 43,086 46,551
Long-term debt ......................... 103,066 120,195 128,889
Other long-term liabilities ............ 756 756 741
Commitments and contingencies
Shareholder's equity:
Common stock, $.01 par value; 1,000
shares authorized, issued and
outstanding .......................... - - -
Additional paid-in capital ............ 72,000 72,000 72,000
Accumulated deficit ................... (62,806) (69,437) (56,058)
------------ ----------- ------------
Total shareholder's equity ............. 9,194 2,563 15,942
------------ ----------- ------------
Total liabilities and shareholder's
equity ................................ $ 169,586 $ 166,600 $ 192,123
============ =========== ============
See accompanying notes.
1
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended
--------------------------
January 31, February 1,
2003 2002
----------- -----------
(Unaudited)
Revenue:
Resort operations............................ $ 46,515 $ 49,357
Real estate and other (including $3,300 in
revenues with related parties in 2002)...... 16 3,300
----------- -----------
Total revenue.................................. 46,531 52,657
Operating expenses:
Cost of sales - resort
operations.................................. 26,096 25,518
Cost of sales - real estate
and other................................... 21 671
Depreciation and depletion................... 3,830 4,271
Selling, general and
administrative expense...................... 6,809 7,525
----------- -----------
Total operating expenses....................... 36,756 37,985
----------- -----------
Operating income............................... 9,775 14,672
Other income (expense):
Interest expense............................. (3,371) (4,261)
Amortization of deferred
financing costs............................. (282) (239)
Gain on early retirement of debt............. 506 -
Minority interest............................ - (15)
Other income................................. 3 14
----------- -----------
Other income (expense),net................... (3,144) (4,501)
----------- -----------
Income from continuing operations before
change in accounting principle............... 6,631 10,171
Discontinued operations:
Income from discontinued operations of
Bear Mountain resort........................ - 1,538
----------- -----------
Income before change in accounting principle... 6,631 11,709
Change in accounting principle for goodwill.... - (200)
----------- -----------
Net income..................................... $ 6,631 $ 11,509
=========== ============
See accompanying notes.
2
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
-------------------------------
January 31, February 1,
2003 2002
------------- -------------
(Unaudited)
Cash flows from operating activities:
Net income..................................... $ 6,631 $ 11,509
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and depletion.................. 3,830 4,750
Noncash cost of real estate sales .......... - 665
Amortization of deferred financing costs ... 282 239
Gain on early retirement of debt............ (506) -
Minority interest .......................... - 15
Change in accounting principle
for goodwill............................... - 200
Changes in operating assets and liabilities:
Accounts receivable ....................... (397) (570)
Inventories ............................... (855) (666)
Prepaid expenses and other current assets.. (1,789) (919)
Accounts payable and accrued liabilities... 7,482 9,783
Other long-term liabilities................ - (26)
------------- -------------
Net cash provided by operating activities...... 14,678 24,980
Cash flows from investing activities:
Capital expenditures for property and
equipment .................................... (2,339) (2,973)
Capital expenditures for real estate
held for development and sale ................ (326) (428)
Other assets .................................. 95 236
------------- -------------
Net cash used in investing activities ......... (2,570) (3,165)
Cash flows from financing activities:
Borrowings under revolving credit facility..... 26,995 8,115
Repayments under revolving credit facility .... (20,740) (25,743)
Principal payments of long-term debt .......... (17,144) (1,241)
Deferred financing costs ...................... - (14)
Purchase of preferred stock of subsidiary
and payment of dividends ..................... - (1,151)
------------- -------------
Net cash used in financing activities ......... (10,889) (20,034)
------------- -------------
Increase in cash and cash equivalents.......... 1,219 1,781
Cash and cash equivalents
at beginning of period........................ 664 458
------------- -------------
Cash and cash equivalents at end of period..... $ 1,883 $ 2,239
============= =============
See accompanying notes.
3
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2003
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
Booth Creek Ski Holdings, Inc. ("Booth Creek") owns and operates various
ski resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe
("Sierra"), Waterville Valley, Mt. Cranmore, Loon Mountain and the Summit at
Snoqualmie (the "Summit"). Booth Creek also conducts certain real estate
development activities, primarily at Northstar.
Booth Creek sold the Bear Mountain ski resort ("Bear Mountain") on October
10, 2002. The operating results of Bear Mountain have been reflected as
discontinued operations in the accompanying statement of operations for the
three months ended February 1, 2002. Summary operating results for Bear Mountain
for the three months ended February 1, 2002 were as follows:
(In thousands)
Total revenue....................................... $ 7,487
Total expenses...................................... (5,949)
------------------
Total income from discontinued operations........... $ 1,538
==================
The consolidated financial statements include the accounts of Booth Creek
and its subsidiaries (collectively referred to as the "Company"), all of which
are wholly-owned. All significant intercompany transactions and balances have
been eliminated.
Booth Creek is a wholly-owned subsidiary of Booth Creek Ski Group, Inc.
The accompanying consolidated financial statements as of January 31, 2003
and February 1, 2002 and for the three month periods then ended are unaudited,
but include all adjustments (consisting only of normal, recurring adjustments
and adjustments to recognize the gain on early retirement of debt during the
three months ended January 31, 2003 and the change in accounting principle for
goodwill during the three months ended February 1, 2002) which, in the opinion
of management of the Company, are considered necessary for a fair presentation
of the Company's financial position at January 31, 2003 and February 1, 2002,
and its operating results and cash flows for the three month periods then ended.
Due to the highly seasonal nature of the Company's business, the results for the
interim periods are not indicative of results for the entire year. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to generally accepted accounting principles
applicable for interim periods. Management believes that the disclosures made
are adequate to make the information presented not misleading. The unaudited
consolidated financial statements should be read in conjunction with the
following notes and the Company's consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended November 1, 2002.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of February
1, 2002, cash equivalents consisted of money market funds.
Included in cash at January 31, 2003 is restricted cash of $1,017,000,
relating to advance deposits and rental fees due to property owners for lodging
and property rentals.
4
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market. The components of inventories were as follows:
January 31, November 1, February 1,
2003 2002 2002
--------------- --------------- ---------------
(In thousands)
Retail products....... $ 1,745 $ 1,432 $ 1,766
Supplies.............. 670 618 695
Food and beverage..... 738 248 691
--------------- --------------- ---------------
$ 3,153 $ 2,298 $ 3,152
=============== =============== ===============
Revenue Recognition
Revenues from resort operations are generated from a wide variety of
sources, including lift ticket sales, snow school lessons, equipment rentals,
retail product sales, food and beverage operations, lodging and property
management services and other recreational activities, and are recognized as
services are provided and products are sold. Sales of season passes are
initially deferred in unearned revenue and recognized ratably over the expected
ski season.
Recently Adopted Accounting Pronouncement
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"), which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and associated asset retirement costs. The new rules apply to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) normal operation of a
long-lived asset. The Company adopted SFAS No. 143 effective as of November 2,
2002. The adoption of SFAS No. 143 did not have a material impact on the
Company's consolidated financial position or results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Paid Skier Visit Insurance Program
For the 2000/01 season, the Company arranged for four separate paid skier
visit insurance policies covering Bear Mountain, Loon Mountain, Waterville
Valley and the Summit. The policies had a deductible for the initial decline
from targeted paid skier visit and revenue levels and stated maximum coverage
levels. In addition, the policies required the insured to experience monthly or
annual snowfall amounts below certain agreed upon levels before a claim could be
filed for the decline in paid skier visits. For the year ended November 2, 2001,
the Company recorded resort operations revenues of $1,500,000 for claims
attributable to lower than agreed upon paid skier visits and snowfall levels
under the Summit and Waterville Valley policies. The Company's claims were
determined based on a specified formula under the paid skier visit insurance
policies and snowfall information verified by an independent third party. The
Company believes that it fully complied with its obligations under the policies,
and properly reported and made claims in accordance with the policies for losses
aggregating in excess of $1,500,000. As a result of the underwriters' failure to
properly process the Company's claims, in November 2001, the Company filed a
lawsuit against the underwriters seeking recovery for breach of contract, breach
of covenant of good faith and unfair and deceptive business practices. In April
2002, the underwriters made a partial offer of settlement of $700,000, which the
Company accepted with a reservation of all rights and remedies under the terms
of the policies and applicable law with respect to its remaining claims. The
Company intends to vigorously pursue collection of its remaining claims. The
parties to the lawsuit are currently conducting discovery in the matter. Based
on an evaluation of information to date and the advice of counsel, the Company
believes that realization of its recorded claims is probable. However, no
assurance can be given regarding the timing of the resolution of this matter.
5
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
January 31, November 1, February 1,
2003 2002 2002
----------- ----------- -----------
(In thousands)
Accounts payable.................... $ 5,074 $ 4,552 $ 6,126
Accrued compensation and benefits... 4,340 4,031 4,768
Taxes other than income taxes....... 1,942 972 1,719
Unearned revenue and deposits-
resort operations.................. 14,428 15,232 12,546
Unearned deposits from related
party - real estate operations..... 5,610 5,610 6,312
Interest............................ 3,838 1,647 5,893
Other............................... 8,374 4,080 7,261
----------- ----------- -----------
$ 43,606 $ 36,124 $ 44,625
=========== =========== ===========
4. Financing Arrangements
Senior Credit Facility
Effective March 15, 2002, the Company and its subsidiaries entered into an
Amended and Restated Credit Agreement (as amended, the "Senior Credit Facility")
with Fleet National Bank, as administrative agent ("Agent"), and certain
lenders. The following is a summary of certain provisions of the Senior Credit
Facility, as amended to date.
General - The Senior Credit Facility provides for a revolving credit
facility (the "Revolving Credit Facility") with borrowing availability of
up to $25,000,000, and a term loan facility (the "Term Facility") with
outstanding borrowings as of January 31, 2003 of $24,000,000. Borrowings
under the Senior Credit Facility are collectively referred to herein as
"Loans."
Interest - For purposes of calculating interest, 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) the
higher of (i) Agent's prime rate or (ii) the federal funds rate plus .5%
plus (b) a margin of 1.5%. LIBOR Rate Loans bear interest at the LIBOR rate
plus a margin of 4%. Interest on Loans outstanding is payable quarterly.
The Senior Credit Facility also requires commitment fees of .5% based on
the unused borrowing availability of the Revolving Credit Facility.
Borrowings outstanding under the Term Facility bore interest at an annual
rate of 6.8% as of January 31, 2003 pursuant to the LIBOR rate option.
Borrowings under the Revolving Credit Facility bore interest at an annual
rate of 5.75% as of January 31, 2003 pursuant to the base rate option.
Repayment - Subject to the provisions of the Senior Credit Facility,
the Company may, from time to time, borrow, repay and reborrow under the
Revolving Credit Facility. The Senior Credit Facility requires that the
Company not have any borrowings under the Revolving Credit Facility for a
period of 30 consecutive days (20 consecutive days for 2003, which has been
met as of March 17, 2003) commencing sometime between January 15 and
February 28 of each year. The Term Facility provides for quarterly
commitment reductions of $1,000,000 on the last day of January, April, July
and October of each year beginning on January 31, 2003 and continuing
through October 31, 2005, the maturity date of the Senior Credit Facility.
The Company is required to repay amounts outstanding under the Term
Facility on such dates by an amount equal to the greater of (i) the amount
by which outstanding Term Facility borrowings exceed the then-applicable
term loan commitment and (ii) the Excess Cash Proceeds (as defined in the
Senior Credit Facility) derived from specified real estate asset sales
determined on a cumulative basis. No amount of the Term Facility which is
repaid may be reborrowed. The entire unpaid balance under the Senior Credit
Facility is due and payable on October 31, 2005.
6
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Security - Borrowings under the Senior Credit Facility are secured by
(a) a pledge to 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 (b) a grant of a security
interest in substantially all of the consolidated assets of Booth Creek and
its subsidiaries.
Covenants - The Senior Credit Facility contains financial covenants
relating to the maintenance of (a) minimum consolidated resort EBITDA (as
defined in the Senior Credit Facility) measured quarterly on a rolling four
quarter basis, (b) the ratio of consolidated EBITDA (as defined in the
Senior Credit Facility) to consolidated debt service, and (c) levels of
adjusted consolidated leverage. The Company obtained a waiver from the
lenders of a default under the minimum consolidated resort EBITDA covenant
for the four quarter period which ended on January 31, 2003. 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,
letters of credit, liens, investments, distributions, capital expenditures,
mergers, acquisitions, asset sales, fundamental corporate changes,
transactions with affiliates, optional payments and modification of debt
instruments and issuances of stock.
Use of Proceeds - Borrowings under the Revolving Credit Facility can
be used for working capital and other general corporate purposes including,
with the consent of the lenders, the repurchase of the Company's 12.5%
senior notes due March 15, 2007 (the "Senior Notes"). Borrowings under the
Term Facility could be used to repurchase the Company's Senior Notes or
repay certain other indebtedness, together with accrued and unpaid interest
thereon. As of January 31, 2003, outstanding borrowings under the Revolving
Credit Facility and Term Facility were $7,500,000 and $24,000,000,
respectively.
The Company has entered into two interest rate cap agreements for an
aggregate notional amount of $15,000,000 through July 31, 2005, declining to
$14,000,000 through October 31, 2005. These interest rate cap agreements are
designed to limit the Company's exposure to the effects of rising interest rates
with respect to borrowings outstanding under the Term Facility. In exchange for
upfront payments of $179,000, the Company is entitled to receive floating rate
payments from the counterparties to the interest rate cap agreements during
those periods in which the three month LIBOR rate exceeds 6%. These agreements
are accounted for at their fair value, with fluctuations recorded through the
statement of operations. As of January 31, 2003, the fair value of these
agreements was $41,000.
Senior Notes
As of January 31, 2003, the Company had outstanding $80,175,000 aggregate
principal amount of its 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 a redemption price (expressed as a percentage of the
principal amount redeemed) of 104.167% effective as of March 15, 2003, declining
to 102.083% as of March 15, 2004 and 100% as of March 15, 2005, plus, in each
case, accrued and unpaid interest to the redemption date. 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.
7
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 for the Senior Notes (the "Indenture"), having
either assets or shareholders' equity in excess of $20,000 (the "Guarantors").
All of the Company's direct and indirect subsidiaries are Restricted
Subsidiaries, except DRE, L.L.C.
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 contains covenants for the benefit of the holders of
the Senior Notes that, among other things, limit the ability of the Company and
any Restricted Subsidiaries to: (i) incur additional indebtedness; (ii) pay
dividends and make other 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) sell assets.
The Guarantors are wholly-owned subsidiaries of Booth Creek and have fully
and unconditionally guaranteed the Senior Notes on a joint and several basis.
Booth Creek is a holding company and has no significant operations, assets or
cash flows separate from its investments in its subsidiaries. In addition, the
assets, equity, revenues, income and cash flow of DRE, L.L.C., Booth Creek's
only non-guarantor subsidiary, are minor and the membership interests in DRE,
L.L.C. are entirely owned by Booth Creek. There are no significant restrictions
on the ability of the Guarantors to pay dividends or otherwise transfer funds to
Booth Creek. Accordingly, Booth Creek has not presented separate financial
statements and other disclosures concerning the Guarantors or its non-guarantor
subsidiary because management has determined that such information is not
material to investors.
During the three months ended January 31, 2003, the Company repurchased
$16,000,000 aggregate principal amount of Senior Notes for $15,080,000. After
giving effect to the write-off of related deferred financing costs of $414,000,
the Company recognized a gain on early retirement of debt of $506,000.
Other Debt
During the three months ended January 31, 2003 and February 1, 2002, the
Company entered into capital lease obligations of $682,000 and $1,644,000,
respectively, for the purchase of equipment.
As of January 31, 2003, the maturities of long-term debt, including capital
lease obligations, were as follows:
(In thousands)
Nine months ending October 2003...................... $ 3,992
Year ending October 2004............................. 6,314
Year ending October 2005............................. 17,922
Year ending October 2006............................. 98
Year ending October 2007............................. 80,204
-----------
Total long-term debt................................. 108,530
Less current portion................................. 5,464
-----------
Long-term debt....................................... $ 103,066
===========
8
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Income Taxes
As of November 1, 2002, the Company had estimated net operating loss
carryforwards of approximately $88,600,000 for federal income tax reporting
purposes, which expire between 2012 and 2022. The tax benefits of such net
operating losses are fully offset by a valuation reserve. Based on the Company's
current tax attributes, no income tax provision or benefit is expected for the
year ending October 31, 2003. Accordingly, during the three months ended January
31, 2003, no income tax provision has been provided.
6. Business Segments
The Company currently operates in two business segments, resort operations
and real estate and other. Data by segment is as follows:
Three Months Ended
------------------------
January 31, February 1,
2003 2002
---------- ----------
(In thousands)
Revenue:
Resort operations................. $ 46,515 $ 49,357
Real estate and other............. 16 3,300
---------- ----------
$ 46,531 $ 52,657
========== ==========
Operating income (loss):
Resort operations................. $ 10,075 $ 12,234
Real estate and other............. (300) 2,438
---------- ----------
$ 9,775 $ 14,672
========== ==========
January 31, November 1,
2003 2002
---------- ----------
(In thousands)
Segment assets:
Resort operations................. $ 152,345 $ 148,427
Real estate and other............. 11,258 10,939
Corporate and other
nonidentifiable assets........... 5,983 7,234
---------- ----------
$ 169,586 $ 166,600
========== ==========
A reconciliation of combined operating income for resort operations and
real estate and other to consolidated income from continuing operations before
change in accounting principle is as follows:
Three Months Ended
------------------------
January 31, February 1,
2003 2002
---------- ----------
(In thousands)
Operating income for reportable
segments.......................... $ 9,775 $ 14,672
Interest expense................... (3,371) (4,261)
Amortization of deferred financing
costs............................. (282) (239)
Gain on early retirement of debt... 506 -
Minority interest.................. - (15)
Other income....................... 3 14
---------- ----------
Income from continuing operations
before change in accounting
principle......................... $ 6,631 $ 10,171
========== ==========
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes thereto included elsewhere
in this Report. The following discussion contains certain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to the differences are discussed in "Forward-Looking Statements" and
elsewhere in this Report as well as in Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Risk Factors" in
the Company's Annual Report on Form 10-K for its fiscal year ended November 1,
2002.
General
The Company's ski operations are highly sensitive to weather conditions and
the overall strength of the regional economies in the areas in which the Company
operates. The Company believes that the geographic diversity of its resorts and
the use of extensive snowmaking technology coupled with advanced trail grooming
equipment, which together can provide consistent skiing conditions, can
partially mitigate the risk of both economic downturns and adverse weather
conditions in any given region. However, the Company remains vulnerable to warm
weather, heavy rains, high winds, drought and other types of severe or unusual
weather conditions, which can have a significant effect on the operating
revenues and profitability at any of the Company's resorts. Moreover, since
2000, the Company has sold two resorts (Grand Targhee and Bear Mountain),
thereby reducing its geographic diversity.
The Company's three most weather-sensitive resorts, 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 136, 139 and 99 days, respectively, during each of the last five ski
seasons, including the 2001/02 ski season. However, the efficiency and
effectiveness of snowmaking operations can be negatively impacted by numerous
factors, including temperature variability, reliability of water sources,
availability and cost of adequate energy supplies and unfavorable weather events
such as heavy rains.
Sierra and the Summit generally experience higher natural snowfall levels,
averaging approximately 484 and 450 inches of snowfall, respectively, per year
for the past five ski seasons. As a result of their historic natural snowfall,
their snowmaking capabilities in terms of trail coverage are considerably less
extensive than at Waterville Valley, Loon Mountain or Mt. Cranmore. However,
such resorts are dependent upon early season snowfall to provide necessary
terrain for the important Christmas holiday period, and therefore, the timing
and extent of natural snowfall can significantly impact operating conditions.
For example, as a result of a lack of natural snowfall, the Summit was unable to
open until after Christmas in the current ski season, and conditions have
remained poor for much of the season.
Northstar has averaged approximately 285 inches of snowfall per year for
the past five ski seasons. The resort has snowmaking capabilities to provide
coverage on approximately 50% of its trails. Although the resort's operations
depend significantly on natural snowfall, particularly in the early part of the
ski season, in recent years the Company has invested in additional snowmaking
facilities to improve Northstar's snowmaking production capacity.
The Company's results of operations are also highly dependent on the
Company's ability to compete in each of the large regional ski markets in which
it operates. Management estimates that at Northstar and Sierra approximately 70%
of the 2001/02 ski season total skier days were attributable to residents of the
San Francisco/San Jose, Sacramento, Central California Valley and Lake Tahoe
regions. At Waterville Valley, Loon Mountain and Mt. Cranmore, more than 75% of
the 2001/02 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 2001/02 ski season total skier days were attributable to
residents of the Seattle/Tacoma metropolitan region.
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 and season pass strategies and sales and marketing programs to
improve peak and off-peak volume. The Company also seeks to increase skier days
by offering a quality guest experience and developing effective target marketing
programs. 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, equipment rentals, lessons and food and beverage
facilities.
10
The Company's current resorts have invested approximately $49.3 million
(including $8.1 million of equipment acquired through capital leases and other
debt) in capital expenditures during the last three fiscal years to upgrade
chairlift capacity, expand terrain, improve skier service, enhance retail and
food and beverage facilities, increase snowmaking capabilities and to meet
sustaining capital requirements, all of which management believes are important
in providing a quality guest experience.
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, administrative 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 adjust staffing levels when skier volumes or
seasonal needs dictate.
Each of the Company's resorts is subject to the threat of personal injury
claims relating principally to snow sports activities as well as premises and
vehicular operations and workers' compensation matters. The Company maintains
various forms of insurance covering claims related to its properties and usual
and customary risks associated with the operation of four-season recreation
resorts. As a result of the terrorist attacks on September 11, 2001, the
insurance industry has experienced significant losses and a substantial
reduction in underwriting capacity, which has generally resulted in
significantly higher renewal premiums for companies seeking insurance. In
connection with its annual renewal of insurance coverage for 2003, the Company
experienced an increase in insurance premium costs of approximately $1,500,000
over the level of such costs in 2002. In addition, the elimination of paid skier
visit insurance coverage is likely to lead to more variability in the Company's
operating results.
The Company sold the Bear Mountain ski resort ("Bear Mountain") on October
10, 2002. The operating results of Bear Mountain have been reflected as
discontinued operations in the Company's statement of operations for the three
months ended February 1, 2002. Bear Mountain generated revenues and income of
$7,487,000 and $1,538,000, respectively, during the three months ended February
1, 2002.
The Company's real estate and other segment is primarily engaged in the
sale of single family lots, development real estate and timber at Northstar. The
revenues, operating income and cash flows of the real estate and other segment
are highly variable.
Results of Operations of the Company
Overview
The opening dates for the Company's resorts for the 2002/03 and 2001/02 ski
seasons were as follows:
Opening Dates
------------------------------------------------
2002/03 Season 2001/02 Season
-------------- --------------
Northstar.............. November 22, 2002 November 29, 2001
Sierra................. December 16, 2002 November 25, 2001
Waterville Valley*..... November 22, 2002 November 16, 2001
Mt. Cranmore........... November 29, 2002 December 15, 2001
Loon Mountain*......... November 15, 2002 November 16, 2001
The Summit............. December 27, 2002 November 30, 2001
* Following their openings for the 2001/02 season, Waterville Valley and
Loon Mountain ceased operations in December 2001 for six and ten days,
respectively, due to eroding conditions as a result of warm weather.
11
The Lake Tahoe region experienced relatively dry conditions and a lack of
natural snowfall through mid-December 2002. Due to its snowmaking system,
Northstar opened on schedule. However, Sierra did not open until December 16,
2002 due to its dependence on natural snowfall. During the period from December
14th to the 21st, the region received a number of powerful storms resulting in
over six feet of snowfall at Northstar and Sierra. While the storms provided
excellent skiing conditions for the Christmas holiday season, the storms caused
prolonged power outages prior to Christmas, difficult road conditions and other
factors which negatively affected skier visitation on a number of days during
mid-December 2002. In January 2003, the Lake Tahoe region experienced
substantially below average natural snowfall. For the 2001/02 season, the Lake
Tahoe region received significantly above average snowfall in the first half of
December 2001, which allowed Northstar and Sierra to open 100% of their terrain
earlier than usual, and provided favorable conditions going into the Christmas
holiday period and the first half of January 2002. However, snowfall levels in
January 2002 were below historical levels. As a result of these conditions,
total skier visits for the Company's Lake Tahoe resorts for the three months
ended January 31, 2003 were down by 18,000 visits, or 4%, from the comparable
2002 period.
During the first half of the 2002/03 ski season, the northeastern United
States experienced much colder temperatures and increased natural snowfall as
compared to the record warm winter of 2001/02. As a result, the Company's New
Hampshire resorts experienced generally good operating conditions for the early
part of the 2002/03 ski season. However, bitterly cold temperatures dampened
skier visitation for the Company's New Hampshire resorts during the second half
of January 2003. For the three months ended January 31, 2003, total skier visits
at the Company's New Hampshire resorts were up 58,000 visits, or 21%, from the
2002 period.
From the opening of the 2002/03 season through January 31, 2003, the
Pacific Northwest experienced unseasonably warm temperatures and substantially
below average snowfall. The Summit commenced partial operations on December 27,
2002 on limited terrain, as compared to a November 30, 2001 opening for the
2001/02 ski season. Further, operating conditions at the Summit were generally
favorable throughout the 2001/02 ski season. As a result of these conditions,
total skier visits at the Summit for the three months ended January 31, 2003
were down 178,000 visits, or 54%, as compared to the 2002 period. Weather
conditions at the Summit remained poor through February 2003.
Three Months Ended January 31, 2003 Compared to the Three Months Ended
February 1, 2002
Total revenue for the three months ended January 31, 2003 was $46,531,000,
a decrease of $6,126,000, or 12%, from the Company's revenues for the three
months ended February 1, 2002. Revenues from resort operations for the 2003
period were $46,515,000, a decrease of $2,842,000, or 6%, as compared to the
2002 period. Revenues from real estate operations for the three months ended
February 1, 2002 were $3,300,000, which were due to the close of escrow on seven
lots within the Unit 7 development at Northstar. There were no real estate sales
during the three months ended January 31, 2003. Timber operations contributed
$16,000 in revenues for the three months ended January 31, 2003.
The following table summarizes the sources of the Company's revenues from
resort operations for the three months ended January 31, 2003 and February 1,
2002:
Three Months Ended
--------------------- Percentage
January February Increase Increase
31, 2003 1, 2002 (Decrease) (Decrease)
-------- -------- -------- --------
(In thousands)
Lift Tickets.................... $ 18,691 $ 21,609 $ (2,918) (14)%
Season Passes................... 9,027 7,145 1,882 26
Snow School..................... 3,461 3,649 (188) (5)
Equipment Rental................ 3,628 4,076 (448) (11)
Retail.......................... 1,850 2,173 (323) (15)
Food and Beverage............... 6,423 6,800 (377) (6)
Other........................... 3,435 3,905 (470) (12)
-------- -------- --------
Total Resort Operations
Revenues....................... $ 46,515 $ 49,357 $ (2,842) (6)
======== ======== ========
12
Total skier visits generated by each of the Company's resorts for the three
months ended January 31, 2003 and February 1, 2002 were as follows:
Three Months Ended
--------------------- Percentage
January February Increase Increase
31, 2003 1, 2002 (Decrease) (Decrease)
--------- -------- -------- --------
(In thousands)
Northstar........................ 266 237 29 12%
Sierra........................... 163 210 (47) (22)
Waterville Valley................ 106 95 11 12
Mt. Cranmore..................... 51 41 10 24
Loon Mountain.................... 174 137 37 27
The Summit....................... 153 331 (178) (54)
-------- -------- --------
913 1,051 (138) (13)
======== ======== ========
As compared to the three months ended February 1, 2002, resort operations
revenues for Northstar increased by $929,000, primarily due to higher skier
visits and season pass sales. Revenues for Sierra decreased by $1,010,000 due to
reduced skier visits as a result of the delayed opening for the 2002/03 season,
partially offset by higher per skier revenue yields. Revenues for Waterville
Valley increased by $596,000 due to increases in skier visits and higher season
pass sales. Revenues for Mt. Cranmore increased by $570,000 due primarily to
higher skier visits and improved yields. Revenues for Loon Mountain increased by
$425,000 due to increased skier visits and season pass sales, partially offset
by lower yields due to a greater proportion of season pass visits in the 2003
period. The Summit's revenues decreased by $4,352,000 due primarily to
substantially lower visitation. The overall improvement in per skier revenue
yields at the Company's resorts was primarily due to price increases, and to a
lesser extent, sales of additional services and products to the Company's
guests.
For the 2000/01 season, the Company arranged for four separate paid skier
visit insurance policies covering Bear Mountain, Loon Mountain, Waterville
Valley and the Summit. The policies had a deductible for the initial decline
from targeted paid skier visit and revenue levels and stated maximum coverage
levels. In addition, the policies required the insured to experience monthly or
annual snowfall amounts below certain agreed upon levels before a claim could be
filed for the decline in paid skier visits. For the year ended November 2, 2001,
the Company recorded resort operations revenues of $1,500,000 for claims
attributable to lower than agreed upon paid skier visits and snowfall levels
under the Summit and Waterville Valley policies. The Company's claims were
determined based on a specified formula under the paid skier visit insurance
policies and snowfall information verified by an independent third party. The
Company believes that it fully complied with its obligations under the policies,
and properly reported and made claims in accordance with the policies for losses
aggregating in excess of $1,500,000. As a result of the underwriters' failure to
properly process the Company's claims, in November 2001, the Company filed a
lawsuit against the underwriters seeking recovery for breach of contract, breach
of covenant of good faith and unfair and deceptive business practices. In April
2002, the underwriters made a partial offer of settlement of $700,000, which the
Company accepted with a reservation of all rights and remedies under the terms
of the policies and applicable law with respect to its remaining claims. The
Company intends to vigorously pursue collection of its remaining claims. The
parties to the lawsuit are currently conducting discovery in the matter. Based
on an evaluation of information to date and the advice of counsel, the Company
believes that realization of its recorded claims is probable. However, no
assurance can be given regarding the timing of the resolution of this matter.
Cost of sales for resort operations for the three months ended January 31,
2003 were $26,096,000, an increase of $578,000, or 2%, as compared to the 2002
period. The increase was primarily the result of normal inflationary factors and
higher insurance costs, partially offset by lower direct cost of sales as a
result of reduced sales of retail and food and beverage products.
Cost of sales for real estate and timber operations for the three months
ended February 1, 2002 was $671,000, including noncash cost of real estate sales
of $665,000, as a result of the close of escrow on seven lots within the Unit 7
development at Northstar. There were no real estate sales during the three
months ended January 31, 2003. Timber operations incurred cost of sales of
$21,000 during the three months ended January 31, 2003. There were no timber
sales during the three months ended February 1, 2002.
13
Depreciation and depletion expense for the three months ended January 31,
2003 was $3,830,000, a decrease of $441,000 from the 2002 period. The decline in
depreciation and depletion expense was primarily due to certain assets acquired
in connection with the Company's resort acquisitions in 1996 and 1997 having
become fully depreciated.
Selling, general and administrative expenses for the three months ended
January 31, 2003 were $6,809,000, a decrease of $716,000, or 10%, as compared to
the 2002 period. Selling, general and administrative expenses for the 2003 and
2002 periods include $288,000 and $191,000, respectively, relating to the
Company's real estate segment. The decrease in selling, general and
administrative expenses between the 2003 and 2002 periods was primarily due to a
reduction in legal fees of $360,000 as a result of significant activity during
the 2002 period for various lawsuits involving Loon Mountain, which have been
resolved, lower sales commissions, and reduced provisions under incentive
compensation arrangements.
Operating income for the three months ended January 31, 2003 was
$9,775,000, a decrease of $4,897,000 from the operating income generated for the
2002 period, as a result of the factors discussed above.
Interest expense for the three months ended January 31, 2003 totaled
$3,371,000, a decrease of $890,000, or 21%, from the Company's interest expense
for the three months ended February 1, 2002, as a result of reduced borrowings
and lower average interest rates.
The Company recognized a gain on the early retirement of debt of $506,000
for the three months ended January 31, 2003, relating to the repurchase of
$16,000,000 aggregate principal amount of its 12.5% senior notes due 2007 (the
"Senior Notes").
As of November 1, 2002, the Company had estimated net operating loss
carryforwards of approximately $88,600,000 for federal income tax reporting
purposes, which expire between 2012 and 2022. The tax benefits of such net
operating losses are fully offset by a valuation reserve. Based on the Company's
current tax attributes, no income tax provision or benefit is expected for the
year ending October 31, 2003. Accordingly, during the three months ended January
31, 2003, no income tax provision has been provided.
The Company's net income for the three months ended January 31, 2003 was
$6,631,000, a reduction of $4,878,000 from the net income of $11,509,000
generated for the three months ended February 1, 2002, primarily as a result of
the real estate sales and income from discontinued operations of Bear Mountain
reflected in the 2002 period and lower resort operations revenues in the 2003
period.
The financial information presented below includes information on "Total
EBITDA," "Noncash Cost of Real Estate Sales" and "Total EBITDA (excluding
Noncash Cost of Real Estate Sales)." "Total EBITDA" represents income from
operations before depreciation and depletion expense. "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 real estate sales. Although
EBITDA is not a measure of performance under accounting principles generally
accepted in the United States ("GAAP"), the information is presented because
management believes it provides useful information regarding a company's ability
to incur and service debt. In addition, management uses EBITDA measures to
assess the Company's operating performance and to make capital investment
decisions. Further, Total EBITDA (excluding Noncash Cost of Real Estate Sales)
is calculated consistent with the manner that "EBITDA" is calculated under the
indenture governing the Company's Senior Notes, and therefore, management
believes this measure is meaningful to holders of the Senior Notes. EBITDA
should not be considered in isolation or as a substitute for net income,
operating 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, the EBITDA measures 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.
14
Three Months Ended
---------------------
January February Percentage
31, 2003 1, 2002 Decrease Decrease
-------- -------- -------- --------
(In thousands)
Total EBITDA............ $ 13,605 $ 18,943 $(5,338) (28)%
Noncash Cost of Real
Estate Sales........... $ - $ 665 $ (665) (100)
Total EBITDA (excluding
Noncash Cost of Real
Estate Sales).......... $ 13,605 $ 19,608 $(6,003) (31)
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 (as defined below). 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.
Effective March 15, 2002, the Company and its subsidiaries entered into an
Amended and Restated Credit Agreement (as amended, the "Senior Credit Facility")
with Fleet National Bank, as administrative agent ("Agent"), and certain
lenders. The following summary of the terms of the Senior Credit Facility is
qualified by reference to the complete agreement governing the Senior Credit
Facility.
The Senior Credit Facility provides a revolving credit facility (the
"Revolving Credit Facility") with borrowing availability of up to $25,000,000,
and a term loan facility (the "Term Facility") with outstanding borrowings as of
January 31, 2003 of $24,000,000. The Senior Credit Facility requires that the
Company not have any borrowings under the Revolving Credit Facility for a period
of 30 consecutive days (20 consecutive days for 2003, which has been met as of
March 17, 2003) commencing sometime between January 15 and February 28 of each
year. The draw period under the Term Facility has expired. The Term Facility
provides for quarterly commitment reductions of $1,000,000 on the last day of
January, April, July and October of each year beginning on January 31, 2003 and
continuing through October 31, 2005, the maturity date of the Senior Credit
Facility. The Company is required to repay amounts outstanding under the Term
Facility on such dates by an amount equal to the greater of (i) the amount by
which outstanding Term Facility borrowings exceed the then-applicable term loan
commitment and (ii) the Excess Cash Proceeds (as defined in the Senior Credit
Facility) derived from specified real estate asset sales determined on a
cumulative basis. No amount of the Term Facility which is repaid may be
reborrowed. The entire unpaid balance under the Senior Credit Facility is due
and payable on October 31, 2005. Borrowings under the Senior Credit Facility are
secured by (a) a pledge to 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 (b) a grant of a security interest in
substantially all of the consolidated assets of Booth Creek and its
subsidiaries.
The Senior Credit Facility contains financial covenants relating to the
maintenance of (a) minimum consolidated resort EBITDA (as defined in the Senior
Credit Facility) measured quarterly on a rolling four quarter basis, (b) the
ratio of consolidated EBITDA (as defined in the Senior Credit Facility) to
consolidated debt service, and (c) levels of adjusted consolidated leverage. 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,
letters of credit, liens, investments, distributions, capital expenditures,
mergers, acquisitions, asset sales, fundamental corporate changes, transactions
with affiliates, optional payments and modification of debt instruments and
issuances of stock.
For purposes of calculating interest, loans 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)
the higher of (i) Agent's prime rate or (ii) the federal funds rate plus .5%
plus (b) a margin of 1.5%. LIBOR Rate Loans bear interest at the LIBOR rate plus
a margin of 4%. Interest on loans outstanding is payable quarterly. The Senior
Credit Facility also requires commitment fees of .5% based on the unused
borrowing availability of the Revolving Credit Facility and Term Facility.
Borrowings outstanding under the Term Facility bore interest at an annual rate
of 6.8% as of January 31, 2003 pursuant to the LIBOR rate option. Borrowings
under the Revolving Credit Facility bore interest at an annual rate of 5.75% as
of January 31, 2003 pursuant to the base rate option.
15
Borrowings under the Revolving Credit Facility can be used for working
capital and other general corporate purposes including, with the consent of the
lenders, the repurchase of the Company's Senior Notes. Borrowings under the Term
Facility could be used to repurchase the Company's Senior Notes or repay certain
other indebtedness, together with accrued and unpaid interest thereon. As of
January 31, 2003, outstanding borrowings under the Revolving Credit Facility and
Term Facility were $7,500,000 and $24,000,000, respectively.
The Company had a net working capital deficit of $45,159,000 as of January
31, 2003 (including $7,500,000 in outstanding borrowings under the Revolving
Credit Facility), which will negatively affect liquidity during 2003. The
Company's net working capital deficit as of January 31, 2003 was due in part to
unearned revenue and deposits from resort operations of $14,428,000 for season
pass and membership product sales, lodging deposits and other prepaid products,
as well as real estate deposits of $5,610,000.
The Company generated cash from operating activities of $14,678,000 for the
three months ended January 31, 2003 as compared to $24,980,000 for the three
months ended February 1, 2002. The decrease in operating cash flows was
primarily due to reduced revenues and operating income in the 2003 period,
timing differences in accounts payable and accrued liabilities and the effect of
the divestiture of Bear Mountain on operating cash flows.
Cash used in investing activities totaled $2,570,000 and $3,165,000 for the
three months ended January 31, 2003 and February 1, 2002, respectively. The
results for the 2003 and 2002 periods primarily reflect capital expenditures for
the purchase of property and equipment.
Cash used in financing activities totaled $10,889,000 for the three months
ended January 31, 2003, which reflects net borrowings under the Revolving Credit
Facility of $6,255,000, scheduled payments of long-term debt of $2,064,000 and
the repurchase of $16,000,000 aggregate principal amount of the Company's Senior
Notes for $15,080,000. Cash used in financing activities totaled $20,034,000 for
the three months ended February 1, 2002, which primarily reflects net repayments
under the Revolving Credit Facility of $17,628,000, and scheduled repayments of
long-term debt and preferred stock of $1,241,000 and $1,151,000, respectfully.
The Company's capital expenditures for property and equipment during the
three months ended January 31, 2003 were $3,021,000 (including $682,000 of
equipment acquired through capital leases), and consisted primarily of the
remaining portion of the Company's 2002 capital programs and acquisitions of
grooming equipment. Total capital expenditures for the Company's Fiscal 2003
resort capital programs are preliminarily estimated to range from $7,000,000 to
$11,000,000. Capital expenditures for real estate development projects in Fiscal
2003 are preliminarily estimated to range between $4,000,000 and $4,700,000. The
Company plans to fund future capital expenditures from available cash flow,
vendor financing to the extent permitted under the Senior Credit Facility and
the Indenture for the Company's Senior Notes and/or borrowings under the
Revolving Credit Facility. Commitments for future capital expenditures were
approximately $1,800,000 at January 31, 2003.
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 would enhance ski-related
revenues and contribute independently to earnings. In addition, with respect to
significant development projects, the Company expects to continue to pursue
arrangements that would reduce infrastructure and other development costs.
Nonetheless, existing lodging facilities in the vicinity of each resort are
believed to be adequate to support current skier volumes and a deferral or
curtailment of development efforts is not regarded by management as likely to
adversely affect skier days and ski-related revenues or profitability. The
Company also believes that its current infrastructure is sufficient, and that
development of real estate opportunities is not presently necessary to support
its existing operations.
16
The Company's significant contractual obligations include long-term debt
(including capital lease obligations) and operating leases. As of January 31,
2003, the Company's scheduled maturities of long-term debt and operating lease
commitments for the periods indicated were as follows:
Nine Months
Ending Year Ending October
October ---------------------------------
2003 2004 2005 2006 2007 Thereafter Total
------ ------ ------ ------ ------ ---------- ------
Long-term Debt $ 3,992 $ 6,314 $ 17,922 $ 98 $ 80,204 $ - $108,530
======== ======== ========= ======= ======== ======= ========
Operating Leases $ 935 $ 905 $ 742 $ 366 $ 110 $2,120 $ 5,178
======== ======== ========= ======= ======== ======= ========
In connection with certain single family real estate development projects
at Northstar, self-insured workers' compensation arrangements for the Summit and
certain other aspects of its operations, the Company has arranged for surety
bonds from third-party surety bonding companies or letters of credit from
financial institutions. The aggregate amount of surety bonds and letters of
credit in place at January 31, 2003 were approximately $1,500,000 and $100,000,
respectively.
The Company's liquidity has been and will continue to be significantly
affected by its high leverage. As a result of its leveraged position, the
Company will have significant cash requirements to service debt and funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes are limited. In addition, the Company's high level of debt
may increase its vulnerability to competitive pressures and the seasonality of
the skiing and recreational industries. Any decline in the Company's expected
operating performance could have a material adverse effect on the Company's
liquidity and on its ability to service its debt and make required capital
expenditures.
In addition, the Senior Credit Facility and the Indenture governing the
Company's Senior Notes each contain covenants that, among other things,
significantly limit the Company's ability to obtain additional sources of
capital and may affect the Company's liquidity. These covenants restrict the
ability of the Company and its Restricted Subsidiaries to, among other things,
incur additional indebtedness, create liens, make investments, consummate
certain asset sales, create subsidiaries, issue subsidiary stock, consolidate or
merge with any other person, or transfer all or substantially all of the assets
of the Company. Further, upon the occurrence of a Change of Control (as defined
in the Indenture), the Company may be required to repurchase the 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. The Senior Credit Facility also
requires the Company to maintain specified consolidated financial ratios and
satisfy certain consolidated financial tests. The Company's ability to meet
these financial covenants may be affected by events beyond its control, and
there can be no assurance that the Company will meet those covenants.
Primarily as a result of (a) poor weather conditions at the Summit during
the three months ended January 31, 2003 and resulting reductions in resort
operations revenues and operating income, and (b) unusually high provisions for
workers' compensation exposures at the Company's Lake Tahoe and Washington
resorts during the trailing four quarter period, the Company experienced a
shortfall of approximately $1,600,000 relative to the required minimum level of
consolidated resort EBITDA pursuant to the covenants under the Senior Credit
Facility for the trailing four quarter period ended on January 31, 2003. The
Company obtained a waiver from the lenders under the Senior Credit Facility of
the default of the minimum consolidated resort EBITDA covenant for the four
quarter period which ended on January 31, 2003.
17
As of January 31, 2003, the Company had $108,530,000 of total long-term
debt outstanding. The Company expects that existing cash, cash generated from
operations and cash proceeds of planned real estate sales at Northstar, together
with borrowing availability, will be adequate to fund the Company's debt service
and other cash operating requirements over the next twelve months. In order to
focus the Company's resources on attractive investment opportunities at certain
of its resorts and to satisfy short-term and long-term liquidity requirements,
the Company may in the future consider divestitures of non-strategic assets,
including resorts, if such transactions can be completed on favorable terms.
Any decline in the Company's expected operating performance or the
inability of management to successfully implement the Company's business
strategy, could have a material adverse effect on the Company's financial
position and liquidity. In such case, the Company could be required to attempt
to refinance all or a portion of its existing debt, sell other assets or obtain
additional financing. No assurance can be given of the Company's ability to do
so or the terms of any such transaction. In addition, the Company would require
additional financing for expansion of its existing properties or for future
acquisitions, if any. No assurances can be given that any such financing would
be available on commercially reasonable terms. See "Forward-Looking Statements"
herein.
The Company believes that inflation has had little effect on its results of
operations and any impact on costs has been largely offset by increased pricing.
Critical Accounting Policies
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires the selection
of appropriate accounting policies, as well as the use of judgment by management
in applying such accounting policies and formulating financial estimates. These
judgments and estimates are based on historical experience, terms of existing
contracts and customer arrangements and information available from other
sources, as appropriate. By their nature, these judgments and estimates are
subject to an inherent degree of uncertainty. In applying the Company's
accounting policies and determining financial estimates, different business
conditions or the use of different assumptions may result in materially
different amounts reported in the Company's consolidated financial statements.
The Company has identified its most critical accounting policies, which
relate to (i) revenue recognition for resort operations, (ii) revenue
recognition for real estate sales, (iii) valuation of long-lived assets and
goodwill, and (iv) evaluation of contingencies and reserve estimates. The
critical accounting policies were determined by considering which policies
involved the most complexity, subjective decisions or estimation.
Revenue Recognition for Resort Operations - Revenues from resort operations
are generated from a wide variety of sources, including lift ticket sales, snow
school lessons, equipment rentals, retail product sales, food and beverage
operations, lodging and property management services and other recreational
activities, and are recognized as services are provided and products are sold.
Sales of season passes are initially deferred in unearned revenue and recognized
ratably over the expected ski season. Revenues relating to paid skier visit
insurance arrangements in prior years were recognized based on an evaluation of
the policy arrangements, actual and forecasted skier visits, actual snowfall
amounts and other relevant factors. The Company also periodically evaluates the
collectibility of all of its receivables, and, if necessary, provides for an
adequate allowance for doubtful accounts.
Revenue Recognition for Real Estate Sales - 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. The Company
thoroughly evaluates contractual agreements and the underlying facts and
circumstances relating to its real estate transactions, including the
involvement of related parties, to determine the appropriate revenue recognition
treatment of such transactions in accordance with Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate," and related
pronouncements.
18
Valuation of Long-Lived Assets and Goodwill - The Company periodically
evaluates whether there are facts and circumstances that indicate potential
impairment of its long-lived assets. If impairment indicators are present, the
Company reviews the carrying value of its long-lived assets for continued
appropriateness. The Company also performs periodic impairment tests for
recorded goodwill. The impairment evaluations for long-lived assets and goodwill
are based upon projections of future cash flows, estimated purchase multiples
and other relevant factors. While the Company believes its estimates are
reasonable, different assumptions could materially affect these evaluations.
Evaluation of Contingencies and Reserve Estimates - The Company's
operations are affected by various contingencies, including commercial
litigation, personal injury claims relating principally to snow sports
activities, self-insured workers' compensation matters and self-insured employee
health and welfare arrangements. The Company performs periodic evaluations of
these contingencies and, based on the advice of counsel, information provided by
third-party claims administrators and other pertinent information, provides
reserves for its best estimate of the eventual outcome of these matters. These
estimated liabilities are reviewed and appropriately adjusted as the facts and
circumstances related to these contingencies change. While the Company believes
its estimates are reasonable, different assumptions could materially affect
these evaluations
Recently Adopted Accounting Pronouncement
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"), which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and associated asset retirement costs. The new rules apply to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) normal operation of a
long-lived asset. The Company adopted SFAS No. 143 effective as of November 2,
2002. The adoption of SFAS No. 143 did not have a material impact on the
Company's consolidated financial position or results of operations.
Seasonality
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of each
fiscal year. Management considers it essential to achieve optimal operating
results during key holidays and weekends during this period. The Company's
results of operations are, in turn, significantly dependent on favorable weather
conditions and other factors beyond the Company's control.
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 improvements in preparation for the ensuing
ski season.
Regulation and Legislation
The Company's operations are dependent upon its ownership or control over
the real property used in its ski operations at each resort. The real property
presently used at the Northstar and Mt. Cranmore resorts is owned by the
Company, leased from third parties or controlled by easements. The Company has
the right to use a substantial portion of the real property associated with the
Sierra, Summit and Waterville Valley resorts under the terms of Term Special Use
Permits issued by the United States Forest Service (the "Forest Service"). The
Sierra permit expires in 2039, the Waterville Valley permit expires in 2034 and
the Summit permit expires in 2032.
A substantial portion of the real property associated with the Loon
Mountain resort is likewise used under a Forest Service Term Special Use Permit.
In 1993, the Forest Service authorized various improvements at Loon Mountain and
an expansion onto the adjacent South Mountain. The United States Court of
Appeals for the First Circuit overturned this authorization in 1996 on the
ground that the Forest Service had failed to properly address certain
environmental issues under the National Environmental Policy Act ("NEPA"). On
remand from the Court of Appeals, the United States District Court for the
District of New Hampshire (the "District Court") entered a final order dated
December 11, 1998 which imposed certain conditions and limitations on the Forest
Service and Loon Mountain Recreation Corporation ("LMRC") until the Forest
Service completed an additional environmental review process under NEPA. In
response to a separate 1997 action filed by an individual and an environmental
group, the District Court entered an injunction on February 12, 1999 which
limited LMRC's snowmaking and use of a snowmaking pipeline until the Forest
Service completed the additional environmental review process under NEPA.
Effective February 22, 2001, certain plaintiffs in the lawsuits alleging
violations of environmental laws by the Forest Service and LMRC entered into
settlement agreements with LMRC which resolved all issues among the plaintiffs
and LMRC relating to LMRC's prior operations and its proposal for near term
expansion and upgrading of Loon Mountain. Among other things, these agreements
impose certain restrictions on the operation of the resort and the future
development of certain private land at the resort.
19
LMRC notified the District Court and interested parties that the December
11, 1998 final order and February 12, 1999 injunction expired under their terms
when the Forest Service i) completed its NEPA process, ii) issued a Record of
Decision ("ROD") on February 26, 2002 approving the Loon Mountain Final
Environmental Impact Statement (the "Final EIS"), and iii) issued a Term Special
Use Permit to LMRC for Loon Mountain on June 24, 2002 (thereby replacing Loon
Mountain's three existing Forest Service permits). The new Loon Mountain Term
Special Use Permit expires in 2042.
Two written administrative appeals to the ROD were filed with the Forest
Service. One of the two appellants settled with LMRC and withdrew its appeal.
The Forest Service denied the other administrative appeal and upheld the ROD in
a letter decision dated June 7, 2002. With these actions, the Forest Service has
concluded its administrative appeal process for the ROD. The ROD and the Forest
Service's June 7, 2002 letter decision are subject to judicial review in federal
court under the Administrative Procedure Act by the appellant whose
administrative appeal was denied by the Forest Service. As of the date of this
Report, no action for judicial review had been filed. The Company can give no
assurance regarding whether such a judicial appeal will be filed or the timing
or outcome of such a process.
Elements of the expansion and development activities addressed in the Final
EIS that occur on private lands will be subject to separate federal, state and
local permitting processes. While the Company believes that it will successfully
navigate these remaining steps to undertaking the activities authorized in the
ROD, it can give no assurance regarding the timing or outcome of such processes.
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 Term Special Use Permits, the Company is
required to pay fees to the Forest Service. The fees range from 1.5% to
approximately 4.0% of certain revenues, with the rate generally rising with
increased revenues. The calculation of gross revenues includes, among other
things, revenue from lift ticket, season pass, ski school lesson, food and
beverage, rental equipment and retail merchandise sales. Total fees paid to the
Forest Service by the Company during the year ended November 1, 2002 were
$1,352,000.
The Company believes that its relations with the Forest Service are good,
and, to the best of its knowledge, no Term Special Use Permit for any major ski
resort has ever been terminated by the Forest Service. The United States
Secretary of Agriculture has the right to terminate any Term Special Use Permit
upon 180-days notice if, in planning for the uses of the national forest, the
public interest requires termination. Term Special Use Permits may also be
terminated or suspended because of non-compliance by the permittee; however, the
Forest Service would be required to notify the Company of the grounds for such
action and to provide it with reasonable time to correct any curable
non-compliance.
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations relating to land use, water resources, discharge,
storage, treatment and disposal of various materials and other environmental
matters. Management believes that the Company's resorts are presently in
compliance with all land use and environmental laws, except where non-compliance
is not expected to result in a material adverse effect on its financial
condition. However, the Company is required from time to time to undertake
remediation activities at its resorts to assure compliance with environmental
laws or to address instances of non-compliance. The cost of these activities
could be significant. The failure by the Company to comply with applicable
environmental laws could result in the imposition of severe penalties and other
costs or restrictions on operations by government agencies or courts that could
materially adversely affect operations.
20
The operations at the resorts require numerous permits and approvals from
federal, state and local authorities, including permits relating to land use,
ski lifts and the sale of alcoholic beverages. In addition, the Company's
operations are heavily dependent on its continued ability, under applicable
laws, regulations, policies, permits, licenses or contractual arrangements, to
have access to adequate supplies of water with which to make snow and service
the other needs of its facilities, and otherwise to conduct its operations.
There can be no assurance that new applications of existing laws, regulations
and policies, or changes in such laws, regulations and policies will not occur
in a manner that could have a detrimental effect on the Company, or that
material permits, licenses or agreements will not be canceled, or renewed, or
will be renewed on terms materially less favorable to the Company. Major
expansions of any one or more of the Company's 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 NEPA
and certain state or local NEPA counterparts if it is determined that the
expansion may have a significant impact upon the environment. Although the
Company has no reason to believe that it will not be successful in implementing
its operations and development plans, no assurance can be given that necessary
permits and approvals will be obtained or renewed.
Certain regulatory approvals associated with a snowmaking pipeline at Loon
Mountain, as well as certain contractual obligations, impose minimum stream flow
requirements on Loon Mountain. These requirements will compel Loon Mountain to
construct water storage facilities within approximately four years, and such
construction may require further regulatory approvals and environmental
documentation under NEPA. No assurances can be given that such regulatory
approvals will be obtained or that the Company will have the financial resources
to complete such construction.
Except for certain permitting and environmental compliance matters relating
to Loon Mountain described above and in Part II, Item 1. "Legal Proceedings,"
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.
Recent Trends and Outlook
Since January 31, 2003, the Company has experienced a decline in skier
visitation relative to prior season levels, which may be attributable to a
number of factors, including the continued lack of adequate snowfall and
relatively poor conditions at the Summit during February 2003; extreme cold
temperatures and the impact of disruptive major storms in the northeastern
United States during February 2003; substantially below average snowfall in the
Lake Tahoe region during January and February 2003; the weakening economy;
rising gasoline prices, particularly in California; and concerns regarding the
threat of war in the Middle East and the potential for heightened terrorist
activity in the United States.
Forward-Looking Statements
Except for historical matters, the matters discussed in Part I, Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Report are forward-looking statements that
involve risks and uncertainties. The forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The reader can identify these statements by forward-looking
words such as "may," "will," "expect," "plan," "intend," "anticipate,"
"believe," "estimate," and "continue" or similar words. Forward-looking
statements are based on management's current views and assumptions and involve
risks and uncertainties that could significantly affect the Company's business
and expected operating results. The Company wishes to caution the reader that
certain factors, including those described below, could significantly and
materially affect the Company's actual results, causing results to differ
materially from those in any forward-looking statement. These factors include,
but are not limited to:
o Uncertainty as to future financial results,
o The substantial leverage and liquidity constraints of the
Company,
o Significant operating restrictions under the Company's debt
agreements,
o The capital intensive nature of development of the Company's ski
resorts,
o Uncertainties associated with obtaining financing for future real
estate projects and to undertake future capital improvements,
o Uncertainties regarding the timing and success of our real estate
development projects and their ultimate impact on our operating
results,
o Demand for and costs associated with real estate development,
o The discretionary nature of consumers' spending for skiing and
resort real estate,
21
o Regional and national economic conditions,
o Weather conditions,
o Negative demand for our services and products resulting from
potential terrorism threats,
o Availability and cost of commercial air service,
o The threat or commencement of wars,
o Availability and terms of insurance coverage, as well as
increases in the cost of insurance coverage,
o Natural disasters (such as earthquakes and floods),
o Competition and pricing pressures,
o Governmental regulation and litigation and other risks associated
with expansion and development,
o The adequacy of the water supplies at each of the Company's
resorts,
o Availability of adequate energy supplies for the operation of the
Company's resorts, including snowmaking operations, and
volatility in the prices charged for energy and fuel,
o The occupancy of leased property and property used pursuant to
the United States Forest Service permits, and
o Other factors identified under "- Risk Factors" in Part II, Item
7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's Annual Report on Form
10-K for the year ended November 1, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended January 31, 2003, there have been no material
changes in information relating to market risk from the Company's disclosure in
Item 7a. of the Company's Annual Report on Form 10-K for the year ended November
1, 2002 as filed with the Securities and Exchange Commission.
ITEM 4. CONTROLS AND PROCEDURES
a) The Company, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer,
President and Chief Operating Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (the
"Evaluation") as of the last day of the period covered by this Report.
Based upon the Evaluation, the Company's Chief Executive Officer,
President and Chief Operating Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed in our
periodic reports filed with the Securities and Exchange Commission is
recorded, processed, summarized and reported as and when required. In
addition, they concluded that there were no significant deficiencies
or material weaknesses in the design or operation of internal controls
which could significantly affect the Company's ability to record,
process, summarize and report financial data. It should be noted that
the design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals
under all potential future conditions, regardless of how remote.
b) There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls
subsequent to the date of the Evaluation.
22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Each of the Company's resorts has pending and is regularly subject to
litigation, and the threat thereof, with respect to personal injury claims
relating principally to snow sports activities at its resorts as well as to
premises and vehicular operations and workers' compensation matters. The Company
maintains liability insurance that the Company considers adequate to insure
claims related to such usual and customary risks associated with the operation
of four-season recreation resorts.
In connection with the Company's 1998 acquisition of Loon Mountain
Recreation Corporation ("LMRC"), certain shareholders of LMRC filed several
lawsuits challenging the transaction and seeking to exercise dissenters' rights
under the New Hampshire Business Corporation Act. Each of these lawsuits has
been decided or otherwise resolved in favor of the Company, LMRC and its former
directors, resulting in no further liability or obligation relating to the
transaction for LMRC, its former directors or the Company and its affiliates.
The New Hampshire Superior Court has awarded attorneys fees to the defendants in
certain of these cases in the amount of $972,000 (with $420,000 for LMRC and the
Company and $552,000 for the insurer that funded certain costs of defending the
former LMRC directors), although the amount of such award remains subject to
appeal and the likelihood or timing of collection of such amount is uncertain.
In 1995, an individual sued the United States Forest Service (the "Forest
Service") in the United States District Court for the District of New Hampshire
(the "District Court") alleging that the Forest Service had violated the
National Environmental Policy Act ("NEPA"), the Clean Water Act ("CWA"), and an
executive order in approving improvements to and an expansion at Loon Mountain.
The District Court entered a final order dated December 11, 1998 that imposed
certain conditions and limitations on LMRC's operations. Under its terms, the
order was effective until the Forest Service completed an additional
environmental review process under NEPA and issued a new Term Special Use Permit
for Loon Mountain. In 1997, an individual and an environmental group 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. The District Court entered an injunction on February 12,
1999 which limited LMRC's use of the snowmaking pipeline until the Forest
Service completed its additional environmental analysis under NEPA and issued a
Record of Decision ("ROD").
As described in Part I, Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Regulation and Legislation," on
February 26, 2002, the Forest Service completed its environmental analysis under
NEPA and issued a ROD approving the Final Environmental Impact Statement for
Loon Mountain. The Forest Service issued a Term Special Use Permit to LMRC for
Loon Mountain on June 24, 2002. The Forest Service denied an administrative
appeal of the ROD in a June 7, 2002 letter decision. The ROD and the June 7,
2002 letter decision are subject to judicial review in federal court. As of the
date of this Report, no action for judicial review had been filed. The Company
can give no assurance regarding whether such a judicial appeal will be filed or
the timing or outcome of such process.
Effective February 22, 2001, certain plaintiffs in lawsuits (each of which
have now been dismissed or settled) alleging violations of environmental laws by
LMRC entered into settlement agreements with LMRC, which resolve all issues
among them and LMRC relating to LMRC's prior operations and current proposal for
near term expansion and upgrading of the Loon Mountain resort. Among other
things, these agreements impose certain restrictions on the operation of the
resort and the future development of certain private land at the resort.
On November 13, 2001, the Company filed a lawsuit against ASU International
LLC, Essex Insurance Company and Certain Underwriters, Lloyd's London
(collectively, the "Insurers") in Superior Court in Massachusetts. The Company
had placed with the Insurers weather/income stabilization coverage for the
2000/01 ski season for certain of its resorts. During the applicable period of
the policies, the Company incurred losses at two of its resorts which the
Company believes were covered under the terms of such policies. The Company
believes that it complied with its obligations under the policies and has
properly reported and made claims in accordance with the policies for losses
aggregating in excess of $1,500,000. In response to the Insurers' failure to
properly process the Company's claims, the Company seeks recovery for breach of
contract, breach of covenant of good faith and unfair and deceptive business
practices. The Company's complaint seeks recovery for the full amount of its
claims as well as multiple damages and attorneys' fees based on its assertion of
unfair and deceptive claims practices by the Insurers.
23
Partial resolution of the claims was reached and a payment of $700,000 was
made by the Insurers in April 2002. This payment was made and accepted without
prejudice to the remainder of the Company's claims. This lawsuit remains in the
discovery phase, with certain key depositions scheduled for the first quarter of
2003. Based on an evaluation of information and progress of discovery to date
and the advice of counsel, the Company believes that realization of its recorded
claims is probable. However, no assurance can be given regarding the timing of
resolution of this matter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company did not satisfy the minimum consolidated resort EBITDA covenant
under the Senior Credit Facility for the four quarter period ended January 31,
2003. The Company obtained a waiver from the lenders under the Senior Credit
Facility of any default or event of default arising as a result of having failed
to comply with the covenant. See Part I, Item 2. "Management's Discussion and
Analysis of Financial Condition and Results Operations - Liquidity and Capital
Resources."
ITEM 6. EXHIBITS AND REPORTS ON FORM-8-K
a. Exhibits
Exhibit No. Description of Exhibit
10.1 Amendment 1 dated as of January 23, 2003 to the
Amended and Restated Employment Agreement by and
between Booth Creek Ski Group, Inc., Booth Creek
Ski Holdings, Inc. and Christopher P. Ryman.
10.2 Amendment 1 dated as of January 23, 2003 to the
Amended and Restated Employment Agreement by and
between Booth Creek Ski Group, Inc., Booth Creek
Ski Holdings, Inc. and Elizabeth J. Cole.
10.3 Waiver and Amendment dated as of March 14, 2003 to
the Amended and Restated Credit Agreement dated as
of March 15, 2002 among Booth Creek Ski Holdings,
Inc., the other Borrowers thereunder, the
Guarantor named therein, the Lenders named
therein, and Fleet National Bank, as Agent for the
Lenders.
99.1 Certification of George N. Gillett, Jr., Chief
Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Christopher P. Ryman, President
and Chief Operating Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.3 Certification of Elizabeth J. Cole, Executive Vice
President and Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period ended January
31, 2003.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BOOTH CREEK SKI HOLDINGS, INC.
(Registrant)
By:/s/ ELIZABETH J. COLE
-----------------------------------
Elizabeth J. Cole
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By:/s/ BRIAN J. POPE
-----------------------------------
Brian J. Pope
Vice President of Accounting
and Finance
(Principal Accounting Officer)
March 17, 2003
25
CERTIFICATIONS
I, George N. Gillett, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Booth Creek Ski
Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
March 17, 2003
By:/s/ GEORGE N. GILLETT, JR.
-----------------------------------
George N. Gillett, Jr.
Chief Executive Officer
26
I, Christopher P. Ryman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Booth Creek Ski
Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
March 17, 2003
By:/s/ CHRISTOPHER P. RYMAN
-----------------------------------
Christopher P. Ryman
President and Chief Operating Officer
27
I, Elizabeth J.Cole, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Booth Creek Ski
Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
March 17, 2003
By:/s/ ELIZABETH J. COLE
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Elizabeth J. Cole
Executive Vice President and
Chief Financial Officer
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